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ECHR rights apply to FSMA market manipulation proceedings

23 March 2016

Brussels Court of Appeal, 24 September 2015

Human rights arguments have been used in several Member States courts1 to challenge market abuse sanctions imposed by administrative authorities. This article examines a recent ruling by the Brussels Court of Appeal (the Judgment)2, in the context of the former Fortis group, in which the Court has ruled unambiguously that ECHR Rights apply to FSMA proceedings.

The case related to the Financial Services and Markets Authority’s (FSMA) investigation of Fortis’ external communications regarding its solvency plan and forecasts from January-June 2008.3
 

On 17 June 2013, the Sanctions Commission of the FSMA imposed an administrative fine for market manipulation on Ageas (previously Fortis) and three former executives of the bank (the Decision). The market manipulation consisted of Fortis’s failure to inform the public of its solvency issues, the negative impact of having to sell certain assets in order to gain EU approval of its acquisition of ABN Amro, and the dissemination by Fortis and the three former executives of misleading Fortis share information in press releases from May to June 2008.

Appealing the Decision, Fortis and the three former executives (the Appellants) alleged that their fundamental human rights, enshrined in the European Convention on Human Rights (ECHR), had been breached (ie the double jeopardy rule, the right to due process, the presumption of innocence and the right to an impartial tribunal). This article considers (1) the fair trial issue which, in the context of FSMA’s investigations, departs from previous case law of the Court and (2) the right to an impartial tribunal which is noteworthy given the specific circumstances of this case.

Appealing the Decision, Fortis and the three former executives (the Appellants) alleged that their fundamental human rights, enshrined in the European Convention on Human Rights (ECHR), had been breached (ie the double jeopardy rule, the right to due process, the presumption of innocence and the right to an impartial tribunal). This article considers (1) the fair trial issue which, in the context of FSMA’s investigations, departs from previous case law of the Court and (2) the right to an impartial tribunal which is noteworthy given the specific circumstances of this case.

Right to a fair trial applies to FSMA proceedings  

The FSMA argued that, based on a previous judgment of the Court4 , Article 6 ECHR (right to a fair trial5), does not apply to administrative proceedings before the Sanctions Commission. The FSMA argued that only the general principles governing administrative actions apply because the Sanctions Commission was categorised, by the Court of Appeal in a previous judgment6, as an administrative authority, not an administrative court.
 
Relying on recent case law of the European Court of Human Rights (ECtHR)7, the Court held that Article 6 protects a person accused of an offence which, because of its nature or severity, is criminal in nature, such as in this case, irrespective of whether the Sanctions Commission is an administrative authority or an administrative court.
 
A failure by the Sanctions Commission to comply with the right to a fair trial during administrative sanction proceedings does not necessarily invalidate those proceedings if such right is not irremediably breached (ie if the breach could be fixed on appeal).
 
Fair trial – an impartial and independent tribunal
 
The Appellants argued that the Sanctions Commission was not impartial because (amongst other things) the FSMA, in its capacity as prudential supervisor, had approved the bank’s 2008 communications about its solvency plan and solvency forecasts. It had also made statements concerning its monitoring of Fortis during a parliamentary commission investigation into the insolvency of Fortis which took place in 2008-2009.
Therefore, the Appellants argued, the Sanctions Commission and the Auditor8 (as part of the FSMA) could not be impartial given the FSMA’s previous involvement with solvency issues concerning Fortis.

The Court acknowledged that there is a strict separation in the organisational structure and functioning of the FSMA between, on the one hand, an instructing body (the Auditor) and, on the other hand, an independent sanctioning body (the Sanctions Commission).

However, the Court held that the Appellants were entitled to have legitimate doubts about the objective impartiality of the FSMA Sanctions Commission because of the FSMA’s statements during the parliamentary commission investigation and the fact that the Sanctions Commission (and the Auditor) lacked jurisdiction to investigate the actions of the FSMA in this case. The Court held that part of the Decision should be repealed to the extent that it stated that the objective impartiality principle was not breached before the Sanctions Commission. However, this breach did not irremediably breach the Appellants’ right to a fair trial because the Decision could be appealed before the Court. Therefore the proceedings before the Sanctions Commission were valid.
 
COMMENT
 
The Court of Appeal has ruled unambiguously that Article 6 ECHR applies to administrative proceedings before the Sanctions Commission of the FSMA in respect of market abuse breaches. Before this decision, the position of the Court was that the fair trial requirements of Article 6 ECHR did not apply during the investigation by the Auditor and the proceedings before the Sanctions Commission. However, a breach will only invalidate the proceedings if the breach cannot be “fixed” on appeal.
 
With the new strengthened and broadened9 regime of the Market Abuse Regulation (596/2014/EU) (MAR) applicable from 3 July 2016, the number of sanctions for market abuse is likely to increase. In light of this judgment, compliance with the rights to a fair trial during a regulatory investigation, which is often a key element of the defence strategy, is likely to become even more important.

1 A good example is this French Supreme Court judgment June 2014 edition.

2 The judgment has been published on the website of the FSMA: http://www.fsma.be/~/media/Files/sanc/fr/2015-09-24_arret.ashx?la=fr

3 The FSMA is the Belgian equivalent of the Financial Conduct Authority (FCA) in the UK. 

4 Judgment of the Court of Appeal of 13 December 2011, n°43. 

5 This implies compliance with rights such as the impartiality of justice, a reasonable time frame, the presumption of innocence, the equality of arms, the right to have sufficient time and the facilities required for the preparation of a defence. 

6 Judgment of the Court of Appeal of 1 February 2008, p167. 

7 Decision Grande Stevens / Italy of 4 March 2014.

8 The Auditor is the body of the FSMA which can decide to start an investigation of its own volition and send its investigation report to the executive committee of the FSMA which in turn can decide to close the case, make a settlement proposal or to refer the case to the Sanctions Commissions.

9 The MAR will apply to a wider range of securities and derivatives.