The Upper Tribunal in Christian Bittar v The Financial Conduct Authority [2015] UKUT 602 (TCC), 10 November 2015 considered a claim by a former employee of Deutsche Bank (the Bank), Mr Bittar, who argued that he had been prejudicially identified in a decision notice issued by the Financial Conduct Authority (the FCA) to Deutsche Bank. The Upper Tribunal considered and applied the Court of Appeal's judgement in FCA v Macris, finding that Mr Bittar had indeed been identified (even though he was not named). In coming to its conclusion, the Upper Tribunal provided guidance on the Court of Appeal’s two-stage test in Macris.

Decision Notice against Bank for benchmark manipulation

The FCA gave a decision notice to the Bank on 23 April 2015 (the Decision Notice) concerning its attempted manipulation of two benchmark interest rates, namely LIBOR and EURIBOR, and its exercise of improper influence over the submission of those rates. Mr Bittar, who was previously the manager of the Money Markets Derivatives desk at the Bank in London, alleged that the text of the Decision Notice included reasons which identified him (although he was not specifically named), prejudiced him, and which he had no opportunity to contest. Mr Bittar is one of a number of former bank employees who filed challenges in the Upper Tribunal following investigations by the FCA which resulted in notices being issued against the former bank employers.

Protection for third parties

Under s393 Financial Services and Markets Act 2000 (FSMA), third parties have certain rights in relation to warning and decision notices. In particular, where a decision notice: (i) identifies a person other than the person to whom the decision notice is given; and (ii) in the opinion of the regulator, is prejudicial to the third party, a copy of the notice must be given to the third party (s393(4) of FSMA).

A copy of the Decision Notice was not given to Mr Bittar as the FCA took the view that the notice did not identify him. Mr Bittar challenged the FCA’s conclusion. The Upper Tribunal was left to decide whether the Decision Notice did indeed “identify” Mr Bittar.

Earlier Macris decision on identification

In May 2015, the Upper Tribunal found that certain notices issued by the FCA (relating to the “London Whale” trades) “identified” an individual, Mr Macris (the International Chief Investment Officer), under s393 FSMA. Although the notice did not specifically name Mr Macris, it was critical of the management of the Chief Investment Office. The penalty was imposed on JP Morgan by the FCA and related to trading by JP Morgan’s Chief Investment Office.

The FCA appealed. The Court of Appeal set out a two stage test (the Macris test) to assess whether the reasons contained in a decision notice relate to matters which identify a person who is not named in the notice:

− First, whether the relevant statements in a notice said to “identify” the third party, construed in the context of the notice alone (without recourse to external material), refer to someone other than the person to whom the notice was given; and

− Secondly, whether the words used in the notice would lead persons “acquainted” with the third party or who operate in the relevant industry (and therefore have the requisite specialist knowledge of the circumstances) to believe, at the date of the notice, that the third party is prejudicially affected by the matters in the notice.

Against the background of the decision in Macris, Mr Bittar argued that market participants who read the Decision Notice and who were familiar with the Bank’s foreign exchange or money market derivatives operations would know that the person referred to as “Manager B” was in fact Mr Bittar.

Interpreting the Macris test

For the purposes of the first stage of the test, it was clear that a “person” other than the person to whom the notice was given had been identified – the Decision Notice had referred to a “Manager B”.

Information available in the public domain

In interpreting the second stage of the test, the Upper Tribunal decided that it should refer only to information that was in the public domain at the time the notice was published. Importantly, the Upper Tribunal noted that such knowledge did not include knowledge that would be obtained by an extensive investigation of available sources, such as that conducted by an investigative journalist. The test focused on “the knowledge that could reasonably have been expected to have been obtained by well-informed market participants in the relevant area by the time of the publication of the notice”. The Upper Tribunal clarified that “market participants” were those working directly in the relevant sector, rather than those commenting upon it from a different perspective. Persons from the relevant sector were deemed to be “relevant readers” by the Upper Tribunal; it was what these “relevant readers” would reasonably know and conclude that was key to the question of whether a third party was “identified”, rather than whether it was logically possible to deduce the third party’s identity from publicly available material.

Meaning of “acquainted”

The Upper Tribunal decided that persons “acquainted” with the third party or those who work in the same area should not include: (i) those with intimate knowledge of the relevant events (for example, those who participated in the particular transactions); or (ii) those with special personal knowledge (for example, a close friend or someone who sat next to the person at work). However, Mr Bittar’s counterparties in other leading banks operating in the same area as well as customers and counterparties of his business unit could be considered “relevant readers”.

Each case highly fact dependent

The Upper Tribunal confirmed that the application of the test would be wholly dependent upon the circumstances of each individual case. Having considered the information available in the Decision Notice, the media coverage which had focused on Mr Bittar at the time, and information in other regulatory notices which readers could cross-reference with the media coverage, the Upper Tribunal considered that Mr Bittar had indeed been identified in the Decision Notice.

COMMENT

The guidance provided by the Upper Tribunal will be welcomed by those individuals who continue to pursue claims against the FCA. However, for all practical purposes, the industry awaits the decision of the Supreme Court on the matter in 2016, with permission to appeal the Macris decision having been granted to the FCA in November 2015. Indeed, a number of claims brought by former bank employees before the Upper Tribunal have been stayed pending the appeal.

Despite the pause for the Supreme Court, the FCA has needed to be particularly careful when drafting notices, especially those that have received significant public interest. The very same extracts from traders’ chatroom messages that provide the FCA with publicity could end up leading to numerous sets of proceedings from individuals who contend that they have been identified. In addition, the FCA will now need to consider whether notices drafted by other global regulatory authorities interact with their own notices in such a manner as to help identify individuals.

The wording of the final notice issued to a different bank on 25 November 2015 in respect of a structured finance transaction is a prime example of the cautious approach now being utilised by the FCA in drafting its notices. The final notice contains only very generic references to senior managers and may form a template for the FCA, at least until the Supreme Court makes its decision.