Macris v Financial Conduct Authority
| Jurisdiction | England & Wales |
| Judge | Lord Sumption,Lord Neuberger,Lord Hodge,Lord Mance,Lord Wilson |
| Judgment Date | 22 March 2017 |
| Neutral Citation | [2017] UKSC 19 |
| Date | 22 March 2017 |
| Court | Supreme Court |
[2017] UKSC 19
Lord Neuberger, President
Lord Mance
Lord Wilson
Lord Sumption
Lord Hodge
Appellant
Jonathan Crow QC
Paul Stanley QC
(Instructed by The Financial Conduct Authority)
Respondent
Javan Herberg QC
Ben Jaffey
(Instructed by Clifford Chance LLP)
Heard on 13 October 2016
(with whom Lord Neuberger and Lord Hodge agree)
Mr Achilles Macris's complaint is that without giving him a chance to make representations in his own defence, the Financial Conduct Authority has published a notice imposing a penalty on his former employer for various irregularities in the conduct of its business, in terms which identify him as the person responsible. The question at issue on this appeal is whether the notices in question did in fact identify him. This may look like a small point but, for reasons which I shall explain, it has significant implications for the conduct of the Authority's investigatory and disciplinary functions.
The Financial Conduct Authority is responsible for the statutory regulation of the United Kingdom's financial markets. This includes protecting and enhancing the integrity of the United Kingdom financial system and ensuring the stability and orderly functioning of financial markets. The Authority's powers are derived from the Financial Services and Markets Act 2000 ("the Act"), as amended by the Financial Services Act 2012.
JP Morgan Chase Bank NA is authorised under the Act to carry on regulated investment activities. In 2012 Mr Macris was the Bank's International Chief Investment Officer. In that capacity, he was the head of a unit of the Bank in London called the Chief Investment Office (or "CIO International"). The function of CIO International was to manage the firm's excess deposits, including a portfolio of traded credit instruments called the Synthetic Credit Portfolio. Mr Macris's own functions were "controlled functions" for the purpose of section 59 of the Act, which meant that he had to be approved by the Authority as a suitable person to carry on those functions.
In July 2012, the Bank announced that the Synthetic Credit Portfolio had lost $5.8 billion in the first half of the year, a figure which rose to $6.2 billion by the end of the year. Following an investigation, the Authority concluded that the loss was caused by a high risk trading strategy, weak management of that trading and an inadequate response to important information which should have alerted the Bank to the problems. It also concluded that the Bank had withheld significant information from the Authority while the losses were being incurred. Together, these failings were found to have undermined trust and confidence in UK financial markets. A regulatory settlement was agreed with the Bank, under which it paid a penalty of £137,610,000.
The provisions of the Act governing the imposition of penalties provide for three successive notices to be given to a person or firm under investigation: a warning notice describing the action which the Authority is provisionally minded to take and inviting representations (section 207); a decision notice describing the action that it has decided to take after considering any representations and informing the recipient of his right to refer the matter to the Upper Tribunal (Tax and Chancery) (section 208); and a final notice describing the action that it is taking once the decision notice has become final, ie after it has been reviewed by the Upper Tribunal or the time for applying for such a review has expired (section 390). The normal form of these notices is a brief statement of the action proposed, followed by a fairly extensive narrative entitled "Reasons". Where a regulatory settlement is agreed before the service of any of these notices, they must still be given, but the practice is to draft them in identical terms and serve them simultaneously. In this case the three notices were all served on the Bank on 18 September 2013. The Authority is not required to publish a warning notice to the world, but it is required to publish a decision notice and a final notice. It did so in this case on the following day, 19 September 2013.
