Achilles Macris v FCA: Court of Appeal Ruling Safeguards Individuals’ Rights in Regulatory Investigations

June 03, 2015

As part of its policy of credible deterrence, the UK Financial Conduct Authority (FCA) has frequently sought to include specific examples of individuals’ behaviour in its enforcement notices in order to highlight the failings of organisations which are the subject of regulatory investigations. The FCA has also been keen to publish enforcement notices as early in the enforcement process as possible following criticism over the length of time it took to investigate allegations of LIBOR manipulation. This has increasingly led to the FCA reaching quick, convenient settlements with the corporate entities it has investigated without consulting the individuals whose behaviour has been criticised. 

However, in a judgment handed down last week in the case of Achilles Macris v FCA, the Court of Appeal (CoA) criticised the manner in which the FCA attributes blame to identifiable individuals in these regulatory notices. In light of this judgment, it has been widely reported that the FCA may now be forced to overhaul the way in which it conducts its investigations1

Third party rights 

Under section 393 of the Financial Services and Markets Act 2000 (FSMA), if an individual is prejudicially indentified in an FCA enforcement notice, he or she is entitled to various third party rights. The FCA must provide a copy of the notice to the third party, and the third party must then be given a reasonable period of time within which to respond to any criticisms of them in the notice. In addition, the FCA must allow the third party access to all relevant material on which it relied in making its decision, as well as allowing access to any secondary material which might undermine that decision. 

These protections under FSMA are designed to ensure that any individuals who are prejudicially identified in an enforcement notice are given an opportunity to respond to criticisms aimed at them before the FCA’s findings are made public. However, prior to the Macris ruling, individuals could only benefit from third party rights under FSMA if they were identifiable solely from the wording within the relevant notice. This meant that if the FCA referred to an individual it criticised in an enforcement notice by a term such as “Trader A”, even if industry insiders or the general public could work out the identity of the individual being referred to from evidence outside the notice, it was not required to give the individual concerned a chance to respond to those criticisms. 

Background to the Macris case 

In September 2013, the FCA fined JP Morgan Chase Bank NA £137.61 million in respect of trading losses incurred by the bank as a result of the so-called “London Whale” trades. The FCA set out its detailed reasons for imposing this fine in a decision notice given to JP Morgan on 18 September 2013 (the Notice). 

Mr Macris was International Chief Investment Officer at JP Morgan at the time of the London Whale trades. He argued that criticisms of “CIO London management” within the Notice were easily identifiable as criticisms of his actions alone and not those of a group of individuals, as the FCA claimed. However, the FCA did not provide Mr Macris with an opportunity to explain his conduct before publishing the Notice. He therefore referred the matter to the Upper Tribunal of the Tax and Chancery Chamber (the Tribunal). 

Dealing with the question of identification as a preliminary issue, the Tribunal ruled that the references in the Notice to “CIO London management” did relate to an individual. This was because “CIO London management” was described as having performed actions attributable to an individual, such as having conversations, attending meetings and sending emails. The Tribunal also concluded that by taking into account external sources, references to “CIO London management” could only be references to Mr Macris. The FCA appealed this decision to the CoA. 

Court of Appeal ruling 

During the CoA hearing in December 2014, Lady Justice Gloster questioned the legitimacy of the FCA’s policy of referring to identifiable individuals by monikers such as “Trader A” so as to deny them their rights under FSMA: 

“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’?”

It is no surprise, therefore, that the CoA agreed with the Tribunal and held that, although the FCA had not expressly referred to Mr Macris by name, it was possible to identify him from references to “CIO London management” by taking into account “matters publicly available as at the date of the promulgation of the Notice.” 

If the FCA decides not to appeal this decision to the Supreme Court, the case will now return to the Tribunal where a judge will determine whether the criticisms of Mr Macris in the Notice were valid. If the judge rules in favour of Mr Macris, the FCA may be required to amend its Notice to reflect the Tribunal’s findings on the evidence. 

The test for identification 

The CoA confirmed that the first stage of the identification process is to ask whether the relevant statements in a notice identify a specific individual within the context of the notice alone. If this stage is satisfied, the test for identification under FSMA is a simple, objective one: 

Are the words used...such as would reasonably in the circumstances lead persons acquainted with the 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? 

This ruling means that if an individual is referred to in an FCA enforcement notice by reference to their office or job description, or even by a term such as “Trader A”, that person will be “identified” for the purposes of FSMA if anyone could reasonably identify that references in the notice were to that particular individual. This is the case even if only a few people with special knowledge of their industry are able to reasonably identify the individual. 

Consequences for the FCA 

The Macris decision comes at a time when the FCA is under increased scrutiny for the way it has handled the publication of its findings in respect of several of its recent investigations. For example, a number of individuals have lodged appeals with the Tribunal concerning the FCA’s enforcement notices in respect of its investigations into the foreign exchange market and LIBOR manipulation. Like Mr Macris, these traders claim that they were prejudicially identified in these notices and that, by explicitly criticising their conduct without giving them a chance to respond, the FCA showed complete disregard for their rights and reached its decisions without carrying out a full and proper investigation. 

Whilst the FCA is still considering whether or not to challenge the CoA’s ruling in the Supreme Court, the Macris decision will serve as a reminder that it cannot run roughshod over the rights of individuals when negotiating a settlement with a regulated firm. If it wishes to continue to reach speedy settlements with the corporate entities it regulates, the FCA will need to take greater care in ensuring that no individuals can be identified in its future enforcement notices. If not, the regulator’s entire investigation process will be considerably delayed as the FCA will be obliged to grant third party rights to any individuals it wishes to identify. This will affect how the FCA approaches negotiating joint settlements with other regulators, both in the UK and overseas. 

FCA regulated firms will need to consider the impact of this decision when entering into negotiations with the regulator in future as there will now be more logistical hurdles to clear in order to achieve a settlement with the FCA. Indeed, the FCA may be required to provide individuals with relevant evidence as well as giving them a reasonable period of time to reply to any criticisms levelled at them. The FCA will then also be required to consider these representations before publishing any enforcement notices, which could potentially result in further delays in any settlement being agreed. In addition, any regulated individuals involved in conduct which has the potential to be the subject of an FCA investigation should take note of their rights following Macris. In particular, they should consider what representations, if any, they wish to make should the FCA come calling. Should the regulator continue to ignore their rights in the wake of Macris, the way has been paved for further challenges to follow. 


1) Why bankers must be allowed to speak out in their own defence City AM (26 May 2015)
2) FCA fights identify ruling over London Whale's boss The Financial Times (11 December 2014)

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