FCA final notices: new test for identifying third parties

In its long-awaited decision in Financial Conduct Authority v Macris [2017] UKSC 19, the Supreme Court has adopted a more restrictive test for the identification of third parties in FCA final notices. The case concerned whether Mr Macris had been prejudicially identified in a final notice published by the FCA in relation to the bank for whom Mr Macris had worked at the relevant time, and therefore whether he should have been entitled to certain rights as a third party to make representations about that final notice. The Supreme Court reversed the earlier decisions of the Upper Tribunal and the Court of Appeal, holding that Mr Macris had not been identified in the final notice.  

The final notice

In September 2013, the FCA published a final notice in connection with losses of around $6.2 billion that occurred on one of JP Morgan’s synthetic credit portfolios, caused by what became known as the London Whale trades. The final notice contained several references to, and criticisms of, CIO London Management.

During the period in question, Mr Macris was the Head of the International Chief Investment Office (CIO) in London and oversaw the relevant portfolios. Following the publication of the final notice, Mr Macris claimed that it identified him in a prejudicial manner but that he had not been afforded the third-party rights to which he was entitled under section 393(1) of the Financial Services and Markets Act 2000 (FSMA) (see box “Section 393 of FSMA”).

The meaning of “identifies”

Macris was considered by the Upper Tribunal, the Court of Appeal and, finally, the Supreme Court. Both the Upper Tribunal and the Court of Appeal concluded that Mr Macris had been identified in the final notice, but for different reasons (www.practicallaw.com/2-569-1227; [2015] EWCA Civ 490). The Supreme Court disagreed, by a majority of three to two on the law, and four to one on the facts, holding that Mr Macris had not been identified.

The issue to be decided was the meaning of “identifies” in section 393 of FSMA and whether Mr Macris had in fact been identified in the final notice, despite him not being referred to expressly by name.

Upper Tribunal. The Upper Tribunal formulated the following two-stage test:

• By reference to the terms of the notice do the matters of which the applicant complains refer to an individual?
• If so, is there information in the public domain which incontrovertibly demonstrates that the individual is the applicant?

Applying this test, the Upper Tribunal found that Mr Macris had been identified. 

Court of Appeal. While also holding that Mr Macris had been identified in the final notice, the Court of Appeal said that the second part of the test formulated by the Upper Tribunal was too broad. In reformulating this part of the test, the court held that it was only permissible to take into account external information which persons acquainted with the third party, or who operate in his area of the financial service industry, might reasonably have known as at the date of the relevant notice. In arriving at this conclusion, the court considered and applied reasoning from certain defamation cases to interpret the meaning of the word “identifies”.

Supreme Court. Allowing the FCA’s appeal, the Supreme Court disagreed with the Court of Appeal’s application of defamation case law. It concluded that the test is in fact a narrower test: a third party must be identified by name or by a synonym, such as his office or job title, which refers to only one person. In relation to synonyms, the court gave the examples of references to a chief executive or a chairperson of the board of a UK registered company, which would identify the individual concerned because: they refer to an individual’s position; only one person holds that position; and the public can readily and freely obtain this information, for example, from the company’s website.

In addition, the court held that it is only permissible to turn to publicly available information where it enables the reader to interpret, as opposed to supplement, the language in the relevant notice. It is not permissible to resort to additional facts about the person so that if those facts and the notice are placed side by side, it becomes apparent that they refer to the same person. One of the reasons given for this conclusion was the practicalities of the FCA performing its investigatory and disciplinary functions, given that it will not necessarily know what, if any, information about the business, the facts or the person may be available to knowledgeable outsiders.

Lord Wilson, dissenting, did not think that the majority’s decision struck a fair balance between protecting an individual’s reputation and ensuring regulatory efficiency, and preferred a broader test that would, in his opinion, have struck a better balance.

Practical implications

The FCA must no doubt be breathing a sigh of relief following this decision. The significant logistical and other issues that would have followed the earlier decisions being upheld have been avoided. Nevertheless, it is unlikely that the decision will change the way that the FCA and firms approach notices.

The FCA has already incorporated changes in the way that it publishes notices and will certainly want to avoid any future challenges, not least because the test proposed by the FCA was wider than the test ultimately endorsed by the Supreme Court.

For firms, one of the purposes of agreeing a settlement with the FCA might be to draw a line under the issues and move forward, therefore avoiding expensive and protracted disputes. Firms may wish to avoid individual challenges to final notices which might ultimately have an impact on their own final notices if an individual is found to have been prejudicially identified but not afforded their third-party rights.

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