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In October 2018, the complaints process closed to individuals with claims against the Royal Bank of Scotland’s notorious Global Restructuring Group. Individuals and SMEs are now starting to receive updates on their complaints with some receiving outcome letters.

Your complaint to GRG

The complaints process is a lengthy one and RBS have provided information on each of the stages on their website.

The Bank is also publishing a weekly progress report together with information on some of the outcomes of consequential loss claims.

Click here to see the progress report of GRG Complaints dated 18 January 2019 GRG Appeals

If you are unhappy with your GRG complaint outcome, you may have the opportunity to appeal. As at 25th January, RBS GRG had received 2,615 complaints 2,359 of which were eligible for appeal.

Who will conduct the GRG complaints appeal?

The Independent Third Party is Sir William Blackburne, a retired high court judge. Sir William has been appointed by RBS to oversee the bank’s new GRG Complaints Process, and to consider any Appeals.

The ITP is funded by RBS and reports into the Financial Conduct Authority (FCA) and the Board of RBS.

Sir William’s role is to provide external independent scrutiny to the Complaints Process, and help ensure that fair outcomes are reached for customers.

How to appeal

You can appeal all of your complaint outcome or part of it.

To appeal, you must complete the appeal form enclosed with your decision letter, setting out exactly which parts of the complaint you are appealing.

There is a 56 day deadline (from the date of your outcome letter) by which to submit your appeal.

Contact details for the GRG Appeal team:

GRG team: GRGCustomerHelpdesk@rbs.co.uk

Appeals: appeals@itp.org.uk

Telephone: 0800 0294 370

Address: Independent Third Party Review, PO Box 74346, London, EC3P 3DU

What will happen to my offers if I appeal?

If you appeal a Direct Loss offer, that Direct Loss offer will lapse once you submit your Appeal Form, and will be replaced by the amount that the ITP decides is appropriate.

On appeal the ITP will reassess the amount of Direct Loss that should be paid. Consequently, it is possible for the ITP to change the Direct Loss offer. This could be more or less than the amount originally offered to you. It is possible for the ITP to dismiss the offer altogether.

Once you receive a Final Outcome letter, which will incorporate the outcome of your Appeal in full and any other offers that were carried forward from your first Outcome Letter, you will have 28 days to appeal the same.

If you have received an outcome letter from GRG and you are unhappy with the decision but eligible to appeal, we can assist you in the process. Get in touch to arrange a consultation with our Financial Services Litigation team.

Consequential Loss claims

Some customers whose complaints are upheld, may feel that they suffered a consequential loss which has not been adequately compensated for in the bank’s offer. In such circumstances they may submit a claim for consequential loss.

We have assisted many clients in consequential loss claims both in complaints to RBS and in litigation. If you consider you have a consequential loss claim, get in touch to book a consultation as soon as possible.

LEXLAW Banking Litigation & Dispute Resolution

It is an absolute must that victims of RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank.  Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist GRG solicitors to issue a protective claim form or by instructing GRG litigation solicitors to prepare and agree a carefully written standstill agreement.

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on 02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

The post GRG Complaints Process Outcomes: What next? appeared first on LEXLAW Solicitors & Barristers.

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Documents disclosed by RBS’s Global Restructuring Group (GRG) in the High Court case of Morley v The Royal Bank of Scotland Plc have reportedly revealed that the Treasury played a significant role in GRG’s systematic asset stripping of the British business sector. Official Treasury documents have allegedly indicated that the now defunct Asset Protection Agency (a Treasury- controlled executive agency established to operate the Asset Protection Scheme which insured RBS’s loans) played a crucial role in influencing GRG’s widespread endemic predatory decision making. The potential revelation may open the door to possible new claims by SMEs against HM Treasury seeking compensation for the government agency’s role in artificially distressing and asset stripping businesses.    

What is GRG?

RBS’s Global Restructuring Group (GRG) was originally set up in the early nineties by Derek Sach (described as “the last of Fred Goodwin’s trusty lieutenants“) as a turnaround or business support unit (BSU) for troubled businesses. Following the financial crash in 2008, GRG took control of 16,000 SME customers with assets of £65 billion. After suffering a maelstrom of controversy following the publication of the Tomlinson Report and former Bank of England deputy Sir Andrew Large’s report, RBS announced in August 2014 that it would be shutting down its controversial GRG team after allegations of misfeasance and wrongful profiting were brought to light.

GRG were tasked to recover debt owed to RBS and Natwest but were purposefully mis-described as providing “business support”. However, GRG instead prioritised distressing and stripping assets from customers rather than assisting those customers in returning to mainstream banking.

In November 2016, RBS admitted it had failed SME customers and established a so-called independent (but heavily criticised by LEXLAW) FCA-backed complaints process fund of £400million to refund complex fees paid by SME customers between 2008 and 2013. In November 2017, the FCA published a heavily redacted Promontory summary report into GRG mistreatment of customers. In February 2018, pressure from SME victims and Parliament eventually led to the publication of the FCA’s section 166 report.

What is the Asset Protection Agency?

The Asset Protection Agency (APA) was set up in 2009 as part of the Government’s bank rescue package is 2009 as an executive agency of HM Treasury. The department’s primary objective was to apply the Asset Protection Scheme (APS): the Government’s insurance scheme created to aid banks manage bad loans and assets, and in theory to encourage banks to more willingly offer lending to SMEs and individuals.   

In 2009 alone, RBS placed assets valued at £325 billion with the Asset Protection Scheme and covered 60% of the debt within GRG; the bad assets which the Government essentially guaranteed to insure. The APA’s role in insuring GRG’s assets meant that the unit was involved in the daily decision making at GRG.

What role did HM Treasury play in RBS’s GRG unit?

Documents disclosed to the High Court in Morley v The Royal Bank of Scotland Plc allegedly show that officials in the APA were involved in instructing GRG to withdraw customer support, even when the notoriously predatory GRG unit did not want to. In particular, the Asset Protection Agency reportedly instructed GRG to resist an economically viable rescue package for the distressed business and instead encouraged GRG to sell the assets at an artificially distressed price to RBS’s own West Register division. It is also alleged that the HM Treasury agency exercised a veto over any banking re-financing decisions and effectively prevented RBS from discharging GRG customers from secured loans without its approval.

Claims against HM Treasury for its alleged role in the GRG scandal

The disclosure of official APA documents may open the door to claims by SMEs and individuals against HM Treasury for its officials’ roles in influencing GRG decisions on re-financing. It is expected that once more information about the Government’s role in the GRG scandal comes to light, claims may start to be made against the Treasury by GRG’s former customers seeking compensation.

There are also potentially compensation claims against the Treasury for misfeasance in public office. If it can be proved that the state agency used its powers for an improper purpose, then there may be a claim if: (i) the conduct was carried out by an employee of a state agency; and (ii) that conduct caused financial loss. Our team can assist clients with bringing claims for misfeasance in public office.

LEXLAW Banking Litigation & Dispute Resolution

It is an absolute must that victims of RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank.  Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist GRG solicitors to issue a protective claim form or by instructing GRG litigation solicitors to prepare and agree a carefully written standstill agreement.

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on 02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

The post Potential claims against HM Treasury: Government department allegedly controlled RBS GRG’s mis-treatment of SMEs appeared first on LEXLAW Solicitors & Barristers.

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The APPG on Fair Business Banking launched their highly anticipated dispute resolution report on 11 July 2018.  The report, authored by Kevin Hollinrake MP and undertaken by the Centre for Policy Studies, sets out the position of the APPG on how to improve access to justice for SMEs in financial services disputes.

The two key recommendations of the report are that rights of action under section 138D Financial Services and Markets Act 2000 (“FSMA“) should be extended to SMEs and a new Financial Services Tribunal should be established to resolve disputes between small businesses and banks.

APPG criticises current methods of resolving disputes between SMEs and Banks

The report highlights that business banking scandals- in particular the actions of RBS‘s GRG and Lloyds HBOS has adversely affected many SMEs. To compound the behaviour of the Banks in mis-selling complex derivatives, there are not adequate protections in place to offer an easily accessible forum for dispute resolution if a bank does not adequately deal with a complaint and banks are not held to account to rectify their poor practices. The author of the report, Kevin Hollinrake MP criticised the inadequate protections available for SMEs in financial disputes with banks:

 “It is clear to me, and to the other members of the All Party Parliamentary Group on Fair Business Bank that there is a systematic failure here, with many of those firms that have suffered from mistreatment and malpractice denied access to justice. Not only are our banks too big to fail, there are also often too big to take to court”. 

