The Tribunal has held that third party rights do not arise in the context of Supervisory Notices, nor do the relevant provisions allow third parties to refer Supervisory Notices to the Tribunal, even where they are identified. Although Parliament has specifically provided for this right in the context of Warning and Decision Notices, it has not in relation to Supervisory Notices, which do not impose sanctions but provide the FCA with a tool where there is an urgent need to protect the interests of consumers with immediate effect.

UK Innovative TI Limited and Ian Clifford Stamp, 25 April 2018

Background

The FCA exercised its own initiative powers under s.55L of the Financial Services & Markets Act 2000 (FSMA) to issue a Supervisory Notice on 27 June 2017 in respect of Stargate Capital Management Ltd (SCM) and Stargate Finance Limited (together, Stargate), which included the requirement that SCM cease acting as the investment manager of a fund called FX Perpetual. The fund had been developed by UK Innovative TI Limited (UKTI) and UKTI provided ongoing services to SCM, such as managing the algorithm, developing the code and providing trade signals. UKTI was not authorised to carry out regulated activities. The Supervisory Notice, which was published on 7 July 2017 under s.391(5) FSMA, expressed concerns about whether SCM or UKTI was in fact performing the investment manager role and contained references to both UKTI and UKTI’s director, which could only be a reference to Mr Stamp.

On 10 July 2017, a redacted version of the Supervisory Notice was issued, removing all references to UKTI’s name; however, Citywire published an article reporting on the unredacted version.

Stargate referred the Supervisory Notice to the Tribunal and, in parallel, exercised its right to make representations to the FCA under s.55(5)(c) FSMA. UKTI and Mr Stamp also sought to make a reference to the Tribunal, citing the prejudicial effect of the notice on its business, earnings potential and working relationship with SCM.

Following a stay in the Tribunal proceedings and representations to the Regulatory Transactions Committee from Stargate and, exceptionally, from UKTI and Mr Stamp, a further Supervisory Notice was issued on 15 November 2017.  This second Supervisory Notice no longer specifically suggested that UKTI (referred to as Firm Y) was acting as an investment manager but did raise concerns in broad terms about a potential breach of the general prohibition (under which it is a criminal offence to carry out regulated activities without the relevant authorisation).

The second Supervisory Notice was referred to the Tribunal by Stargate and the Tribunal exercised its discretion (exceptionally) to allow UKTI and Mr Stamp, as non parties, to provide evidence and submissions on the limited subject of the relationship between UKTI and Stargate.

Subsequently, Stargate settled the matter and withdrew its Tribunal reference and the FCA applied to strike out the references by UKTI and Mr Stamp.

Decision

The Tribunal held that third party rights do not arise in the context of Supervisory Notices, nor do the relevant provisions allow third parties to refer Supervisory Notices to the Tribunal. As a result, the Tribunal had no jurisdiction to hear the purported references by UKTI and Mr Stamp and was obliged to strike them out.

The Tribunal was satisfied that Parliament had made a deliberate decision to distinguish Supervisory Notices from Warning or Decision Notices (in respect of which third party rights arise under s.393 FSMA).  Unlike the latter, Supervisory Notices are not a sanction but a tool available to the FCA where there is an urgent need to protect the interests of consumers with immediate effect.

Comment

Despite striking out their references, it appears that the Tribunal had some sympathy with the submissions made by the UKTI and Mr Stamp concerning the damage already been done by the Citywire publication. In relation to the second Supervisory Notice, the Tribunal noted that there was no ongoing investigation concerning any breach by UKTI or Mr Stamp of the general prohibition.

The Tribunal recognised the common law practice of “Maxwellisation” whereby, for example, a party who is criticised in a report is afforded a fair opportunity to answer the allegations against them before the report is finalised and highlighted the potential (albeit limited) routes for seeking alternative remedies in the High Court or under the Complaints Scheme.

Therefore, despite the clarity that this decision brings concerning the distinct nature of Supervisory Notices and the lack of third party rights arising in connection with them, it would seem more likely that any potentially prejudicial references to third parties will be anonymised in future Supervisory Notices.