UK: Confidentiality Of FSA Interview Transcripts And Warning Notices

The Court of Appeal¹ has examined the extent to which FSA interview transcripts and other material gathered during the course of an FSA investigation is confidential to interviewees and their employers. The decision highlights risks for firms involved in FSA investigation/enforcement processes where they may be facing overlapping civil claims.

The Court has ruled that the s348 Financial Services and Markets Act 2000 does not prohibit a company from disclosing transcripts of FSA interviews with its former or current employees in so far as the transcripts contain information already and independently known to the company.

In the past firms and individuals caught up in FSA investigations may have simply assumed that transcripts of compulsory FSA interviews and indeed any warning notices were confidential in their hands under FSMA. Understandably, given the criminal sanctions which apply to a breach of s348, firms have generally taken a careful approach to the disclosure of such information. However, it is clear from this ruling that the protections in s348 will not cover much of the information contained in this material. Firms must therefore take into account the risks of information provided to the FSA ending up in the hands of civil claimants as part of disclosure in civil proceedings and consider ways in which this risk may be managed.

This is the first time the courts have considered the application of the confidentiality provisions of FSMA and the judgement sets out some principles which firms will need to consider before disclosing this type of information.

Section 348 FSMA provides that confidential information must not be disclosed by (1) the FSA or (2) any person obtaining the information directly or indirectly from the FSA without the consent of (1) the person from whom the FSA obtained the information and, if different, (2) the person to whom it relates. Information is confidential if it relates to the business or other affairs of any person, it was received by the FSA in the discharge of its functions and had not been made available to the public.

Section 391(1) FSMA provides that neither the FSA nor a person to whom a warning notice or decision notice is given or copied may publish the notice or any details concerning it.

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The Court of Appeal¹ has examined the extent to which FSA interview transcripts and other material gathered during the course of an FSA investigation is confidential to interviewees and their employers. The decision highlights risks for firms involved in FSA investigation/enforcement processes where they may be facing overlapping civil claims.

The activities of the split capital investment trust sector had been investigated by FSA following the sector’s collapse in 2002. During the course of that investigation FSA had interviewed a number of current and former employees of the defendants and produced transcripts of those interviews which had come into the possession of the defendants. The investigation into the defendants had concluded in late 2004 with FSA taking no action against either of the defendants or making any findings. Some time later the FSA sent copies of warning notices to the defendants under s393 FSMA as affected third parties.

Civil proceedings were later brought against the defendants by REO, a split capital investment trust. At the disclosure stage of the civil proceedings both defendants had disclosed but withheld from inspection transcripts of FSA interviews and the warning notices received from FSA on the basis that disclosure to REO would be a breach of s348 or s391 FSMA. REO applied to the Court for a ruling to decide whether this refusal should be upheld.

The High Court ruled that the defendants must allow inspection of the documents subject to redacting any information which was confidential under s348 on the basis that it had been supplied to FSA by third parties and was not previously known to the firms or their employees. The individuals concerned have been given the right to make representations to the trial judge before inspection is given.

The Court of Appeal in upholding the earlier decision and dismissing the appeal made the following decisions:

1. A person does not "obtain" information from the FSA for the purposes of s348 if he already knew the information even if FSA received the information from a different source such as an employee of the person. This conclusion is consistent with an earlier decision reached by the court in Arbuthnott v Fagan [1996] 1 LRLR 143.
2. A company cannot be said to obtain information for the purposes of s348 if it was known to its employees or agents applying the normal rules of attribution. An employer is deemed in general to have notice of anything of which any of his employees obtains knowledge during the course of his employment. The Court did recognise that this might require some due diligence on the part of the employer to establish whether the information could be deemed to be known to the company where for example the employee had duties in relation to more than one business or had learnt the information before joining the employer. However, provided the company could show it had taken all reasonable precautions it would have a defence to any criminal proceedings if material it had not previously known was inadvertently disclosed.
3. The civil procedure rules allow a party refuse inspection of relevant documents if it would be disproportionate to do so. The defendants argued the cost and difficulty in identifying the information in the transcripts which was not covered by s348 and was relevant outweighed the benefit. The court went on to consider the factors enumerated in Re Galileo Group Ltd [1999]Ch 100 and found the Judge was entitled to exercise his discretion to allow inspection..
4. In relation to the inspection of the warning notices the Court considered the meaning of the word "publication" in s391 and found that publication must involve dissemination with a view to making information available to the public. In this case dissemination will only be for the purposes of the litigation and will remain confidential until the trial and can remain confidential thereafter if appropriate arrangements are deployed by the court during the trial.

Firms involved in FSA investigations should consider the risks of any litigation arising from the matter under investigation and where there is a risk consider the impact disclosure of information produced during the course of the investigation could have on any litigation. This would, of course, not provide a reason not to assist or provide information to the FSA in accordance with a firms’ regulatory obligations. However, there may be ways in which such risks can be managed or minimised including separate legal representation for employees at interviews, not sending interview transcripts to employers or indeed in some cases not obtaining transcripts at all, considering the wording of any material provided to FSA and restricting any requests for information or third party material from FSA.

Information which the FSA received from third parties and which the firm or employee was not previously aware is confidential and a criminal offence is committed if such information is disclosed. The judgement assumes that the question of attribution of the material in the transcript will be relatively straightforward. This will not always be the case and, in order to avoid the commission of a criminal offence, firms that hold such material would be well advised to seek legal advice before disclosing such documentation.

Recipients of warning notices (the first step in FSA's enforcement procedure) cannot assume that the allegations contained in the notice (to which the person concerned has not yet had a chance to respond) will stay confidential until the end of the enforcement process. The judgement makes it clear that the prohibition is on publication to the public at large and not disclosure in a civil action. Not only can the recipient of the warning notice disclose or be required to disclose information contained in it, but so can persons who have been sent a copy as affected third parties.

Of course, whilst the Judgement may cause concern for firms facing civil claims, it will be welcomed by civil claimants as FSA interview transcripts may provide useful additional evidence which might not otherwise have been available.

1. Real Estate Opportunities Ltd v Aberdeen Asset Managers Jersey Limited and UBS Limited [2007] EWCA Civ 197)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 16/03/2007.