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In this issue of Signature’s Financial and Regulatory Disputes Update, we reflect on recent case law regarding disclosure in the context of benchmark rigging. We also review the High Court’s recent dismissal of an application for judicial review of the FCA’s decision to close an investigation into a junior trader in relation to the J.P. Morgan “London Whale” losses. Finally, we look ahead to the FCA’s areas of focus in the coming year, in light of the recently released Business Plan and Risk Outlook for 2015/16.

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In March the High Court dismissed the application for judicial review of a decision of the Financial Conduct Authority (the “FCA”) to close its investigation into a junior trader in relation to what is commonly known as the JP Morgan “London Whale” losses.

The Court is often reluctant to interfere with decisions of regulatory/investigatory bodies, and this type of judicial review application is never straightforward.  However, stepping back, a significant point to reflect on is the strategy to be adopted, especially by individuals caught up in cross-border civil and criminal regulatory investigations, as they go into the interview process.

Facts and outcome of proceedings

Mr Grout was formerly a junior trader employed within a London-based division of JPMorgan Chase Bank N.A (“JPM”) known as the Chief Investment Office (“CIO”). CIO was responsible for trading complex derivative investments principally as part of a synthetic credit portfolio (“SCP”). In July 2012 JPM announced that CIO had sustained $5.8 billion in trading losses on the SCP in the first half of 2012.  These losses are said to be the result of what has become known as the “London Whale” trades on account of the nickname attributed to the individual responsible for trading the SCP, Mr Bruno Iksil.

In 2012, the FCA appointed investigators under section 168 of the Financial Services and Markets Act 2000 (“FSMA”) to investigate Mr Grout, JPM itself, as well as Mr Iksil, and Mr Macris and Mr Martin-Artajo (managers within the CIO). Mr Grout was interviewed on several occasions by the FCA.

In September 2013, the FCA fined JPM £137.61 million for various failings in connection with the significant losses incurred on the SCP (the “JPM Final Notice”). This was part of a wider settlement with JPM co-ordinated with the US authorities. A number of individuals, including Mr Grout, have argued that they are identified within the JPM Final Notice and have referred the Notice to the Upper Tribunal.

In December 2013, the FCA informed Mr Grout that it was closing its investigation into him in light of ongoing US civil and criminal proceedings against him (and Mr Martin-Artajo).

Mr Grout issued Judicial Review proceedings against the FCA’s decision to close the investigation into him. As Males J (the judge hearing the substantive issue) noted:

It may seem surprising that Mr Grout should want the FCA to continue to investigate his conduct. Many subjects of an FCA investigation would be relieved to hear that the FCA had decided not to proceed further. But Mr Grout says that he wants the investigation to continue so that he can clear his name.

Amongst other things, the FCA disclosed a report indicating that the FCA’s investigations into Mr Iksil and Mr Macris, who were not the subject of criminal proceedings in the US, would continue. There are no criminal proceedings in the US against Mr Iksil (the “London Whale”), who is a protected witness, offering evidence against Mr Grout and Mr Martin-Artajo in return for immunity from prosecution.

Mr Grout complained that the decision to terminate the investigation into him was irrational (in the Wednesbury unreasonable sense) because: (1) he was being treated differently to others in the same position who continued to be investigated by the FCA, (2) the FCA placed too much weight on the fact that there are proceedings against him in the United States which proceedings, he contended, will operate unfairly against him; and (3) the FCA’s reliance on the time and resources required to continue the investigation was irrational when time and resources continued to be devoted to the investigation of others, based on the very same facts.

In dismissing the action, the High Court held that Mr Grout was not in the same position as Mr Macris and Mr Iksil or at least that the FCA was entitled to conclude that he was not. Mr Macris and Mr Iksil were not subject to criminal proceedings in the US and were both senior figures at JP Morgan. Mr Grout was the most junior of the team. The Court concluded that the grounds of alleged unfairness fell short of what would be required to show that the weight given by the FCA to the existence of the US proceedings was manifestly disproportionate.

Notably, within his judgment, Males J commented that as to the JPM Final Notice:

“[Mr Grout] was not given an opportunity to comment on the findings before they were published, but it appears that he was given an opportunity (indeed, was required) to give his account of what had occurred and his involvement in it….


The Judge’s view seems to have been that the opportunity to respond to questions posed during FCA interviews was sufficient to set out the interviewee’s position with respect to the subject matter of the investigation. However, this is often not the dynamic in the setting of a regulatory interview.  The interviewee often attends under compulsion and will, save for perhaps having had the opportunity to review in advance certain contemporaneous documentation, generally be in the dark as to the interviewer’s line of investigation and the direction of the process.

The interviewer may on occasion share some insight into the way the investigation is going, but this will be done in a very controlled way, and only insofar as it suits the interviewer’s purposes.  Given this dynamic, the interviewee will often be on the back foot, defensive and cautious, and on most occasions, the interviewee will be well advised to simply respond to the questions being posed and not volunteer anything additional. Usually, the expectation will be that, if the interviewee is to be pursued, the interviewee will have a further opportunity to respond if and when the FCA provides its preliminary findings or issues a Warning Notice, at which point the interviewee will have a full understanding of the FCA’s case and there will be a better basis for putting forward any points in defence.

