Disclosure to Regulators
| DOI | https://doi.org/10.1108/eb025680 |
| Date | 01 February 1995 |
| Published date | 01 February 1995 |
| Pages | 84-86 |
| Author | Mads Andenas |
| Subject Matter | Accounting & finance |
Disclosure to Regulators
Mads Andenas
Journal of Financial Crime — Vol. 3 No. 1 — Regulation
Financial institutions are under a duty to inform
their regulators of matters which may include
potential breaches of rules causing loss to invest-
ors.
When investors sue for compensation, courts
require disclosure of all documents relevant to the
issue. Documents prepared for regulators about
potential breaches of rules will generally pass the
test of relevance, and must be disclosed unless they
fall within an exempt category such as public inter-
est immunity. In a recent case, Kaufmann v Credit
Lyomiais Bank,1 a High Court judge refused to
extend public interest immunity for documents
sent to the regulators of
a
bank.
The decision is more restrictive than expected
by financial institutions and their regulators. It
does strengthen the position of the private litigator,
and it should be welcomed. It is not clear what
effects it will have on the relationships between
financial institutions and their regulators, but reg-
ulators should have the means to secure their
access to information in spite of the potential
adverse effects for the financial institutions.2
THE BACKGROUND
The relationship between regulators, the regulated
and private litigants in the financial services area
has been before the courts in several recent cases.
The courts have to balance the interest of individ-
ual litigants against the public interest in
regulation.
One group of cases are those where the regu-
lated firm applies for judicial review to stay the
regulatory or disciplinary proceedings because they
can prejudice the firm's position in civil litigation
over the same or related issues. It is not surprising
that courts are inherently prone to give court pro-
cedures precedence over disciplinary procedures.
But in R v
Institute
of
Chartered Accountants
in Eng-
land and
Wales,
ex p. Brindle3 the Court of Appeal
went further than earlier authority indicated when
it stayed the disciplinary proceedings against Price
Waterhouse under the Joint Disciplinary Scheme
of the accountancy profession. The decision could
threaten the functioning of any enforcement by
regulators in instances where there is a prospect of
civil litigation brought against a firm.
In Brindle the Court of Appeal seems to have
attached little importance to the public interest
involved, and to disregard that the present
regulatory regime has been introduced because
the legislator did not consider the common law
remedies to be sufficient. To stay disciplinary pro-
ceedings, because of the prospect of private
litigation, is difficult to defend in this perspective.4
In the more recent case of
Kaufmann,
Arden J
Page 84
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