UK: England and Wales: on the definition of 'persons discharging managerial responsibility'

The catching-up (also known as "101 ways to avoid marking, number 42") continues with a post to note that the ICLR has published a summary of the High Court decision Allianz Global Investors GmbH v G4S Ltd [2022] EWHC 1081 (Ch): see [2022] WLR(D) 206. The case concerned an issuer's liability under section 90A of the Financial Services and Markets Act 2000 for untrue or misleading statements. Such liability arises only if a 'person discharging managerial responsibilities' within the issuer knew that the statement was untrue or misleading, or was reckless as to whether this was so. The court held (to quote the summary):

The definition in paragraph 8(5) of Schedule 10A of “persons discharging managerial responsibility” was clear and unambiguous and should be given its natural reading. Read as a whole, it clearly stipulated that where an issuer had directors the persons discharging managerial responsibility were the directors (including persons occupying the position of director, by whatever name) and only in a case where there were no directors could a senior executive of the issuer have such responsibility". 

UK: England and Wales: restitution orders and company directors

The ICLR has published a summary for the recent Court of Appeal decision Financial Conduct Authority v Ferreira [2022] EWCA Civ 397: see here. To quote from the summary: 

"A defendant could only be liable under section 382 [(restitution orders)] of the Financial Services and Markets Act 2000 if they had knowledge of the facts which made the act complained of a contravention of the statute, which included knowledge of the factual circumstance that prevented a potentially relevant disapplication from operating ... Further, interpreting section 382 in a way that imputed to the legislature an intention to impose personal liability on directors (or others) simply on the basis that they knew of the actions that the company was taking in the course of its business would be a far-reaching step and would introduce such a radical departure from the principles of limited liability in the financial service field that such an intention should not be attributed to the legislature in the absence of some very clear indication, of which there was none"

UK: Financial Services - Future Regulatory Framework Review - Reform proposals

Yesterday the Government published for consultation various reform proposals as part of its Future Regulatory Framework Review for financial services: see here (pdf). 

The paper endorses the current regulatory model as set out in the Financial Services and Markets Act 2000, which reflects the reforms made following the financial crisis over ten years ago - the creation of the FCA, PRA and a greater role for the Bank of England. It does, nevertheless, propose introducing new statutory objectives for the FCA and PRA linked to growth and competitiveness. The regulatory principles are to be amended to provide that growth should occur in a way consistent with the Government commitment to achieve a net zero economy by 2050. The paper also proposes increasing the mechanisms through which the regulators are accountable to Parliament.

And, unsurprisingly, we are to see much current retained EU law transferred to the regulators' rulebooks, with the regulators given new rule-making powers as required.  This process - to be achieved through secondary legislation - is expected to take several years.

UK: authorised firms, financial promotions and a new 'regulatory gateway'

The Government has confirmed, following a consultation, that it will - when parliamentary time allows - introduce legislation to require authorised firms to pass through a "regulatory gateway" before they are able to approve financial promotions by unauthorised firms: see here (pdf). This change is being made because of concerns with the effectiveness of the current regime under which no specific assessment is made of authorised firms approving such promotions.  

UK: Court of Appeal considers Part VII insurance business transfers

The Court of Appeal has, for the first time, considered the approach that should be taken when considering whether to sanction the transfer of an insurance business under Part VII of the Financial Services and Markets Act 2000: see Re Prudential Assurance Company Ltd and Rothesay Life Plc [2020] EWCA Civ 1626, handed down today and for which a summary (prepared by the court) is available here (pdf).

UK: England and Wales: issuer liability and dematerialised shares

Judgment was given yesterday by Mr Justice Hildyard in SL Claimants v Tesco Plc [2019] EWHC 2858 (Ch) in a first instance decision that will nevertheless be regarded as a leading authority on issuer liability towards those holding shares in dematerialised form. The case concerned claims against Tesco under section 90A ("Liability of issuers in connection with published information") and schedule 10A of the Financial Services and Markets Act 2000. The claimants had never directly acquired, held or disposed of a legal interest in the shares: the shares were, instead, held in dematerialised form through CREST using custodians and sub-custodians. Tesco sought to strike-out the claims, arguing that it could not be liable to the claimants under section 90A because (to put matters very generally) of their position in the custody chain. Tesco's arguments were rejected.

UK: FCA investigations and the destruction of documents

The Financial Conduct Authority has, for the first time, brought a prosecution under section 177(3)(a) of the Financial Services and Markets Act 2000 in respect of an individual's destruction of documents relevant to an investigation. For further information, see here.