Certainly, in light of the FCA’s decision and the Court’s comments, in more complex investigations interviewees will need to be mindful of the fact that in any future connected proceedings the view may be taken that the interview was effectively an opportunity to give their account of their involvement in a more comprehensive manner, and the strategy as to how to advance the points in defence and the points in mitigation needs to be carefully considered in advance of the interview. One questions whether anyone would have intended this to be the result, because at that stage it would not have been made clear to the interviewee what case is being made against him/her.

There are, therefore, a number of practical implications for those being investigated by the FCA particularly in wider multi-jurisdiction civil and criminal investigations at both individual and firm level.

  • Subjects of investigations may attempt to obtain assurances from the FCA that they will have the opportunity to answer any findings the FCA may make against them; even where those findings are only used for the purposes of a public final notice against their employer, but such assurance is highly unlikely to be forthcoming.
  • This being the case, in some situations interviewees may well seek in interview to state their position in full on every topic and document, whether or not this directly responds to the interviewer’s questions. In addition, there are likely to be more situations where legal advisers feel it appropriate to send material by way of submissions to the FCA in advance of interview in addition to taking a much more active role at the interview itself.

While this is not a desirable outcome from any perspective, individuals need to be mindful of the risks of passing up the “opportunity” to state their case in interview, and take the appropriate steps to protect their position.  This may have exactly the opposite result to that which the FCA intended – a more costly and time consuming investigation, increasing the burden on the FCA’s resources.

R (Grout) v FCA [2015] EWHC 596 (Admin)



Several years after regulators started investigating allegations of rigging of the London Interbank Offered Rate (LIBOR), allegations around rate-rigging continue to cast a long shadow over banks and brokers alike. Related civil litigation is ongoing; recently it was reported that Guardian Care Homes has launched a claim against Lloyds Bank PLC on grounds of anti-competition, LIBOR-fixing and mis-selling.

In claims for misselling in connection with benchmark manipulation it is important to establish causation and, in particular, the extent of the claimant’s losses. Often key information needed for the claimant to make out its case, and demonstrate the size of its losses, will be in the possession of the defendant. Two cases which address the issue of disclosure are examples of how the courts will deal with disclosure in this context.

Application for early disclosure

Marme Inversiones 2007 S.L. v The Royal Bank of Scotland plc and others [2015] EWHC 173 (Comm) concerned an application for early disclosure in connection with a claim made by Marme Inversiones 2007 S.L. (“Marme”) against RBS and others (the “Defendant”) in connection with an interest rate swap (“IRS”) between Marme and the Defendant, under which Marme would pay a floating rate referenced to the Euro Interbank Offered Rate (“EURIBOR”).

In December 2013, the European Commission revealed that it had fined the Defendant 131 million Euros for its participation in a cartel involving price fixing in connection with EURIBOR.  Following this announcement, Marme issued proceedings against the Defendant alleging that, in negotiating and arranging the IRS, the Defendant had made various implied representations in respect of EURIBOR, including that it was not party to, or aware of, any conduct in the setting of EURIBOR which was likely to undermine the integrity of the benchmark. Marme alleged that, given the Defendant’s involvement in the cartel, these representations were false and the IRS should be rescinded.

At the same time as serving the claim form, Marme made an application under CPR 31.12 for early specific disclosure of documents relating to the investigation by the European Commission.  Marme argued that the documents sought would enable it to better elaborate on the representations alleged and their veracity.

The Court refused Marme’s application for early disclosure on the basis that it was not necessary for the purposes of deciding whether or not to bring a claim – the claim had already been brought.

Key findings by the court were as follows:

  • Early disclosure could in fact increase costs. Further disclosure would undoubtedly be needed, which would necessitate amendments to the pleadings; early disclosure would simply mean two rounds of disclosure instead of one, and two rounds of pleadings in any event.
  • Ordering disclosure at such an early stage could, in reality, lead to delay. The provision of some documents would almost inevitably lead to requests for further information and/or additional disclosure, and could potentially be an open-ended process.
  • While there was a real possibility of an application for summary judgment or strikeout, any such application would likely be made in connection with the issue of whether the implied representations had been made, in which case the application would be best addressed by reference to the pleaded case, without the need for disclosure.

Even where an application for early disclosure is focused on specific documents which are clearly relevant to the claim, it is still necessary to demonstrate that, without such disclosure, it will not be possible for the applicant to plead its case. The courts are likely to continue to take a cautious approach. Except in unusual circumstances, following the usual procedures, with disclosure following the pleadings, is likely to be the preferred course.

