Case Preview: FCA v Macris: FSMA and Third Party Rights

17 12 2015

On 3 November 2015, a panel of Supreme Court justices consisting of Lord Neuberger (President), Lord Clarke, Lord Hodge granted permission to appeal in the case of Financial Conduct Authority (Appellant) v Macris (Respondent) Case No: UKSC 2015/0143. In proceedings reported as [2015] EWCA Civ 490, the Court of Appeal unanimously dismissed the FCA’s appeal against the decision of the Upper Tribunal, reported as [2014] UKUT B7 (TCC). Longmore, Patten and Gloster LJJ held that Mr Achilles Macris, a Greek and US citizen, was identified and should have been given the right to make representations on certain matters set out in the final notice. The issue thrown up by the case is whether the FCA’s notices identified Macris for the purposes of section 393 of the Financial Services and Markets Act 2000 (FSMA) in which case the watchdog ought to have given him third party rights. The third party procedure secures the fair treatment of the reputation of third parties so that they are not presumed guilty in the enforcement process. Developments in these proceedings are keenly monitored by those who contend that they have not been given a right of reply despite being identified in FCA notices.

As regards identification, on 18 September 2013 the FCA gave a Warning Notice, a Decision Notice, and a Final Notice to JPMorgan Chase Bank, N.A. (the firm). All the notices were in identical terms and on 19 September 2013 the Final Notice (the notice) was published. It informed the firm about the imposition of a financial penalty, or conduct costs, of £137.61 million which was settled under the FCA’s executive settlement procedures. The firm was penalised as a result of losses incurred in the “synthetic credit portfolio” (the portfolio) it managed for its owner JP Morgan Chase & Co (the group), a corporate entity branded – by Michael Lewis’ controversial bestseller Flashboys – as mostly “passive-aggressive” but occasionally “simply aggressive”. The portfolio’s trading related to credit instruments, especially credit default swap indices. The firm is a wholly owned subsidiary of the group.


Macris was behind the expansion into credit trading at the chief investment office. His “new business initiative” was approved in May 2006, a decision leading to the creation of the portfolio. By the end of 2012 the notorious losses, dubbed the “London Whale” trades by the media, stood at $6.2 billion (whereas in 2009, at the height of its profitability, the portfolio generated more than $1 billion in revenue). Overseen by Macris, the portfolio was linked to the notorious derivatives trader Bruno Iksil; the man known as the London Whale for the size of his position in the market. However, Iksil, who caused the losses (translating to £51 billion in shareholder value), has been let of the hook by the FCA after a costly three-year investigation.

Apparently, the Regulatory Decisions Committee (RDC) – composed of practitioners and non-practitioners representing the public interest and not part of the investigation team – did not think that the FCA had a good enough case and it decided not to take any further action. As an administrative decision-maker, the RDC does not engage in a judicial process. Although representations are made before the RDC, full evidential analysis and the examination and cross-examination of witnesses does not take place. In Market Abuse Enforcement: Practice and Procedure (2013:113), Stuart Bazley explains “the concepts of burden and standard of proof are not strictly relevant.” Now that the probe into Iksil’s conduct has been dropped, Macris is the only remaining executive under FCA investigation for the portfolio’s losses. A top earner, Macris was paid $31.8 million, more than his boss Ina Drew, in the two years before the firm suffered the $6.2 billion losses.

On 9 February 2016, the FCA fined Macris £792,900 for failing to be open and co-operative during a phone call on 10 April 2012 which was designed to clear up misunderstanding about the portfolio but he instead “allowed an inaccurate impression to be given that there had been no material changes … and that there were not wider causes for concern”.

Background to Investigation

The importance of the instant case goes well beyond the London Whale rogue trader losses. This game-changing decision profoundly impacts the manner in which the FCA goes about its business in taking enforcement action. Macris had the FCA’s approval under section 61 of FSMA to hold the Controlled Function CF 29 (significant management) at the firm from November 2007 to July 2012. Based in London, as International Chief Investment Officer (CIO), Macris played a part in the management structure of the portfolio. He was not named in the notice – which mentioned “CIO London management” – and on 14 October 2013 had referred the matter to the tribunal under section 393(11). In the Upper Tribunal and in the Court of Appeal, the FCA did not deny his assertion that the term “CIO London management” had been deliberately used to refer to him specifically.

