Financial Services & Banking Litigation
What we saw in 2023
2023 has seen a flurry of financial services activity. Stagnation, inflation and the tail-end of Trussonomics have posed challenges for businesses. Combined with periods of sustained high interest rates, this has led to increased risk of insolvency and litigation with heightened scrutiny upon the actions of directors, banks and corporates generally.
The Quincecare Duty
Last year we predicted that clarity would be brought to the scope of the Quincecare duty. In 2022 the Court of Appeal in Philipp v Barclays Bank radically expanded the application of the duty to victims of APP fraud. This year, the Supreme Court reversed this extension, holding that Quincecare does not apply to APP Fraud, where customers expressly authorise banks to make the payment.
Although the decision provides welcome clarification for banks, it is set to be overtaken by the mandatory reimbursement scheme entering into force in 2024, read more, here. Despite facing less risk of litigation post-Philipp, banks now need to consider other ways of mitigating liability under the PRS scheme, such as through implementation of targeted warnings and payment limits.
The Anti-Greenwashing Rule
Last year we predicted a wave of activity in the field of ESG, following the scheduled implementation of the FCA’s ‘general anti-greenwashing rule’ in June 2023 and the accompanying range of regulatory measures to tackle greenwashing. In the spirit of David Cameron, we’ve decided to bring our prediction back for 2024. The FCA’s delayed implementation of the greenwashing rule (to May 2024) and recent finalised guideline on the anti-greenwashing rule (FG 24/3) means that this will be an area to watch this year, read more, here. Increased scrutiny by both regulators and shareholders on investments claiming to be ‘green’ may result in losses and a drop in share prices for funds that don’t do their ESG due diligence.
2024 trends and insights
Tricky economic conditions, increased shareholder litigation and a rise in loan defaults will likely lead to financial services disputes across the board.
In 2024 we also expect to see a continuation of the regulatory and legislative interventions to place responsibility back on companies’ shoulders.
The ‘failure to prevent fraud’ offence under the Economic Crime and Corporate Transparency Act 2023 will come into force early next year. The offence extends the ambit of corporate responsibility for ‘large companies’ (as defined in the Companies Act 2006). The jurisdictional scope of the offence is wide, capturing organisations and employees based overseas where fraud is committed under UK law or targets UK victims. We anticipate that the courts will be tasked with applying the offence and interpreting its scope in 2024.
Last year we noted the use of s90 FSMA in Autonomy and others v Michael Lynch. Given the ability of s90 FSMA to provide substantive means of redress to investors and shareholders, we expect to see a rise of its use by shareholders and investors through securities litigation and ESG actions. We expect to see the courts grappling with the procedural aspects of these claims. It is possible we will also see more representative actions being brought, using s90 FSMA to establish courses of action.
On the contentious regulatory side, 2023 saw the final outcome of BlueCrest Capital Management v FCA. A trend to watch following BlueCrest will be whether other firms follow suit in taking the strategic decision to leapfrog the RDC, progressing directly to the Upper Tribunal.
An emerging risk for financial institutions is employees’ use of off-channel communications to discuss business transactions, particularly with the rise of working from home. In August 2023, Ofgem issued a £5.4m fine to Morgan Stanley for “failure to record and retain electronic trading communications”, where traders had been using their personal phones to discuss transactions via WhatsApp. We anticipate the FCA will follow other UK regulators and the US SEC in cracking down on off-channel communications.
In relation to the September/October 2022 market volatility caused by Trussonomics, investors may have suffered losses from their investment managers’ mismanagement of funds. Given the inevitable time lag between a breach and resolution through the courts, in 2024 we expect to see litigation of this type starting to make its way through the courts (and so, into the public gaze), to the extent that would-be litigants have issued proceedings and have not settled claims out of court.
Financial Services and Banking Litigation
Our team of financial services litigation, contentious regulatory and investigations lawyers offer expert, strategic advice to guide clients through a range of complex, high-value and reputationally critical issues.