FML Timeline: Financial Conduct Authority v Achilles Macris

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This case arises in the context of the well-known “London Whale” case and the behaviour of one senior individual, Mr Macris, who was the Head of the Chief Investment Office International (“CIO International”, a division of JP Morgan located in London). Mr Macris held controlled functions CF29 (Significant Management) and CF30 (Customer). The case concerns the provision of information by Mr Macris to the Financial Services Authority (the FSA, as predecessor of the FCA) between 28 March 2012 and 29 April 2012 (the Relevant Period).

On 19 September 2013 the FCA issued a Final Notice against the firm in respect of certain failings and imposed a financial penalty of £137m. On 14 October 2013 Mr Macris made a reference to the Upper Tribunal asserting that the FCA failed to give him third party rights pursuant to section 393 of the Financial Services and Markets Act 2000 (FSMA) which would have enabled him to make representations on certain matters set out in the final notice issued to the firm as a Third Party.

The key point of law which arises in this matter is the question of whether Mr Macris was “identified” in the Final Notice issued to the firm.

Decision

On 22 March 2017 the Supreme Court determined by a 3/2 majority that Mr Macris had not been identified in the Final Notice issued in September 2013. Lord Sumption delivered the leading judgment.

The Supreme Court considered the construction of section 393(1) of FSMA, and which facts may contribute to identifying a third party in FCA notices. Section 393(1) of FSMA states that:

“If any of the reasons contained in a warning notice to which this section applies relates to a matter which:

• identifies a person (“the third party”) other than the person to whom the notice is given, and
• 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 FCA argued before the Supreme Court that a third party would be identified in a notice “only if the terms of the notice would reasonably lead the ordinary reader (that is, the reader with a general understanding of financial affairs and aware of publicly and widely available background material, but without specific or special knowledge of the underlying facts of the matter to which the notice and its reasons relate) to conclude that the notice unambiguously identifies the applicant as a person mentioned in the notice”.

What amounts to identification?

The Supreme Court adopted a narrow approach and determined that a third party is identified in circumstances where he or she is “identified by name or by a synonym”(Paragraph 11, Supreme Court judgment) such as an office or a job-title of which the third party must be the sole holder. In the case of a synonym, it must be apparent from the wording of the notice that it could only apply to one person.

What amounts to a synonym?

Lord Sumption’s definition of a synonym appears to be narrower than the plain English definition “strictly, a word having the same sense as another (in the same language); but more usually, either or any of two of more words (in the same language) having the same general sense, but possessing each of them meanings which are not shared by the other or others, or having different shades of meaning or implications appropriate to different contexts” (Oxford English Dictionary, March 2017). Lord Sumption describes a relevant synonym as only referring to one person.

What publicly available information can be used?

The Supreme Court held that a third party could be “identified” with reference to information within the four corners of the notice or publicly available information but only to the extent which it “enables one to interpret (as opposed to supplementing) the language of the notice”(Paragraph 11, Supreme Court judgment). Lord Sumption considered that identification would not arise where the reader supplemented additional facts about a third party “so that if those facts are placed side by side it becomes apparent that they refer to the same person”(Paragraph 11, Supreme Court judgment).

Who is the appropriate reader?

Notwithstanding the more expansive scope of the appropriate reader test offered by the FCA itself ie a reader with a general understanding of financial affairs and aware of publicly and widely available background material, but without specific or special knowledge of the underlying facts of the matter to which the notice and its reasons relate, Lord Sumption held that the scope of the appropriate reader test was “the public at large”(Paragraph 15, Supreme Court judgment).

What is the distinction between “interpret” and “supplement”?

The example cited by Lord Sumption of a “chief executive” for which the reader may be “elucidated” by checking the information on a corporate website(Paragraph 11, Supreme Court judgment) is helpful, but is the most simplistic. In practice, it will likely be difficult to identify the clear bright line between public information which assists the reader to “interpret” the facts in a notice but does not go so far as to “supplement” those facts. However, Lord Wilson expressed concern about the practicalities of such a distinction (Paragraph 49, Supreme Court judgment).

Mr Macris argued that he was identifiable with reference to public information contained within a US Senate Committee report (published on the internet in early 2013) which described his role in the issues outlined in the Final Notice against the firm and identified him by name. Mr Macris argued that if the notice and report were read side by side it would enable the reader to deduce who was being referred to as “CIO London management” in the notice.

Practicalities and policy

The judgment of the Supreme Court recognises the importance of the third party rights regime as a key mechanism by which the regulator must balance the interests of individuals and firms who might be prejudiced by statutory notices and those who are subject to the enforcement process itself. However, the different opinions expressed in the judgment highlights the difficulty in striking the correct balance in practice.

Noteworthy/ Novel points

The relevant audience for the purposes of judging whether a third party is “identifiable” is the public at large, without any special knowledge or skills.

The information by which a third party is identified must be in the notice itself or publicly available from another source. However, a third party is not identified if the reader has to turn to other facts to supplement the notice and read across to the notice to identify them.

For further information, read our article "Third party rights - clarity or yet more uncertainty?"