Kevin Hollinrake MP, co-chair of APPG on Fair Business Banking

The key failings of the current financial dispute resolution system highlighted in the report are:

  • Business customers have “less regulatory protection and fewer options for pursuing redress” than individual consumers, even though they are subject to the same problems but lack the resources or financial sophistication of larger companies.
  • Private individuals have the right to pursue damages for breaches of the Conduct of Business Sourcebook Rules (“COBS Rules”) under section 138D FSMA. However, small businesses do not have adequate protections as they do not have the same right of action under s.138D FSMA, leading to the untenable and unfair position that most commercial banking and lending is not regulated.
  • The Financial Ombudsman Service (“FOS”) aims to provide a free, impartial and informal forum of Alternative Dispute Resolution. However, many SMEs are denied jurisdiction because only EC defined “micro-enterprises” can have their complaints heard (with a turnover not exceeding €2 million and fewer than 10 employees). The compensation limit of £150,000 is also inadequate to cover the losses suffered by the majority of SMEs.
  • The FOS lacks the power to offer appropriate redress. It operates behind closed doors without public scrutiny of its decisions; it cannot act where a business has gone into administration; it lacks the powers of a court to require disclosure and compel witnesses to give evidence and it is not designed for complex disputes.
  •  There are “significant barriers” to SMEs accessing the courts. Many SMEs are put off by the litigation process because there is often “an insurmountable imbalance of power and resources between financial firms and their business customers”, with SMEs being unable to afford the costs; can afford the time it takes for a resolution; and risk paying the other side’s costs (Banks will on the whole instruct large firms of expensive London lawyers).
  • The common law is insufficient in financial services disputes, and despite regulations in the FCA Handbook and PRA Rulebook, many small businesses are unable to bring actions for the breach of FCA or PRA rules.
  • The cross-party group of MPs have recognised that there is a “currently a significant problem for businesses in accessing justice” due to the gap in provisions between disputes dealt with by the FOS (£150,000 claim limit) and those capable of being pleaded in court (which claims would usually have to be valued at at least £5 million to attract litigation funding).
LEXLAW’s M Ali Akram contributes to APPG Report: Banks shape precedent to maintain tactical control in financial services dispute litigation

LEXLAW have significant and industry-leading experience in representing SMEs in banking disputes. Our banking litigators- lead by M Ali Akram– have advised on and acted to protect borrower legal rights in the face of predatory bank practices in the High Court than all other law firms in the UK combined.

M Ali Akram provided witness evidence on the effectiveness of the courts in resolving banking disputes to the APPG’s Bridging the Gap inquiry, the statements in which contributed to the APPG’s July 2018 report. In particular, his comments on the clear imbalance of power between the resources of financial firms and SMEs, which has been exploited by the banks to control which cases went to court, was relied upon by the APPG in compiling the report:

“That is one of the major problems that we see in our litigation cases: precedent. The cases that have gone to court have been modelled and shaped by the banks. They’re legally and financially sophisticated so they can overwhelm their opposition and what they do is pick off the good cases and settle them…We’ve had dozens and dozens listed in the past and not one ever went to trial. So what they do is, if a carefully constructed claim is put against them, they will settle it. If a badly managed and badly constructed set of pleadings faces them, they’ll take advantage of that to create a precedent and to maintain tactical control…”

M Ali Akram, LEXLAW Solicitors & Barristers, in APPG’s Fair Business Banking for All Report, July 2018

Ali Akram, LEXLAW Solicitors, quoted in the APPG’s Fair Business Banking for All Report

 APPG’s key reform proposals

To “create a more level playing field between financial firms and businesses”, the APPG on Fair Business Banking recommends:

1.Enhance the Legal Rights of SMEs

  • The simplest and most effective way to extend the legal rights of SMEs is to extend the section 138D FSMA right of action. It is suggested that this can be done by amending the “private person” definition in FSMA’s Right of Action Regulations 2001 (FSMA (RAR) 2001). Widening the ambit of the definition would give SMEs a right of action for breach of FCA rules.
  • An alternative would be to extend SME’s rights of action for a breach of the FCA Principles for Business. It is suggested that PRIN 3.4.4R be amended to remove the restriction.

2. Extend Regulatory Protection

  • It is anomalous that some financial services provided by banks is unregulated, which includes commercial lending and the selling of fixed-rate loans.
  • The APPG suggest the definition of regulated activities set out in FSMA and FSMA (RAO) 2001 be amended to include unregulated activities including commercial lending.

3. Establish a Financial Services Tribunal 

  • A new Financial Services Tribunal (which LEXLAW has advocated for over 2 years) would “fill the gap in dispute resolution provision”.
  • It is proposed that the Financial Services Tribunal be created under the Tribunals, Courts and Enforcement Act (2007). It will be modeled on the current tribunal system (akin to the Employment Tribunal), with a judge supported by two wing members (one from business and the other from financial services).
  • The proposal includes a Tribunal with powers far greater than the FOS have at their disposal with full legal powers to enforce disclosure, compel witness evidence and governed by transparent procedural rules.
  • The inherent cost risks of litigation for small businesses would be removed with the default position being that the losing side would not pay the other side’s costs. In more complex and costlier cases, “qualified one-way cost shifting” could be utilised to ensure SMEs could recover their costs (subject to a cap) whereas banks (and their team of expensive London lawyers) would not.

4. Consultation on Insolvent Firms

  • Owners of insolvent businesses cannot take their cases to the FOS. If the current right of action under section 138D is extended to include SMEs, it should be possible for liquidators or adminstrators to bring s.138D FSMA claims.
  • It is proposed that the government should launch a consultation to improve the common-place situation where insolvency practitioners are reluctant to pursue claims under the apprehension that the costs outweigh the benefits.

5. Address Time Limitations

  • The limitation period for bringing a claim in financial services disputes is six years in England and Wales and five years in Scotland. Many cases involving SMEs go back many years and their claims have become unactionable as time has run out to commence a claim.
  • In some cases, time can be extended, for example by agreeing a standstill with the errant bank. In addition, section 72 of the Limitation Act 1980 can postpone time running in certain situations, for example where fraud is claimed or where facts relevant to the right of action have been deliberately concealed.
  • The APPG has called on the Government to ensure the time limits are extended, so that SMEs that have suffered historic banking abuses (within the past 10-15 years) can take their case to the Financial Services Tribunal.

Click here to download the APPG on Fair Business Banking report: “How to improve access to justice for businesses in financial services disputes”, July 2018.

LEXLAW Banking Litigation & Dispute Resolution

It is an absolute must that victims of Lloyds BSU, RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank. Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist financial services litigation solicitors to issue a protective claim form or by instructing us to prepare and agree a carefully written standstill agreement.

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on  02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

The post APPG on Fair Business Banking: Improve SMEs access to justice and establish a Financial Services Tribunal appeared first on LEXLAW Solicitors & Barristers.

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New City Agenda Event, Tuesday 10th July 2018, Committee Room 14, House of Commons

A well-attended New City Agenda event heard from Anthony Stansfeld, the Thames Valley Police and Crime Commissioner, on the HBOS banking fraud and the lessons from this scandal. Stansfeld strongly rebuked the actions of senior board members of the Banks, their ongoing complicity in attempting to cover-up large- scale frauds, their mis-treatment of SMEs and proposed reforms to the current financial regulatory system, which clearly is not and will not work whilst the Banks can continue to exert control without transparent checks and balances.

The Thames Valley Police and Crime Commissioner also revealed that Lloyds Bristol may be guilty of a much larger fraud than HBOS, which has yet to be properly investigated.

Victims of banking misconduct from HBOS, Lloyds and RBS were present along with MPs representing many constituents who have suffered due to large-scale fraud, members of the House of Lords, members from the APPG on Fair Business Banking, the SME Alliance and members of the financial services litigation team at LEXLAW were all present to hear Anthony Stansfeld’s rebuke of endemic large-scale financial fraud, which spreads much further than the conviction of middle-management in one regional office in Reading.

Thames Valley Police and Crime Commissioner Anthony Stansfeld speaking in Committee Room 14, House of Commons, on large-scale banking fraud. Credit: Steve Baker MP

Anthony Stansfeld rebukes endemic financial fraud

The powerful message coming from the most senior figure in British policing and an integral figure in tackling large scale financial fraud is that Lloyds and other UK banks have been guilty of corrupt practices and:

  • Bank-commissioned “independent” review schemes- such as Professor Russel Griggs’ review of HBOS Reading– are “derisory” especially given the lack of either consequential loss or cumulative loss coupled with a “frightening” gagging order;
  • Dame Linda Dobbs’ independent review is a “review done properly”, and Stansfeld suggested that an interim report should be available by October 2018;
  • reports such as Project Lord Turnbull, leaked onto the APPG website, highlight in “devastating detail” the dishonest and “disgraceful” actions of senior banking figures and the continuing cover-up by Lloyds of major fraud and the hole in HBOS’ accounts;
  • many frauds across Banks have not been properly investigated, especially Lloyds Bristol, which maybe larger than the HBOS scandal;
  • victims of financial fraud are common-place, as was highlighted in the Parliamentary debate, Stansfeld noted that victims of “business support” “profit-churning centres” of Lloyds’ BSU, RBS’s GRG and NAB Clydesdale, have still yet to be fully compensated (if at all);
  • over £200 billion is the quantum of fraud in the UK, less than 1% of serious organised crime is investigated and only the one office of HBOS Reading has been successfully prosecuted.
The next steps in tackling large scale banking fraud

Anthony Stansfeld rebuked the Treasury’s ignoring of the “destitution” of SMEs from the offices of  Gordon Brown to Phillip Hammond. SMEs contribute more to the UK economy than large multinationals and he criticised the Treasury for taken the interests of the Banks’ more into account (especially when many civil servants end up in Bank employ further into their careers). Large scale fraud in HBOS Reading was only uncovered after a 10 year and £7 million investigation by the Thames Valley Police instigated by Paul and Nikki Turner.  Clearly, as Stansfeld suggested, a better system is needed to uncover fraud:

  1. A US-style Chapter 11 system may go some way to prevent predatory business support units stripping SMEs of their assets, by allowing debtor businesses time to restructure and pay its creditors over time.
  2. Chairmen of Banks and its senior Board members must not be placeholders, but must be qualified bankers that understand the rules and not salesmen.
  3. Fraudulent bankers must be arrested and prosecuted like in the US, who have a much cleaner system.
  4. The SFO and the FCA must be properly independent to the Treasury.
  5. Civil servants should not be able to move effortlessly into Bank jobs.
  6. The SRA, the Royal Institute of Chartered Surveyors (RICS) and Insolvency Practitioners Association (IPA) must be held to account for some of their members complicity in aiding and abetting financial fraud by Banks.
  7. More funding is required for financial fraud investigations for the Serious Fraud Office (SFO) and specialist regional fraud police units are required.
  8. A system of recompense for victims of banking fraud is required: Stansfeld advocated for a removal of the 6 year statutory limit; restrict the use of personal guarantees; stop Banks using large amounts of shareholder money on expensive London lawyers to protect themselves.
LEXLAW Banking Litigation & Dispute Resolution

It is an absolute must that victims of Lloyds BSU, RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank. Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist financial services litigation solicitors to issue a protective claim form or by instructing us to prepare and agree a carefully written standstill agreement.

