Bluecrest Capital Management (UK) LLP v The Financial Conduct Authority

A reference to the Upper Tribunal is confined by the allegations, facts and circumstances put before the regulator and contained, or sufficiently foreshadowed, in the statutory notices. New allegations based on a different regulatory provision are outside the subject matter of the reference where they were never canvassed before the Regulatory Decisions Committee. The Tribunal has jurisdiction to permit clarification of an existing allegation based on the same regulatory facts, subject to case management fairness.

A single-firm consumer redress requirement imposed under Financial Services and Markets Act 2000 section 55L is constrained by section 404F(7) and section 404A. Loss, causation, duty and actionability must be established. A breach of Principle 8 is not actionable and cannot alone support such a redress requirement.

BlueCrest referred to the Tribunal against a Decision Notice imposing a financial penalty for breach of Principle 8 and a First Supervisory Notice requiring it to pay redress to non-US investors. The Authority applied to amend its Statement of Case and to rely on a redress rejoinder. BlueCrest applied to strike out the Authority’s redress case.

The Tribunal considered whether proposed allegations concerning disclosure, Principle 7 and COBS 4.2.1(1)R fell within the subject matter of the references, and whether the Authority had a lawful power to impose a single-firm redress requirement under sections 55L and 404F(7) FSMA. The central questions were the scope of the Tribunal’s jurisdiction and whether the pleaded Principle 8 case could satisfy the statutory conditions for redress.

1. Amendments. The Tribunal’s jurisdiction extends to allegations of the same nature based on the same factual background as the allegations made to the RDC and contained in, or properly implied from, the Warning and Decision Notices. The proposed amendment alleging inadequate disclosure to investors under the MSA was within that scope and was permitted. The amendment alleging that disclosure had to be made directly to investors because the External Fund’s directors were conflicted was refused because it had no real prospect of success: the relevant client for the investment-management service was the External Fund, and the duty of disclosure was owed to that client. The proposed Principle 7 and COBS amendments introduced new legal and factual allegations. They were outside the subject matter of the references because they had not been canvassed before the RDC or included in the statutory notices.
2. Redress power. Section 55L, read with section 404F(7), is the source of the power to impose a single-firm consumer redress scheme. There is no freestanding power under section 55L permitting redress merely because the Authority considers it desirable to advance its consumer-protection objective. The statutory scheme requires alignment between single-firm and multi-firm redress schemes.
3. Conditions. Sections 404F(7) and 404A import four conditions: loss, causation, breach of a duty or failure to comply with a requirement, and actionability. Loss and causation were sufficiently pleaded at the strike-out stage because the alleged diminution in the value of defective investment-management services could arguably be measured by the difference between the service promised and the service supplied.
4. Actionability and outcome. Principle 8 is not actionable by a private person under section 138D(3) FSMA and PRIN 3.4.4R. The permitted case therefore had no reasonable prospect of establishing the required actionable loss. The Authority was barred from defending the FSN reference, which was summarily determined in BlueCrest’s favour. The rejoinder application was refused and the matter was remitted to the Authority to reconsider in accordance with the Tribunal’s findings.

The judgment concerns preliminary issues in references to the Upper Tribunal from the Authority’s First Supervisory Notice and Decision Notice. The Tribunal allowed the FSN reference, barred the Authority from further participation in that reference, refused the rejoinder application, and remitted the matter to the Authority for reconsideration.