In a judgment highly anticipated by firms and their senior managers as well as the regulators, the Supreme Court has overturned decisions of the Court of Appeal and Upper Tribunal, holding in FCA v Macris  UKSC 19 that Achilles Macris was not identified in certain enforcement notices and therefore was not entitled to third party rights.
Under section 393 of the Financial Services and Markets Act 2000 (FSMA), if an individual is, in the FCA's view, prejudicially identified in an FCA warning or decision notice, they are entitled to "third party rights". These include the right to receive a copy of the notice, to make representations to the FCA or (in the case of a decision notice) Upper Tribunal, and to request disclosure of relevant material held by the FCA.
The Supreme Court's judgment of 22 March 2017 sets out the test for "identification" in respect of third party rights relating to enforcement notices, as follows:
- A person is identified in a notice for the purpose of being granted third party rights if they are identified by name, or by a synonym – such as their office or job title – provided it is apparent from the notice itself that the synonym could only apply to one person.
- Reference can only be made to publicly available information to interpret the language of the notice, as opposed to supplementing its meaning with additional facts.
- The person's identity must be evident to members of the public at large, rather than a specific industry sector specifically familiar with the individual or their business.
In September 2013, the FCA fined JP Morgan Chase Bank NA £137.6 million in respect of failures arising from the so-called "London Whale" trades, which resulted in $6.2 billion worth of losses in the bank's Synthetic Credit Portfolio. Mr Macris was head of the bank’s Chief Investment Office (CIO International) at the time, part of the function of which was to manage the Synthetic Credit Portfolio.
In its warning, decision and final notices (together, the Notices) issued to the bank after reaching settlement, the FCA did not identify Mr Macris by name or job title, but did make multiple adverse references to “CIO London management”. Mr Macris argued that these references had the effect of identifying him personally. He was not provided with copies of the Notices served on the bank, nor given an opportunity to make representations prior to publication of the Notices.
Mr Macris applied to the Upper Tribunal, which considered the question of when a person is "identified" for the purposes of s393 FSMA. The Upper Tribunal sided with Mr Macris and found that the references to “CIO London management” would be taken by a reader with relevant experience to refer to the most senior individual involved, given that the references in the Notices were to an individual (e.g. having conversations, attending meetings, sending emails, participating on calls etc).
The Court of Appeal agreed that the Notices had identified Mr Macris, but based its reasoning on whether the relevant audience, “persons acquainted with Mr Macris, or who operated in his area of the financial services industry", would have been able to identify him from publicly available information, including a US Senate Committee Report. The court concluded that persons who operated in Mr Macris’ field would reasonably have been able to identify him from statements made in the Notices in conjunction with publicly available material. The FCA appealed the decision to the Supreme Court.
THE SUPREME COURT'S TEST FOR IDENTIFICATION
The Supreme Court found that Mr Macris had not been identified in the Notices.
In the lead judgment delivered by Lord Sumption (with which Lords Neuberger and Hodge agreed) it was held that the relevant test is whether the third party was identified expressly by name or otherwise by a synonym, such as their office or job title, provided that such synonym can only refer to one individual who is identifiable from the notice itself, or publicly available information. Resort to publicly available information is permissible only where it is used to interpret the language of the notice, rather than supplement with additional facts.
Lord Sumption also made two further important points. First, the relevant audience for this purpose is the public at large, not a specific industry sector specifically familiar with the third party or their business. Secondly, the US Senate Committee Report (relied on by the Court of Appeal in its decision) would not have constituted publicly available information for the purposes of identifying Mr Macris given that members of the general public would not have been aware of it.
In his concurring judgment, Lord Neuberger expanded on the test as set out by Lord Sumption, stating that an individual will be identified in a notice if (i) his position or office is mentioned; (ii) he is the sole holder of that position or office; and (iii) reference by members of the public to freely and publicly available sources of information would easily reveal the name of that individual by reference to his position or office. Lord Neuberger made the further point that, in order to satisfy the test, any research or investigation should be straightforward and simple; detective work or “jigsaw identification” by identifying someone as a result of relating separate snippets of information will not satisfy the test.
Lord Mance concurred with the majority in the outcome of the appeal, but agreed with Lord Wilson's dissent on the issue of law.
The Supreme Court's decision will be welcomed by the regulators, who were potentially facing the task of making changes to their enforcement procedures, including rewording warning and decision notices if the Court of Appeal's ruling had been upheld. Individuals facing arguably identifiable language in enforcement notices to firms are now likely to find it more difficult to assert third party rights, potentially leaving them without recourse for reputational damage in circumstances where the financial services industry is easily able to identify them in the notice, but the public at large remains unaware.
The ruling may have increase the likelihood of misconduct being attributed to a limited number of individuals at a firm, rather than the firm as a whole. A decision notice that states that (for example) "Equities Management" was responsible for a failing may suggest that failings were localised rather than widespread.
This is unlikely to be the last case on third party rights in notices, and it will be interesting to see how the judgment is interpreted by the FCA, RDC and Upper Tribunal, not least because the Upper Tribunal reached a very different result at an earlier stage in this case. A lot will depend on how the "interpretation vs supplementation" test is applied; as Lord Wilson states in his dissent "How obvious is this distinction?" For example, what if an individual's electronic chat name is stated in a decision notice? It may be relatively simple for a member of the public to associate that chat name with an email address and individual person. Is that interpretation, or supplementation?
A key reason why Mr Macris is said to have appealed this matter with such vigour is the fact that the firm final notice in this case explicitly criticised "CIO London management" in terms that did not appear in his own notice. The regulators will no doubt wish to ensure that statements that are critical of the conduct of an individual are made only in notices issued to firms where they can be fully supported. In practical terms, the FCA could seek to run firm and individual investigations in parallel to avoid this happening again.