Global Investigations Review - The law and practice of international investigations

Securities & Related Investigations

Last verified on Wednesday 2nd October 2019

United Kingdom

Sunil Gadhia, Jonathan Kelly and James Brady
Cleary Gottlieb Steen & Hamilton LLP

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Serious Fraud Office (SFO).

    The FCA and PRA were established by Financial Services Act 2012, which amended the Financial Services and Markets Act 2000 (FSMA). The SFO was established by the Criminal Justice Act 1987 (CJA).

    In addition, the Information Commissioner’s Office (ICO) has jurisdiction over data privacy matters.

  3. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  4. There are a wide range of violations and legal issues that may be the subject of an investigation. Particular areas of focus include insider dealing; culture/governance issues; unauthorised business; financial crime; retail misconduct; transaction reporting; market manipulation; wholesale misconduct; and breaches of the Listing Rules, Prospectus Rules and Disclosure and Transparency Rules. The FCA also has competition law enforcement powers in the financial services sector. 

    The FCA has continued to focus on violations by individuals including senior managers who are subject to specified requirements and responsibilities under the Senior Managers and Certification Regime.

    The SFO is responsible for prosecution of serious frauds including securities-related offences such as insider trading. Recently, the SFO has shown particular interest in investigating bribery and corruption allegations, as well as fraud-related issues that may arise from misconduct in financial institutions. The SFO has entered into a number of Deferred Prosecution Agreements to resolve bribery and corruption cases (including one involving a financial institution), and also entered into a DPA to resolve securities-related allegations against a listed UK plc. The SFO has also brought criminal charges against individuals arising from a number of securities-related investigations.

  5. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  6. The FCA regulates all firms carrying out regulated financial services activities. Its strategic objective is to ensure that relevant markets function well (section 1B(2) FSMA). In addition, it has three operational objectives: (i) securing an appropriate degree of protection for consumers (the consumer protection objective) (section 1C FSMA); (ii) protecting and enhancing the integrity of the UK financial system (the integrity objective) (section 1D FSMA); and (iii) promoting effective competition in the interests of consumers in the markets for financial services (the competition objective) (section 1E FSMA).

    The PRA is responsible for the prudential regulation of certain types of firms, including banks, building societies, credit unions, insurers and certain investment firms. Some firms are dual-regulated by the FCA and the PRA. The PRA’s general objective is to promote the safety and soundness of PRA-authorised persons (section 2B(2) FSMA). The PRA also has an insurance objective, to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders (section 2C(2) FSMA).

    The FCA and PRA are parties to a memorandum of understanding, which sets out details of coordination of formal regulatory processes and of enforcement and legal intervention. This includes consideration of whether or not the investigation should be coordinated jointly.
    In practice, a significant majority of securities investigations are conducted by the FCA’s Enforcement and Market Oversight Division and there have been a number of cases where the FCA and PRA have carried out a joint investigation and jointly imposed penalties.

    There is also some coordination between the SFO and the FCA, and the FCA has published guidance on the investigation of cases that are of interest or concern to both the FCA and other criminal prosecutors (including the SFO) (Enforcement Guide (EG) Appendix 2). The guidance states that the SFO will normally be the appropriate prosecutor where serious or complex fraud is the predominant issue in the conduct in question.

  7. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  8. The FCA and PRA have investigatory powers pursuant to FSMA, for example, including the ability to require production of documents, to require the provision of information including through a compelled interview and by entering premises. The SFO has similar investigatory powers under the CJA and also has law enforcement powers under other legislation including the Proceeds of Crime Act 2002.

    The FCA and PRA may bring administrative proceedings using their own decision-making processes, which can ultimately be challenged in civil proceedings in the Upper Tribunal.
    The FCA can also bring civil proceedings in relation to market abuse and criminal proceedings in relation to specific offences including those relating to certain regulated activities, insider trading, terrorist financing offences, money laundering offences and offences relating to making misleading statements or misleading impressions about securities or in relation to benchmarks.

    The SFO is a criminal prosecutor responsible for the prosecution of serious frauds. In securities-related cases, the offences prosecuted by the SFO include conspiracy to defraud, fraud by abuse of position, fraud by false representation, insider dealing and false accounting. The SFO also has the power to enter into Deferred Prosecution Agreements to resolve criminal investigations into corporate entities. 

  9. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  10. It is unusual (but not unprecedented) for FCA and PRA investigations to be made public at the investigation stage. 

    The FCA’s policy is that it will not normally make public the fact that it is or is not investigating a particular matter, or any of the findings or conclusions of an investigation, other than in exceptional circumstances. The FCA’s Enforcement Guide states that it may announce an investigation if the FCA considers it is desirable in order to maintain public confidence in the financial system or the market, protect consumers or investors, prevent widespread malpractice, help its investigation, for example, by bringing forward witnesses, or maintain the smooth operation of the market (EG6.1.3).

    The PRA has also issued a statement of policy (Statement of the PRA’s approach to publicity of regulatory action), setting out its approach to publicity of regulatory action, which states that the PRA will not normally make the fact of an investigation public, but may do so in some circumstances. These include where publicity may assist the investigation (for example, by bringing forward witnesses) or where it may deter more widespread breaches of regulatory requirements.

    The SFO publishes a non-exhaustive list of its current investigations on its website. This typically identifies the company or circumstances under investigation, but does not provide detailed information about the progress of the investigation.

    If, following the investigation, the FCA or PRA issue a warning notice (which is a formal notice issued during an investigation stating that the regulator intends to take action, including the reasons, and giving the subject of the investigation the opportunity to make representations), they have the power to publish the warning notice.  The FCA typically does so in a summary and through an anonymous form, known as a Warning Notice Statement. The FCA’s Enforcement Guide states that it will consider whether it is appropriate to identify the recipient of the notice and that it will “normally be appropriate to identify a firm, but that it will not normally be appropriate to identify an individual” (EG6.2.6(2)).

    The FCA and PRA also have the power to publish a decision notice stating that they intend to take enforcement action where the subject of the notice is challenging it before the Upper Tribunal. The FCA has previously used this power to publish a decision notice that is being challenged.    

    The SFO may announce the outcome of its investigations, which may include outcomes where no further action will be taken.  

  11. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  12. Both.

    Investigation procedure

  13. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  14. At the FCA, cases may result in an enforcement investigation through a range of channels including a referral from supervision, self-reporting from a firm (firms have an obligation to report certain matters to the FCA and PRA), identification through other regulatory work such as thematic reviews, complaints from the public or whistleblowers or from an incident such as the collapse of a firm or press coverage.

    The FCA has published Referral Criteria that set out the approach the FCA will take when determining whether to open an investigation into a particular matter, and where the FCA will use other regulatory tools instead of (or as well as) an enforcement investigation. The Referral Criteria state that the overarching question is “overall, is an enforcement investigation likely to further the FCA’s aims and statutory objectives?”.

