The gagged case of ANZ v FMA
The gagged case of ANZ v FMA
One thing that jumped out at me from the FMA’s 20 February 2018 Conduct Outcomes Report 2017 was mention on the last page of the action taken by the ANZ against the FMA late last year. It simply states ‘The High Court heard a judicial review application and breach of confidence claim by ANZ against the FMA, concerning the interpretation of our powers under s59 of the Financial Markets Act 2011’.
On 27 November 2017, under a gagging order, the High Court heard an application by ANZ against the FMA concerning the interpretation of the FMA’s information gathering powers under ss25 and 59 of the Financial Markets Act 2011 (FMA Act). It is understandable why the Court prevented reporting on the case, given the FMA had sought information from the ANZ on its customer who was the subject of an on-going FMA investigation.
Information requests from FMA
The FMA may obtain information and documents under s25 of the FMA Act if it considers it to be necessary or desirable for the purposes of performing or exercising its functions, powers, or duties under financial markets legislation. By written notice served on any person, the FMA may require the person (within the time and in the manner specified in the notice) —
(a) to supply to the FMA, any information or class of information specified in the notice; or
(b) to produce to the FMA, (or to a specified person) any document or class of documents specified in the notice; or
(c) to reproduce, in usable form, information recorded or stored in any document or class of documents specified in the notice; or
(d) to appear before the FMA, (or a specified person), to give evidence in person or in writing.
That power to obtain information under s25 is wide and discretionary.
Using s25 the FMA did obtain bank records, and documents derived from those records from ANZ, and intended to disclose some of the documents to third parties, which FMA said was for confidential consultation in a current investigation, including consultation about a possible action by those third parties.
The obligation of confidence
It seems the ANZ was not happy with the further disclosure by the FMA of its customer’s documents and information to those third parties. Reading between the lines from the reports of the case in the media it appears that the ANZ alleged that the planned disclosure of those documents to the third parties would amount to a breach of confidence that the FMA owed to the financial markets participant, and ANZ’s customer, under s59 of the FMA Act.
Section 59 of the FMA Act states that FMA must keep the information it obtains CONFIDENTIAL unless an exception applies. The exceptions are that the information or document is:
(a) PUBLICLY AVAILABLE; the information or document is available to the public under any enactment or is otherwise publicly available; or
(b) STATISTICAL; the information is in a statistical or summary form; or
(c) FOR PERFORMANCE OF POWER AND DUTY; the publication or disclosure of the information or document is for the purposes of, or in connection with, the performance or exercise of any function, power, or duty conferred or imposed on the FMA by this Act or any other enactment; or
(d) TO OTHER REGULATORS; the publication or disclosure of the information or document is to a law enforcement or regulatory agency; or
(e) TO OVERSEAS REGULATOR; the publication or disclosure of the information or document is to an overseas regulator; or
(f) TO A PROPER PERSON WHO WILL MAINTAIN CONFIDENCE; the publication or disclosure of the information or document is to a person who the FMA is satisfied has a proper interest in receiving the information or document and the FMA is satisfied that appropriate protections are or will be in place for the purpose of maintaining the confidentiality of the information or document (in particular, information that is personal information within the meaning of the Privacy Act 1993); or
(g) WITH CONSENT; the publication or disclosure of the information or document is with the consent of the person to whom the information or document is confidential.
It seems the ANZ may have argued that the third parties:
1. were not proper persons to receive the information; and/or
2. could not put the appropriate protections in place to maintain the confidentiality of the information.
Is it an appropriate use of the evidence gathering power?
I can only make comment on the small morsels of information that were publicly reported on this case, so these thoughts may need to be reviewed if further information is released.
Firstly, I believe ANZ should be commended for taking this action. Often recipients of a s25 notice will comply with delivery of the documents and information without seeking assurances from the FMA that appropriate mechanisms are in place for the protection of the information so that FMA’s confidentiality obligation is upheld. ANZ was prepared to challenge FMA in this case.
A news report of the case states that the FMA wanted to disclose the documents in a confidential consultation with an external expert to help it decide whether it should take its investigation further. The FMA has the ability to appoint an external expert as a ‘specified person’ under s25. Specified persons hold a delegation from the Board of FMA and have the ability to receive information under s25. I am not aware whether that point was addressed in this case.
The FMA also stated that it wished to consult on whether it had grounds to bring a "Section 34" case. Section 34 of the FMA Act allows the FMA to take action, on behalf of third parties usually investors, against a financial market participant. It gives FMA the right to ‘stand in the investors shoes’ and commence or continue a civil claim for compensation on behalf of third parties.
This raises the question about whether it is appropriate for the FMA's extensive evidence-gathering powers to be used for the benefit of a civil compensation claim on behalf of third parties. The ability to obtain documents without going through the normal civil procedure is a considerable advantage to investors and the FMA, and circumvents the discovery procedure provided for by the High Court’s rules. This circumvention could be viewed as an abuse of power by the regulator.
Court procedure allows for pre-commencement discovery applications to be made if further evidence to establish an action is required before proceedings can be filed. Those applications are normally made on notice to the opposing party, but at times, if there is a reasonable risk of destruction of documents and evidence, they can be done without notice. In the case of bank documents, it would be difficult to run an argument that there was risk of destruction by the bank itself, given the data protections that banks are required to have in place. However, importantly all such discovery applications are made under the critical eye of the Court. This method of collection of evidence by the FMA, especially if the intention is to use the evidence to advise investors of a possible civil action for compensation, is the proper way for the FMA to avoid criticism of:
1. an abuse of its evidence gathering powers, or
2. breaching the rights of privacy of individual financial market participants, or
3. breaching its obligations of confidence under section 59 of the FMA Act.
For more information on your rights and obligations after receipt of a notice to deliver information and documents to the FMA, contact me on merran@financialbarrister.com .
22 February 2018