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on 02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

The post “Banks, Frauds and Accomplices”: Police and Crime Commissioner rebukes Lloyds & large-scale UK banking fraud beyond HBOS scandal appeared first on LEXLAW Solicitors & Barristers.

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The Treasury Select Committee has published a Letter from the Chief Executive of the FCA relating to the powers and perimeter of the FCA, dated 30 January. The letter provides a useful outline on the FCA’s regulatory ambit, especially in relation to RBS GRG, embedded swaps, Spot FX transactions and the IRHP Review Scheme. The text of the FCA letter is below: 

Rt Hon Nicky Morgan MP
Treasury Select Committee
House of Commons

  30 January 2018

Dear Nicky,

Re: FCA powers and perimeter

I am writing to you following our appearance at the Committee on 31 October. During the session Mr Mann asked if I could write to you regarding the powers we do not have that it might be useful for the  Committee to consider whether we should have. The question was framed around RBS Global Restructuring Group (RBS GRG) but also more broadly. Mr Mann also asked me to set out what we have been doing on areas outside our regulatory perimeter.

This letter sets out an overview of what the FCA regulates, the aim of regulation, the powers available  to us, and specific examples of areas where issues have arisen about the nature and extent of the FCA’s role. I hope this will provide helpful context for some of the questions we have grappled with in the past. I also set out the steps we have taken to explain our understanding of the FCA’s remit where there is less clarity about the role we should play.

What the FCA regulates

Certain types of financial services activity require a license or “permission” before they can be carried on. The definition of these activities, and the “specified investments” to which the activity relates, is at the heart of FCA regulation.

The activities are described at a high-level in the Financial Services and Markets Act 2000 (FSMA), and in more detail in the Financial Services and Markets Act 2000 (Regulated Activities) Order (the RAO). We usually refer to such activities simply as “regulated activity” or as being within the “FCA’s perimeter”.

Much of the regulatory framework set out in FSMA, and most of the FCA’s powers, are targeted at regulating the conduct of this activity. Persons licensed to perform such activities are “authorised persons”. Obvious examples of regulated activity are giving advice on whether to invest in particular securities or, since 2014, providing consumer credit. Performing such activities without an FCA permission is a criminal offence.

The regime set out in FSMA and in the RAO governing “regulated activity” is not, however, the only basis for the FCA’s regulatory responsibilities. The FCA performs the role of the UK’s listing authority. The listing regime applies to firms whether they are authorised under FSMA to conduct regulated activities or not; and in fact the majority of listed companies are not FCA authorised firms.  Another example is the market abuse regime which applies to behaviour conducted by any person irrespective of whether they are authorised by the FCA.

We are also responsible for regulating some entities or conduct under standalone legislation outside the FSMA framework altogether. The Payment Services Regulations, for example, set out a separate regime for registering or authorising payment service providers, and give the FCA a different set of responsibilities and powers. Similarly, the Money Laundering Regulations 2017 specify responsibilities for the FCA which extend beyond those for authorised firms conducting regulated activities.

Finally, as of 1 April 2015 the FCA became a competition regulator. The FCA has a specific objective to promote competition in the interests of consumers (I cover this in more detail later), and has also been given what are usually referred to as “concurrent competition powers” available to the Competition and Markets Authority (CMA) and other sectoral regulators. Such powers may be exercised in respect of “financial services activity” rather than being tied to the more specific and narrower concept of “regulated activity” from the RAO.

The decision as to what or whom should be regulated by the FCA is of course one for Government and Parliament. Often the choice will be made for domestic policy reasons, such as the transfer of consumer credit from the Office of Fair Trading (OFT) to the FCA in 2014. At other times EU legislation has shaped whether and how a financial service should be regulated; it then falls to Member States to decide which body within their jurisdiction should be the national competent authority for the activity in question. The Payment Services Directive and the Benchmark Regulation are two examples of recent EU legislation which have resulted in additional responsibilities being given to the FCA.

Why we regulate

The FCA’s aim and purpose is set out in FSMA. We have a single strategic objective – to ensure that relevant markets function well. The strategic objective is underpinned by three statutory “operational objectives”:

  • to secure an appropriate degree of protection for consumers;
  • to protect and enhance the integrity of the UK’s financial system; and
  • to promote effective competition in the interest of consumers.

Many of the FCA’s core powers, especially the rule-making power, require that action by the FCA should be to advance one of these three operational objectives. A key concept is the meaning of “consumer” for these purposes. The definition in FSMA is broad, but it does not extend to all consumers of all products. Rather, the emphasis is upon persons who use, may use, or have used, regulated financial services or have invested, or may invest, in relation to financial investments. This is something we have to consider both when making rules and if we contemplate firm-specific action to further our consumer protection objective.

In pursuing the aims set out in the statutory objectives, we are concerned not only with the behaviour of the firms we regulate, but also – at least for the firms authorised only by the FCA- their financial health. In this sense, we are both a conduct regulator for 56,000 firms and a prudential regulator for 18,000 firms. The FCA prudentially regulates those firms for which such regulation apples that are not regulated by the Prudential Regulation Authority (PRA).

How we regulate

The FCA’s powers are extensive, but the availability of the powers, and how we use them, will depend on who and what it is we are dealing with. In particular, it will depend upon whether the person in question is an authorised firm (that is, a person given permission to carry on regulated activity), an individual at such a firm, or a person subject to our criminal prosecution powers or our competition law jurisdiction.

Authorised firms

To carry on regulated activity at all, a person must satisfy us that they meet the “threshold conditions” set out in FSMA. This provides us with the opportunity to assess their suitability at the “gateway”, and impose requirements or restrictions upon how they carry on the relevant activity.  Among other things, we look at whether a firm’s business model is viable and the firm is suitable to carry on regulated activity.

These threshold conditions also apply on a continuing basis to authorised firms, and therefore are the minimum standards a firm is required to satisfy. The unregulated activities of a firm may be relevant to whether that firm continues to meet the threshold condition on suitability which requires that the firm must be fit and proper. Whether this is the case or not will depend very much on the particulars of the firm’s conduct. The conduct in question would need to be sufficiently serious before it called into question the firm’s ability to meet this condition.

Once a firm is authorised, we can:

  • write rules governing their conduct;
  • impose requirements on individual firms that they do or do not do specific things;
  • investigate them if circumstances suggest that that they have broken our rules, and impose financial or other penalties if we conclude that they have done so;
  • require that “skilled persons” report on aspects of the firm’s business.

We can make rules only if they advance our operational objectives. Importantly, the power allows us to make rules governing unregulated activity by authorised persons. This means that we have some regulatory oversight of activities which do not themselves require authorisation. As explained above, one of the constraints on the exercise of the power in the context of consumer protection has been the need to consider whether “consumers”, in the sense defined in FSMA,, are the object of any intended protection.

The FCA’s Principles for Businesses are 11 high level rules which apply to all FCA regulated firms.   They include requirements that firms must conduct their business with integrity, exercise reasonable skill and care, treat their customers fairly, and observe proper standards of market conduct. With three exceptions, the Principles are directed at firms’ conduct in respect of regulated activity. The exceptions  relate to:

  • the adequacy of a firm’s financial resources (Principle four);
  • the adequacy of the firm’s systems and controls – to the extent that these are likely to have a negative effect on the firm’s ability to satisfy the threshold conditions or the integrity of the UK financial system (Principle three); and
  • the duty to deal with the FCA in an open and co-operative way (Principle 11).

The fact that these three Principles extend to all of a firm’s activities provides the FCA with some regulatory grip over everything that a firm does; but the breadth of the rules is not intended to dissuade the FCA from its focus on the regulated activities of a firm and the detailed rules governing such conduct. We do nonetheless look to the Principles when we are concerned about how firms behave “outside the perimeter”. This was the case, for example, when we took action in respect of the LIBOR (London Interbank Offered Rate) manipulation and in respect of firms’ foreign exchange practices.


FSMA requires that individuals performing “controlled functions” within authorised firms must be approved by the regulator. The FCA’s (and PRA’s) role has been to designate these functions, assess whether individuals are fit and proper to perform the functions, and take disciplinary action against individuals who break the regulators’ rules.

For the most part, the FCA’s ability to take action against individual “approved persons” has been limited to conduct within the scope of the particular function for which they were approved (unless the individual was “knowingly concerned” in the breach of rules by a firm). With the introduction of the Senior Managers and Certification regime (SMCR), this is changing.

The SMCR asks that the regulators concentrate on the assessment of the suitability of senior managers at the gateway; but allows the regulators to extend rules governing individuals’ conduct beyond those who have been vetted by the FCA (or PRA). The FCA’s conduct rules for banks apply to senior managers, certified persons and other non-ancillary staff. Once the SMCR is extended beyond banks to all firms, we propose to adopt a similar approach.