    To assess the overarching question, the Referral Criteria state that the FCA will consider the strength of the evidence and the proportionality and impact of opening an investigation, and will consider what purpose or goal would be served if the FCA were to end up taking enforcement action. The Referral Criteria also gives the following non-exhaustive list of reasons why the FCA may take enforcement action:

    • deterring wrongdoers from repeating behaviours (specific deterrence);
    • changing behaviour and raising standards in the industry (general deterrence);
    • holding those responsible for very serious breaches to account with proportionate penalties and sanctions (justice); and
    • removing wrongdoers from the industry or imposing other restrictions where appropriate (protection).

    The SFO has also published assessment criteria that it considers when deciding which cases to pursue, which include:

    • whether the apparent criminality undermines UK PLC commercial or financial interests in general and in the City of London in particular;
    • whether the actual or potential financial loss involved is high;
    • whether actual or potential economic harm is significant;
    • whether there is a significant public interest element; and
    • whether there is a new species of fraud.

    The PRA’s investigation referral criteria (published in April 2019) state that, when determining whether to investigate a matter, the PRA’s considerations include: the centrality of the issue to the PRA’s objectives and approach;

    • the appropriateness of using investigation tools and powers;
    • the impact or potential impact on the resilience of the financial sector;
    • whether other authorities are, or are likely to, investigate; and
    • any other, overriding reasons why opening an investigation or not doing so would either advance or pose a risk to the PRA’s objectives.
  15. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  16. The FCA and PRA may commence an investigation "if it appears to [the FCA or PRA] that there is good reason for doing so" (section 167(1) FSMA) or "if it appears to [the FCA or PRA] that there are circumstances suggesting" that certain offences may have been committed (section 168(1), (2), (4) FSMA).

    The SFO may investigate "any suspected offence which appears to [the SFO] on reasonable grounds to involve serious or complex fraud" (section 1(3) CJA).

  17. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  18. Yes.

    To exercise powers to enter premises, the FCA and PRA may apply to court for a warrant (section 176 FSMA). The circumstances in which a warrant may be granted include where a person on whom an information requirement has been imposed has failed (wholly or in part) to comply with it, or where there are reasonable grounds for believing that if an information requirement were to be imposed, it would not be complied with, or that the documents or information to which the information requirement relates, would be removed, tampered with or destroyed.

    The SFO may also apply to court for a warrant to enter premises and take possession of documents where (i) a person has failed to comply with an obligation to produce documents, (ii) it is not practicable to serve a notice requiring production of documents or (iii) the service of such a notice might seriously prejudice the investigation (section 2(4) CJA).

  19. 10.

    Must the findings of a company's internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?

  20. There is no general requirement to proactively disclose the findings of internal reviews, although authorised firms and approved persons have a general obligation to disclose to the FCA or PRA anything of which the regulator would reasonably expect notice. In addition, FCA and PRA rules require authorised firms to notify them of any significant breach of a rule or breaches of certain other regulatory requirements as soon as the firm becomes aware of the matter. In relation to the SFO, while there is no obligation to self-report any matter, timely self-reporting and adequate cooperation with the SFO are factors that are relevant to whether the SFO will enter into a Deferred Prosecution Agreement.  

    Production of documents generated by an internal review that are not subject to legal privilege may be required under any information requirement issued by the authorities. While the authorities cannot compel production of documents that are subject to legal privilege, the application of legal privilege in the context of internal reviews and enforcement investigations has been the subject of a number of recent court decisions. A number of recent cases have addressed the approach to legal privilege in enforcement investigations, including SFO v ENRC [2018] EWCA Civ 2006 where the Court of Appeal held that interview memoranda created as part of investigations at a time when a criminal prosecution was reasonably in contemplation were subject to litigation privilege. Notwithstanding this decision, a number of previous cases held that documents such as interview notes or transcripts were not privileged (eg, RBS Rights Issue Litigation [2016] EWHC 3161 (Ch)) and the availability of privilege over documents generated by an internal investigation is fact-specific and remains an area of significant risk on which advice should be taken at the beginning of any investigation.

  21. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  22. While the involvement of whistleblowers is not generally publicised by the authorities, the FCA, PRA and SFO all welcome information provided by whistleblowers and all have contact points available for whistleblowers.

    Disclosure provided by whistleblowers may be "protected disclosure" such that employees have a right not to be subjected to any detriment by any act, or any deliberate failure to act, by their employer on the ground that the employee has made a protected disclosure.

    FCA and PRA rules (SYSC 18) require most firms to have appropriate procedures in place to handle disclosures from whistleblowers, including requirements to prevent victimisation of whistleblowers and training for employees. Firms are required to advise employees that they may disclose concerns about the firm’s activities directly to the FCA or PRA without using the firm’s internal procedures. Certain firms are also required to appoint a senior manager as whistleblowers’ champion with responsibility for ensuring and overseeing the integrity and effectiveness of the firm’s policies. In May 2018, the FCA and PRA imposed a financial penalty on the CEO of a financial institution in relation to the handling of a whistleblower complaint, and also imposed additional reporting requirements on the financial institution about its handling of whistleblowers.  

  23. 12.Describe the typical phases of a securities or related investigation in your country.
  24. A regulatory investigation by the FCA will typically have the following phases:    

    • Appointment of investigators and initial scoping meeting between the enforcement team and the subject of the investigation at which the enforcement team will explain the scope of the investigation, how the process will proceed and the individuals and documents to which the enforcement team will require access. 
    • Investigation work, including document requests from the subject of the investigation and/or third parties and interviews of witnesses and subjects. 
    • A preliminary investigation report will be prepared by the enforcement team and will usually be sent to the subject of the investigation with a preliminary findings letter. The subject will then have a reasonable period, usually 28 days, to respond. 
    • If enforcement action is considered justified, the case is submitted to the Regulatory Decisions Committee (RDC) with an investigation report prepared by enforcement staff, which takes into account the response provided to the preliminary investigation report. The subject of the findings letter is not entitled to make separate representations to the RDC at this stage. 
    • The RDC will either decide to issue a warning notice to the subject of the investigation setting out the action the FCA proposes to take or discontinue the investigation. If a warning notice is issued, the subject of the investigation is entitled to disclosure of material relied on by the RDC in taking its decision, together with secondary material that might undermine that decision. The subject may submit written representations to the RDC, and will have a period of not less than 14 days to do so (it is also possible to request an extension of time) and may also make oral submissions at a hearing. 
    • Following representations to the RDC, it will then decide to either issue a decision notice setting out the FCA’s final decision or to discontinue the investigation. 
    • The subject of the investigation may refer a decision notice to the Upper Tribunal (Tax and Chancery Chamber) within 28 days. The Upper Tribunal, which is independent of the FCA, will consider the case afresh. Hearings before the Upper Tribunal are normally public.
    • Where action is taken by the FCA, the final outcome is set out in a final notice.   

    The FCA may close an investigation at any stage if it determines that there is no case to answer. Settlement discussions may also take place at any stage, and the FCA operates an early settlement discount scheme that provides for the following discounts where the case is resolved fully or partially at “Stage 1” (a period notified by the FCA once it has a sufficient understanding of the case to make a reasonable assessment of the appropriate sanction):

    • 30 per cent discount where there is full agreement of facts, liability and penalty at Stage 1;
    • 30 per cent discount where there is full agreement of facts and liability but not penalty at Stage 1;
    • 15-30 per cent discount (at the discretion of the RDC) where there is full agreement of facts but not liability or penalty at Stage 1;
    • 0-30 per cent discount (at the discretion of the RDC) where there is partial agreement as to facts, liability and penalty (leaving a narrow set of issues in dispute) at Stage 1; and
    • no discount is available in any other circumstances.

