I’ve been appointed as an executor under a Will – what are the responsibilities?
Joseph Austin TEP
A recent ruling at the Court of Appeal may affect the way in which the Financial Conduct Authority (FCA) publishes enforcement notices referring to third parties.
Section 393 of the Financial Services and Markets Act 2000 (“FSMA”) gives third parties certain rights in relation to notices given to another person in respect of whom regulatory action is being taken. It requires that a person prejudicially identified in such a notice be given a copy of the notice and the opportunity to make representations upon it.
It had been recognised in a 2004 case before the Financial Services and Markets Tribunal, the predecessor to the Upper Tribunal (Sir Philip Watts v FSA (FIN/2004/0024) and Jan Laury v FSA (FIN/2007/0005)), that the purpose of section 393 was to ensure that third parties should not be identified and adversely criticised in a notice without having had the opportunity to make representations in response.
The recent case of FCA v Macris  EWCA Civ 490, was an appeal by the FCA against a ruling by the Upper Tribunal holding that it had erred in identifying an individual in its final notice regarding its 2013 settlement with JP Morgan Chase in the London Whale case.
In the notice, the FCA had accused “CIO London management” at the Bank of misleading the FCA in its investigation: the respondent himself was not named. It was accepted by both sides that, if the notice did identify the respondent for the purposes of section 393, it was prejudicial to the respondent and he would be entitled to the protection of the section. The issue was whether the wording used in the notice (i.e. “CIO London management”) did in fact identify the respondent, thus engaging section 393.
The Court of Appeal agreed with the Upper Tribunal that the wording in question was, in that context, clearly a reference to a particular individual and not a body of people. Further, it agreed that it was possible for those in the financial services industry to identify the respondent from this wording. On that basis, the respondent had indeed been prejudicially identified in the notice without having been given the opportunity to make representations. Accordingly, the FCA’s appeal was dismissed.
The FCA will be considering carefully whether it ought to appeal the ruling. Should it stand, it will have a significant impact on the way the FCA drafts its notices if it is to avoid giving rise to third party rights. It will have to ensure that individuals referred to in the notice cannot be identified by other market participants. This may be easier said than done: many functions at even the largest of organisations are discharged by one person and reference to his or her role will be enough to identify him or her to his or her peers.
The issue of third party rights is just one part of a broader picture, namely the general fairness of firms and individuals being identified, directly and indirectly, in the FCA’s published notices. Since the FCA has started making use of its power to publish decision notices, as well as final notices, these firms and individuals are being “named and shamed” at a much earlier stage in the enforcement process. Against this backdrop, the new ruling is therefore a particularly welcome development and, it is hoped, will serve as a timely reminder to the FCA of the reputational damage which can be suffered by those referred to in an enforcement notice, whether subjects or third parties.
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