Macris contended that the notice clearly identified him and that he should have been given third party rights within the meaning of section 393 of FSMA. The provision protects a person who is prejudicially identified in an enforcement notice (which must be copied to him) by providing him with an opportunity to answer any criticisms. The FCA is obliged to give the third party access to the material used to make the decision concerned and to any ancillary material which might compromise it. These safeguards aim to ensure that those, like Macris, who are prejudicially identified in the FCA’s enforcement notices are provided a chance to respond to criticisms directed at them before the regulator’s conclusions are published. In that regard, the Court of Appeal’s judgment discloses sloppiness on the FCA’s part. The first interview it conducted with Macris in January 2013 was useless because the recording was faulty so he submitted to a further interview in March 2013. Although he was not questioned in a detailed manner, the FCA said by way of correspondence that:

in the future we may interview Mr Macris again, at which time he will have an opportunity to answer any further questions that may be put to him in relation to our concerns in this area.

However, no further interview took place. Initially Macris was not charged with contravening Principle 4 of the FCA’s Statements of Principle for Approved Persons – dealing with regulators in an open and cooperative way and disclosing appropriately any information of which the regulator would reasonably expect notice. However, in July 2013, the watchdog added a new ground of investigation, i.e. a potential breach of Statement of Principle 4, and served a Notice of Change of Scope of Investigation. In August 2013, the FCA confirmed in writing that it “had not made any findings as to whether Mr Macris has breached Statement of Principle 4”. The following month, two days before the notices were promulgated, Macris took the initiative himself by providing the FCA with a written explanation of the matters that it had previously identified as prompting the expansion of its investigation into his conduct. Dealing with things haphazardly, the FCA confirmed that it had received Macris’s written explanation but failed to engage with the materials he had provided.

Court of Appeal

Albeit unsuccessfully, before the Court of Appeal the FCA argued that – for the purposes of section 393 – Macris would only have been “identified” if he could have been identified from the matters exclusively contained in the notice. Indeed, hitherto, a person needed to have been identified per se from the language of the notice to benefit from the rights conferred by FSMA. In Macris, turning the tide in favour of those working in the financial services industry, the Court of Appeal held that a simple objective test applies to identification in regulatory action and that the FCA must desist from prejudicing third party rights under FSMA.

So alphabetical anonymity – in the form of monikers such as “Manager B”, “Submitter C”, “Trader X”, “Employee Y” and so forth – does not suffice in safeguarding third party rights because industry specialists and the public are able to ascertain the identity of the person in question from evidence outside the notice. Insofar as Gloster LJ could see, such individuals must be provided an opportunity to respond to the criticisms of them detailed in enforcement notices. The case is a turning point in that regard as it quashes the FCA’s conventional wisdom as regards conducting its enforcement activities.

For Macris, who remains under investigation, his identification in the notice was clearly and obviously prejudicial to him and because he had had no opportunity to contest it, he referred the matter to the tribunal. As noted above, the FCA had fined the firm £137,610,000 ($220 million) for serious failings related to its Chief Investment Office. The firm’s conduct demonstrated full spectrum failings at all levels of its operations, i.e. “from portfolio level right up to senior management.” It breached a number of the fundamental obligations firms have under the regulatory system, namely Principles 2, 3, 5 and 11 of the FCA’s Principles for Businesses relating to wholesale conduct, market protection, treating customers fairly and failing to be open and cooperative with regulators.


Applying the decision of the House of Lords in Knupffer v London Express Newspaper Ltd [1944] AC 116, the Court of Appeal unanimously held that a “simple objective test” needed to be applied when determining whether, under section 393, “matters” in a notice issued by the FCA against the firm had “identified” a person who was not directly named.

As reported in the media, when the FCA’s appeal was heard in December 2014, Gloster LJ was entirely unconvinced that using alphabetical monikers helped in anonymising third parties. Despite showing some sympathy for the regulator, her Ladyship found the FCA’s arguments to be quite badly misconceived and remarked that:

I’m sure it’s extremely inconvenient for the FCA but don’t you think, when you are making allegations of fraudulent concealment, it’s fair to allow them to make representations and you don’t get around it by saying they are simply ‘Trader A’?

In sum, at para 45, the court found no reason why the approach to determining the question whether a “matter” “identifies” a person for the purposes of section 393 of FSMA should be any different to the approach to the question whether an allegedly defamatory statement, which refers to an individual person, whether, for example, by his office, or by the first and last letter of his name, or by means of a description of his status or otherwise (for example, by a pseudonym) identifies a claimant in defamation proceedings.

Rationale for Decision

Flagging up the vintage decisions in Watts v FSA [2005] UKFSM FSM020 and Laury v FSA [2002] UKFSM FSM046, which were otherwise of “little assistance”, the Court of Appeal elucidated that the statutory language clearly required the relevant matters to identify/specify a person, rather than facts from which it could be inferred that a particular person was being criticised. (The “first stage” of the test.) It was common ground that to be “identified” it was not necessary for a person to be referred to in the notice expressly by name because an individual could technically be identified by reference to his title, office or job description. The firm received a 30 percent (or “stage 1”) discount on the fine under the FCA’s executive settlement procedures. Moreover, the regulator accepted that even if it had been required to serve a copy of the notices on Macris, that would not have prevented the firm from being entitled to have taken advantage of the discount option, although it might have delayed the decision from becoming final at such an early stage.