UK: The Financial Services Future Regulatory Framework Review

Earlier this year the Chancellor announced, in his Spring Statement, that a review of the regulatory framework for financial services would begin in the summer: see here. That review - The Financial Services Future Regulatory Framework Review (a mouthful, I admit) - has now started with the publication, last Friday, of a call for evidence document: see here (pdf). The document introduces the Review and seeks views on its first phase: the coordination of regulatory activities by HM Treasury and the other UK regulators, including how firms and the regulators can work together to make authorisation, supervision and enforcement more efficient.

UK: England and Wales: High court sanctions Lloyds ring-fencing scheme

Earlier this month, in Lloyds Bank Plc & Ors R(ring-fencing transfer scheme) (Rev 1) [2018] EWHC 1034 (Ch), Mr Justice Hildyard sanctioned the proposed ring-fencing transfer scheme for Lloyds Bank. This is the second time that the High Court in England and Wales has done so; the first was in March: Re Barclays Bank Plc And Woolwich Plan Managers Ltd, Re [2018] EWHC 472 (Ch), [2018] WLR(D) 158.

In this first decision the Chancellor noted various factors that ought to be taken into account by the court in exercising its discretion, one of which was:

The design of a ring-fencing transfer scheme is a matter for the board of the bank concerned. There may be many possible approaches to the design of a statutorily-compliant ring-fencing transfer scheme that will affect stakeholders differently. The choice is for the directors of the bank concerned, acting properly in accordance with their duty under section 172(1) of the Companies Act 2006 (which is to act in the way they consider, in good faith, would be most likely to promote the success of the company having regard to matters including those specified in that subsection)."

The Lloyds decision is of interest because Mr Justice Hildyard chose to add what he termed a "reservation" or "gloss" in respect of the courts' acceptance of the judgment of directors in proposing a particular scheme:

I accept that the court will give considerable latitude to commercial decisions of a board which has appeared properly to address the correct question and acted in accordance with its duties under statute and common law. I accept, more particularly, that where there are different designs of scheme, none of which leaves people materially adversely affected, or no more so than is reasonably necessary to achieve the ring-fencing purpose, the choice is for the promoters (and thus the directors) to make.

However, I would wish to emphasise that when the second part of the Statutory Question [see section 109A(4) of the Financial Services and Markets Act 2000] is being addressed, the question is not whether any adverse effect is greater than is reasonably necessary given the constraints of the particular scheme design, but whether that adverse effect is such as to be greater than reasonably necessary in order to achieve the statutory purpose. If the adverse effect appears material, and it appears likely that another scheme design would have avoided the adverse effect, that may call in question the scheme design chosen; and the court would not be required to accept the directors' choice (albeit that it would then also have to consider potential adverse effects of other designs). In other words, the greater the adverse effect, the more justified the scrutiny of the scheme design, and the less may be the readiness of the Court to accept the commercial judgment of the directors". 

UK: The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018

The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 came into force earlier this week: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The Order seeks to remove an area of uncertainty regarding peer-to-peer lending: whether a business borrowing funds this way might be regarded as accepting deposits "by way of business" in circumstances requiring the authorisation of the Financial Conduct Authority and Prudential Regulation Authority. The Order sets out when such authorisation is not required by making an amendment to the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001.

UK: The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2017

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2017 was laid before Parliament today and comes into force on 3 January 2018: see here or here (pdf). The purpose of the Order is - to quote directly from the accompanying explanatory memorandum (here, pdf) - "to allow regulated firms to provide more help and guidance to their customers without inadvertently crossing the boundary into regulated financial advice".

UK: FCA orders compensation for market abuse

The Financial Conduct Authority has, for the first time, used powers given to it under section 384 ("Power of Authority to require restitution") of the Financial Services and Markets Act 2000, to require a listed company - Tesco plc - to pay compensation for market abuse in respect of a trading update that gave a false or misleading impression as to Tesco plc shares and certain Tesco group bonds. Compensation will be paid to purchasers of Tesco shares and bonds, equal to the 'inflated amount' for each share or bond. This amount has been determined by an independent expert appointed by the FCA. Further information is available in the final notice issued to Tesco plc (and Tesco Stores Ltd) by the FCA: see here (pdf). It is also available on the website setup by the firm, KPMG, administering the compensation scheme: see here.

UK: England and Wales: FCA notices - third party rights and identification

The Supreme Court gave judgment earlier today in Financial Conduct Authority v Macris [2017] UKSC 19. A press summary is available here (pdf). At issue was whether an individual, Mr Macris, had been identified in penalty notices given to his former employer. Individuals identified in such notices are given certain 'third party' rights under section 393 of the Financial Services and Markets Act 2000, including receiving a copy of the notice and the right to make representations about its contents. Mr Macris had been JP Morgan's International Chief Investment Officer and whilst the notices did not name him they were critical of JP Morgan's Chief Investment Office in London and New York.

