Tribunal Offers Guidance on Third Party Rights and Supervisory Notices

Posted on 25 April 2018

Tribunal Offers Guidance on Third Party Rights and Supervisory Notices

On 25 April 2018, the Upper Tribunal in UK Innovative TI Limited v Financial Conduct Authority [2018] UT 0136 (TCC) ruled on a novel third party rights case. Whilst it confirmed that third party rights do not arise in respect of Supervisory Notices, it suggested instead avenues that third parties that had been prejudiced might look to explore. 

On 27 June 2017, the FCA issued its First Supervisory Notice (FSN) against Stargate Capital Management, an authorised entity. Amongst other things, the FSN required that Stargate cease acting as investment manager of a particular fund. The FSN also made reference to UK Innovative TI Ltd (UKITI), an unregulated company, and to "UKITI's director". UKITI's director could only have been a reference to Iain Stamp, its sole director.

The FSN was then published on the FCA's website on 7 July 2017. In expressing concerns that UKITI was performing the role of investment manager, the inference was that UKITI was conducting unauthorised regulated activity, which is of course a breach of the general prohibition and a criminal offence. The FSN explicitly referenced UKITI throughout.

Some 3 days later, on 10 July, the FSN was replaced by a redacted version which blanked out all references to UKITI, although the reasons behind this republication are not clear. Nevertheless, shortly afterwards, on 13 July, Citywire published an article reporting on Stargate's FSN and making reference to the role of UKITI.

Stargate referred the FSN to the Tribunal and, in parallel, exercised its right to make representations on the FSN to the FCA. In addition, UKITI and Stamp both sought to refer the FSN to the Tribunal on the basis that the publication of UKITI's name and the reference to the "UKITI director" prejudiced UKITI and Iain Stamp.

The Tribunal stayed Stargate's reference pending the outcome of the firm's representations to the Regulatory Transactions Committee and, exceptionally, pending the references of UKITI and Stamp. In parallel, having considered the representations made by all parties, the FCA issued its Second Supervisory Notice (SSN). The SSN anonymised UKITI and instead referred to it as "Firm Y". 

On 16 March 2018, Stargate agreed a settlement with the FCA and the FCA subsequently made an application to strike out UKITI/ Stamp's references. The FCA's case was that:

  • FSMA makes provision for a third party to refer a Warning or Decision Notice to the Tribunal where the FCA publishes such Notices that are prejudicial to identified third parties. 
  • It makes no provision for third party rights in respect of Supervisory Notices. 
  • Nor indeed, is there any provision to even inform a third party of a Supervisory Notice.

As third party rights do not arise in the context of Supervisory Notices, nor can a third party refer Supervisory Notices to the Tribunal, the Tribunal had no jurisdiction to hear the references of UKITI and of Stamp. The references were therefore struck out.

Comment

It is no surprise that the Tribunal determined that there is no provision in FSMA for a reference by a third party on the basis that the third party had been identified in a Supervisory Notice in a manner that was prejudicial. Those rights are confined to Warning Notices and Decision Notices.

The Tribunal elaborated that Parliament had made a deliberate decision not to give statutory third party rights in relation to Supervisory Notices, as opposed to in relation to Warning and Decision Notices. The characteristics of Warning and Decision Notices, it said, were different to those of Supervisory Notices. Warning and Decision Notices were used as sanctions, whereas Supervisory Notices were used as tools in circumstances where the FCA must protect the interests of consumers, sometimes urgently.

What was perhaps most interesting about the Decision was that, alive to the potential prejudice this lack of jurisdiction can cause to third parties, the Tribunal saw it fit to note:

  • A balance needs to be struck between the interests of the authorised firm, or any other person named in the Supervisory Notice, and the interests of consumers as the FCA needs the flexibility to issue alerts warning the public of firms it believes are carrying on regulated activity without authorisation.
  • On alternative remedies, the Tribunal did inform Stamp that he had the right to take proceedings against the FCA in the High Court if he felt it had caused damage to his business, but he would need to show that the FCA had acted in bad faith. (As we all know, this is a high hurdle to overcome.) He could also make a complaint to the Complaints Scheme.
  • Interestingly, the Tribunal recognised the common law third party right [i.e. Maxwellisation] not to be criticised publicly without being given the chance to make representations. It noted that, as the Tribunal only has jurisdiction over matters conferred to it by statute, any remedy in relation to a potential breach of those rights should be pursued in the courts.
  • Also interestingly, the Tribunal noted that it would be prepared to use its case management powers in an appropriate case to give a person who is not the subject of the Supervisory Notice, but in respect of whom prejudicial statements are made in the Notice, the right to submit evidence and to make submissions. The kicker with this though is that the Tribunal said that it would only occur where a reference was made by the subject of the Notice. That of course might well not happen in practice.
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