The court said that identification within the meaning of section 393 “is in one sense a unitary question”. However, dismissing the appeal, at para 40, Gloster LJ agreed with the approach taken in proceedings below that logically speaking the first stage of the identification process involves asking whether the relevant statements in a notice which was said to identify a third party were to be construed in the context of the notice alone, and without recourse to external material.

Gloster LJ explained that the critical issue between the parties in the present case was the extent to which it was legitimate to have regard to external material to identify the person referred to in the notice. The court found a useful parallel in the authorities relating to identification of individuals in defamation proceedings. At para 43 et seq of the judgment, her Ladyship drew on Chapter 7 of Gatley on Libel and Slander, 12th Edition (London: Sweet & Maxwell, 2013) and she went on to hold that:

45. … The wording of section 393, whether construed on its own, or in the context of FSMA, does not require the word “identifies” to have any special or limited meaning. As I have already said, it is clear that it has to be the “matter” or “matters” referred to in the relevant notice which “identifies” the third party. But, as in the defamation cases, that does not mean that the third party has to be mentioned by name. As long as the relevant description in the “matters” (whether by reference to an office, a job description, or simply “Mr X”) can properly be construed as a reference to an individual person, i.e. a “he” or a “she” (or, if a corporate entity, an “it”), then it seems to me that the correct test for identification is the simple objective one applied in the defamation cases adapted for the purposes of this case …

In other words, where the first stage is satisfied, the following simple objective test for identification applies under FSMA:

Are the words used in the “matters” such as would reasonably in the circumstances lead persons acquainted with the claimant/third party, or who operate in his area of the financial services industry, and therefore would have the requisite specialist knowledge of the relevant circumstances, to believe as at the date of the promulgation of the notice that he is a person prejudicially affected by matters stated in the reasons contained in the notice?

On the other hand, at para 46, the court accepted the FCA’s submission that the comparative analysis was subject to the proviso that in the context of defamation, there might be by implication a defamatory reference to a claimant, simply as a result of what was generally said in a statement, notwithstanding that there was no separate reference to the specific person in the alleged defamatory statement. Accordingly, the mere fact that a statement criticising a corporate recipient of a notice might be read by persons in the relevant financial market as criticising by implication the chairman or chief executive officer of that company does not suffice in the context of section 393 to amount to identification. This is so because as regards meeting the requirements laid down in section 393, there must be a specific reference to “a person” in “the matter” to which the reasons related and there must be some sort of “key or pointer” to a separate person. Where the pointer or peg is found, the following simple objective test contemplated by Viscount Simon LC in Knupffer applied:

Where the plaintiff is not named, the test which decides whether the words used refer to him is the question whether the words are such as would reasonably lead persons acquainted with the plaintiff to believe that he was the person referred to.

Gloster LJ was of the view that ex post facto unlimited reference to external material to identify the third party was impermissible and her Ladyship found at para 50 that the Upper Tribunal had incorrectly articulated the relevant tests. This was so because Judge Herrington – who held that it was “simply a matter of whether there is information in the public domain that incontrovertibly links the description in the Final Notice to Mr Macris” – had conceptualised the tests too broadly. He, therefore, “failed to limit the relevant information to that which objectively would be known by persons acquainted with the third party, or persons operating in the relevant area of the financial services market.” As her Ladyship explained at para 51, the “workable” objective test formulated by the court, clearly limited:

… external material to what, objectively, persons acquainted with the third party, or persons operating in the relevant area of the financial services industry, might reasonably have known as at the date of the promulgation of the relevant notice.

The court concurred with Macris’s position that by the time the FCA served notice it would have been well aware of the information publicly available to the relevant sector of the market. It rejected the argument that only if Macris could have been identified from the “matters” exclusively contained in the notice, would he have been “identified” for the purposes of section 393. Gloster LJ found the FCA’s construction to be inconsistent with the statutory language and with the natural/ordinary meaning of the word “identifies”.

So there was no requirement for a claimant to be identifiable from matters exclusively contained in the notice because such an approach failed to take into consideration the knowledge, necessarily contributing to their ability to identify the third party, which people might have in addition to the information contained in the notice. Essentially, the flawed approach espoused by the FCA required the court to conduct the artificial task of asking the wholly hypothetical question whether, putting on one side the knowledge available to the market, the third party could be identified by what was stated in the notice alone. Given that it was not in dispute that the purpose of the third party procedure was to secure the fair treatment of the reputation of third parties in regulatory action, it was unrealistic to disregard what was already common knowledge in the market over and above the information stated in the notice.

