Bluecrest Capital Management (UK) LLP v The Financial Conduct Authority [2023] UKUT 00140 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Judge Herrington,Judge Jones |
| Subject Matter | 21 June 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 27 June 2023 |
UT Neutral citation number: [2023] UKUT 00140 (TCC)
UT (Tax & Chancery) Reference Number: UT-2021-000178
Upper Tribunal (Tax and Chancery Chamber)
Hearing venue: The Rolls Building, London EC4A 1NL
Sitting in public on 8-10 February 2023
Judgment given on 21 June 2023
Before
JUDGE TIMOTHY HERRINGTON
JUDGE RUPERT JONES
Between
BLUECREST CAPITAL MANAGEMENT (UK) LLP
The Applicant
and
THE FINANCIAL CONDUCT AUTHORITY
The Authority
Representation:
Javan Herberg KC, Daniel Burgess and Marlena Valles, Counsel, instructed by Akin
Gump LLP, for the Applicant
Andrew George KC, Ajay Ratan and Ava Mayer, Counsel, instructed by the Financial
Conduct Authority
2
DECISION
Introduction
1. This is our decision in respect of two case management applications which we heard
as preliminary issues on 8-10 February 2023, namely:
(1) an application by the Financial Conduct Authority (‘the Authority’) dated
29 July 2022 for permission:
(i) to amend its Statement of Case (‘SoC’) pursuant to rule 5(3)(c)
of the Tribunal Procedure (Upper Tribunal) Rules 2008 (the ‘UT
Rules’) (‘the amendment application’);
(ii) to rely upon a draft Rejoinder to the Applicant’s Case on Redress
(‘the Draft Redress Rejoinder’) (‘the rejoinder application’); and
(2) an application by BlueCrest Capital Management (UK) LLP (‘BCMUK’)
dated 13 September 2022 to strike out or bar parts of the Authority’s SoC,
namely its case on redress pursuant to UT Rules 5 and/or 8 (‘the strike out
application’).
2. The preliminary issues form part of the substantive proceedings before the Tribunal
concerning references by BCMUK against two decisions of the Authority:
(1) the First Supervisory Notice dated 30 September 2021 (the ‘FSN’)
pursuant to which the Authority notified BCMUK of its decision to
impose upon it a requirement to pay redress under section 55L of the
Financial Services and Markets Act 2000 (‘FSMA’); and
(2) the Decision Notice dated 4 November 2021 (the ‘DN’), pursuant to
which the Authority notified the Applicant of its decision to impose
upon it a financial penalty of £40,806,700 for breaches of Principle 8 of
the Authority’s Principles for Business (‘Principle 8’) under section 206
FSMA.
3. Judge Herrington made directions dated 14 November 2022 for the applications to be
decided at a case management hearing. In broad terms:
(1) the Authority’s amendment application concerns:
(i) the Tribunal’s jurisdiction to entertain a new case; and
(ii) if the Tribunal has such a jurisdiction, whether it should exercise
its discretion to permit that new case to be added.
(2) BCMUK’s strike out application and the Authority’s rejoinder
application raise issues which substantially overlap. They concern:
(i) whether the Authority has pleaded a case (either as originally
pleaded or as proposed in the Draft Redress Rejoinder) capable,
as a matter of law, of supporting the redress requirement which
it seeks to impose on BCMUK, having regard to the
3
requirements for the imposition of a redress scheme set out in
FSMA. Specifically, the Tribunal must decide whether the
Authority may impose a redress requirement on a single firm
pursuant to a freestanding power under 55L FSMA read with
s.55N(5) or whether it may only do so under s.404F(7) FSMA;
and
(ii) if so, whether the Authority has pleaded a case which is capable
of meeting the requirements under the relevant provisions.
Background
4. In summary, the Authority’s case, as set out in the FSN and DN, is that between 1
October 2011 and 31 December 2015 (the ‘Relevant Period’), the Applicant failed to
manage fairly a conflict of interest arising in the context, in particular, of the allocation
of portfolio managers working on an external fund, open to investors outside the
BlueCrest group (the ‘External Fund’), to an internal fund, which was open only to
BlueCrest partners and employees (the ‘Internal Fund’).
5. The External Fund was first established in 2000 and, in 2008, was restructured into a
typical master-feeder structure. During the Relevant Period, the External Fund had a
master fund incorporated in the Cayman Islands and two feeder funds incorporated in
the Cayman Islands and Delaware respectively. The Internal Fund was set up in
2011, also with a master-feeder structure. It had a master fund and one feeder fund
(both incorporated in the Cayman Islands).
6. At the start of the Relevant Period, BlueCrest Capital Management LLP, an English
LLP with place of business in Guernsey, was appointed pursuant to a series of
investment management agreements (the ‘IMAs’) to act as the investment manager for
the master and feeder funds of both the External and Internal Funds, being replaced as
from 1 July 2014 by BlueCrest Capital Management Limited, a Jersey limited
company. References to the “Investment Manager” below are to the investment
manager at the relevant time.
7. Pursuant to a series of sub-investment management agreements (the ‘Sub-IMAs’),
the Investment Manager appointed BCMUK to act as one of the sub-investment
managers for the master and feeder funds of both the External and Internal Funds.
8. The investment decisions on behalf of both the Internal and External Funds were made
by portfolio managers (‘the Portfolio Managers’). During the Relevant Period the
Investment Manager transferred certain Portfolio Managers from the External Fund to
the Internal Fund. The Investment Manager also allocated some capital within both
funds to a proprietary quantitative trading programme called ‘Rates Management
Trading’ (‘RMT’) which used inputs from Portfolio Managers and then algorithms in
order to recommend an optimum trade list to be overseen and, as appropriate, executed
by BlueCrest’s investment professionals.
9. On 8 December 2020, the US Securities and Exchange Commission (‘SEC’)
announced that BCMUK’s parent company (BlueCrest Capital Management Limited)
had agreed to settle charges arising from inadequate disclosures, misstatements, and
To continue reading
Request your trial