The Court of Appeal has clarified the extent to which individuals who are impliedly criticised in warning, decision, or final notices issued by the FCA against another person might be prejudiced by those notices and should be given the opportunity to respond to and contest those criticisms.
On 19th May 2015, the Court of Appeal upheld a decision of the Upper Tribunal (Tax and Chancery Chamber) regarding the case of the FCA v Achilles Macris. The Upper Tribunal ruled that, even though he had not been identified by name, Mr Macris, a former senior manager in the London office of JPMorgan, should have been given a reasonable opportunity to respond to the warning and decision notices which preceded a final notice. These notices imposed a fine on JPM for failings which lead to $6.2 billion losses by the end of 2012 as a result of the ‘London Whale’ trades.
Section 393 of the Financial Services and Markets Act 2000 (FSMA) requires that the FCA (via the Regulatory Decisions Committee) allow an individual who is prejudiced by being identified in a warning notice given to another person reasonable time to make representations to the FCA about publication of the notice and the matters identifying him. The FCA must also provide the individual with access to information on which the notice is based. When a decision notice is issued, the individual is entitled to refer the decision to criticise him to the Upper Tribunal. Where the individual alleges that a copy of the decision notice should have been provided to him, but was not, he may also refer that failure to the Upper Tribunal. The Upper Tribunal has the power to make its own findings and to remit the matter back to the FCA with such binding directions as it considers appropriate to give effect to its determination.
What is considered ‘prejudicial’ is not defined within FSMA; it may include references which could damage the individual’s reputation, adversely affect how jurors perceive him in criminal proceedings, or lead to civil claims against him.
The Court of Appeal concluded that the term “CIO London Management” identified Mr Marcis because, in its view, a sufficient number of people working in the financial service industry, had they read the Final Notice issued to JPM, would have identified him. The Court of Appeal decided that Mr Macris had been prejudiced by the Notice’s criticisms of “CIO London Management” and the FCA should therefore have informed him of its intention to publish the criticism, and given him the opportunity to respond.
This judgement significantly increases the number of individuals who can reasonably claim to be prejudiced by FCA draft notices and therefore must be permitted to submit representations challenging their content and conclusions.
This is a welcome development for anyone whose reputation is likely to be impugned by an FCA notice which ostensibly only concerns their former employer. The FCA will no longer be able to limit the scope of its investigations to only the views of the employer. If it decides to make critical findings against individuals who, though unnamed, can be identified from a notice by only a small number of people with specialist knowledge of the relevant industry, the views of those individuals must be considered.
This is an unwelcome development for the FCA (which is presumably why it appealed the decision of the Upper Tribunal in Mr Macris’ case). Quite apart from the additional time and resources that will be required to deal with the interventions and representations of a larger pool of individuals, it could also cause the FCA difficulties in concluding settlements, particularly with companies. This judgment may significantly increase the number of decision notices referred to the Upper Tribunal by individuals who may reasonably claim to be prejudiced by them. The effect of referring a decision notice to the Upper Tribunal is that it will not take effect until the reference, and any subsequent appeal to the Court of Appeal, has been disposed of. Even though the company may therefore be the only subject of the notice, and may wish to conclude a settlement with the FCA as quickly as possible, they will be prevented from doing so until any third party individual’s representations have been fully considered.