Memorandum from Clifford Chance
Thank you for your letter of 18 May 1999 enclosing
the Treasury memorandum and Lord Lester's comments on it, and
inviting our views. We have also seen an advance draft of LIBA's
comments on the memorandum.
We agree with the observations of both Lord
Lester and LIBA and resist the temptation to repeat their points
here. The key issue in our opinion is whether it is worth the
risk that the FSA disciplinary regime will be challenged, potentially
successfully, at some time in the future in the context of a particular
case on the grounds that one or more rights under the ECHR were
violated because those particular proceedings fell to be characterised
as criminal rather than civil for the purposes of the Convention.
The Committee may not be in a position to judge now between the
competing legal arguments; but it can be fairly certain that such
a challenge will be made one day. Therefore, in our view, it ought
to express an opinion as to the wisdom of running the risk of
paralysis while such challenge is mounted, and disarray if it
The following points occur to us to be relevant
(and in the interests of brevity they do not purport to be exhaustive):
Undoubtedly the punitive and deterrent
use of fines in the disciplinary regimes involves severe penalties
by any standard: the Treasury memorandum acknowledges this at
The conceptual muddle caused by the
introduction of significant fines for punitive and deterrent purposes,
introducing what are seen as classically criminal law concepts
into a regulatory and therefore civil/administrative law regime,
predates the draft Bill. But the process of scrutiny involved
in moving from a primarily contractual system to a wholly statutory
system has necessarily highlighted the confusion. The Human Rights
Act 1998 has sharpened the focus of this process of scrutiny.
The distinction traditionally drawn
between the protective and punitive purposes may ultimately prove
in this context to be one without merit. The Treasury's reliance
on "the power to award high financial penalties"
as being "vital if the objective of protecting the public
is to be realised" illustrates they overlap in any event.
Similarly, the use of the powers of public censure, which can
cause as much damage to a business as a fine, or to exclude persons
from the industry, which deprives a firm or person from pursuing
their chosen livelihood, while traditionally seen as regulating
a profession for the protection of the public, can be equally
punitive when viewed from the perspective of the persons affected
and act as a deterrent to others. In this regard we refer to Lord
Lester's opinion that "The decisive test is what is at
stake for the individual or firm, the gravity of the offence,
and the severity of the potential sanction" (Joint Note
at paragraph 15(c) reproduced in Annex C on page 98 of the First
Given what is at stake, both for
the individual firms and persons involved in any case, and for
the confidence of the industry (including its contribution to
the economy: see paragraph 4 of the Treasury memorandum), is a
minimalist approach to the application of the ECHR appropriate?
At the very least, many of the particular disciplinary cases involve
alleged offences of such gravity, high stakes for the individual
or firm, and potential sanctions of such severity, that as a matter
of fundamental fairness (irrespective of the requirements of Convention
law), the additional Convention protections should be applied.
The restrictions on FSA powers when
applying the additional Convention protections are not such as
to debilitate the FSA in the exercise of its enforcement function.
The fruits of compulsorily obtained evidence can be used to build
the prosecution case; only the transcripts of compulsory interviews
of the person charged are inadmissible as against that
individual. The civil standard of proof on the sliding scale is
unlikely to be materially different in application from the criminal
standard in such cases. While in some complex cases financial
assistance may be required to ensure equality of arms, such cost
alone cannot be a sound reason for denying the other protections.
There is therefore a real risk of the disciplinary
regime being held to be criminal for ECHR purposes, with all the
consequences that flow from that. We would therefore urge the
Committee to recommend to the Government that it should not seek
to describe the entire disciplinary regime as civil; that a line
should be drawn between the sort of conduct which should attract
the safeguards provided by the ECHR; and that that line should
be cautiously drawn, so as to ensure that only minor infractions
are characterised as civil for ECHR purposes.
21 May 1999