FSMA and Third Party Rights: Victory for FCA in Supreme Court

Abstract

This article analyses the judgment of the Supreme Court in Financial Conduct Authority (Appellant) v Macris (Respondent) [2017] UKSC 19. The Financial Conduct Authority (FCA) emerged triumphant in this appeal and the outcome has altered the fortunes of persons regulated by the City watchdog. Reversing the Court of Appeal’s judgment, the Supreme Court held by majority that Mr Achilles Macris (M) had not been identified in the Final Notice given to JP Morgan Chase (JPMC). Accordingly, any “third party rights” under section 393 of the Financial Services and Markets Act 2000 (FSMA) were not engaged because the notice did not identify M when interpreted by information readily available in the public domain. Lord Sumption found the analogy with the law of defamation to be unhelpful. Lord Mance said that this was “a difficult case” and Lord Neuberger said it was “difficult to resolve” the meaning of the word “identifies” in section 393(1)(a) despite the provision being a “good example” of Parliament’s enactment of generally lucid statutory language. In 2012, the Synthetic Credit Portfolio (SCP) operated by JPMC had lost $6.2bn because of the rogue “London Whale” trades. Because of the notorious losses the Final Notice entailed a financial penalty or “conduct costs” of £137.6m. Between 2012-2016 the world’s twenty foremost international banks paid a total of £264bn in conduct costs of which JPMC’s share was £33.64bn. As the head of the Chief Investment Office, which managed excess deposits including the portfolio comprising the SCP’s traded credit instruments, M’s functions as JPMC’s employee were “controlled functions” under section 59 of FSMA. The losses were linked to high risk trading tactics, feeble management and failing to react to information alerting JPMC to the SCP’s problems. The appeal, explained Lord Sumption, turned on the meaning of “identifies” and on the meaning of the notice to which that word is being applied. His Lordship judged that “a person is identified in a notice under section 393 if he is identified by name or by a synonym for him, such as his office or job title”. He said that it must be evident from the notice that the synonym could only apply to one person and he must be identifiable from information contained either in the notice or publicly available elsewhere. Lord Sumption explained that it is possible to turn to public information available elsewhere only where it enables the interpretation (as opposed to supplementation) of the notice’s language. The ratio of Macris was subsequently applied by the Court of Appeal in the case of FCA v Grout [2018] EWCA Civ 71 which concerned Julien Grout (G) who was one of four traders in the SCP managed by M. Putting the Supreme Court’s test into action, Longmore, Moylan and Newey LJJ held that the FCA’s notice did not identify G – who was foreign exchange trader – for the purposes section 393 of FSMA. The notice did not identify only one person, as required by the test set out in Macris by the Justices of the Supreme Court.