One of the key differences under the SMCR is that the conduct rules are not limited to an individual’s behaviour only in relation to the regulated activity carried on by the firm. They can also apply to conduct in relation to the firm’s unregulated activity. The rules require, among other things, that individuals act with integrity, that they have due regard to the interest of consumers, and that they observe proper standards of market conduct.

Senior managers are also required to comply with four additional conduct rules:

  • take reasonable steps to ensure that the business of the firm is controlled effectively;
  • take reasonable steps to ensure that the business of the firm complies with the relevant requirements and standards of the regulatory system;
  • take reasonable steps to ensure that any delegation of responsibilities is to an appropriate person and that this is overseen effectively; and
  • disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

Under the SMCR’s’ overall responsibility’ requirement, firms need to ensure they assign overall responsibility for all business areas to a senior manager, including those in unregulated markets. They must then operate their business in line with our rules, including putting in place governance, systems and controls to ensure this.

Setting the boundary: where the perimeter lies

I set out below some of the areas where there have been calls for the FCA to intervene, questions asked about the extent of FCA involvement or action, or where uncertainty has arisen. These are not intended to be exhaustive examples, but rather to illustrate how questions have arisen about the scope of FCA regulation.

Bank activities outside the perimeter – GRG and “embedded swaps”

In contrast to mortgage lending and consumer credit activity, commercial lending is not a regulated activity. In other words, a person lending money commercially does not need to be authorised by the FCA (unless the lending constitutes “consumer credit’). So some lenders are therefore completely outside the scope of FCA regulation. Banks, on the other hand, are regulated by the FCA (because they are deposit-takers), but the FCA’s interest is primarily in the extent which the banks’ activity outside “the perimeter’ is relevant to the banks’ standing as a deposit taker. This is consistent with the scope of the FCA’s Principles, and the fact that the FCA will look at a firm’s financial resources, its systems and controls (to the extent that they reflect on the fitness of the firm itself or adversely impact the wider financial system), and the firm’s relationship with its regulators, even where concerns might arise from unregulated activity.

The extent of the FCA’s responsibility for the unregulated activity of banks has nonetheless been the subject of public debate and scrutiny.


During my appearance at the Committee in October, I explained some of the complexities around GRG and our perimeter. Engaging in the sort of restructuring activity conducted by GRG is not of itself regulated activity. Our detailed conduct rules on the design and governance of products and services do not apply. The initial allegations about the conduct at GRG were, however, sufficiently serious to raise questions about RBS beyond the immediate business area. We took the view therefore that – despite the fact that the conduct in issue was unregulated – the test for the appointment of a ‘skilled person’ under section 166 FSMA was met.

As I explain above, the SMCR will promote greater accountability within regulated firms in future, even in respect of unregulated activity. The SMCR cannot be applied retrospectively, but we would expect the new framework to assist with a GRG type scenario in the future.

Embedded swaps

Commercial loans with marked to market break costs, sometimes known as embedded swaps or “tailored business loans”, provide another illustration of the issue. Again, these are not regulated products, but they do have similar characteristics to interest rate hedging products (IRHPs). After the FSA agreed the IRHP redress scheme with the banks, there were calls for the banks to extend the scheme to commercial loans of this type.

In a letter to the Committee on 26 April 2014, our General Counsel, Sean Martin, set out in detail why these types of loans do not sit within the regulatory perimeter: http://www.parliament.uk/documents/commons-committees/treasury/140626_Sean_Martin_to_Andrew_Tyrie.pdf


Crypto-currencies are not ‘specified investments’ for the purposes of the RAO. This means that typically the issuing of, or trading in, a cryptocurrency itself will not involve regulated activity. However, derivatives which reference a cryptocurrency (such as a future, or a contract for difference based on a particular cryptocurrency) are capable of being regulated investments. So trading, arranging or advising activities related to cryptocurrency derivatives can amount to regulated activities.

Since the increased public awareness of certain cryptocurrencies, including Bitcoin, there has been discussion about whether the FCA should regulate this sector. I have spoken publicly of my concerns regarding cryptocurrencies, and that investors should be prepared to lose their money if they invest. Cryptocurrencies are not a secure investment given the volatility in the pricing of the asset and the limited nature of its liquidity.

Spot FX

Spot FX transactions where the exchange of currencies takes place within two trading days are not regulated investments for the purposes of the RAO.

The serious concerns about conduct in the foreign exchange (FX) markets were, however, one of the drivers for setting up the Fair and Effective Markets Review (FEMR). The FEMR recommendations published in June 2015, and the subsequent work of industry and central banks under the auspices of the Global FX Committee, led to publication of the FX Global Code in May 2017. This is a new industry code that sets out global principles of best practice for the Wholesale FX Market.

The FCA contributed to the preparation of the Code, drawing in particular on deficient practices identified as part of our supervisory work. I will set out later how our proposals on industry codes of conduct could support similar initiatives in the future.

Funeral Plans

Generally the regulation of pre-paid funeral plans, as opposed to regulated insurance products, also falls outside the FCA’s remit. While the authorisation and registration of funeral plans is a regulated activity under the RAO, there are exclusions that apply if certain conditions are met.

Broadly speaking, the exemption applies if the funeral plan is set up under a trust, or if the funeral plan provider applies the sums paid under the plan to a whole of life insurance policy with a regulated provider for the purposes of providing the funeral. Funeral plan providers that meet these criteria are subject to a self-regulatory regime under the Funeral Planning Authority (FPA).

We understand that all relevant funeral plan providers use these exclusions. No funeral plan provider is authorised and regulated by the FCA. We liaise with the FPA on perimeter matters as appropriate.

Investment consultants

Investment consultancy services provide another example of a concern arising from the delineation of the perimeter. In June 2017 we published the findings from our Asset Management Market Study, which identified weak competition in the market. The Final Report is available on our website: https://www.fca.org.uk/publication/market-studies/ms15-2-3.pdf

In particular, we found that pension trustees have limited ability to assess the quality of the advice they receive from consultants. There are also relatively high levels of market concentration and barriers to expansion which restrict smaller or newer consultants from developing their business. We also found that vertically integrated business models were creating conflicts of interest.

Investment consultants play a significant role advising pension fund trustees when they are procuring asset management services. There are areas of investment consulting that are not regulated by us but still have a significant impact on returns for investors, such as strategic asset allocation advice. Therefore, to allow a complete assessment, and to enable any remedies to cover the whole market, we referred the sector to the CMA for a market investigation.

Subject to the findings of the market investigation, we have recommended HM Treasury bring the provision of investment consulting and employee benefit consulting asset allocation advice within the FCA’s regulatory perimeter.

Unregulated mortgage purchasers

There are three regulatory activities relating to mortgage lending: “entering into”, “administering”, and advising on a regulated mortgage contract. Mortgage lenders who “enter into” a regulated mortgage contract are able to transfer the ownership of those contracts or the rights under them to other entities, often as a funding source. The regulatory framework does not require the purchasing entity to be regulated, as long as they employ an authorised third party to “administer” the mortgage contracts. However, the administering activity is narrowly drawn, essentially amounting to notifying the consumer of interest or payment changes, or taking necessary steps to collect or recover payments due.

This potentially exposes consumers to harm if, for example, an unregulated entity were to charge higher interest rates to captive borrowers, not reduce rates in a falling market, or treat customers in arrears unfairly. As you may recall, the Public Accounts Committee raised this area as a point of concern in the recent asset sale undertaken by UK Asset Resolution (UKAR) to Cerberus. Depending on the regulated status of the purchaser of the book, there is the potential for consumers to be exposed to greater harm. There is also a risk that this harm might not be apparent to us because when mortgages are sold to an unauthorised entity, the new owners are not subject to our reporting requirements and so we have no way of knowing how these loans are performing in terms of arrears and repossession levels.

Perimeter complexities – British Steel Pension Scheme (BSPS)

Recently we have seen the complexities of navigating the regulatory perimeter brought into the spotlight due to BSPS, along with restrictions on the action we can take.

The regulation of pensions falls to a number of different bodies – the FCA regulates primarily defined contribution pensions, whereas the Pensions Regulator (TPR) regulates defined benefit pensions. There are also other schemes that fall within the Government’s direct remit, but the FCA and TPR are responsible for the majority of the pensions market.

The BSPS is a defined benefit pension scheme and is regulated by TPR. The FCA has no role or oversight of BSPS, or any..

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“Rope: Sometimes you need to let customers hang themselves.” A damning 2009 internal memo entitled “Just Hit Budget!” was published on 17 January by the Treasury Select Committee as MPs ramp up their investigation into RBS’s Global Restructuring Group’s mis-treatment of SME’s.

Selection of underhand tactics RBS GRG were told to employ

The leaked tipsheet, which according to a secret report being withheld from publication by the FCA, was not an isolated example of the misconduct of RBS. The memo highlights the underhand pressure tactics deployed by GRG to close deals and squeeze owners of struggling businesses for profit. Many SME customers claim they were pushed to the brink and restructured for profit by GRG. The memo- written by a manager- was circulated among staff and represents a step by step guide on how to swindle their customers.

Download the RBS GRG ‘Just Hit Budget’ Memo

Protecting Legal Rights against RBS GRG

It is an absolute must that victims of RBS GRG or other bank BSUs protect their legal rights.  This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank.  Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless.

Legal rights can be protected by taking urgent legal advice and by instructing specialist GRG solicitors to issue a protective claim form or by instructing GRG litigation solicitors to prepare and agree a carefully written standstill agreement.

