UK Court Says FSA Can Obtain Documents from UK Accounting Firm to Aid SEC Enforcement Action

A UK appeals court has ruled that the Financial Services Authority can satisfy an SEC request to obtain documents from a London-based accounting firm to aid an SEC enforcement action in federal court. A three-judge panel said that the Financial Services and Markets Act allows the FSA to accord full faith and credit to a foreign regulator, particularly one as important as and of the reputation of the SEC. The Act did not require the FSA to second-guess the SEC as to its own laws and procedures, or as to the genuineness or validity of its requirement for information or documents. Similarly, it is not proper for English courts to examine the SEC’s request critically and determine if the documents the SEC requested from the UK accounting firm will be useful to the Commission in its enforcement action, said Lord Burnton, writing for the panel. FSA v. AMRO International, Court of Appeal, No. C1/2009/2024, Feb. 24, 2010.

The SEC told the FSA the documents it sought from the accounting firm would be helpful in its enforcement action in SDNY, noted the panel, and gave sensible reasons for that statement, including explaining why similar fact evidence would be helpful. The SEC action alleged fraudulent trading in the shares of a US company. In seeking the FSA’s help, the SEC said that it had ascertained through discovery that the accounting firm possessed records relating to entities and transactions relevant to the Commission’s enforcement action. The SEC statement should be sufficient for both the FSA and an English judge, emphasized the panel, adding that it is not for English courts to consider if the scope of an SEC enforcement action may or may not be enlarged following disclosure of the documents sought from the accounting firm.

Basing its opinion firmly on the Act, the court said it was immaterial whether the SEC’s request complied with Memorandums of Understanding entered into by US and UK regulators. The FMSA imposes a statutory duty on the FSA to take appropriate steps to cooperate with foreign regulators, like the SEC, that have similar functions to the FSA.

In support of its ruling, the appeals court broadly observed that financial enterprises and financial transactions are increasingly international, as the financial crisis has only too clearly demonstrated. Thus, it is extremely important that national financial regulators cooperate, particularly where there are suspicions or allegations of financial fraud. The desirability of such cooperation is reflected by the FSMA, not only in specific sections requiring cooperation with the SEC and other similarly situated foreign regulators, but in a section requiring the FSA to have regard to the international character of financial services and markets.

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