The Financial Services Authority has been urged to review its operating procedures after it was found to have acted unlawfully in its use of legally privileged material during an enforcement investigation.

The regulator had successfully applied to the High Court for its own nominated administrators, PricewaterhouseCoopers (PwC), to take control of investment company Keydata Investment Services, which went into administration in June 2009, leaving 30,000 UK investors facing losses totalling £450m.

PwC gave the FSA full access to Keydata founder Stewart Ford’s email account and then waived Keydata’s legal privilege with respect to the content of the documents, which the administrator is empowered to do. Crucially, neither the FSA nor PwC told Ford that his email account was accessible by the FSA or involved him in the issue of waiving legal privilege. He responded by bringing judicial review proceedings to determine whether emails sent by his and the company’s legal advisers were protected by privilege.

In the judicial review hearing, the High Court heard arguments revolving around the concept of joint legal privilege, where the same legal advice is given to senior executives of a company in their personal capacity as well as in their capacity as legal representatives of the company.

The administrators of a failed company may waive the company’s legal privilege, but not the individuals’ legal privilege, the court heard. It ruled that by using materials still covered by the individual’s right to legal privilege, the FSA had acted unlawfully.

Mr Justice Burnett said: ‘The FSA might usefully review what is done by the Serious Fraud Office and the police to deal with potentially legally privileged material to see whether similar practices might be adopted.’

This is the first time that an FSA investigation has been the subject of a successful judicial review.

City firm Withers financial services partner Harvey Knight, acting for the litigant, said: ‘In light of this ruling, there can be no doubt that the FSA needs to take a long, hard look at its procedures and how it conducts itself.’

An FSA spokesman said: ‘The judgment concerns whether or not Mr Ford could claim privilege in respect of eight documents and concluded that in six cases he could not.

‘There will be a further hearing in due course to determine remedy, which may take some time.’