The Transcript of the “Just Hit Budget!” Memo

Just Hit Budget!


1. Manage expectations
– Set the tone at the handover meeting.
– Handover presentation puts a marker down in the first 10 minutes.
– Fit the solution to the problem.
– Get sanction!

2. Maintain the momentum
-follow up with handover letter, ideally with a facility letter even if only for a short period.
-The ball should hardly ever be in our court – nag sanctioners.
-Anticipate delays – credit docs turnaround, flag up key equity points before the documentation is issued.
-Leverage upsides with high initial monthly fees that substantially reduce upon completion of the upside [REDACTED] was £9.5K now £750 with PPAs).

3. Deliver
30 days’ notice: Under standard Bank terms and conditions we can change terms and conditions with 30 days’ written notice – hence post-handover letter. With a fresh facility letter, no notice period is required … as long as they sign!
-Monthly fees or else!
-Record each deal on RMP. If it’s not on RMP, your deal does not exist.


Use facility letters: If they sign, they can’t complain. Heads of Terms cannot be enforced.
Basket cases: Time consuming but remunerative.
Perfect deals: they don’t exist – if [REDACTED]’s unhappy and customer’s unhappy then you probably have the balance right.
Deal  or no deal? No deal, no way. Missed opportunities will mean missed bonuses.  You can always revisit an earlier deal.
Handover debt: if you formalise the handover debt: not new money but customer likely to sign the facility letter to confirm the new limit, avoids immediate excesses and locks in immediate income.
Be specific: avoid round number fees – £5,300 sounds as if you have thought about it, £5K sounds like you haven’t.
Rope: Sometimes you need to let customers hang themselves. You have then gained their trust and they know what’s coming when they fail to deliver.
Never: Issue “until further notice” overdraft letters.

16 Ways to generate Income:

1. Monthly fees: minimum £500.  Ideally on average we need c10% premium on our debt (current return will be <5%, mezz return should be about 15%). E.g. Debt £2m suggest £200K premium i.e. monthly fee £16K! They normally cannot afford this and you can then leaverage an upside.  Set up recurring income action on RMP. Diary note for when they expire.
2. Exit fees: Normally monthly 0.5% of all the balances to drive a re-finance. Consider ratcheting. Useful for property developments.
3. Facility fees: Aim for 2% but if doing a restructure aim much higher although may have to add to our debt.
4. Redemption premiums/Other upsides: Include in new loan facilities if significant (min. 10% premium) and deferred e.g. £50K in 6 months time then record as “other upside”. Use with caution.
5. Conditional Support Fees: E.g. equity concluded by date X or fee £Y applies – helps deliver a deal or secure income if deal falls away.
6. Default Interest Rates: Check each loan facility prior to handover, formal notice of default required, refer to the paragraph, change back office and register the margin enhancement. Need to allow 3 days for them to remedy the breach.
7. IIS: Care – no margin enhancements and no fees, but if a refinance likely then you can claim back all the IIS! [REDACTED] £600K). Also turns off Bankline, practically may have to have IIS only on loans.
8. Excess fees: Charge for any pre-notified excess.
9. Non-receipt of MI: Minimum £100 per month.
10. Margin enhancement: Minimum margin should be as per Bank matrix unless/until you agree an upside. Claim the margin until new limits formalised.
11. New money: With a new money action on RMP you can claim ALL the margin on the new money
12. Royalty fees: If equity going to have no value, consider a percentage of turnover (formal documentation available).
13. Service charge: We should have everyone on standard tariff.• [REDACTED] and [REDACTED] can help.
14. RBSIF: You can claim one off “notional income” for the margin on RBSIF facilities if they drawdown and you introduce them.  E.g. RBSIF drawdown with £1m funds in use limit at 3% margin – you get £30K income.
15. GBM: They should email us with income elements of SWAPs etc. when they enter them and when they redeem.
16. Security fees: Standard pricing per item per the standard Commercial Bank tariff to apply – on taking as well as on releasing.

Financial Services Litigation Team, LEXLAW

The post RBS’ GRG ‘Just Hit Budget’ Memo: ‘let customers hang themselves’ appeared first on LEXLAW Solicitors & Barristers.

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In Abdullah and others v Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited [2017] EWHC 3016 (Comm), the High Court has given judgment in favour of private person claimants in their mis-selling action for damages against a major bank. Credit Suisse lost the claim because they were judged to have mis-advised and mis-sold complex financial instruments (structured products) causing a USD $30 million loss to the Haider Abdullah family.

Mr Justice Andrew Baker determined this claim for breach of statutory duty under s.138D(2) of the Financial Services  and Markets Act 2000 (FSMA) by the bank in advising the Claimants to invest in three structured capital at risk products (SCARPs) sold under an advisory agreement that were unsuitable because it should have known that the Claimants were “low-risk investors unwilling to contemplate anything more than minimal risk of loss of capital”. The Claimants were judged to be entitled to damages to reflect the position they would have been in had they not purchased one of the complex structured products.

Abdullah v Credit Suisse: Summary of the Facts 

The Claimants are a wealthy Kuwaiti family who held a joint private banking account with Credit Suisse. During 2008, following the advice of the bank, they invested in three SCARP Notes net of borrowing for approximately USD $26 million:

  1. Note 18 (the first Note mis-sold by the bank) was a USD $20 million 3-year equity barrier SCARP bet on major stock indices (referenced to the Eurostoxx 50, S&P 500 and Nikkei 225 indices as well as the Swiss Market Index) purchased in May 2008.
  2. Note 19 (the second Note) was a USD $2.4 million 1-year bet on the stock prices of three major international banks.
  3. Note 20 (the final Note) was bought during the fiscal turmoil following the collapse of Lehman Brothers in October 2008. The contemporary market volatility caused the in-built barriers of some of the Claimant’s other Notes with the bank to be breached and as such Note 20 was issued as a “switch” trade where their existing portfolio was subject to “jumbo” restructuring into a consolidated Note.

Immediately after the final Note settled in October 2008, the Claimants decided not to meet a margin call issued by Credit Suisse and refused to deposit further securities to cover potential losses (they were assured that the switch would not require additional funds) resulting in the liquidation of their USD $30 million investment and leaving them overdrawn by over USD $300,000.

Credit Suisse Breached Statutory Duties Owed under FSMA

The Claimants sought damages under s.138D of FSMA 2000 which provides that a private person who suffers financial loss as a result of breach of the regulatory rules may bring a statutory claim for compensation.

“contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention”

– Section 138D of FSMA 2000

The Claimants then argued that the bank owes them the duties enshrined in the FCA’s Conduct of Business Sourcebook (COBS) rules:

The products were unsuitable for the Claimants

  • [Credit Suisse] did not take reasonable steps to ensure that any personal recommendation was suitable for the client (in breach of COBS 9.2.1R).
  • [Credit Suisse] did not have a reasonable basis for believing that the transaction recommended met the client’s investment objectives nor that the client had the necessary experience and knowledge to understand the risks involved (in breach of COBS 9.2.2R); and

The Claimants were mislead

  • [Credit Suisse] did not ensure that a communication or financial promotion was fair, clear and not misleading (in breach of COBS 4.2.1R).

Overall, they alleged that the bank did not ensure that the communication or financial promotion was “fair, clear and not misleading”.The Claimants argued that they were “low risk investors” and it was clear from their long relationship with the bank that they were only willing to invest on the basis of very limited risk of loss of capital. They alleged that Credit Suisse gave “bad positive advice” and the bank failed to take reasonable steps to ensure the personal recommendation of a high-risk product was suitable for the clients. This advice neither met their “investment objectives” nor did they ascertain whether their clients had the necessary knowledge to understand the risks involved. The crux of their claim- like many customers who have been mis-sold derivatives- was that the bank “under-estimated the magnitude of risks” involved to them and as such the bank’s bad advice created an ill-conceived willingness in the Claimants to run those risks.

When is a Bank Considered to have Breached its Statutory Duties?

Note 18: This product was unsuitable for their “low risk appetite” and the sale of the product was misleading

  • It was misleading for the bank to convey to the Claimants that the structured product was a low risk investment and that it was very unlikely that the Note barriers would be breached.
  • Their advisor at the bank told them that there was “only a small chance of loss” and “pushed them” into investing. He wrongly assured them that the product was suitable for their “conservative risk appetite”.
  • The advisor coerced them into purchasing by assuring them that his own family had invested on the same terms presented and moreover the judge worryingly found that the Claimants were most likely not even shown an indicative term sheet at their meeting.
  • In fact, the judge agreed with expert evidence that Note 18 was taking a “50:50 bet” on having no capital protection and therefore leaving the Claimants exposed: that is not what the Claimants thought they were buying and not what the bank could reasonably have believed they wanted to buy.

Note 19: The product was not unsuitable as the Claimants knew they were “making a bold, risky investment” and the bank did not mislead them into believing it to be a safe investment

  • Unlike for Note 18, the reason why the bank was not in breach of its duties here was because the Claimant chose on an “informed basis” to take a real risk on what was a relatively small investment of USD $2.4 million for potentially high returns in a volatile market.
  • On this occasion, Credit Suisse did make it very clear that it would be a bold and hazardous investment with a view to a very high return.
  • Therefore, the crux of whether the bank is in breach of its duties comparing the two findings on the Notes is that the “nature of the recommendation” was different. The bank is at fault if it recommends a risky product to a conservative client and misleads them as to the nature of the risk. The bank is not at fault if it recommends a risky product to a client that is well aware of that risk.