    The previous scheme, under which discounts of 20 per cent or 10 per cent were available at later stages was abolished in March 2017, although there are transitional arrangements for investigations that were ongoing at that time.  

    The PRA operates a similar enforcement process, and after its investigation work is complete, it will take the following steps that are set out in its Procedures – The Enforcement Decision Making Committee (EDMC Procedures):    

    • PRA staff may recommend the issue of a warning notice to an enforcement decision making committee (EDMC).
    • The EDMC considers the material on which the recommendation is based and may seek any additional information about the recommendation (EDMC Procedures, paragraph 5.1).
    • The EDMC may decide to issue a warning notice stating the action the PRA proposes to take, and giving the opportunity for representations from the subject of the investigation.
    • After the warning notice is issued, the EDMC will not meet with or discuss the matter with the relevant PRA staff involved in the case without the other parties being present or having the opportunity to respond (EDMC Procedures, paragraph 5.5).
    • The subject of the investigation is entitled to disclosure of material relied on by the EDMC in taking its decision, together with secondary material which might undermine that decision. 
    • The warning notice will specify a period for making representations. Except in an urgent case, this will be no less than 21 days (to which an extension may be requested) (EDMC Procedures, paragraph 6.1-6.2). The subject of the investigation is entitled to make written representations to the EDMC and may request permission to make oral representations (EDMC Procedures, paragraph 6.1). 
    • If oral representations are made, PRA staff may respond to the representations where appropriate (EDMC Procedures, paragraph 6.6), and the EDMC may request further information in writing from any party following the representations (EDMC Procedures, paragraph 6.8). 
    • Following representations to the EDMC, it will consider the material before it and  decide to either issue a decision notice setting out decision or to discontinue the investigation (EDMC Procedures, paragraph 8). 
    • The subject of the investigation may refer a decision notice to the Upper Tribunal (Tax and Chancery Chamber) within 28 days. The Upper Tribunal, which is independent of the PRA, will consider the case afresh. Hearings before the Upper Tribunal are normally public. 
    • Where action is taken by the PRA, the final outcome is set out in a final notice.   

    The PRA may also close an investigation at any stage (including after the matter has been referred to the EMDC) by issuing a notice of discontinuance (EDMC Procedures, paragraph 9).

    The PRA has a policy on settlement decision-making procedure and for the determination of the amount of penalties and the period of suspensions or restrictions in settled cases (PRA Settlement Policy). The PRA Settlement Policy provides that settlement discussions may take place at any time, although the PRA will normally require a sufficient understanding of the nature, seriousness and impact of the suspected breach and be able to make a reasonable assessment of what action should be taken before it will engage in settlement discussions (PRA Settlement Policy, paragraph 16). The PRA operates an early settlement discount scheme that provides discounts on financial penalties or the period of any suspension or restriction. The PRA discount scheme provides for discounts of 30 per cent, 20 per cent or 10 per cent depending on the stage at which settlement is achieved. In April 2019, the PRA published a consultation paper on proposals to abolish the stage 2 (20 per cent) and stage 3 (10 per cent) discounts.

    A criminal investigation, whether by the SFO or the FCA, will proceed differently. A criminal investigation may involve requiring production of documents or interviews with either the subject of the investigation or witnesses using the SFO and FCA’s statutory powers. In most securities-related cases, the matter will be tried in the Crown Court where criminal procedure provides for (in a contested case):    

    • The accused to be charged with the offence for which the accused is to be prosecuted. 
    • The prosecuting authority to disclose to the suspect any previously undisclosed material that might reasonably be considered capable of undermining the case for the prosecution against the accused or assisting the case for the accused (section 3(1) Criminal Procedure and Investigations Act 1996).  
    • The accused to serve a defence statement, setting out the basis on which the case will be defended. This includes any particular defences on which the accused wishes to rely, the factual matters on which the accused takes issue with the prosecution, the factual matters on which the accused intends to rely and any points of law on which the accused wishes to rely. 
    • The defence to notify the prosecution and the court of any witnesses to be called at the trial. 
    • The prosecutor to serve an indictment setting out the offence with which the accused is charged and such particulars of the conduct constituting the commission of the offence as to make clear what the prosecutor alleges against the defendant. The accused is then asked to plead to the indictment. 
    • After any pretrial matters and hearings have been dealt with (for example, to deal with issues about the admissibility of evidence or points of law), the case proceeds to a trial before a jury.

     

  25. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  26. The securities and related law enforcement authorities in the UK have various bilateral and multilateral memoranda of understanding with overseas authorities to facilitate cooperation and the sharing of information. The UK is also party to a number of treaties for the provision of mutual legal assistance, which provide for cooperation between states for obtaining assistance in the investigation or prosecution of criminal offences. These include multilateral agreements such as those established by IOSCO (where the FCA signed the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information in May 2018), the Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union and the Commonwealth Scheme Relating to Mutual Assistance in Criminal Matters, and bilateral agreements with countries including the United States.

    The FCA and PRA have an obligation to cooperate with other regulators (sections 354A, 354B FSMA), and there are formal mechanisms through which overseas authorities can seek assistance from the authorities. The FCA and PRA have the power to conduct investigations to assist overseas authorities (section 169 FSMA) including by using their investigatory powers for the purposes of assisting overseas regulators (and EG 3.7). The FCA’s policy on how it assists overseas authorities is set out in DEPP 7 and the Enforcement Guide. FCA data stares that it received around 1,000 requests for assistance from overseas agencies in 2018/19.        

    The SFO may render assistance to overseas authorities pursuant to the Crime (International Cooperation) Act 2003.

  27. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  28. The findings of other regulatory authorities or enforcement agencies are relevant factors when the PRA and FCA determine whether to take action of their own. The FCA will consider whether the other authority's action would be adequate to address the FCA's concerns, or whether it would be appropriate for the FCA to take its own action (DEPP 6.2.1(6)) and the PRA will consider whether it is appropriate for the PRA to investigate and take enforcement or other legal action in respect of the misconduct in light of any other relevant action (PRA Statement of Policy on the Imposition and Amount of Financial Penalties under the Act, paragraph 3(h)(iii)).

    The SFO may consider findings of overseas authorities to assist it in its investigation. However, where an overseas agency has investigated or prosecuted a subject on criminal charges, it may prevent a prosecution by the SFO against the same subject where the charges would involve the same act.

    Document production

  29. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  30. The FCA and PRA may require production of documents and information during the course of an investigation from the subject of an investigation provided that the investigator reasonably considers the provision of information or production of the document to be relevant to the purposes of the investigation (section 171(1)-(3) FSMA).

