FCA succeeds in Judicial Review appeal in relation to US regulators evidence request

The FCA has this week welcomed a decision by the Court of Appeal to deny permission for a group of traders to proceed with a judicial review of the FCA’s decision to provide assistance to the United States Commodity Futures Trading Commission (CFTC) in an ongoing investigation. The FCA had issued notices requiring production of information by UK residents in order to assist the CFTC in an investigation of crude oil trading on a U.S. derivatives exchange. The initial application for permission to apply for judicial review by the claimants was rejected by the court. They appealed the decision to the Court of Appeal which also rejected their application for permission.

The case highlights the fact that under the Financial Services & Markets Act 2000 (FSMA), the FCA is able to use its investigative powers to assist foreign regulators. The FCA has wide powers under Section 169 of FSMA to open investigations in support of overseas regulators, which trigger statutory powers to compel the production of documents and attendance at interviews to collect evidence on behalf of the overseas regulator.  There are a range of factors that the FCA should take into account in deciding whether or not to exercise this power, including whether reciprocal support is provided to the FCA in the relevant overseas jurisdiction, whether the rules or laws that are alleged to have been breached have a close parallel in the UK, the seriousness of the case and its importance to persons in the UK. 

Both the FCA and the CFTC are signatories to a memorandum of understanding which commits the signatories to provide relevant assistance to one another. The FCA will take all appropriate steps to assist international partners such as the CFTC to protect financial markets and prevent harm.

Accordingly, while there are factors that the FCA is required to take into account in deciding whether to commence an investigation in support of an overseas regulator, it has a wide discretion which the Courts are unlikely to interfere with save in exceptional cases.  

The FCA also say that it has arranged to ensure all materials requested by the CFTC are provided by the traders without further delay.   The case highlights the fact that firms and individuals can be compelled to provide documents and answer questions not only to assist the FCA in a domestic context but also in relation to investigations by foreign regulators, including those in the United States.  Due in part to constitutional concerns over the use in US proceedings of compelled witness testimony, and the impact that may have on the investigation as a whole, we have historically seen some overseas authorities contact UK-based firms and individuals directly to request interviews (on a non-compelled basis) rather than via the formal FCA route under which individuals are compelled to respond to questions.  Alternatively,  the overseas authority may ask the FCA simply to compel production of documents (and not arrange witness interviews), which does not create the same issues in relation to US proceedings.

Where witness testimony in support of an overseas regulatory investigation is compelled by the FCA, the overseas regulator will not be permitted to attend the interview unless equivalent protections will be afforded to the individual as apply in relation to domestic investigations – namely that the testimony will not be used as evidence against them in criminal and market abuse proceedings.  Although neither Section 169 FSMA nor paragraph 3.7 of the FCA Enforcement Guide require the FCA to do so, we assume that (to respect Article 6 ECHR rights to a fair trial) the FCA will ordinarily withhold compelled interview transcripts from an overseas regulator unless equivalent protections are provided by the overseas regulator.  As a result, the Court is much more likely to intervene in judicial review proceedings where such protections are not afforded to the witness.

We do not believe the reasons for the Court of Appeal decision to refuse permission to appeal in R (Sutton) v. FCA have yet been published.

Authors: Nathan Willmott, Partner and David Capps, Senior Consultant