Note 20: The product was not unsuitable as the Claimants knew about the risk but the bank did make misleading assurances to induce the purchase of the switch trade

  • The claim for suitability breaches under COBS Rules 9.2.1R and 9.2.2R failed as it was obvious that the investment was highly risky whilst the markets were in turmoil following the collapse of Lehman Brothers. The bank was not in breach as it was reasonable for Credit Suisse to have believed that Note 20 met the clients’ objectives at that particular time.
  • The judge found that the Claimants were well aware of the risk as Note 20 “was obviously not a Note to be buying if you had only a conservative appetite for risk.” The difference with Note 18 and the reason why the Claimants could not demonstrate that they were misled was quite simply that they were aware of the risks.
  • However, Credit Suisse did breach COBS 4.2.1 by asserting that the switch trade would not require further funds. Although the bank was correct in claiming that the switch trade would not require a net purchase price payable for the trade (to buy Note 20 in return for giving up their previous Notes)- due to the different basis for the mark-to-market pricing used for Note 20 and its lower LTV ratio- as soon as the Note was issued the bank assessed the account to suffer from a large collateral shortfall with the margin call that followed leading to the closing of the account.
  • Therefore, there was a breach of COBS 4.2.1 because the assurances given by the bank that the switch trade would not result in needing further investment from them was inaccurate and misleading. This reading of the COBS rule demonstrates that the court applies subtlety in determining whether a Claimant has been induced to buy in a misleading way by taking a wide interpretation. This is promising for future Claimants.

Click to Download Haider Abdullah v Credit Suisse – Commercial Court Judgment

Resounding Rejection of Credit Suisse’s Defence

Credit Suisse attempted to persuade the court that the family were “aggressive investors” looking for high returns who accepted the significant risk of loss of capital and as such were not badly advised. In addition, the bank argued that the losses were not caused by their breach of duty but resulted from the financial crash. The bank also tried to pin the blame on the Claimants by claiming they had committed “financial suicide” when they chose to close their investments after Note 20, which it alleged was so unreasonable a decision that is was the exclusive cause of their loss.  The three main arguments in the Bank’s defence were:

(1) Credit Suisse loses their defence that the Claimants committed “financial suicide” which broke the chain of causation

  • The court did not accept that the Claimant’s refusal to meet the margin call was so unreasonable as to amount to a failure to mitigate loss/was the sole cause of the loss. The judge stated that the family’s decision to close their portfolio was not “irrational” but out of concern that the worst may not be over and “they also felt let down and misled” by the bank.
  • The court robustly rebuked the “financial suicide” defence and therefore provided welcome reassurance to customers that a bank will not be permitted to pin the blame on them for leaving an investment early if the decision is not irrational.

 (2) Credit Suisse loses their defence that the loss was too remote as it was caused by the severity of the financial crash

  • The court did not accept the bank’s contention that the losses were not caused by any breach of duty on its part as they resulted from the extreme nature and severity of the 2008 crash. The essence of the duty of a financial advisor is precisely to protect clients from major market falls by assessing with “due care” that any capital protection barriers were highly unlikely to be breached.
  • Although the loss was exacerbated by the market crash, the resulting loss was still within the scope of the duty broken.
  • Banks will not be permitted to completely abdicate their duties owed to customers by blaming resulting losses solely on extreme fluctuations in the financial market.  

 (3) Credit Suisse loses their defence that the Claimants were contributory negligent

  • The court rejected the bank’s weak defence claiming that the investors failed to read the terms and conditions; failed to take adequate steps to understand the investments and failed to complete a customer profile form (to ensure Credit Suisse had no doubt as to their investment objectives).
  • Judge Davis said: “[The investors took] adequate steps to understand their investments given that they were relying on [Credit Suisse] for risk evaluation. They were simply let down… in respect of that evaluation”.
  • Unsophisticated customers will not be penalised for a lack of due diligence when agreeing to purchase a complex structured product.
Relevance to those Mis-sold Complex Derivative Products?

This is one of very few cases that consider the practical meaning and effect of the FCA’s Conduct of Business Sourcebook rules governing the sale of complex derivatives and the extent of duties owed by banks to their customers. It elucidates the rules concerning the suitability of structured product sales and provides a useful barometer of the court’s future reasoning on when a product is considered to have been sold in a misleading way and how suitability issues will be interpreted under the COBS rules.

Our senior partner, M Ali Akram said:

“This judgment should go some way in encouraging smaller claimants considering or facing litigation against major banks not to abandon their cause of action under s.138D FSMA 2000. It demonstrates that litigation for private persons is a potentially meritorious option with an arguable chance of success either at trial or via alternative dispute resolution settlement. A successful outcome is of course dependent on the facts of any individual case.”

Those with cases against major banks and other financial services institutions should contact our Financial Services Litigation Team to book a preliminary consultation.

LEXLAW Financial Services Litigation & Dispute Resolution

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on 02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

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We have today submitted evidence on the ineffectiveness of existing arrangements for dispute arbitration and settlement between SMEs and banks to the Treasury Committee‘s SME Finance Inquiry

Re: Submissions to the Treasury Select Committee’s SME Finance Inquiry in relation to “The ability of SMEs to resolve disputes and access fair and reasonable compensation when they borrow money” The effectiveness of existing arrangements for dispute arbitration and settlement

At present, the main avenues available for the settlement of disputes between SMEs and banks are the courts, mediation, arbitration, regulatory review schemes, and the Financial Ombudsman Service.


The primary disadvantages of the courts as a means of settling disputes between SMEs and banks are that:

1. The costs of financial services litigation, which is recognised as being particularly complex litigation, will be in the hundreds of thousands of pounds at the very least (and will often be much greater than this). Given that banks have considerably greater financial resources than SMEs, it is much easier for banks to afford these costs than for SMEs, which severely prejudices the ability of SMEs to place the banks under judicial scrutiny.

For example, if a claim includes GBP LIBOR manipulation against Lloyds Bank PLC who have been fined for such misconduct, the bank have been known to regularly instruct two international law firms at the same time, bringing their costs budget up to £2.5 million to take such disputes to trial. Such costs become massive adverse costs risk for claimants, thereby deterring the majority of SMEs from advancing such claims, which have obviously arguable merit given the regulatory fines.

2. Litigation is frequently a time-consuming process, as it often takes at least two years (and frequently longer) for cases to reach the trial stage. This level of delay exacerbates the aforementioned costs disadvantage faced by SME claimants and consequently makes it easier for banks (with their greater financial resources) to use increasing legal costs and adverse costs risks as leverage against SMEs in order to minimise any financial redress paid out to the wronged SMEs.

3. Banks are able to shape the case law in financial services litigation to their advantage via a process of “unnatural selection”, which operates as follows:

a. Banks use their greater financial resources and the burden of substantial legal costs to pressure smaller SMEs into giving up their legal claims, thereby leaving only the larger SMEs able to afford to go to trial (and, even then, with some difficulty).

b. At trial, the courts are more likely to decide that larger SMEs have similar commercial bargaining power as banks and, on that basis, set legal precedent that banks owe greatly limited duties (if any) to their customers.

c. Banks then use the accretion of case law favourable to them (together with their greater financial resources) to pressure smaller SMEs into giving up their legal claims, and so the cycle continues. This ultimately creates a barrier that hinders SMEs from seeking redress against banks through the courts.


While mediation has the advantages of being confidential and relatively inexpensive, its effectiveness is hindered by its voluntary nature, which means that banks with large financial resources can simply refuse to mediate as part of a deliberate strategy to strengthen their own negotiating position and “starve out” SMEs. Furthermore, mediation usually takes place during litigation (rather than before litigation is commenced), and therefore the costs saving involved with mediation is limited.


Like mediation, arbitration is a confidential and voluntary process, but the effectiveness of arbitration as a form of dispute resolution is limited because the rules by which arbitrations are conducted are not widely known or understood (unlike the Civil Procedure Rules that govern civil litigation) and there are limited opportunities to appeal or challenge any wrongly determined cases.

Regulatory review schemes

Regulatory review schemes, the most prominent example of which is the review of past sales of interest rate hedging products by banks to SMEs, should involve the regulator (i.e. the Financial Conduct Authority).

However, in reality, the FCA abdicates its regulatory responsibilities in these review schemes – for example, in the aforementioned IRHP review, the FCA “agreed with the banks that they [i.e. the banks] will review all sales of IRHPs”. It was both unfortunate and surprising that the FCA believed that the best party to investigate the banks’ wrongdoing was the banks themselves, and this mistake is being repeated in the review of the activities of RBS’s Global Restructuring Group that was announced in November 2016, which RBS is conducting itself.

In addition to the inherent conflict of interest in allowing wrongdoing banks to adjudicate claims themselves, which incentivises banks to reduce the amount of financial redress offered to wronged SMEs, regulatory review schemes are beset by other significant problems, including the substantial delays involved. The IRHP review, for example, was announced on 29 June 2012 but took several years to complete, which meant that many SMEs’ legal claims were time-barred and therefore incapable of being pursued in the courts. Further, due to the one-sided conduct of such review schemes, as the banks are the only party to see all of the information involved, SMEs are prevented from understanding the full force of the wrongdoing against them (which is the first step to holding banks to account).

Financial Ombudsman Service

The Financial Ombudsman Service is of limited utility to SMEs attempting to settle disputes with banks because it is only able to deal with cases for losses of up to £150,000 and does not either punish wrongdoer banks or monitor banks to ensure that they comply with the applicable rules and regulations. Further, a large number of SMEs do not qualify as micro-enterprises and the banks are adept at raising technical arguments on jurisdiction to prevent the FOS from acting.

