This week we take a look at the FCA's decision to impose an order for restitution for the first time in respect of market abuse. We also look at the Supreme Court's decision on whether notices sent by the FCA that referred to a department in a bank should have been copied to a manager in that department.


The Prime Minister has delivered notice under article 50(2) of the Treaty on European Union of the United Kingdom's intention to withdraw from the European Union. The notification begins a window of two years within which the UK and the European Council will negotiate the terms of withdrawal. A copy of the Prime Minister's letter can be found here.


The Financial Conduct Authority (FCA) has, for the first time, used its statutory powers to require the payment of restitution due to market abuse. The case concerns a trading update published by Tesco in August 2014 which overstated Tesco's anticipated half-year profit.

A copy of the press release can be found here, and the final notice is here.

Legal background

The UK's market abuse regime is now governed by the European Union Market Abuse Regulation ("MAR"). However, at the time of Tesco's trading update, the regime was contained in section 118 of the Financial Services and Markets Act 2000 ("FSMA").

FSMA set out various ways in which market abuse could occur. This included where a person disseminates information that gives a false impression in relation to securities. (This has now been superseded by a similar provision in MAR.)

The FCA has the power under section 384 of FSMA to require a firm that commits market abuse to make a payment. Strictly speaking, this is not a financial penalty, but rather a payment of restitution to anyone the FCA believes has suffered loss as a result of the market abuse.

What happened?

On 29 August 2014, Tesco plc ("Tesco") published a trading update stating expected trading profits for the six months ending 23 August 2014 of around 1.1 billion. This update was based on information provided by Tesco Stores Limited ("TSL").

On 22 September 2014, Tesco published a further update announcing that its August update had overstated its expected half-year profit by around 250 million. This figure was later revised and apportioned across previous financial years to yield a total overstatement of 284 million.

As a result of the August trading update, the market price for Tesco shares and bonds was inflated, resulting in buyers paying higher prices. This continued until Tesco issued its correction in September.

The FCA decided that Tesco knew (or could reasonably have been expected to know) that the information in its August update was false or misleading. Importantly, the FCA expressly stated that it is not suggesting any individual director of Tesco knew the information in the August trading update was false or misleading.

What order did the FCA impose?

The FCA imposed a restitution order jointly on Tesco and TSL. Restitution will operate through a scheme under which anyone who bought Tesco shares or bonds after 29 August 2014 and still held them on the last trading day before 22 September 2014 can claim. Tesco will pay each person a sum equal to the inflated amount of her or his shares or bonds. The total estimated amount of restitution is 85 million (plus interest).

Separately, TSL has agreed the terms of a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO) relating to historic accounting practices. If approved by the court on 10 April 2017, it will require TSL to pay a fine of just under 129 million.

The FCA also had the power under section 123 of FSMA to impose a financial penalty on Tesco. However, it chose not to do so due to (among other things) what it described as "the exemplary co-operative approach taken by Tesco plc and Tesco Stores Limited both with the FCA and the SFO".

Practical implications

This case clearly reiterates the need for publicly traded companies to ensure that all financial information they publish is accurate. Market abuse is merely one of the potential issues that can arise from misstated accounts.

The FCA's decision also demonstrates the value of co-operating openly and transparently with the authorities in circumstances of this kind. The FCA praised Tesco's co-operation with both it and the SFO. Indeed, it was this co-operation that allowed Tesco to avoid a financial penalty from the FCA.

Although we wait to see the text of the proposed DPA with the SFO, it is reasonable to assume that any fine imposed by the court will also be reduced to reflect Tesco's co-operation with the SFO.


The Supreme Court has held, in Financial Conduct Authority v Macris, that notices published by the FCA referring to a bank's "CIO London management" were not tantamount to naming an individual.

Legal background

The FCA has powers under FSMA to impose penalties on regulated firms for breach of relevant regulations. The process involves the FCA serving three notices on the firm under investigation:

  • A warning notice, which describes the action the FCA is provisionally minded to take
  • A decision notice, which describes the action the FCA has decided to take
  • A final notice, which describes the action it is taking once any time for appeal has expired

If the FCA issues a warning notice or decision notice that identifies a person and relates to a matter that is prejudicial to that person, it must also give that person a copy of the notice. This is to avoid that person being unfairly prejudiced and to allow that person to make representations to the FCA.

What happened?

In 2013, the FCA issued notices to an investment bank concerning its conduct in 2012 in relation to a synthetic credit portfolio. Mr Macris was involved in the management structure of that portfolio and carried the title "International Chief Investment Officer".

The warning and decision notices issued by the FCA did not refer to Mr Macris by name, but rather to "CIO London Management" and similar expressions. The FCA did not give copies of the notices to Mr Macris. Mr Macris claimed that the references to "CIO London Management" were to him personally, and that people active in the relevant markets would have known this.

The Supreme Court disagreed. Lord Sumption said that a notice "identifies" someone only if that person is "identified by name or by a synonym for him, such as his office or job title". If the notice uses a synonym, it must be "apparent from the notice itself that it could apply to only one person", and that person must be identifiable from the notice or other public information. That was not the case here.


This decision will be welcomed by the FCA. The court's guidance is useful in understanding how precise a reference in a notice needs to be, and what publicly available information is relevant, when deciding whether it refers to a specific individual.

There will sometimes be a fine line between a generic description that does no more than refer to a team or function and a description narrow enough to identify an individual. However, the court clearly felt here that the FCA had not crossed that line.