Permitted disclosures

NDA Anatomy™ JC’s guide to non-standard confidentiality agreements. For the OneNDA, see the OneNDA Anatomy →Go uptown The OneNDA clause Who can I share it with? The Receiver may share the Confidential Information with its Permitted Receivers, but only if they: need to know it, and only use it, for the Purpose, and have agreed to keep it confidential and restrict its use to the same extent that the Receiver has. The Receiver is liable for its breach of this Agreement and any act or omission by a Permitted Receiver which would constitute a breach of this Agreement if it were a party to it. The Receiver may share the Confidential Information if required by law or regulation but must promptly notify the Discloser of the requirement if allowed by law or regulation. view template Resources: Confidentiality agreement | Confi — Led Zeppelin style | GDPR | Copyright vs. confidence | OneNDA | Common terms | Certification | Confidential information | Confidentiality obligation | Derived information | Disclosed information | Discloser | Exclusivity | Indemnity | No licence | Non-solicitation | Permitted disclosees | Permitted disclosures | Procure compliance | Purpose | Receiver | Remedies | Reps and warranties | Return of information | Term of confidentiality | Index: Click ᐅ to expand: Confidentiality OneNDA Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Obligation to notify provider of regulator requests

This is a common and oft accepted provision: where you are obliged to disclose to a regulator, you must first notify the provider of the information, to allow them to make representations, or try to get an injunction, to prevent disclosure. However excitable your counterparty is on this point — and junior lawyers at real money firms can be quite exciteable — resist this. It is potty. When you step through it, it is hard to see any real-world cases where your counterparty could or would actually try to stop disclosure to a regulator, and plenty of benign circumstances where disclosure is a matter of course. To wit:

Trade/transaction reporting: Brokers will be obliged to disclose a lot of trade-specific client information to regulators and exchanges every day on account of MiFID/EMIR trade and trade reporting. We are not going to repeatedly tell the client that.

Ad-hoc general information requests: Outside trade/transaction reporting, when regulators ask for ad hoc information from a broker, it is usually for a wide-ranging data set across whole trading books and sectors, covering multiple clients. It is unrealistic to accept Brokers to monitor which clients within that population have confis, much less a right to be specifically notified beforehand. Nor will they want to go to the trouble of getting all those consents. Why? BECAUSE LIFE IS TOO SHORT.

Ad-hoc client-specific information requests: Where a regulator specifically asks for data on a single client, it is likely the regulator will also have made equivalent disclosure requests to the client at the same time (or copied the client on those requests to the broker) — if the request is benign — and if it has not, the investigation is likely to be one where the regulator would not allow the broker to alert the client anyway, and indeed where such notification could be a criminal offence (market abuse, etc). Even where the notification clause carves out where “notification being illegal” this leaves the empty set of circumstances where the broker would have to give info about a specific client and the client doesn’t, but was entitled to know about it.

Commercial sensitivity: Lastly, the legitimate point of a confi is to respect the client’s legitimate interest in protecting the commercial value of non-public information. It is not to keep silent about behavioural turpitude; indeed a broker’s regulatory obligations may oblige it to report, without invitation, bad acts it observes, whether the client likes it or not and whether there is a confidentiality agreement or not. Generally, client information a broker holds is not legally or professionally privileged. Since, by definition, passing information to a regulator should not prejudice the commercial value of that information, it is hard to see when client would have a valid reason to seek injunctive relief to prevent disclosure of information to a competent regulator.

And that is borne out by the JC’s tawdry personal experience (anecdotal though it may be, it does span 22 years and three different investment banks): the JC has never ever, ever seen anyone even try to get an injunction to stop disclosure of confidential information to a regulator.

Cut-out-and-keep response

Try sending your counterpart something like this (put “dear —”, and “kind regards” around it, of course):

Disclosure to regulators There are three main reasons a regulator might require confidential information from us relating to a client: Trade/transaction reporting: Brokers will be obliged to disclose a lot of trade-specific client information to regulators and exchanges every day on account of Dodd Frank and other regulatory reporting regimes (for example MiFID/EMIR trade and trade reporting). You should assume we will do that. Ad-hoc general information requests: Outside trade/transaction reporting, when regulators ask for ad hoc information from us, it is usually for a wide-ranging data set across whole trading books and sectors, covering multiple clients. Given the benign nature of these requests, it is not practicable to obtain consents or make disclosures to all affected clients beforehand. Ad-hoc client-specific information requests: Where a regulator specifically asks for data on a single client, either: if the request is benign, the regulator is likely to have made equivalent disclosure requests to the client at the same time (or copied the client on those requests to the broker), or if the request is not — that is, the investigation is one where the regulator would not allow us to alert the client anyway, we would not be able to, and such notification could be a criminal offence. Thus, even where the notification clause carves out where “notification being illegal” this leaves the empty set of circumstances where we would have to give info about a specific client and the client doesn’t, but was entitled to know about it. Lastly, a confidentiality agreement is designed to respect the client’s legitimate interest in protecting the commercial value of non-public information. It is not meant to be a tool to prevent regulatory disclosure. Generally, we will not be in a position to make demands as to how a regulator treats that information when we disclose it. Since passing information to a regulator should not generally prejudice the commercial value of that information, it is hard to see when client would have a valid reason to seek injunctive relief to prevent disclosure of information to a competent regulator, and our experience is that no client has ever in fact attempted to do so.

Regulatory disclosure and the definition of confidential information

Information disclosed to a regulator is still confidential information

Don’t make the schoolboy error of excluding “information required to be disclosed to regulators or government authorities” from the definition of “confidential information”. Now, to be sure, this is a legitimate exception to a fellow’s general covenant not disclose confidential information to anyone — but it shouldn’t disqualify the information from being “confidential information” altogether. If it did, once you were required to give any information to a regulator, it would suddenly be open season and you could tell everyone about it. Not the intention.

One misconceived argument we have seen for this approach is as follows: “if I give information to a regulator then I cannot control what the regulator does with it. Regulators are all-powerful. They may publish sensitive information in the Luxembourger Wort for all I can do about it. Therefore your information, once I have rightly given it to a regulator, can no longer be treated as confidential.”

Not so fast: If you disclose my information legitimately to a regulator, and the regulator then discloses it to the world (whether or not legitimately) you have complied with the terms of your contract. Unless you have independently covenanted to procure that the regulator keeps it confidential (don’t do that: regulators are all-powerful, and you make yourself a hostage to fortune), you have not breached your NDA, and you cannot therefore be liable for resulting losses. They are regrettable externalities: obstreperous actions of impish third parties. On the other hand, if you disclose my information legitimately to a regulator, and then you separately disclose it to someone else, then you absolutely can and should remain liable for losses. If by disclosure to a regulator the information is deemed "no longer confidential" you would be free to disclose it to someone else without that sanction.