Irrespective of the judge’s application of the incorrect test, he had rightly held that the matters in the notice identified Macris because the reference to “CIO London management” was clearly a reference to “a particular individual” and “not a body of people.” Equally, the judge was entitled to conclude that persons acquainted with Macris or those operating in his area of the financial services industry would reasonably have been able to identify him from statements made in the notice. Notably, Macris had been named expressly in a US Senate Report.

Patten LJ agreed with Gloster LJ. Moreover, Longmore LJ gave a cameo judgment of his own and explained that identification in a decision notice is more a question of fact than law. However, Longmore LJ nevertheless concurred with the test proposed by Gloster LJ and at para 66 his Lordship too dismissed the appeal.


It is the first time the FCA, or its predecessor the Financial Services Authority, will be an appellant in the Supreme Court. The disposal of many cases where the FCA has rolled out its abridged version of the full enforcement model will hinge on the closely watched case of Macris which has come to symbolise a low-point in relation to the efficacy of FCA enforcement proceedings.

As recent cases in the Upper Tribunal (Tax and Chancery Chamber) show, the FCA’s controversial enforcement model is being tested by those aggrieved as a result of the agency’s coercive tactics. Christian Bittar, Deutsche Bank’s former money markets derivates manager who was sacked in 2011, has won his Tribunal case – reported as Bittar v FCA [2015] UKUT 602 (TCC) (10 November 2015) – against the FCA for improperly identifying him in April’s historic benchmark manipulation settlement with American and British regulators which left Deutsche Bank nursing fines totalling $2.5 billion.

Bittar has been privately warned by the FCA that it wants to fine him £10 million for benchmark rigging, but he alleged that he was not provided the opportunity to make representations before the watchdog’s findings were published. He was identified in the FCA’s final notice as “Manager B”. Bittar also faces fraud charges and his lawyers say he “intends to fully contest the criminal proceedings started by the SFO.” His victory in the Upper Tribunal represents the industry’s larger right to make representations to clarify matters before information in relation to FCA probes is made available in the public domain. Bittar argued that whilst he was not expressly named in the final notice it was nevertheless possible to identify him. The Upper Tribunal concluded that the matters included in the notice identified Bittar in the relevant sense and manner and the preliminary issue was decided in his favour.

Moreover, in Ashton v FCA [2015] UKUT 569 (TCC) (21 October 2015), Chris Aston, a former Barclays trader who became embroiled in the rigging of foreign exchange benchmarks because of being a part of “the cartel”, won a preliminary legal battle and will therefore be able to use evidence from the FCA’s conclusions in its forex investigations against Barclays and UBS. Yet again, the FCA was accused of abandoning normal investigative procedures and of not seeking the identified individual’s input on the evidence against him/her. As in the cases of Macris and Bittar, the point that the FCA improperly identified and besmirched individuals – while disciplining firms such as Barclays and UBS for manipulating the $5.3 trillion-a-day forex markets is also at play in the Ashton case.

Of course, all these cases militate a critical rethink of the manner in which the FCA conducts its investigations and publicises its findings. Overall, such retrograde behaviour by the regulator has profound implications for those – such as former forex traders – confronted by civil and criminal probes in Britain and America.

In a recent report entitled Winning the Global Race, Sir Hector Sants the CEO of the FCA’s predecessor Financial Services Authority (FSA) who stepped down in June 2012 recommended divesting the FCA of its penalty imposing powers as part of an overhaul of the regulatory system so as to restore confidence in the UK’s competitiveness. However, Sants’s arguments are rendered dubious in light of The Review into the failure of HBOS Group and in the related Report into the FSA’s enforcement actions following the failure of HBOS because Andrew Green QC thought that Sants was clueless to the FSA’s failures, in particular that there was “inadequate communication between him and enforcement.”

Despite the low prospects of Sants’s recommendations becoming a reality, it is certain that Gloster LJ’s findings require the FCA to change its enforcement tactics. Indeed, if the Supreme Court upholds the Court of Appeal’s rationale, the case of Achilles Macris may well become the FCA’s Achilles heel.



One response

22 03 2016
Benchmark Manipulation and Corporate Crime: Insights on Financial Misconduct | Global Corporate Law

[…] Usher (formerly the chief currency dealer in London for JP Morgan). Like Achilles Macris, see here, the pair is apparently also pursuing challenges because of being identified by the FCA in the $4.3 […]

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