Law firm slams FSA publication of decision notices

Publication by the regulator of decision notices can be considered to be “unfair” as it can inflict “irreparable” reputational damage on individuals or firms whatever the outcome of any appeal to the Upper Tribunal, a senior associate at law firm Freshfields Bruckhaus Deringer has said.

Speaking at today’s (17 May) Financial Promotions Regime conference in London, Piers Reynolds also slammed proposals, currently being debated by MPs, for the incoming Financial Conduct Authority to have the power to publicise warning notices “in order to create a deterrent effect”.

Under the existing system, the Financial Services Authority cannot publish warning notices but can publish decision notices which are at a later stage in the regulator’s investigation process, as the firm would at that point have put its argument to the Regulatory Decisions Committee.

However, Mr Reynolds says there is an argument that “even publishing decision notices are unfair” because if a firm refers the matter to the tribunal - “which is increasingly happening” - publication of a decision notice creates reputational damage that often “cannot be repaired by going to the tribunal even if the firm wins.”

He warned that the problem is “exacerbated” if the FCA is entitled to publish warning notices, which “are issued before the firm has even put its argument to the RDC or the FSA” .

Mr Reynolds said: “That is particularly a problem in an environment where the FCA will be pursuing more of these cases”.

In February, the regulator published a decision notice issued against Ian Hannam, the chairman of capital markets at JP Morgan Cazenove, who was fined £450,000 for two instances of market abuse.

Mr Hannam is appealing to the Upper Tribunal against the decision notice but he resigned in April from his post, stating that appealing the regulator’s case against him while still at the firm would be “an unfair distraction” for client and colleagues.

Law firm Withers claimed that the publication of the FSA’s decision notice may have prematurely forced Mr Hannam to resign and therefore brings into question publication of regulator notices at an earlier stage of the enforcement process.

Harvey Knight, former lead authorisation and approvals lawyer at the FSA and partner at Withers, said: “As a result of the FSA’s decision to publish the individual had to resign despite being senior and at JP Morgan for 20 years. What if the FSA got it wrong? How are they to be held accountable?

“The FSA are now seeking the right to publish warning notices, which means even before a Hannam has had the right to make any representations to the... Regulatory Decisions Committee his alleged misdeeds will be published and he is likely to be required to resign by his employers, further undermining his ability to put up a fight or legitimate challenge to the FSA.”