Drawing the net too tight? Does the new Financial Reporting Council policy for the disclosure of unused material meet the basic requirements of fairness?
In relation to disciplinary proceedings brought against accountants and actuaries, the FRC has introduced a new policy on the disclosure of ‘unused material’ (ie material gathered during the course of an investigation upon which the FRC does not rely). This replaces the old policy which had been in force since 2013. The changes bring with them a number of practical consequences which defence practitioners should have on their radar.
Firstly, whilst the FRC will continue to apply the same test to the disclosure of unused material as arises in criminal cases (ie. whether the material undermines the prosecution case or assists the defence), there is no mention in the new policy of the legislation under which that test arises (ie. the Criminal Procedure and Investigations Act 1996 (‘CPIA’)). This statute was expressly referenced in the old version of the FRC disclosure policy, which cited also the accompanying Attorney General’s Guidelines on Disclosure. Given the FRC’s historic reluctance to acknowledge that it was bound by this guidance, one suspects that removal of these references is designed to fortify the FRC’s position in this regard. In the same way, however, that declaring a particular country to be safe does not necessarily make it so, removing reference to the AG’s Guidelines does not mean that the FRC is not bound by the spirit of that document, which exists to ensure that the CPIA test for disclosure is fairly applied. In circumstances where the FRC continues to adopt that test, even if the express link to the CPIA has been decoupled, it plainly ought to conduct itself in accordance with the guidelines.
The second significant change is that under the new policy, the FRC will supply the defence with a schedule of the unused material in its possession, such that the respondent can identify material which meets the test for disclosure. The refusal of the FRC until now to adopt this approach was always unfair, leaving respondents having to recall, sometimes years after the event, what material exists which may assist them. In a move which smacks of tokenism, however, the new schedule will not list individual documents in the possession of the FRC but only categories of documents instead. The extent to which this will assist respondents is open to doubt. After all, by definition, the FRC deals only with the biggest and most complex cases, in which the volume of potentially disclosable material is extensive. If only broad categories of documents are set out on the face of the schedule, it may still be impossible for respondents to identify genuinely important (potentially case winning) documents. The lawfulness of this approach by the FRC therefore remains open to challenge.
Finally, the FRC seeks under the new policy to limit its disclosure responsibilities to material which is physically in its possession. In doing so, it expressly rejects the suggestion that it is obliged to obtain, review and/or disclose material in the possession of third parties. As a sop to the perils of adopting this approach, the FRC states that it will consider reasonable requests made by respondents for the FRC to obtain such material, provided such requests are proportionate and relevant. This is unlikely however to meet the required level of fairness in the discharge by the FRC of its duties of disclosure. For example, what happens when the FRC knows that a third party is in possession of potentially relevant material but the respondent does not? In that situation, and applying its own policy, the FRC would be under no obligation to obtain that material and so it may never see the light of day. On any view, that cannot be right.
The FRC has run into difficulties in recent years in relation to disclosure and the old policy was certainly due a facelift. Whether this more restrictive approach is the answer, however, remains unclear. It may in the end cause more problems than it is designed to solve.