The Court of Appeal held in Amro International SA and Creon Management SA v FSA2 that the FSA is not required to satisfy itself of the correctness of what it is being asked to investigate by a foreign regulator or the basis upon which the investigation was asked for.
The claimants were fi nancing companies based in offshore jurisdictions. The SEC were investigating the activities of their New York investment adviser and had brought civil proceedings on the basis of an alleged short selling fraud. The SEC requested assistance from the FSA in obtaining documents from Goodman Jones Chartered Accountants, who held documents relating to the claimants. The FSA asked the SEC to clarify why the documents were relevant when the claimants were not parties to the action, and then compelled the production of those documents.
At fi rst instance, Collins J held that where the request for assistance is based on the need to assist in a claim, the nature of the claim is of fundamental importance. He held that the FSA should have decided that the wide scope of discovery requested was not necessary or proportionate. We reported on the fi rst instance decision in our December Update: http://www.rpc.co.uk/FileServer.aspx?oID=780&lID=0
The Court of Appeal allowed the FSA’s appeal. It held that it is of the greatest importance that national fi nancial regulators cooperate, particularly where there are suspicions or allegations of fi nancial fraud or other misconduct. The FSA is entitled to “accord full faith and credit” to a foreign regulator. The FSA is not required to satisfy itself of the correctness of what it is being asked to investigate and it was not incumbent on the FSA to examine the SEC’s request critically.
The proper test to be applied by investigators when considering whether to exercise powers under section 171(2) FSMA was whether the production of documents sought is “relevant to the purposes of the investigation”. This is a low hurdle.