On March 22 2017 the Supreme Court issued its judgment in Financial Conduct Authority (FCA) v Macris, providing an interpretation of the identification principle under Section 393 of the Financial Services and Markets Act 2000. In doing so, the Supreme Court has raised the threshold for identification in FCA notices and reversed the wider approach taken by the Upper Tribunal and the Court of Appeal.
In 2012 Macris was international chief investment officer of JP Morgan Chase Bank NA, where he was responsible for the bank's chief investment office, CIO International. CIO International managed, among other things, a portfolio of traded credit instruments known as the synthetic credit portfolio (SCP). In April and May 2012, large trading losses occurred within the SCP. Total losses amounted to $6.2 billion, with the responsible trader being nicknamed the 'London Whale'.
After investigating the matter, the FCA issued a final notice on September 18 2013, imposing a penalty of more than £137 million on JP Morgan. Macris claimed that adverse references to "CIO London management" within the final notice identified him personally. He argued that a copy of the final notice should have been provided to him to allow him to make representations to the FCA before publication, as required under Section 393 of the Financial Services and Markets Act. Section 393 is intended to protect the rights of third parties identified in an FCA notice and to whom the notice may be prejudicial. As a result of this failure, Macris referred the matter to the Upper Tribunal.
The Upper Tribunal upheld Macris's complaint, noting that the "reference to CIO London management, being the most senior level of management, [was] significant. A reader with experience of how large corporations operate would take such a reference as being to the most senior individual concerned".
Therefore, the tribunal accepted that Macris had been identified by the final notice and concluded that persons who operated in the field would reasonably have been able to identify him from statements made in the final notice in conjunction with publicly available material. As a result, Macris should have been provided with a copy of the final notice and the opportunity to make representations to the FCA before its publication. The Court of Appeal affirmed the decision, although this was partially based on an analogy to the law of defamation.
The FCA subsequently appealed to the Supreme Court. The Supreme Court granted the FCA's appeal, concluding that a person concerned by the notice must be identified and not merely identifiable to qualify for protection. For Section 393 of the Financial Services and Markets Act to apply, the relevant notice must identify the individual by name or by a synonym, such as a job title, in a way that the reference could apply to only one person. In addition, the Supreme Court stated that the person must be identified by the general public and not just a select group of banking peers.
As a result of the Supreme Court's ruling, the FCA will avoid having to overhaul its approach to referring to individuals when drafting final notices. Further, FCA was effectively a test case for the FCA, which will now seek to apply the reasoning of this judgment to similar cases. This will include cases brought against the FCA by other traders claiming third-party rights by virtue of having been identified by final notices issued against their employers in the London Interbank Offered Rate and Forex benchmark-rigging probes.
For further information on this topic please contact Kathleen Harris, Sean Curran or Oliver Cooke at Arnold & Porter Kaye Scholer LLP by telephone (+44 20 7786 6100) or email ([email protected], [email protected] or [email protected]). The Arnold & Porter Kaye Scholer LLP website can be accessed at www.apks.com.