    The same requirement may be imposed on a person connected to the subject of the investigation. A person is connected in a range of circumstances including where they are or were at the relevant time a member of the same group as the subject; a controller of the subject; a partnership of which the subject is a member; an officer or manager of the subject or of a parent undertaking of the subject; an employee of the subject; or a banker, auditor, actuary or solicitor of the subject or a member of its group (sections 171(1) and 171(4) FSMA and Schedule 15, Parts I and II).

    In relation to certain types of investigation, the FCA and PRA may also seek documents and information from persons who are neither the subject of the investigation nor connected to the subject. This applies where the investigation is a specific investigation under section 168(1) or (4) FSMA (which is an investigation into certain specified offences or breaches of a generally more serious nature), when the investigator may require a person who is neither the subject of the investigation nor a connected person to provide information where the investigator is satisfied that the requirement is necessary or expedient for the purposes of the investigation (section 172 FSMA). It also applies where the investigation is carried out under section 168(2) FSMA (which is an investigation into certain other specified offences or breaches including conducting certain unauthorised activities, market abuse, insider dealing and offences relating to misleading conduct), whereby the investigator may require any person to provide such information as the investigator may require for the purposes of the investigation and to provide such documents as appear to the investigator to relate to any matter relevant to the investigation (section 173 FSMA).

    The SFO may require the subject of the investigation or any other person whom the SFO has reason to believe has relevant information to provide information to the SFO (section 2(2) CJA). It may also require the subject of the investigation or any other person to produce such documents as appear to the SFO to relate to any matter relevant to the investigation (section 2(3) CJA). In R (KBR Inc) v Director of the Serious Fraud Office [2018] EWHC 2012 (Admin), the High Court held that, where there is a sufficient connection between the company and the UK, a foreign company may be compelled to produce documents held outside the UK by a notice issued by the SFO.

  31. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  32. Yes, it should be issued as soon as practicable after the company becomes aware that an investigation may be necessary or may take place. 

  33. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  34. Documents that are subject to legal privilege may be requested, but production of such documents cannot be compelled (section 2(9) CJA and section 413 FSMA). If such materials are provided to the authority (whether by the subject of the investigation or by a third party), they may be used as part of the investigation.

    It should be noted that the issue of whether certain types of materials (notably documents generated in the context of internal reviews and enforcement investigations, including interview memoranda) are protected by legal privilege has been the subject of a number of recent court decisions. These include SFO v ENRC [2018] EWCA Civ 2006 where the Court of Appeal held that interview memoranda created as part of investigation at a time when a criminal prosecution was reasonably in contemplation were subject to litigation privilege. Notwithstanding this decision, a number of previous cases held that documents such as interview notes or transcripts were not privileged (eg, RBS Rights Issue Litigation [2016] EWHC 3161 (Ch)). In R (AL) v Serious Fraud Office & Others [2018] EWHC 856 (Admin), the SFO was criticised by the High Court for failing adequately to challenge assertions of legal privilege by a company with which it concluded a deferred prosecution agreement. In a subsequent criminal prosecution of an employee, the SFO had not obtained interview notes from the company’s internal investigation, having previously not challenged the company’s assertion of privilege and instead accepted “oral proffers” of the substance of the notes.

    Even following the Court of Appeal’s decision in SFO v ENRC [2018] EWCA Civ 2006, the availability of privilege over documents generated by an internal investigation is fact specific and remains an area of significant risk on which advice should be taken at the beginning of any investigation.

    Where documents are privileged, it is possible to provide privileged materials on the basis of a limited waiver of privilege such that the privilege is not waived against third parties. The FCA’s Enforcement Guide states that the FCA considers that English law does permit such limited waiver and that legal privilege could still be asserted against third parties (EG 3.11.13).

    The SFO has a policy for dealing with material that it requires or seizes that is potentially protected by privilege, under which it takes steps to isolate the material from its investigation team and may be reviewed by an independent lawyer for privilege. The SFO’s policy was upheld by the High Court in R (McKenzie) v Director of the Serious Fraud Office [2016] EWHC 102 (Admin).

  35. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  36. Confidential and commercially sensitive information cannot be withheld only because it is confidential or commercially sensitive.

    However, there are restrictions on the disclosure of confidential information by the FCA and PRA, and such information cannot generally be disclosed without the consent of the person from whom the FCA or PRA obtained the information and, if different, the person to whom the information relates. For these purposes, confidential information is information that relates to the business or other affairs of any person that is received by the FCA or PRA for the purposes of, or in the discharge of, any of their functions. Information is not confidential information if it is otherwise publicly available or if the information disclosed is a summary or collection of information that is framed such that it is not possible to ascertain from it any information relating to any particular person (section 348 FSMA).

    There are also certain circumstances in which the FCA and PRA can disclose confidential information. These include disclosure for the purpose of enabling or assisting the authorities in discharging their function, for the purposes of criminal proceedings and investigations and disclosure in pursuance of an obligation under EC Law (FSMA 2000 Disclosure of Confidential Information Regulations 2001).

    Where it brings a criminal prosecution, the SFO is obliged to disclose any prosecution material that has not previously been disclosed to the accused and that might reasonably be considered capable of undermining the case for the prosecution or of assisting the case for the accused (section 3(1) Criminal Procedure and Investigations Act 1996). While materials disclosed to the defendant are subject to confidentiality requirements, confidentiality may be lost if, for example, the materials are referred to in open court.

  37. 19.Can the target of a document request exercise a right not to produce?
  38. Generally not: where a document request is issued using the statutory powers available to the FCA, the PRA or the SFO, the target of the request is obliged to comply and commits an offence if they fail to do so without reasonable excuse (section 177(2) FSMA, section 2(13) CJA).  

    There is an exception for legally privileged documents, where production cannot be compelled (section 2(9) CJA and section 413 FSMA).

    There is also a limited exception in relation to the FCA and PRA for documents that are subject to the duty of banking confidentiality (section 175(5) FSMA). It should be noted, however, that the limited exception cannot be invoked by the bank when the bank itself is the subject of the investigation. A similar limited protection applies in relation to the SFO but can be overridden by the SFO (section 2(10) CJA).

  39. 20.

    Do any data privacy, bank secrecy or other laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?

  40. The Data Protection Act 2018 (DPA 2018) and the General Data Protection Regulation (Regulation (EU) 2016/679) (GDPR) restrict the disclosure of personal data (data relating to living individuals who can be identified from that data), such that personal data can be disclosed only in certain circumstances including where the data subject has consented to disclosure for a specific purpose, where the disclosure is necessary to comply with a legal obligation or where it is necessary for the purposes of the legitimate interests pursued by the data controller (article 6(1) GDPR). Banking confidentiality also restricts disclosure of certain information.

    In relation to authorities within the UK, disclosure of such information will be permitted if the relevant authority exercises its statutory powers to compel disclosure.

    Personal data may not be transferred outside the EEA unless the third country ensures an adequate level of protection for the rights of data subjects. There are certain exceptions to this general rule, under both article 49 GDPR and the DPA 2018. These include:(i) where the data subject has explicitly consented to the transfer, (ii) the transfer is necessary for important reasons of public interest, or (iii) the transfer is necessary for the establishment, exercise or defence of legal claims, to protect the vital interests of the data subject or other persons when the data subject is incapable of giving consent. Section 73 DPA 2018 also provides an exception permitting a transfer where: (i) the transfer is necessary for law enforcement purposes (which means the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, including the safeguarding against and the prevention of threats to public security: section 31 DPA 2018), (ii)  the transfer is either to a country with adequate safeguards for personal data, or where special circumstances exist (section 76 DPA 2018), and (iii) the transfer is to certain types of relevant or competent authorities. 

