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. Read the rest of this entry »





Hunter into Prey: City Watchdog Exposes its Achilles’ Heel – Part 2

6 07 2015

HeelThe issues in the last post must be examined in light of the scandal which erupted in late 2014 when the FCA came under heavy fire from the Davis Report because of the highly irresponsible way in which it had leaked sensitive data to the media earlier in March that year. Simon Davis, a partner in the Magic Circle firm Clifford Chance, stressed that there had been nothing less than systemic failure. Davis was adamant that the FCA failed to address the issue of whether the information given out might be price sensitive. The conclusion was unsurprising because the leak culminated in an article in the Telegraph headlined Savers locked into ‘rip-off’ pensions and investments may be free to exit, regulators will say which claimed that the regulator was planning an investigation of 30 million pension policies, some sold as far back as the 1970s. Consequently, big insurance companies had billions wiped off their share prices. The misapprehension that selected annuity products would be picked out meant that major UK insurers saw their share prices plummet. The insurers called for Wheatley’s resignation. Even the Chancellor George Osborne bemoaned he was “profoundly concerned” by the episode. In his inquiry, Davis unearthed multiple failures symbolic of a dysfunctional organisation, and he emphasised that the regulator was “high-risk, poorly supervised and inadequately controlled.”

Davis – who was unsparing in his criticism – held the FCA’s Board responsible for the flaws in the regulator’s controls on the identification, control and release of price sensitive information. The buck ultimately stopped with the board because it “failed in its oversight of the FCA’s executive and … failed to identify the risks inherent in the FCA’s communications strategy.” The episode required urgent action and an external organisation needed to review the board’s practices and effectiveness. So serious were the mechanical failures of corporate governance of the City watchdog. To scotch the confusion, in light of public hearings that ensued, on 17 March 2015 the House of Commons Treasury Select Committee (the Treasury Committee) published Thirteenth Report (2014-2015): Press briefing of information in the Financial Conduct Authority’s 2014/15 Business Plan (HC881). Read the rest of this entry »





Consultation on New Benchmarks entering the Regulatory Perimeter

1 10 2014

images-10The Fair and Effective Financial Markets Review (FEMR or the “review”) – a triumvirate headed by Nemat Minouche Shafik (Bank of England) and co-chaired by Martin Wheatley (FCA) and Charles Roxburgh (HM Treasury) – has the twofold objective of (i) reinforcing confidence in the fairness and effectiveness of wholesale financial market activity conducted in the United Kingdom and (ii) influencing the international debate on trading practices, including highlighting issues that can only be addressed through co-ordinated international action. The review, which is expected to produce a final report by June 2015, focuses on both regulated and unregulated wholesale markets – such as fixed-income, currency and commodity markets, including associated derivatives and benchmarks – in relation to which most of the recent concerns about misconduct have arisen.

However, at the Chancellor of the Exchequer’s invitation, until the delivery of the final report in June 2015, the review has recommended a list of additional major benchmarks across the fixed income, currency and commodity markets (FICC) that should be included in the regulatory framework originally implemented in the wake of the LIBOR scandal. The review considers the Wheatley Review of LIBOR 2012 to be the blueprint for reform and recalls that Mr Wheatley had envisaged adding further benchmarks to the present LIBOR regime (see here). The ambit of the review includes matters such as trading practices, scope of regulation, supervision of firms and markets and the impact of recent and forthcoming regulation. Read the rest of this entry »





ICE LIBOR and the Slippery Road Ahead

12 04 2014

The head of the Financial Conduct Authority (FCA) is somewhat of a superstar in the world of finance and regulation. Unsurprisingly, Martin Wheatley makes a lot of speeches. He famously authored the Wheatley Review (the review) – the blueprint as regards reforming the world’s “most important number”, i.e. the London Interbank Offered Rate (LIBOR). Aiming to impress the government and the public, Wheatley’s rhetoric revolves around buzzwords such as accountability, conduct and governance.

Only late last year, speaking on modelling integrity through culture, he reiterated that:

Our own emphasis on conduct and culture is heralded by our work to strengthen benchmarks. We’ve been at the vanguard of establishing a regime that is practical, but that nonetheless results in a shift in firm behaviour and individual accountability. As I prepared to take on the task of chief executive of the FCA, I was also asked to review whether the revelations surrounding LIBOR required a wider policy response. The policy recommendations resulting from this review – now known as the Wheatley Review – have delivered a LIBOR regime that provides for accountability, strengthened governance and robust systems and controls around the submission of rates.

Read the rest of this entry »





Court of Appeal Overturns Upper Tribunal on FCA Issuing Notice of Discontinuance

11 09 2013

th-52The Financial Conduct Authority v Hobbs [2013] EWCA Civ 918 (29 July 2013)

In this case, the Court of Appeal (Sir Stanley Burnton, Rimer and Ryder LJJ) overturned the Upper Tribunal’s (UT) decision and held that if the Financial Conduct Authority (FCA or the Authority) publishes a statement intimating discontinuance on its website and subsequently removes that statement, the Authority is not in fact bound by such a statement because the statement does not follow the procedural requirements set out in the Financial Services and Markets Act 2000 (the Act). The FCA could therefore pursue its appeal even after retracting the statement announcing discontinuance on its website.

Sounds rather extreme. Yet the Court of Appeal so held and of course from what one can make of it their lordships were dead right.

I. Background

The FCA appealed against the UT’s decision that the Authority had bungled in properly making its case that the respondent trader David John Hobbs (H) was not a fit and proper person to perform functions in relation to a regulated activity within the meaning of the Act. H, who conducted proprietary trading for Mizuho, traded in coffee futures and associated derivatives on the London International Financial Futures and Options Exchange. Read the rest of this entry »