The Court of Appeal (see [2015] EWCA Civ 490) and Upper Tribunal (see [2014] UKUT B7 (TCC)) held that Mr Macris had been identified. The Supreme Court has held, by a majority of 4 to 1, that Mr Macris had not been identified. The lead judgment was delivered by Lord Sumption and he observed (at para. [11]):

In my opinion, a person is identified in a notice under section 393 if he is identified by name or by a synonym for him, such as his office or job title. In the case of a synonym, it must be apparent from the notice itself that it could apply to only one person and that person must be identifiable from information which is either in the notice or publicly available elsewhere. However, resort to information publicly available elsewhere is permissible only where it enables one to interpret (as opposed to supplementing) the language of the notice. Thus a reference to the “chief executive” of the X Company may be elucidated by discovering from the company’s website who that is. And a reference to “CIO London Management” would be a relevant synonym if it could be shown to refer to one person and that person so described was identifiable from publicly available information. What is not permissible is to resort to additional facts about the person so described so that if those facts and the notice are placed side by side it becomes apparent that they refer to the same person".

UK: The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016

The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016 was made last week and comes into force on December 1. The Order makes eighteen amendments to the ring-fencing regime, in order to address various issues that have arisen as banks make the structural changes demanded by the new regime. An overview of each of these amendments is available in the explanatory memorandum accompanying the Order: see here (pdf).

UK: Supreme Court judgment on collective investment schemes

The Supreme Court gave judgment earlier today in Asset Land Investment Plc v The Financial Conduct Authority [2016] UKSC 17 (on appeal from [2014] EWCA Civ 435). The court unanimously held that the arrangements in question, which centred on the selling of individual plots of land at six possible development sites, amounted to the operation of a 'collective investment scheme' within section 235 of the Financial Services and Markets Act 2000, and were therefore regulated activities for the purposes of the general prohibition found in section 19 of the Act. A summary of the judgment, which provided the court with its first opportunity to consider the regulation of collective investment schemes, is available here (pdf). A summary was also delivered before the court by Lord Carnwath: see the video recording below.

UK: Supreme Court judgment next week in collective investment scheme case

Next week, on Wednesday, the Supreme Court will hand down its judgment in Asset Land Investment Plc v The Financial Conduct Authority (on appeal from [2014] EWCA Civ 435), in which the principal question before it was the meaning of 'collective investment scheme' within section 235 of the Financial Services and Markets Act 2000.

UK: Supreme Court to hear appeal this week in collective investment scheme case

Later this week, on Wednesday, the Supreme Court will to hear argument in Asset Land Investment Plc v The Financial Conduct Authority (on appeal from [2014] EWCA Civ 435), in which the principal question will be the meaning of collective investment scheme within section 235 of the Financial Services and Markets Act 2000.

UK: Supreme Court to hear appeal in case on FCA notices, identification and third party rights

The Supreme Court today published a list of its permission to appeal decisions for October and November: see here (pdf). This document notes that permission to appeal the Court of Appeal decision in Financial Conduct Authority v Macris [2015] EWCA Civ 490, [2015] WLR (D) 219 was granted in early November. This case concerned the operation of section 393 "third party rights" of the Financial Services and Markets Act 2000.

UK: A legal framework for "transformer vehicles" - the first steps

The Bank of England and Financial Services Bill, which received its second reading in the House of Lords at the end of October, begins committee stage next Monday. A marshalled list of the amendments to be moved at this stage has been published: see here or here (pdf). One of the amendments being moved by the Government will add a new section to the Financial Services and Markets Act 2000 and its purpose is to give HM Treasury the power, through secondary legislation, to create a framework for companies described as "transformer vehicles". A protected cell regime is clearly envisaged: the proposed new section makes clear that secondary legislation can include provisions for the vehicle to comprise different parts having their own legal personality separate from that of the vehicle. Here is the formal definition of "transformer vehicle" contained in the amendment:

Note: The Bill also makes changes to the governance of the Bank of England, including the creation of a Prudential Regulation Committee, and also extends the reach of the Senior Managers Regime. Further information is available in the explanatory notes that have been published to accompany the Bill: see here or here (pdf). A copy of the Bill as introduced is available here or here (pdf). The progress of the Bill can be followed here.

UK: Limited Partnerships Act 1907 - HMT consultation on proposed reforms for 'private fund limited partnerships'

HM Treasury have published a consultation paper setting out proposed changes to the Limited Partnerships Act 1907 in respect of what will be known as 'private fund limited partnerships': see here (pdf). The 1907 Act will be amended to provide, amongst other things, a non-exhausitve list of activities that a limited partner in a private fund limited partnership may undertake without being considered to be taking part in the management of the business (and, as such, retaining limited liability). A draft of the Legislative Reform (Limited Partnerships) Order 2015 accompanies the paper: see here (pdf).