    Particular issues arise with disclosure to authorities outside the EEA and legal advice should be obtained on whether, and how, any disclosure should be made. One approach for provision of documents to a non-EEA authority is for the foreign authority to make its requests through the FCA, which can then exercise its statutory powers to compel production.

    The GDPR grants broad enforcement powers to national supervisory bodies, and businesses that do not comply with the GDPR may be fined up to €20 million or 4 per cent of worldwide annual turnover, whichever is higher. 

    In 2019, the ICO (the UK’s data privacy authority) announced that it would impose financial penalties of £183 million on British Airways and £99 million on Marriott International for breaches of the GDPR.

  41. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  42. Personal data may not be transferred outside the EEA unless the third country ensures an adequate level of protection for the rights of data subjects. It should be noted that the US has not been determined to have adequate levels of protection, although the European Commission has determined that transfers of data to the US under the Privacy Shield framework provide adequate levels of protection.

    As set out under question 20, the prohibition on transfer of personal data outside the EEA is subject to exemptions in a number of circumstances. 

    The application of data protection rules in the context of an investigation can be complex and as a result, transfer of personal data outside the EEA for storage or review for the investigation should be considered carefully to determine whether it is permitted by data protection law.

  43. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  44. Yes. A document request will generally cover documents in the possession of the legal entity that holds the documents, irrespective of where they are located. The authorities may also seek documentation from overseas authorities.

    Witness interviews

  45. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  46. Yes, the FCA, PRA and SFO may all conduct witness interviews, and all have statutory powers to compel a witness to answer questions at an interview.

    The FCA's standard practice is generally to use its statutory powers to require the provision of information or the answering of questions in an interview. Answers given in a compulsory interview are generally not admissible in criminal or market abuse proceedings against the witness in the UK, and in a 2017 case in New York, criminal convictions of two individuals found guilty of offences related to LIBOR manipulations were overturned on the basis that a witness who gave evidence against them had reviewed testimony that the individuals had been compelled to give to the FCA in the UK. The Second Circuit Court of Appeals held that this violated the Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings (United States v Allen, No. 19-CR-898 (JAC), 2017 WL 3040201 (2d Cir. 2017)). 

    In some circumstances the FCA may request a voluntary interview with a witness. This approach may be adopted where the witness is a suspect or possible suspect in a criminal or market abuse investigation (so that their answers are admissible in criminal or market abuse proceedings against the witness), where the witness is a third party with no professional connection to the financial services industry and in cases where the FCA is seeking information on behalf of a foreign regulator and a voluntary interview is more appropriate. The PRA’s statement of policy on conduct of interviews does not state whether the PRA generally uses its statutory powers to conduct interviews, or whether it may seek voluntary interviews in particular circumstances.   

    Interviews will be both on the record and tape recorded. Witness interviews are not made public as a matter of course, but may become public if, for example, the contents of the interview are used in evidence in court proceedings or before the Upper Tribunal.

  47. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  48. In a compelled interview there is no right to silence, and witnesses are required to answer questions.

    While a witness is not required to participate or answer any particular question at a voluntary interview, FCA guidance makes clear that there may be circumstances in which an adverse inference may be drawn from the reluctance of a person to participate in a voluntary interview.

  49. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  50. Witnesses are generally entitled (but not required) to be represented by counsel in any interview carried out by the FCA, PRA or the SFO pursuant to its powers under the Police and Criminal Evidence Act 1984. There is no right to representation at an interview conducted by the SFO pursuant to section 2 CJA, and the SFO considers that it has discretion whether or not to allow a lawyer to attend.

    In practice, whether representation is likely to be provided by independent external counsel. This will depend on the circumstances, the preferences of the witness and any conflicts issues that may arise. In some circumstances, a witness may also be a potential subject of an investigation (for example, where the individual was a senior manager with managerial responsibility for the issues under investigation, and where the FCA may be considering the individual’s obligations under the Senior Managers and Certification Regime).

    SFO guidance states that legal representation will be allowed at an interview under section 2 CJA if the SFO “believes it likely they will assist the purpose of the interview and/or investigation, or that they will provide essential assistance to the interviewee by way of legal advice or pastoral support”. The guidance also states that a lawyer who is not retained by the interviewee, or who owes a duty of disclosure to any other person who may come under suspicion (including the interviewee’s employer) is “unlikely to be allowed to attend”. Moreover, the guidance states that the lawyer may advise on matters relating to legal professional privilege but otherwise “must not do anything to undermine the free flow of information”, and may be excluded in the event of any perceived infraction.

    It should be noted that the SFO guidance does not apply to FCA or PRA interviews, or interviews conducted by the SFO pursuant to its powers under the Police and Criminal Evidence Act 1984.

    Advocacy

  51. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  52. There is no specific right to challenge the investigation in court while it is ongoing, but depending on the circumstances, it may be possible to challenge the actions of the authority in court.

    As an example, the FCA, PRA and SFO are all public bodies subject to judicial review and the subject of an investigation may, in appropriate circumstances, seek judicial review of their actions and decisions. To give some examples, judicial review proceedings have been brought against the SFO in an attempt to have an investigation discontinued (R (Soma Oil & Gas) v SFO [2016] EWHC 2471 (Admin)), to challenge document seizures by the SFO (R (Unaoil) v SFO [2017] EWHC 600 (Admin)), to challenge requirements to produce documents (R (KBR Inc) v SFO [2018] EWHC 2012 (Admin)), to challenge the SFO’s failure to obtain interview notes from a company under investigation (R (AL) v SFO [2018] EWHC 856 (Admin)) and to challenge a decision by the SFO to exclude the lawyers of a company under investigation from interviews with its employees (R (Lord & Others) v SFO [2015] EWHC 865 (Admin)). 

  53. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  54. In enforcement proceedings by the FCA and PRA, the enforcement investigators will generally set out their case in a formal letter or report at the end of the initial investigation phase. The subject of the investigation is entitled to formally respond, and the response will be taken into account by the RDC (in the case of the FCA) or the EDMC (in the case of the PRA) when deciding whether to issue a warning notice.

    There is a second opportunity to respond following receipt of the warning notice when the subject of the investigation is entitled to submit written representations and make oral representations to the RDC or EDMC before a decision notice is issued.

    There is no formal opportunity to challenge the SFO’s theories or allegations prior to the SFO bringing charges.

    In addition, the subject of an investigation may submit documents or representations to the relevant authority informally at any time during the investigation.

  55. 28.

    What form does the advocacy with a securities or related law enforcement authority typically take? 

  56. Advocacy may take any form. Letters or formal submissions are typically used to respond to the investigators’ findings and to the warning notice. In addition, oral submissions can be made to the RDC or (with permission) EDMC following the issue of a warning notice. It is also possible to make presentations to the authorities, or make a without prejudice submission, or raise arguments in the context of settlement discussions.