By way of example, we have seen a recent case where the FOS accepted a complaint for an SME assessed as a micro-enterprise and then reached a provisional decision against Lloyds Bank PLC, awarding over £100,000 for the mis-selling of a fixed rate loan. However, Lloyds then argued (belatedly) that the FOS should not adjudicate the dispute as the complainant was allegedly not a micro-enterprise and therefore not eligible to bring a complaint. Remarkably, the FOS seems set to accept this as a basis not to reach a final decision, demonstrating the skill and persistence with which banks and their legal teams seek to elude any regulatory accountability for their actions.

The merits of the Financial Conduct Authority’s proposals for expanding SME access to the Financial Ombudsman Service

While the FCA’s proposals are welcome, particularly in relation to the extension of the rights of larger SMEs, charities and trusts, they do not go far enough in rectifying the existing flaws in the limited role and ambit of the FOS, which is an organisation set up to deal only with simple customer complaints rather than anything of a complex nature. In addition, the FOS deals with cases on a one by one basis and does not set precedents for other cases and in so doing does not create any proper impetus for change in conduct.

The case for establishing a new tribunal body for settling SME banking disputes and the means by which such a body could be created

It is clear that SMEs are too often drawn into complex disputes with banks and other financial institutions, which disputes are beyond the remit of the FOS to address due to FOS’s maximum threshold of £150,000. Furthermore, the court system is costly and risky for SMEs (who do not have the financial and legal sophistication of the banks). The FCA is a regulator and is neither mandated nor equipped to be an arbiter of disputes. Moreover, regulatory review schemes are fatally undermined by the reliance placed by the FCA on the wrongdoer banks to conduct such review schemes (premised on the inherently unjust and flawed self-determined compensation flaw).

It is clear that the current avenues for redress are not working for SMEs; if justice is to be delivered and standards of banking conduct to be corrected and then maintained at fair levels in the future, a new avenue for redress needs to be created.

A Financial Services Tribunal would offer a permanent independent commercial dispute resolution platform and, modelled on the Employment Tribunal, can be subsumed within the current framework of the Tribunals, Courts and Enforcement Act 2007.  Such a tribunal would be able to exercise appropriate judicial control over the financial services industry where a lacuna currently exists in practice for SMEs. The tribunal would fill the redress vacuum that SMEs are often trapped in, where their disputes involve sums over the FOS’s compensation limit but where High Court litigation is too costly.

A Financial Services Tribunal would serve to restore faith in the banking sector by providing a platform for justice for SME customers and instill confidence in the banking sector by operating as a safeguard that the prospect of public censure would deter future financial misconduct.

LEXLAW Solicitors & Advocates 

Middle Temple (Inn of Court)

Click here to download LEXLAW’s submissions to the Treasury Select Committee’s SME Finance Inquiry

The post LEXLAW Submits Evidence to the Treasury Committee’s SME Finance Inquiry appeared first on LEXLAW Solicitors & Barristers.

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The Royal Bank of Scotland (RBS) has recently announced that it will expand its redress scheme to include appeals with independent third- party oversight for consequential losses incurred by businesses in its Global Restructuring Group (GRG) turnaround division.

RBS’s Chief Executive Ross McEwan, divulged the expansion of its current GRG appeal process to introduce an “independent appeals procedure” in a letter to John Glen MP (City Minister) to fill a “gap in our previous position”.  Former customers of GRG can currently claim compensation for consequential losses, but this has proved inadequate because (unlike for direct loss claims) if a customer’s claim is rejected, there is no right of appeal to the independent third party (Sir William Blackburne). RBS’s announcement represents a U-turn on their previous position that it was not practicable to build a third-party assurance and appeals process to provide oversight of the decisions reached by the bank on consequential loss.    

It has been reported that RBS will finalise the details of widening the remit of the Independent Third Party Appeals Process to include a consequential loss appeals process with Sir William Blackburne (a former High Court Judge) in the next few weeks. RBS has received just one consequential loss claim thus far but it is expected that the Bank will receive many claims with high value for consequential losses in the near future. However, doubts remain over the effectiveness of the redress on offer. 

Ex-GRG customers have the right to refer complaints to the Financial Ombudsman Service and pursue claims for consequential losses through the courts with the benefits of independent judicial oversight, expert evidence and established judicial principles. RBS’s announcement to expand the GRG complaints process ensures, to some extent at least, that third- party assurance and independent oversight of the decisions the bank reaches on consequential loss will be in place.

It is essential to seek early legal advice from LEXLAW to advise you on all the potential options to secure compensation, through articulating consequential loss claims in the GRG complaints scheme to High Court litigation.    

What is GRG?

GRG is shorthand for Global Restructuring Group, which was NatWest/RBS’s turnaround or business support unit (BSU) for troubled businesses.

What did GRG do wrong?

The bank recovery team were tasked to recover debt owed to the bank but were purposefully mis-described as providing “business support”. In fact these departments managed RBS’s distressed and impaired customers that had lending secured by property based assets. The members of these teams prepared and submitted exit strategies and liaised with LPA Receivers and Administrators and the bank’s solicitors to recover debt owed to the bank.

Like other recovery units such as Barclays’ BSR and Lloyds’ BSU, RBS’s GRG behaved in an aggressive and arguably dishonest and unfair way designed to maximise profit for the bank. Bank recovery departments were often highly incentivised to overstate the bank’s write-down provisions in order to obtain bonuses for recovering more than the bank expected to recover. This included for example moving lending rates to rigged rates (LIBOR); setting up pre-pack administration deals without the customer’s knowledge; and pressurising customers into Profit or Property Participation Fee Agreements (PPFA) whereby associated parts of the bank (West Register) would take up free shares in a business or gain a percentage of sale proceeds.

GRG misconduct comes to light

In November 2016, RBS admitted it had failed SME customers and established a complaints process fund of £400million to refund complex fees paid by SME customers between 2008 and 2013 to be overseen by an Independent Third Party. In November 2017, the FCA published a heavily redacted Promontory summary report into GRG mistreatment of customers. In January 2018, Parliament condemned GRG’s parasitic treatment of SMEs, documented by LEXLAW here. LEXLAW (through a campaign of DPA Subject Access Requests), SME victims, the APPG, Treasury Select Committee and Parliament called for the publication of the skilled persons report into GRG’s mistreatment of small business customers. The Treasury Select Committee published the final, unredacted section 166 report on 16 February 2018.

Instead of SMEs getting the help they needed in a weak economy, GRG targeted the unregulated SME sector and became a profit churning processing unit to exacerbate the demise of SMEs and squeeze capital to improve RBS’s own post- credit crunch balance sheet.

What is the current GRG redress scheme?

RBS announced the implementation of a £400million GRG complaints process in November 2016 (and updated in May 2017) to process complaints by SME customers for losses incurred as a result of GRG’s misconduct.

RBS will review a complaint from eligible ex-GRG customers (see below) and if the complaint is upheld, redress for direct losses and/or automatic complex fee refunds may be offered. In order to make a claim for consequential loss, the customers’ complaint must first have been upheld. LEXLAW have helped many small businesses in analysing consequential loss and whether it is the type of loss that can be adequately evidenced. RBS has agreed to meet the customers’ reasonable costs of meeting with a professional loss assessor or solicitor in establishing a consequential loss claim.

RBS’s redress scheme is overseen by  Sir William Blackburne (the Independent Third Party), whose “assurance and appeal” role is to oversee the process and to run an Independent Third Party Appeals Process (ITP Appeals Process) to consider appeals against decisions made in the RBS complaints process for direct losses but not consequential losses. The remit of the ITP Appeals Process will be expanded to include consequential loss in the near future.

The GRG complaints process is different to the FCA Interest Rate Hedging Products Review scheme (IRHP Review Scheme), the failings of which have previously been highlighted by LEXLAW. In some respects, the GRG complaints process suffers from the same defects as the IRHP review scheme in that they are both essentially voluntary reviews undertaken by the banks themselves with- in essence- limited independent oversight.

What is the new consequential loss compensation appeal process?

The current GRG Complaints Process has been heavily criticised for its lack of adequate compensation for businesses that have suffered consequential losses. The loss of potential profits by an SME forced to close due to GRG misconduct is often the largest head of loss in a claim against a Bank. The current complaints process has been restricted to appealing claims only for direct losses whilst at GRG, whereas now businesses will able to appeal for indirect consequential losses.

Under the RBS complaints process, if a direct loss complaint is upheld, then a customer can apply to have consequential losses assessed. The reformed appeal process for companies harmed by GRG will now allow those customers to appeal to the independent third party, mirroring the current process for direct loss complaints.

Ross McEwan’s letter to John Glen MP stated that the new consequential loss appeals process will be finalised in the upcoming weeks. The independent third party, Sir William Blackburne, will be consulted on how the process should work and whether he will take on the role of hearing consequential loss appeals.

It is expected that once the RBS complaints scheme appeal process for consequential losses gets underway, many ex-GRG customers will be entitled to claim compensation with the assurance that third-party independent oversight is built into the process to ensure the bank’s decisions on consequential loss compensation are reasonable.

Are customers likely to receive adequate compensation through the GRG redress scheme?

The compensation scheme has been criticised by politicians as being both time-consuming and ineffective. RBS publish weekly progress reports of compensation paid out to SMEs here.  An average of 25 claims a week advance through each stage of the compensation process.

