FCA Enforcement Notices: UK Supreme Court Judgment Limits Third Party Rights

In support of its policy of credible deterrence, the Financial Conduct Authority ("FCA") has frequently referred to the lessons to be learned from its final notices and, in recent years, it has included some details of the particular misconduct for which the firm in question is being disciplined. This has resulted in a number of claims by individuals who have asserted that they have been identified in a final notice, prejudiced thereby, and denied their rights under section 393 of the Financial Services and Markets Act 2000 ("third party rights").

In a highly significant judgment handed down on 22 March 2017, the UK Supreme Court has substantially narrowed the circumstances in which third parties, who have been identified and criticised in enforcement notices issued by the FCA, are afforded third party rights. In a decision which was not unanimous, the majority held that sec-tion 393 conferred rights on a third party only "if he is identified by name or by a syn-onym for him, such as his office or job title" in the relevant notice.1

It is, however, evident from the individual judgments that there were differing views amongst the Supreme Court Justices and a number of them could see the merits of a less restrictive test.

THE "LONDON WHALE" TRADES AND THE FCA DECISION NOTICE

In the wake of trading losses in 2012 said to amount to US$6.2 billion, the FCA issued JP Morgan Chase Bank, N.A. (the "Bank") with a Decision Notice on 18 September 2013 and imposed a financial penalty of £137,610,000. The Decision Notice, which was the result of an agreed settlement, was preceded by a Warning Notice and followed by a Final Notice, both on the same day (the "Notices").2

The trading losses in question resulted from what became known as the "London Whale" trades, which were conducted in the Bank's Synthetic Credit Portfolio ("SCP"), which was managed within the Bank's Chief Investment Office ("CIO").

As well as criticising certain trading strategies and conduct by traders, the FCA found fault with various levels of management within the Bank, in particular "CIO London management" which, although not defined in the Decision Notice, was said to "[repre-sent] the most senior level of management for the SCP in London, reporting directly to CIO Senior Management in New York, which in turn reported to Firm Senior Man-agement."3

In the relevant period, Mr Macris held the position of International Chief Investment Officer, based in London, and had responsibilities in relation to the SCP. In bringing his complaint against the FCA, Mr Macris contended that the term "CIO London man-agement" was used in the Notices specifically and uniquely to refer to him, and that he was thereby "identified" (and prejudicially so). In those circumstances, he argued that the FCA's failure to provide him with copies of either the Warning Notice or the Deci-sion Notice, before the Final Notice was published, and to give him an opportunity to make representations, infringed his third party rights.

THE STATUTORY FRAMEWORK

Section 393 FSMA provides that, where a warning notice or decision notice "identifies" and is, in the relevant authority's opinion, prejudicial to a third party, then that third party must be given a copy of the notice, access to underlying evidence and an oppor-tunity to make representations.

However, the requirement to provide copies of either notice does not apply when the third party has...