Objection to inspection of confidential disclosure

Property Alliance Group Limited v The Royal Bank Of Scotland Plc [2015] EWHC 322 (CH) concerned a claim in respect of a number of interest rate derivatives entered into by Property Alliance Group Limited (the “Claimant”), which the Claimant alleged it was induced to enter on the basis of misrepresentations by RBS (the “Defendant”) in connection with the setting of LIBOR.

Following a case management conference on 24 November 2014, it was ordered that the Defendant in the first instance should disclose “high level documents” including internal reports, reviews and summaries regarding allegations of LIBOR misconduct. These documents would then allow the parties, and the Court, to direct a more focussed disclosure exercise which could be properly tailored to the case in a proportionate manner.

However, as a result of its involvement in the manipulation of JPY and CHF LIBOR rates, the Defendant is subject to a Deferred Prosecution Agreement (“DPA”) with the US Department of Justice (the “DoJ”). One of the documents attached to that DPA is Attachment C, a document which indicates which other LIBOR rates are the subject of ongoing DoJ investigations.

The Defendant sought to object to the inspection of Attachment C on the basis that to allow inspection would put the Defendant breach of its obligations to the DoJ and at risk of being in criminal contempt of an order by a US judge that the document would be kept under seal.

Despite this concern, the Court ordered that the Defendant produce Attachment C for inspection, on the basis that the document was potentially of real significance. It was not disputed that Attachment C was confidential but confidentiality, as opposed to legal privilege, is not a reason to withhold disclosure or inspection.

Although the court can take into account the potential risk of prosecution in exercising its discretion as to whether to make a disclosure order, in this case the Court considered that the risk, in reality, was low. In light of the procedural safeguards provided by CPR 31.22(1), which provides that a document disclosed in proceedings may only be used for the purposes of those proceedings, the Court considered that a US court was likely to permit the Defendant to produce Attachment C.

Furthermore, additional safeguards were put in place by way of an order that neither party could refer to Attachment C in open court without permission, which was to be obtained in advance. This further reduced the risk that the Defendant would be found to be in criminal contempt by the US Court. Interestingly, the Court indicated that at a future date, when deciding whether Attachment C should be referred to in open court, the balance was more likely to fall in favour of publicity.


It seems likely that in considering applications for early disclosure made in the context of cases connected with benchmark manipulation, the courts will continue to take a cautious approach when considering such applications and claimants are likely to have to plead their case without sight of key information which the defendant may hold. However, the decision on confidentiality in Property Alliance Group Limited v The Royal Bank Of Scotland Plc [2015] EWHC 322 (CH) emphasises the importance of the disclosure process and the difficulty in narrowing the scope. Sensitive documents, if relevant to the issues in the case, will have to be disclosed; confidentiality is not a bar to disclosure. Potential claimants will need to be focussed on drafting their pleadings with the aim of withstanding any strikeout applications and ensuring that disclosure will be as wide as possible, bearing in mind that, for banks, avoiding the disclosure of such sensitive materials could be a powerful motivation for settlement.



In our previous Update we looked at the FCA’s enforcement activity in 2014 and considered what issues the FCA would focus its resources on going forward (insert link). The recent release of the FCA’s Business Plan and Risk Outlook for 2015/16 has confirmed our views on the likely areas of focus.

As we envisaged, senior individuals remain firmly on the FCA’s radar. Those individuals in positions of responsibility will be held personally accountable for how their firms operate and for the consequences of misconduct. The FCA expects to finalise the rules concerning the new senior managers and certified persons regime in the summer. Earlier this year, the FCA fined a former compliance director £33,800 for his role in the failings in his firm’s compliance systems and controls. More of this type of enforcement activity can be expected with the new regime.

Financial crime is high on the FCA’s agenda, particularly following last year’s thematic reviews of anti-money laundering practices. The FCA states that it expects firms to have effective, proportionate and risk-based systems and controls in place to ensure their business cannot be used for financial crime. There will be a focus on the effectiveness of firms’ systems and controls to prevent money laundering, bribery and corruption. Firms will also need to assess their IT infrastructure to ensure that it is secure enough to protect against the risks presented by cybercrime. In the latest in a series of actions relating to financial crime, in March of this year the Bank of Beirut was fined £2.1 million for repeatedly providing misleading information after it was required to address concerns regarding its financial crime systems and controls. The bank was also restricted from acquiring new customers from high-risk jurisdictions for 126 days.

In March of this year, the FCA published a framework for regulating and supervising seven additional benchmarks. In this year’s Business Plan, the FCA confirmed that it will deliver significant enforcement outcomes in the area of benchmarks where abuse is found.  Hand in hand with this, from April 2015, the FCA will have concurrent powers with the Competition and Markets Authority to enforce certain contraventions of competition law in the financial services sector. This is an important step, as providing the FCA with such powers brings it in line with other sector regulators, and further strengthens its ability to ensure competitive banking markets that deliver good consumer outcomes.

The FCA’s Business Plan notes that the FCA is looking to increase its “Ongoing Regulatory Activity” headcount to over 3000 full time employees in the next 12 months. This overall strengthening of the regulatory muscle clearly signals a busy year ahead for the enforcement team.


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