Express Consent Needed For Collateral Use Of Mutual Legal Assistance Material In FCA Civil Proceedings

• Published date: 29 November 2022
• Subject Matter: Finance and Banking, Criminal Law, Financial Services, Crime
• Law Firm: Herbert Smith Freehills
• Author: Ms Karen Anderson and Elizabeth Head

The High Court has declined to strike out civil proceedings brought by the Financial Conduct Authority (FCA) in respect of alleged market abuse, even though it found that the FCA had made impermissible collateral use of material obtained through mutual legal assistance (MLA) requests without first obtaining the consent of the relevant overseas authorities.

From a legal perspective, the decision is of interest in its consideration of the interpretation of the Crime (International Co-operation) Act 2003 (the 2003 Act), including what constitutes "use" of MLA material, the scope of the prohibition on collateral use, what constitutes consent, and the Court's exercise of the discretion not to strike out in the interests of public policy interest in what was described as a claim of "overwhelming merit".

On a purely practical level, the case demonstrates the multiplicity of ways in which such material may be "used" by the regulators and incorporated into the "warp and the weft" of their investigations, without actually being deployed in evidence. It highlights the potential difficulties to which the FCA's dual track approach to investigating market abuse can give rise where MLA requests have been made.

The case also illustrates the determination of the FCA to pursue market abuse cases, and the painstaking work this can involve. And finally, it serves as a useful reminder to firms and practitioners that their obligations under section 348 of the Financial Services and Markets Act 2000 (FSMA) may be engaged in the course of the investigation process without this being obvious to them, because of the way that confidential information is embedded into the fabric of the FCA's investigation.

Background to the proceedings

In October 2015, the FCA began an investigation into the conduct of the former CEO and the former CFO of Globo Plc ("Globo"), an AIM-listed company whose shares were suspended from trading on 23 October 2015; on 28 October Globo had announced that the former CEO of the Group, "had brought to the attention of the Board certain matters regarding the falsification of data and the misrepresentation of the Company's financial situation". The FCA's investigation involved the use of the FCA's information gathering powers, and requests for information made not only within the UK, but also from 13 foreign jurisdictions, under regulatory information sharing agreements and mutual legal assistance requests.

The FCA formed the view that the actions of the defendants had resulted in the publication of false or misleading statements, between at least November 2010 and October 2015, that caused the company's shares to be traded significantly above their true value, before the company collapsed in November 2015. It decided to bring criminal proceedings and obtained European Arrest Warrants for both defendants who reside in Greece. However, in June and September 2019, the Hellenic Court of Appeal denied the UK's extradition request.

In those circumstances, the FCA decided it was in the public interest for a civil claim to be brought so that redress could be obtained for investors who had been adversely affected by the defendants' conduct. The FCA brought proceedings for restitution under sections 382 and 383 of FSMA, asserting that the defendants had breached of section 118 of FSMA (market abuse) and/or been knowingly concerned in breaches of section 397 of FSMA and its successor, section 89 of the Financial Services Act 2012.

The former CEO of Globo sought to strike out the proceedings on the basis that in investigating, building and formulating the civil claim, the FCA made use of MLA material, without first obtaining the consent of the relevant overseas authorities, in breach of the...