    If an enforcement matter proceeds to the Upper Tribunal, there are both written submissions and oral advocacy.

  57. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  58. If representations are made to the RDC (in the case of the FCA) or EDMC (in the case of the PRA), and the relevant authority decides to issue a decision notice, the representations will be summarised in the decision notice along with an explanation of how they were dealt with. The summary is prepared by the relevant authority and does not constitute a formal admission by the investigated party. However, in practice, it may be difficult for an investigated party to abandon an admission or statement that has been asserted and published in this way in future proceedings.

    A similar difficulty would arise with other statements or advocacy positions that became public (or were required to be disclosed in future proceedings). It should be noted that settlement discussions can be conducted on the basis that neither the authority nor the party may seek to rely against the other on any admissions or statements made in the  discussions unless the admissions or statements are recorded in a focused resolution agreement (which is a type of settlement agreement that resolves some but not all of the matters) (EG 5.3.1). This is similar to a without prejudice settlement discussion. The English courts have held that the contents of settlement discussions will be protected from disclosure in subsequent proceedings, but that the protection may be lost in certain circumstances such as where the subject of the investigation puts the settlement discussions in issue in the proceedings (Property Alliance Group v RBS [2015] EWHC 1557 (Ch)).

    It should be noted that the FCA Enforcement Guide states that the FCA is not prevented from “following up, through other means, on any new issues of regulatory concern that come to light during settlement discussions” (EG 5.3.1).

    In the context of an SFO investigation that is resolved by a Deferred Prosecution Agreement, the subject of the DPA will be required to agree a statement of facts which is made public, and to acknowledge the truth and accuracy of the statement of facts in the DPA.

    Timing

  59. 30.What is the limitation period for charges for securities and related violations?
  60. For the FCA and PRA, the limitation period for disciplinary action against an individual pursuant to section 66 FSMA is three years in relation to misconduct that occurred before 25 July 2014 and six years for misconduct that occurred on or after that date. It should be noted that the regulators may issue a prohibition order at any time, including after the limitation period for disciplinary action has expired in relation to any particular conduct, where it has concerns about the fitness and propriety of an approved person (EG 9.3).   

    There is no corresponding limitation period for disciplinary action against authorised persons(typically firms) as opposed to individuals.

    There is no limitation period for criminal violations.

  61. 31.When does the limitation period begin to run?
  62. In relation to the FCA and the PRA, the limitation period for disciplinary action against an individual pursuant to section 66 FSMA runs from the first day on which the regulator knew of the misconduct (section 66(4) FSMA).

  63. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  64. The FCA and PRA are required to issue a warning notice within the relevant limitation period. Subsequent representations and notices such as the decision notice and final notice need not be within the relevant limitation period, provided the warning notice was issued in time.

    FCA and PRA procedures do not provide for tolling agreements to suspend the running of the limitation period.

  65. 33.How long does a securities or related investigation typically take?
  66. The length of an FCA or PRA investigation depends on the stage at which the investigation is resolved. Comparatively few PRA enforcement investigations have been concluded (13 as at the date of writing, of which several were joint actions with the FCA).

    FCA data shows that in 2017/18, the average length of an investigation for a civil or regulatory case was:

    • 29 months for a case that concluded as a result of a settlement (2017/18: 32 months);  
    • 51 months for a case that is referred to the RDC (2017/18: 59 months);  
    • 74 months for a case that is referred to the Upper Tribunal (2017/18: 52 months); and  
    • 18 months across all cases, including cases closed with no further action (2017/18: 19 months). 

    FCA data shows that the average length of a criminal case pursued by the FCA is 76 months (2017/2018: 58 months). It should be noted that there is significant variation between cases. In 2018/19, the FCA concluded a money laundering prosecution that had been ongoing for more than 10 years, while the average time for a criminal case in the unauthorised business area is 26 months.

    SFO investigations may take in the region of four to six years, where the case is prosecuted to trial, though this can vary significantly. 

    Resolution

  67. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  68. If an FCA or PRA investigation is discontinued before a warning notice is issued, there is no requirement to notify the subject of the investigation that it has been discontinued. However, FCA guidance states that where it has given a person written notice that it has appointed an investigator and later decides to discontinue the investigation without any present intention to take further action, it will confirm this to the person concerned as soon as it considers it is appropriate to do so, bearing in mind the circumstances of the case (EG 4.5.1).

    Where a warning notice or a decision notice has been issued, and the FCA or PRA decides not to take any action, the FCA and PRA are required to issue a notice of discontinuance unless the discontinuance resulted from an application made by the subject of the investigation (section 389 FSMA). As a matter of practice, FCA guidance states that where it has published a warning notice statement (ie, a summary of a warning notice) and subsequently decides not to take any further action, or where it has published a decision notice and the subject of enforcement action successfully refers the matter to the Tribunal, the FCA will make it clear on its website that the warning notice or the decision notice no longer applies. The FCA will normally do this by publishing a notice of discontinuance with the consent of the party (EG 6.2.19).

  69. 35.How will the resolution or settlement process be initiated?
  70. Settlement or resolution discussions may take place at any time, and may be initiated by either the authority or the subject of the investigation.

    In an FCA investigation, settlement discussions will often take place after the FCA has completed its investigation and provided a Stage 1 Letter to the subject of the investigation, which sets out the FCA’s preliminary findings and view of the appropriate penalty. A 30 per cent discount on any financial penalty is available where the investigation is settled before the end of a settlement period that will be stated in the Stage 1 Letter (typically 28 days). The FCA’s enforcement process provides for the possibility of a settlement on facts and liability, but not on the amount of the penalty, as well as for settlements on facts only, and partial settlements. The discounts applicable in these scenarios are described further in response to question 12.

    The PRA enforcement process also provides for settlement discussions to take place at the equivalent of Stage 1 and a 30 per cent discount on any financial penalty is also available. It should be noted that the PRA’s enforcement process does not provide for partial settlements, or settlement on facts and/or liability only and also allows for discounts of 20 per cent or 10 per cent if the case is settled at a later stage.

  71. 36.Who decides whether to proceed with charges and what charges to select? 
  72. In relation to civil enforcement investigations, the decision to proceed and the nature of the allegations made against the subject is made firstly by enforcement staff and then by the RDC (in the case of the FCA) or the EDMC (in the case of the PRA).

    In a criminal investigation by the SFO, the decision to proceed with charges and what charges to select is taken by SFO staff.

  73. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  74. Both the FCA and PRA have published guidance on the factors they will take into account when deciding whether to take action in a particular case (DEPP 6.2 and PRA Statement of Policy on the Imposition and Amount of Financial Penalties under the Act). While the precise formulation of the factors varies between the FCA and PRA statements of policy, relevant factors can be summarised as including:

    • the nature, seriousness and impact of the breach, including whether it was deliberate or reckless, its duration and frequency, whether any economic benefit was derived from the breach and whether it revealed serious or systemic weaknesses or potential weaknesses with the business;
    • the conduct of the person after the breach, including reporting the breach to the relevant authority, cooperation with the investigation and any remedial action taken; and
    • the previous disciplinary record and compliance history of the person.

