Conduct Of Regulatory Investigations And Enforcement Proceedings

Author:Mr John Breslin, Nicholas Cole, Malachi Sweetman, David Nolan, Dudley Solan, Callaghan Kennedy, Triona Ryan and James Scanlon
Profession:Maples and Calder

In Ireland there is hardly any case law providing guidance on the conduct of regulatory investigations and enforcement  proceedings  by  the  Central  Bank  of  Ireland  ("CBI").  However,  reports  of  equivalent processes under UK law are instructive. A recent decision by the UK Upper Tribunal (Tax and Chancery Chamber) (the "Tribunal") in Carrimjee v The Financial Conduct Authority sheds light on a number of fronts.

In this case the Financial Conduct Authority ("FCA") alleged that the applicant ("C") was complicit in a client's alleged market abuse on the LSE's International Order Book market (the "IOB Market"). The allegations focused on trading activities during the "closing auction".

The decision deals with a number of issues such as what a lack of "integrity" means, the appropriate standard of proof for serious charges, the role of expert evidence, and restrictions on the regulator adopting inconsistent positions in separate proceedings relating to the same subject matter. It also highlights the danger of financial services professionals "turning a blind eye" to the obvious.

Summary of facts

C was a fund manager and investment advisor with nearly 20 years' experience in the financial services industry and had his own firm. His client, G, was a sophisticated investor who wished to trade on the IOB Market. G was also a client of P, a broker employed by a different firm to C's. C and P were jointly party to a number of phone calls and other communications with G leading up to G's dealing on the IOB Market. P took the lead in terms of providing specific advice or recommendations on proposed trades. C adopted a passive role.

FCA took the view that G had engaged in market abuse by artificially driving up the price of certain financial instruments on the market (including global depositary receipts in Gazprom plc). FCA brought regulatory proceedings against G. G settled with the FCA and agreed a financial penalty of over $6 million. The settlement with G was recorded in a "Final Notice" issued by FCA.

FCA also issued regulatory proceedings against C and P. FCA had initially alleged that P and C knowingly assisted G to manipulate the IOB Market.

P made representations to FCA after which it modified its position and alleged that P failed to exercise due skill, care and diligence in her dealings with G. P settled FCA's regulatory action on this basis. The Final Notice in P's case set out a detailed summary of the facts and recorded that P may...

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