Grout, R (On the Application Of) v Financial Conduct Authority

A regulator has a broad discretion to discontinue an investigation. Judicial review is available, but intervention will be confined to highly exceptional cases. The regulator must pursue its statutory purposes, act lawfully and in good faith, consider relevant material, and avoid arbitrary differential treatment. It may take account of concurrent foreign criminal proceedings, the subject’s position outside the regulated industry, and the finite demands on its resources. The weight given to a permissible consideration will only justify intervention where it is manifestly disproportionate. A decision to terminate an investigation is not irrational merely because other related investigations continue or because the subject loses an opportunity to clear his name through the regulatory process.

The claimant sought judicial review of the Financial Conduct Authority’s decision to terminate its investigation into his conduct during the “London Whale” trading losses at JP Morgan. The FCA relied on his criminal proceedings in the United States, his departure from the United Kingdom financial services industry, and the substantial resources required to continue the investigation.

He argued that the decision was irrational because he was treated differently from more senior individuals whose investigations continued, excessive weight was given to the United States proceedings, and the FCA’s reliance on resources was inconsistent with its continuing investigations into others. He also raised the loss of an opportunity to clear his name and the absence of consultation.

1. Claim dismissed. The FCA’s decision to terminate the investigation was lawful and rational.
2. Decisions by an independent investigator whether to commence, continue or discontinue an investigation are reviewable, but the court will intervene only in a highly exceptional case. The discretion is entrusted to the regulator, is commonly polycentric, and involves broad statutory powers and competing public-interest considerations. This approach was drawn from R (Corner House Research) v Director of the Serious Fraud Office [2008] UKHL 60 and [2009] 1 AC 756, with the passage from R (Bermingham) v Director of the Serious Fraud Office [2006] EWHC 200 (Admin) and [2007] QB 727 applied by analogy.
3. The discretion remained subject to public law limits. The FCA had to act to promote the statutory purposes in the Financial Services and Markets Act 2000, direct itself correctly in law, act lawfully and in good faith, and exercise objective judgment on the relevant material. A decision could be irrational where materially similar persons received different treatment without good reason, or where manifestly disproportionate weight was given to a permissible consideration.
4. The claimant was not in a materially similar position to the individuals whose investigations continued. They were not subject to United States criminal proceedings, and they occupied more senior positions. It was rational to continue investigating the principal trader and senior manager while terminating the investigation into a junior trader.
5. The United States proceedings, the claimant’s absence from the United Kingdom industry, and the time, personnel and cost required for further investigation were legitimate considerations. The FCA was entitled to conclude that regulatory deterrence, punishment and market-protection purposes could be served by the United States proceedings and that further United Kingdom investigation would not be a proportionate use of finite resources.
6. The alleged procedural disadvantages in the United States proceedings did not make the weight given to them manifestly disproportionate. The claimant’s complaint that termination deprived him of an opportunity to clear his name did not require continuation of an investigation, which was not designed for that purpose.
7. No duty to consult the subject before terminating an investigation was established on the material before the court. The claim was dismissed, with the claimant ordered to pay the defendant’s costs.