    The method for determining the amount of any financial penalty is described in question 38.

    In a criminal case, the prosecuting authority will make charging decisions in accordance with the Code for Crown Prosecutors, which requires the prosecutor to be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge (the evidential stage), and consider whether a prosecution is required in the public interest (the public interest stage).

    At the evidential stage, the following factors are relevant:

    • Can the evidence be used in court?
    • Is the evidence reliable?
    • Is the evidence credible?

    At the public interest stage, the prosecutor is required to consider each of the following questions:

    • How serious is the offence committed?
    • What is the level of culpability of the suspect?
    • What are the circumstances of and the harm caused to the victim?
    • Was the suspect under the age of 18 at the time of the offence?
    • What is the impact on the community?
    • Is prosecution a proportionate response?
    • Do sources of information require protecting?
  75. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  76. The FCA has a range of enforcement remedies open to it, including a private warning, public censure, financial penalty, restricting a firm’s permissions and prohibiting a firm or individual from involvement in regulated business.

    Where a financial penalty is proposed, the FCA’s approach to the amount of the penalty depends on when the conduct took place.

    In respect of conduct prior to 6 March 2010, the FCA will consider all of the relevant circumstances to determine an appropriate and proportionate financial penalty. The FCA’s rules provide a non-exhaustive list of factors that go towards determining the appropriate level of penalty. These include: the deterrent effect of the penalty; the nature, seriousness and impact of the breach; the extent to which the breach was deliberate or reckless; the size and financial resources of the subject of the penalty; the amount of any benefit gained or loss avoided as a result of the breach; conduct following the breach; the disciplinary record and compliance history of the subject of the penalty; and other action taken by the FCA in other cases.

    For conduct from 6 March 2010, the FCA operates a penalty regime under which financial penalties may comprise two elements: (i) disgorgement of any benefit received as a result of the breach and (ii) a penalty reflecting the seriousness of the breach. The second part of the penalty may, if appropriate, be calculated by reference to a metric such as the revenues derived by the subject of the penalty during the period of the breach from the products or business areas to which the breach relates. The FCA will then take a percentage of the relevant revenue, ranging from zero to 20 per cent in 5 per cent increments, depending on the seriousness of the breach. The resulting penalty may then be adjusted to reflect any mitigating or aggravating factors, and it may be increased if the FCA considers that it is insufficient to deter the subject or others from committing future breaches.   

    In relation to conduct both pre and post 6 March 2010, a discount of 30 per cent is available for early settlement.   

    The PRA penalty calculation methodology is similar to the FCA regime for post 6 March 2010 conduct, although it operates a different discount scheme for early settlement, where discounts of 30 per cent, 20 per cent or 10 per cent are available depending on the stage at which the investigation settles. The PRA has undertaken a consultation on a proposal to abolish the 20 per cent and 10 per cent discounts.

  77. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  78. In FCA or PRA enforcement actions, they are disgorged as part of the penalty calculation, where the authority will attempt to quantify any benefit received or loss avoided as a result of the breach.

    In criminal cases, there are procedures for the proceeds of crime to be confiscated and disgorgement of profits from unlawful activities is a component of the fine calculation for a number of the criminal offences prosecuted by the SFO or the FCA. In 2017/18 the FCA obtained three confiscation orders against individuals who had been convicted of offences and the SFO was pursuing proceeds of crime cases against 24 individuals.

    Since 31 January 2018, law enforcement authorities including the SFO and the FCA have been able to apply to court for an Unexplained Wealth Order (UWO), which requires a respondent to explain their interest in a particular asset and to explain how they obtained it (including how the costs were met). A UWO may be issued where a respondent appears to hold assets worth more than £50,000 in the UK, there are reasonable grounds to suspect that the respondent’s known sources of lawfully obtained income would have been insufficient to obtain the asset and the respondent is either a non-EEA politically exposed person or there are reasonable grounds for suspecting that the respondent (or someone connected to the respondent) has been involved in serious crime. If the respondent cannot show that the asset was lawfully obtained then it may be seized in separate proceedings.

  79. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  80. Yes. However, for offences other than strict liability offences (ie, offences that do not require a mental element, such as failure to prevent bribery pursuant to section 7 Bribery Act 2010), a company will be liable only where the mental element of the offence (the mens rea) can be attributed to those who represent the directing mind and will of the company. The directing mind and will of a company has been defined as the "board of directors, the managing director and perhaps other superior officers of the company who carry out functions of management and speak and act as the company” (Tesco Supermarkets v Nattrass [1972] AC 153).

    In early 2017, UK government ran a consultation to examine possible reform in this area in relation to economic crimes such as fraud, false accounting and money laundering when committed on behalf or in the name of companies. The consultation closed in March 2017 and at, the time of writing, the UK government is analysing the feedback.

  81. 41.

    Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authorities use when taking into account any cooperation?

  82. Yes. The FCA and PRA may adjust penalties to reflect the degree of cooperation showed by the subject of the enforcement action during the investigation. This may operate as a mitigating factor or an aggravating factor. To receive a reduced penalty on this ground, a high degree of cooperation, going beyond what would generally be expected, will be required.

    The FCA operates a discount scheme for early settlement where a 30 per cent discount is available if the investigation is settled in relation to the facts and liability before the end of a settlement period that will be stated in a Stage 1 Letter from the FCA setting out its preliminary findings (typically 28 days). It is also possible to settle on the amount of the financial penalty at Stage 1, but the subject of the investigation may also contest the penalty only and receive the 30 per cent discount. Discretionary discounts of up to 30 per cent are available where there is a partial settlement on facts and/or liability. No discount is available after Stage 1. 

    In relation to cooperation, the FCA takes account of a range of factors including a company’s overall relationship with the FCA, the company’s track record of open communication with the FCA, the response to the issues under investigation and other matters. In one case, the FCA identified two companies as having been “extremely cooperative” and said that they had been “proactive in the offering of information and have responded promptly and constructively to requests made of them. Furthermore, both refrained, at the FCA’s request, from interviewing witnesses or taking statements; they disclosed voluntarily material that appeared to them to be significant to the FCA’s enquiries; and they generally helped to facilitate a swift conclusion to the FCA’s enquiries”.

    The PRA operates a scheme where a discount of 30 per cent is available where the investigation is settled before the end of a settlement period that will be stated in a Stage 1 Letter from the PRA setting out its preliminary findings (typically 28 days). A 20 per cent discount is then available until the time that the subject of the investigations makes written representations in response to a warning notice (or the expiry of the period for written representations). Finally, a 10 per cent discount is available until the decision notice is issued. No discount is available once a decision notice has been issued. The PRA has undertaken a consultation on a proposal to abolish the 20 per cent and 10 per cent discounts.

    Criminal penalties, or penalties under a Deferred Prosecution Agreement, may be reduced to reflect a guilty plea. In a number of DPA cases, the financial penalty has been reduced by up to 50 per cent to reflect early admissions of wrongdoing and cooperation with the SFO. 