Notices recording disciplinary action proposed to be taken against an authorised firm will almost inevitably contain implicit or explicit criticisms of those responsible for the irregularities in question and possibly of other persons involved. These are referred to in the Act as "third parties". Section 393 contains provisions for protecting them against unfair prejudice. Subsection (1) provides:
"If any of the reasons contained in a warning notice to which this section applies relates to a matter which —
(a) identifies a person ('the third party') other than the person to whom the notice is given, and
(b) in the opinion of the regulator giving the notice, is prejudicial to the third party,
a copy of the notice must be given to the third party."
The object of this procedure is to enable the third party to make representations to the regulator. Subsection (3) requires a copy notice served on a third party to specify a reasonable period of time within which he may do so. Subsection (4) contains a corresponding provision relating to decision notices. The object here is to enable the third party to take the matter before the Upper Tribunal, as subsection (9) entitles him to do. These procedures need not be followed if a corresponding notice in relation to the same matter has been given to the third party in his own right: see subsections (2) and (6).
Mr Macris was not supplied with a copy of the notice served on the Bank or given an opportunity to make representations. As an "approved person" he was personally under investigation along with his employer. But he was not party to the settlement with the Bank, and the investigation of his conduct was still in progress at the time. Ultimately, in February 2016, Mr Macris reached his own regulatory settlement. A final notice in relation to him was published on 9 February 2016, in which he was found to have been party to the withholding of information from the Authority and on one occasion to have misled it. A penalty of £762,900 was imposed on him.
The Authority does not deny that if Mr Macris was identified in the warning and decision notices served on the Bank, there were statements in those notices which were prejudicial to him. Their case is that he was not identified. It is common ground that he was not identified by name or job title. But there were many references to conduct by "CIO London management" or similar expressions. Mr Macris was not the only manager in CIO International in London. On the basis of the notice alone, therefore, "CIO London management" could have referred to a number of people other than him. His case is that those who were active in the relevant markets would have known that it referred to him. In support of this case, he produced two witness statements in the Upper Tribunal, neither of which was challenged. One was from a senior manager formerly employed in CIO International in London, who said that it was clear to him that "CIO London management" referred to Mr Macris. This was because of the knowledge that he had acquired as a manager in the same unit. In particular, he knew that Mr Macris was the head of that unit and was not in the habit of sharing his responsibilities with others. The other witness was a senior sales representative dealing in credit instruments for another bank in London. He said that he drew the same conclusion because he knew about Mr Macris's position and working methods from his dealings with CIO International. In addition, Mr Macris relied on the fact that some five months before the service of the notices on the Bank, a US Senate Committee had published a report on the losses in the Bank's Synthetic Credit Portfolio, which described his role in the incurring and treatment of those losses, identifying him by name. This report was available on the internet. It was said that if read side by side with the Authority's notices the Senate Committee report would enable anyone to deduce who was being referred to as "CIO London management".
The Upper Tribunal directed the hearing as a preliminary issue of the question whether Mr Macris was entitled to be treated as a third party for the purposes of section 393 of the Act. Judge Herrington upheld Mr Macris's complaint and held that he was. He referred at para 13 of his judgment to para 4.3 of the final notice, which described the position of CIO International in the Bank's hierarchy in the following terms:
"4.3 The Firm is a wholly owned subsidiary of the Group. CIO operates within the Firm in both New York and London. The traders on the SCP were managed by SCP management, which in turn were managed by CIO London management. CIO London management represented the most senior level of management for the SCP in London, reporting directly to CIO Senior Management in New York, which in turn reported to Firm Senior Management. CIO also had its own Risk, Finance and VCG functions, which were control functions relevant to the SCP and other portfolios within CIO. The wider control functions within the Group included Internal Audit, Compliance and the Group's Audit Committee."
The judge then referred at para 16 to a number of places where the notices referred to acts as having been performed by an individual (eg "CIO London management sent an e-mail"). The essence of his reasoning appears at paras 45 and 46 of his judgment:
"45. In my view the drafting of para 4.3 is inconsistent with how a corporation would describe the hierarchy of its governing bodies. Collective bodies are responsible for the management of particular business units rather than...
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