The regulator, regulated: Judge tells FSA to follow same procedures as police

10 November 2011

A High Court Judge has heavily criticised the FSA's use of legally privileged material in an enforcement action in circumstances where the individual concerned was never informed that such material would be used, much less consulted as to whether he waived privilege.

In his judgment in R (on the application of Stewart Ford) v FSA, Mr Justice Burnett suggested that the FSA 'might usefully review what is done by the Serious Fraud Office and police to deal with potentially legally privileged material'.

The case highlights the complexities that can arise where two or more parties, here the company Keydata Investment Services Limited and the executive Mr Ford, are represented by the same lawyers either by means of a formal joint retainer or, as in this case, where the parties have a mutual interest in the advice given.

The facts

The case in question arose out of the FSA's ongoing enforcement action against Keydata and its executives. Initially, Keydata had been represented by Irwin Mitchell in enforcement action directed at the firm.  However, the FSA then began individual enforcement action against Keydata's former executives.

By this stage Keydata had been taken into administration.  The FSA sought to use its statutory powers to force Keydata's administrator, PwC, to waive privilege in confidential legal advice it had received from Irwin Mitchell.

Having consulted its own lawyers, PwC consented to the waiver.  However, neither PwC nor the FSA sought the consent of the executives for this waiver of privilege.  The executives, including Mr Ford (now represented by Withers), then sought to prevent the FSA from relying upon a series of emails from Irwin Mitchell to Keydata in its enforcement action against them individually.

They asserted that Irwin Mitchell had been providing legal advice to them as individuals and not simply as officers of Keydata. Therefore, joint interest legal privilege subsisted in the legal advice and, as they had not waived this, the FSA, and subsequently the RDC, should not have relied on reports based upon this material when deciding to issue warning notices. The executives therefore began judicial review proceedings.

The outcome

Burnett J held that PwC's waiver of privilege on behalf of the company did not impact upon Mr Ford's privilege. Consequently, the FSA's reliance upon the content of those communications in the regulatory proceedings - whether against Keydata or the executives - was unlawful.


On one level this is something of a pyrrhic victory for the executives in that the FSA's enforcement action against them is not dependent upon the contents of these two emails. However, the FSA is now exposed to a remedies hearing.  It therefore risks being forced to restart the whole investigation process without the involvement of anyone who has seen the offending e-mails; an outcome which would seriously delay any final determination of proceedings.

But the fallout for the FSA is likely to be much greater than the impact on this one case. The FSA now very frequently brings enforcement proceedings against a firm and against one or more of its directors.  Burnett J stated in his judgment that issues of joint interest privilege were likely to be common in connection with relatively tightly controlled companies where the directors and the company are in reality one and the same. Accordingly, the FSA will need to address its inadequate procedures for dealing with potentially privileged material as a matter of urgency, or it may see more enforcement action fall into the mire.

Individuals please note: whilst asserting joint privilege in this situation might be a tactical advantage, it may not always be a long term strategic advantage to align oneself so closely with the company in circumstances where individuals may wish to disassociate themselves from civil or even criminal liabilities that are in issue.

Other regulators beware: Mr Justice Burnett comments that although this 'case arises in the context of financial regulation, yet very similar considerations might arise in other regulatory environments.'

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