    In SFO v Rolls-Royce [2017] (case number U20170036), the judge identified factors that demonstrated “extraordinary cooperation” with the SFO, including:

    • voluntary disclosure of materials from internal investigations, with limited waiver of privilege over internal investigation memoranda;
    • providing unreviewed digital material to the SFO and cooperating with independent counsel in the resolution of privilege claims;
    • agreeing to the use of digital methods to identify privilege issues;
    • cooperating with the SFO’s requests in respect of the conduct of the internal investigation, including timing of and recording of interviews and reporting of findings on a rolling basis; and
    • providing all financial data sought.

    The SFO has also published corporate cooperation guidance on the actions and steps that the SFO considers companies should take if they intend to cooperate with an SFO investigation. Among other matters, the guidance states that genuine cooperation is “inconsistent with protecting specific individuals” and that a company should consult with the SFO before interviewing witnesses or taking personnel or HR actions. Further guidance is set out in the SGO’s Guidance on Corporate Cooperation. Specific steps identified by the SFO’s guidance include:

    • voluntary self-reporting of misconduct;
    • identifying witnesses and facilitating interviews;
    • disclosing internal investigation documents; and
    • providing timely and complete responses to SFO information requests and complying with SFO requirements on how documents are provided.
  83. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  84. Deferred prosecution agreements are available in criminal investigations pursued by the SFO, but not in relation to civil or regulatory investigations by the FCA or PRA.

    To date, the SFO has entered into deferred prosecution agreements in five cases; three relating to bribery-related allegations, one case relating to false accounting and securities violations and one case relating to fraud and false accounting.

  85. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  86. Deferred prosecution agreements must be approved by the court. Other settlement agreements, including with the FCA and PRA, do not require court approval. 

  87. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  88. For FCA and PRA investigations, a settlement usually will result in a public notice being issued by the relevant authority that will set out the facts found by the authority that give rise to the penalty. However, the firm is not required to admit the facts or wrongdoing found by the authority.

    A deferred prosecution agreement with the SFO will include a statement of facts setting out the particulars of each alleged offence. There is no requirement for formal admissions of guilt, but the subject of the deferred prosecution agreement will be required to admit the contents and meaning of key documents referred to in the statement of facts.

  89. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  90. Yes. FCA and PRA findings can be challenged both through administrative processes and in the Upper Tribunal. The Upper Tribunal may be appealed to the Court of Appeal (subject to permission to appeal being granted), which in turn and subject to permission being granted may be appealed to the Supreme Court, the final appeal court in the UK.

    Criminal convictions following a successful prosecution can also be appealed to the Court of Appeal, and then to the Supreme Court.

  91. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  92. The consequences of a decision being reversed on appeal by the Court of Appeal or the Supreme Court will depend on the issue in the appeal. In some cases, an appeal may be on a point of law in which case the decision may be remanded for further proceedings. In some circumstances, the case may be dismissed entirely.

    Collateral consequences

  93. 47.

    What are some of the collateral consequences of a resolution or settlement with a securities or related law enforcement authority? 

  94. Where the resolution or settlement is with a UK authority, in most cases the enforcement action will be public and may trigger disclosure obligations where the subject of the enforcement action is a listed company. 

    The commencement of foreign enforcement proceedings, or the imposition of disciplinary measures or sanctions may also trigger notification obligations to the FCA and/or PRA (SUP 15.3.15). In certain circumstances, the FCA and/or PRA may exercise their supervisory powers in light of foreign enforcement action, including, for example, to impose specific requirements on the subject of enforcement action, or to consider whether the subject of the enforcement action continues to meet the threshold requirements for authorisation in the UK.

  95. 48.

    What are some of the collateral consequences of a conviction or the imposition of liability by a court?

  96. Where an enforcement action ends in a criminal conviction, there may be restrictions on the subject of the conviction bidding in public procurement exercises pursuant to the Public Contracts Regulations 2006 and 2015.

    In addition, there may be notification obligations, depending on the nature of the offence. Firms are required to notify the FCA if the firm is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion (SUP 15.3.15(4)).

    In a recent case, an individual who was convicted of criminal offences relating to benchmark manipulation was sentenced to a term of imprisonment and a confiscation order in criminal proceedings. The FCA also took regulatory enforcement action and imposed a prohibition order on the individual, but the Upper Tribunal directed the FCA not to impose any further financial penalty.  

  97. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  98. Yes. The interaction between private litigation and investigations by the relevant authorities can be complex, and there are particular risks around issues relating to the investigations being (or becoming) subject to disclosure and inspection in related litigation. This has been a topical issue in the UK, where private litigants are increasingly seeking disclosure of materials generated by internal investigations, and there have been a number of cases in which the scope of legal privilege over investigation materials has been considered.

  99. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  100. Findings by authorities in other jurisdictions may be admissible in evidence in private proceedings, but their effect will depend on the specific facts of the case. They would not bind an English court.

  101. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?
  102. Private plaintiffs may seek disclosure of materials disclosed to the authorities, and may be able to obtain such disclosure if the materials are relevant to the private proceedings. However, disclosure would normally be sought from the defendant in the litigation rather than from the authorities. To obtain disclosure from the authorities, the private plaintiff would be required to make an application for non-party disclosure, which would require the private plaintiff to show that the documents are likely to support its case or adversely affect the case of one of the other parties to the proceedings, and that disclosure is necessary in order to dispose fairly of the claim or to save costs (CPR 31.17(3)).

    It should be noted that the English courts have confirmed the contents of settlement discussions will be protected from disclosure in subsequent proceedings, but that the protection may be lost in certain circumstances such as where the subject of the investigation puts the settlement discussions in issue in the proceedings (Property Alliance Group v RBS [2015] EWHC 1557 (Ch)).

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Questions

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  3. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  4. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  5. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  6. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  7. Investigation procedure

  8. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  9. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  10. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  11. 10.

    Must the findings of a company's internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?


  12. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  13. 12.Describe the typical phases of a securities or related investigation in your country.
  14. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  15. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  16. Document production

  17. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  18. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  19. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  20. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  21. 19.Can the target of a document request exercise a right not to produce?
  22. 20.

    Do any data privacy, bank secrecy or other laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?


  23. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  24. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  25. Witness interviews

  26. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  27. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  28. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  29. Advocacy

  30. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  31. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  32. 28.

    What form does the advocacy with a securities or related law enforcement authority typically take? 


  33. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  34. Timing

  35. 30.What is the limitation period for charges for securities and related violations?
  36. 31.When does the limitation period begin to run?
  37. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  38. 33.How long does a securities or related investigation typically take?
  39. Resolution

  40. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  41. 35.How will the resolution or settlement process be initiated?
  42. 36.Who decides whether to proceed with charges and what charges to select? 
  43. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  44. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  45. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  46. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  47. 41.

    Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authorities use when taking into account any cooperation?


  48. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  49. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  50. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  51. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  52. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  53. Collateral consequences

  54. 47.

    What are some of the collateral consequences of a resolution or settlement with a securities or related law enforcement authority? 


  55. 48.

    What are some of the collateral consequences of a conviction or the imposition of liability by a court?


  56. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  57. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  58. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?