Financial Conduct Authority v Macris [2017] UKSC 19

Mr Macris, JP Morgan's former International Chief Investment Officer, challenged the FCA for publishing notices penalising the bank that referred to 'CIO London management' without giving him a chance to respond. The Supreme Court held he was not 'identified' under section 393.

Facts

Mr Achilles Macris was JP Morgan Chase Bank NA’s International Chief Investment Officer and head of CIO International in London. In 2012, the Bank’s Synthetic Credit Portfolio incurred losses exceeding $6.2 billion (the ‘London Whale’ trades). Following investigation, the Financial Conduct Authority (FCA) agreed a regulatory settlement under which the Bank paid a penalty of £137,610,000. On 18 September 2013, the FCA served warning, decision and final notices on the Bank, publishing the decision and final notices on the following day.

The notices referred to conduct by ‘CIO London management’ but did not name Mr Macris or identify him by job title. Mr Macris was not provided with a copy of the notices nor given an opportunity to make representations. He later reached his own regulatory settlement in February 2016, where the more serious allegations (including misleading the Authority) were not pursued, though a £762,900 penalty was imposed.

Mr Macris claimed he had been ‘identified’ as a third party under section 393 of the Financial Services and Markets Act 2000 (FSMA), relying on witness evidence from a former CIO colleague and a sales representative in another bank, together with a US Senate Permanent Subcommittee report (15 March 2013) which named him over 80 times.

Issues

The central issue was the meaning of ‘identifies’ in section 393(1)(a) of FSMA 2000: whether Mr Macris was identified in the notices given to JP Morgan such that he was entitled to third party rights, including the right to make representations and refer matters to the Upper Tribunal.

This required the court to determine what extrinsic material may legitimately be used to identify a third party, and what constituency of readers is relevant for that exercise.

Arguments

The FCA’s position

The Authority contended that a person is identified only if the terms of the notice would reasonably lead the ordinary reader, with general financial understanding and aware of publicly and widely available background material but without specific knowledge of the underlying facts, to conclude that the notice unambiguously identifies the applicant.

Mr Macris’s position

Mr Macris argued that those active in the relevant markets would have known ‘CIO London management’ referred to him, particularly when read alongside the publicly available US Senate Committee report which named him. He relied on the Court of Appeal’s test based on persons acquainted with him or operating in his area of the financial services industry.

Judgment

The Supreme Court (Lord Neuberger, Lord Sumption and Lord Hodge in the majority; Lord Mance concurring in the result; Lord Wilson dissenting) allowed the FCA’s appeal.

Lord Sumption’s reasoning (majority)

Lord Sumption held that a person is identified in a section 393 notice if identified by name or by a synonym such as office or job title. Where a synonym is used, it must be apparent from the notice itself that it could apply to only one person, and that person must be identifiable from information either in the notice or publicly available elsewhere. Crucially, resort to external information is permissible only to interpret, not to supplement, the language of the notice.

He gave four key reasons: (i) section 393 reflects a more limited version of the public law duty of fairness; (ii) the statutory language requires identification by the reasons in the notice, not extrinsic sources; (iii) practical realities of investigations require the Authority to be able to frame notices so that third parties under continuing investigation are not identified even if identifiable by insiders; and (iv) the relevant audience is the public at large, not specialist sectors. He rejected the analogy with defamation as the law of defamation imposes strict liability and has an entirely different purpose.

Lord Neuberger’s reasoning

Lord Neuberger agreed, formulating the test that an individual is identified if (i) his position or office is mentioned, (ii) he is the sole holder, and (iii) reference by members of the public to freely and publicly available sources of information would easily reveal the name. Identification must be straightforward and not require ‘detective work’ or ‘jigsaw identification’ (citing Donald v Ntuli [2011] 1 WLR 294, para 55). The US Senate Committee report did not suffice because members of the public would not know of it or think of referring to it.

Lord Mance’s concurrence

Lord Mance took a broader view of the legal test than Lord Sumption and Lord Neuberger, accepting the FCA’s primary case that identification could occur where the identity is apparent from the notice read in light of information generally or publicly available in the financial world. However, applying this to the facts, he concluded that the criticism of ‘CIO London management’ did not necessarily refer to a single individual, and the evidence relied upon involved specialist knowledge irrelevant to identification.

Lord Wilson’s dissent

Lord Wilson dissented, considering that section 393 should be construed to strike a fair balance between regulatory efficiency and individual reputation. He proposed that the question be whether the words would reasonably lead an operator in the same sector of the market, not personally acquainted with the applicant, by reference only to publicly available information, to conclude the notice referred to the applicant. Applying this test, the US Senate report would have led to an affirmative conclusion in Mr Macris’s case.

Implications

The decision establishes a narrow construction of ‘identifies’ in section 393 FSMA 2000. A third party will only be entitled to section 393 rights where they are named in the notice, or where a synonym used could apply to only one person and that person is identifiable from information in the notice or publicly available elsewhere (in the limited sense of interpreting rather than supplementing the notice).

The judgment is significant for the FCA’s investigatory and disciplinary functions. It enables the Authority to publish settlement notices against firms even where individuals under separate ongoing investigation might be identifiable by industry insiders, without triggering third party procedural rights. As Lord Sumption emphasised, this protects the Authority’s ability to settle with firms while continuing investigations into individuals whose roles and culpability remain to be determined.

For individuals working in regulated firms, the practical consequence is potentially significant: criticisms of generic ‘management’ in published notices may damage reputations among those with specialist knowledge of the firm, without affording the individual a procedural route to challenge those criticisms under section 393. As Lord Wilson observed in dissent, persons in Mr Macris’s position may have no remedy: they cannot sue the FCA absent bad faith (Schedule 1ZA, paragraph 25), and yet allegations not pursued in their own personal proceedings may remain in published notices against their employer.

The decision also clarifies that the law of defamation is not an appropriate analogy when construing section 393, given the different purposes of the two regimes. The test rejects ‘jigsaw identification’ through combining the notice with extrinsic facts about the individual.

Verdict: The Supreme Court allowed the FCA’s appeal (Lord Wilson dissenting) and declared that Mr Macris was not a third party for the purposes of section 393 of the Financial Services and Markets Act 2000.

Source: Financial Conduct Authority v Macris [2017] UKSC 19