European Securities And Markets Authority (ESMA) v DTCC Derivatives Repository Ltd

When authorising an on-site inspection under the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013, the High Court must verify that the supervisory authority’s decision is authentic and that the proposed coercive measures are neither arbitrary nor excessive having regard to the subject matter of the inspection. The court must not review whether the inspection is necessary or the lawfulness of the supervisory decision. The inspection must remain subject to the protection for legally privileged information under the European Markets Infrastructure Regulation. Where an inspection is uncontested, non-coercive and no warrant is sought, the authorisation application may be suitable for determination on the papers.

The European Securities and Markets Authority applied under regulation 17 of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 for authorisation to inspect the English premises of DTCC Derivatives Repository Limited, a registered trade repository.

DTCC had been notified of the proposed inspection and intended to co-operate. The application concerned a general supervisory inspection under article 63 of the European Markets Infrastructure Regulation, rather than suspected wrongdoing. The central issue was the scope and exercise of the High Court’s authorisation function, including whether the application could be dealt with without an oral hearing.

1. Authorisation granted. The court was satisfied that ESMA had initiated an article 63 inspection and that the proposed inspection was neither arbitrary nor excessive having regard to its subject matter.
2. Under article 63(9) of the European Markets Infrastructure Regulation and regulation 17(3) and (4) of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013, the court’s review is limited. It must verify the authenticity of ESMA’s decision and assess whether the proposed coercive measures are arbitrary or excessive. It may request detailed explanations, including about suspected infringement, its seriousness and the person’s involvement. It must not review the necessity of the inspection or require disclosure of ESMA’s file.
3. The authorisation order was amended to state expressly that the inspection remained subject to article 60 of the European Markets Infrastructure Regulation, which prohibits the use of ESMA’s powers to require disclosure of legally privileged information or documents.
4. A future application may be determined on the papers under CPR 23.8(c) where the company has notice and intends to submit, the FCA has been informed and does not seek a hearing, and the application seeks no power to seal premises or records, no telephone or data-traffic records, and no warrant. The court may nevertheless direct an oral hearing.
5. Failure to comply with the authorisation order would not itself constitute contempt of court. It might attract EMIR penalties or lead to a later application for a warrant under regulation 17(5)–(9).