RBS earmarked  a £400million pot in November 2016 and despite thousands of businesses suffering loss due to the misconduct of GRG, the pay-outs have been relatively small (on average around £30,000). Approximately £115million has been paid out as an automatic refund of complex fees. Of the remaining £285million which is available in the GRG complaints process, only £3.6million has been offered in compensation and only £2.2million has been paid out.

Liberal Democrat leader Sir Vince Cable has criticised the scheme:

“to see that RBS is processing this compensation, which is almost certainly too little anyway, so slowly is another disgrace in this scandal and suggests that the current leadership of RBS has not learned from the many failure of its predecessors”

Sir Vince Cable

Clearly adequate compensation for SMEs has not yet been forthcoming through the GRG complaints process. The direct loss compensation scheme appeals system has received independent oversight and the damning indictments of the levels of redress offered leads to assumptions that independent oversight of consequential loss appeals will not ensure effective redress for ex-GRG customers.

Which customers are eligible for redress in the GRG review scheme?

According to the “Principles governing RBS’s new complaints process for SME customers in GRG”, RBS customers are eligible for redress if they were:

  •  A UK or Republic of Ireland customer;
  • and a small or medium-sized enterpyrise (SME) customer;
  • under the control of GRG; and
  • during the period 2008-2013.

Customers are excluded from the definition of an SME if they are:

  • an entity with listed securities
  • an entity with debt syndicated across a number of banks
  • registered offshore or the majority of its shareholders are offshore
  • private equity backed
  • a Special Purpose Vehicle (SPV), or
  • a sizeable business based on financial metrics (e.g. debt facilities and/or turnover higher than £20m).

Eligible customers have the right to enter the automatic fee refund process and automatically receive the refund of complex fees. RBS believe that this refund process is substantially complete. GRG utilised a number of different terms to describe fees charged, and the following fees during 2008-2013 are included in the automatic fee refund:

  • management/monitoring fees;
  • asset sales fee;
  • exit fee;
  • mezzanine fee;
  • ratchet fee;
  • risk fee;
  • late management information (MI) fee.
What is the GRG redress scheme process for direct loss claims?

Guidance on a direct loss complaint can be found on the RBS website here. Direct loss is defined as any “sums of money paid by a customer to RBS or a customer’s out of pocket costs of meeting RBS’s requirements that were a direct result of an upheld complaint”. Examples of direct losses include:

  • arrangement fees;
  • renewal fees;
  • excess fees;
  • increased interest payments made to RBS by a customer;
  • costs and expenditure incurred in connection with an independent business review, valuation report, security review or other actions required by RBS; or
  • costs and expenditure incurred by a customer for the appointment of a third party to the customer at the request of RBS.

The RBS complaints process initially involves the bank itself assessing the complaint and deciding whether to award compensation for direct losses to a customer. Direct losses include sums paid by a customer to RBS and out of pocket costs of meeting RBS’s requirements.

RBS will self-investigate the complaint based on documentary evidence held by the bank and provided by the customer. LEXLAW are experienced in identifying the causes of action, the evidence required and formulating the complaint on behalf of SMEs and submitting this to Bank’s review team. Unlike a truly independent Court process, no detailed written arguments or oral evidence is considered. LEXLAW have pursued all avenues in the pursuit of justice for SME customers and have managed cases in the courts and complaints to the Financial Ombudsman Service (FOS) which offer a more detailed assessment of misconduct claims.

The basis of assessment is NOT a test of legality. The GRG complaints team assess customer complaints on standards of reasonableness (whether RBS’s actions were justifiable), transparency (timeliness and clarity of communication) and compliance (with their own internal procedures). In the event that the complaint is upheld by RBS, the bank assesses what it considers to be fair and reasonable compensation. In addition, at its sole discretion without an appeal to the Independent Third Party, the bank may award a “goodwill payment” in respect of disruption that was caused to the business.

Following the Outcome letter, the customer has 28 days to either accept or appeal against RBS’s offer of redress for direct losses. If accepted, this is taken a full and final settlement of the claim and no further action is permitted to recover further sums for direct loss. If compensation is not forthcoming or inadequate, the customer has 56 days to appeal the decision to the Independent Third Party Appeals Process (ITP Appeals Process) overseen by Sir William Blackburne.

The customer is required to complete an appeal form explaining the reasons why RBS’s decision was wrong. The Independent Third Party will reach their own conclusion on whether the complaint should be upheld or not and on what basis. The decision will be based on contemporaneous documents gathered by RBS, evidence submitted by the customer and materials created during the initial RBS complaints process. The Independent Third Party will record their decision, including any award for direct loss only, and a brief summary of the reasons will be provided to RBS and the customer. Subject to the customer accepting the Independent Third Party’s decision, the decision of the Independent Third Party will be binding on the bank.

What is the current GRG redress scheme process for consequential loss claims?

Guidance on the current process for obtaining compensation for consequential loss can be found here. If redress is awarded by RBS for direct losses, the customer then has a limited right to claim for any consequential losses. Consequential losses (or indirect losses) are lost potential profits as result of a business being forced to close due to GRG’s misconduct. The bulk of the losses incurred by small businesses lie in consequential losses.

RBS will assess a claim for consequential losses based on evidence and information submitted by a customer. The claim is assessed using the bank’s sole discretion. The bank self-determines whether the consequential loss is factually and legally attributable to it. Crucially, “this will be considered by the same team in RBS that conducted the RBS Complaints Process but, for the avoidance of doubt, this process will not be overseen by the ITP and there will be no right appeal to the ITP”.

Although RBS apply a self-described “fairness test” in their complaints process, an upheld complaint does not relate to a breach of legal obligations. Nevertheless, the bank does assess consequential loss complaints by reference to established legal principles. Therefore, it is important to seek legal advice if considering a consequential loss claim. The bank will apply the following legal tests which LEXLAW are adept at presenting on behalf of businesses:

  • the consequential losses would not have happened but for the misconduct of GRG and/or the direct loss. In other words, it must be shown that the bank caused the loss. Often a counterfactual scenario is conducted to ascertain whether the losses would have incurred if the actions of the bank were fair and reasonable.
  • The consequential loss must have been reasonably foreseeable at the time GRG’s unfair actions caused the direct loss.
  • Only claims supported by contemporaneous evidence will be considered.
  • The burden is on the customer to demonstrate on a balance of probabilities that a loss has been incurred and would not have occurred but for the actions of RBS.

RBS will send a final letter to the customer setting out the findings and any offer for compensation for consequential loss. If this is accepted, the customer is required to enter into a full and final settlement of any consequential loss claim with RBS.

However, a major criticism of the current redress scheme for consequential losses is that if a customer chooses to reject RBS’s compensation, the decision of the bank is final and the Independent Third Party has no power to review the decision. This has meant there is a lacuna in the GRG complaints process, whereby the Independent Third Party can review a compensation redress offer for relatively small direct loss claims but has no power to review compensation (or lack of) for the much larger consequential loss claims.

Which consequential losses can a former GRG customer make a claim for?

Consequential losses (or indirect losses) are lost potential profits as result of a business being forced to close due to GRG’s misconduct. Compensation for consequential loss covers the knock-on effect of RBS’s mistreatment of small businesses. RBS already to a limited extent will consider claims for consequential loss involving quantifiable financial loss. Claims involving non-financial loss, for example stress, illness or inconvenience caused by GRG’s misconduct, is not recoverable through the complaints process.

RBS have stated that it will meet the costs of an initial meeting with a professional loss assessor to “assist you in establishing whether you may have suffered a Consequential Loss”.

In the current complaints scheme, RBS refund direct losses and in some cases have additionally compensated for the cost of being deprived of direct loss funds by adding 8% simple interest annually to all payments. RBS considers that in the majority of cases this 8% is enough to compensate customers for consequential loss claims. For the majority of ex-GRG customers, this will not be the case and they are encouraged to make a separate consequential loss claim.

Consequential losses include the following:

Loss of profits in relation to a lost new business opportunity

A claim for consequential loss will be unsuccessful if the lost profit was less than the 8% simple interest received from the direct losses claimed in the initial stage of the complaints process. An ex-GRG customer would need to demonstrate that there was a specific opportunity available contemporaneously which had to be forgone due to the unfair actions of GRG, for which a complaint must have previously been upheld and/or direct losses been attributed. It is important to demonstrate that the lost profits were caused and occasioned by the misconduct of GRG rather than extraneous factors, such as the depressed economic climate in 2008-2013. It is essential to gather supporting documentary evidence such as:

  • evidence of the concrete opportunity at the time (e.g. planning permission granted, architect drawings, builder quotes);
  • correspondence which documents that the opportunity was foregone (letters, emails);
  • evidence of a causal link between the bank’s unfair actions and the failure to pursue the new opportunity (e.g. revised cash flow statements);
  • evidence that the same or similar opportunity has been undertaken when funds became available (e.g. details of actual costs incurred);
  • evidence of additional profits forgone at the time (e.g. increased demand, evidence that the new opportunity has led to increased profits).
Loss of profits in relation to lost opportunity for the grossing up of business profits

A claim would be successful if it can be demonstrated that but for the unfair actions of GRG, additional stock would have been purchased AND the additional demand for said stock existed at the time. It is essential to gather and submit supporting documentary evidence such as documented above. A claim will be unsuccessful if the lost profit was below 8% and if the evidence only demonstrates a “speculative or generic opportunity”.

Loss of profits in relation to lost opportunity for acquiring assets

A SME that was not able to acquire new assets as a result of GRG’s misconduct and/or direct loss can then go on to make a consequential loss claim. The associated losses due to not purchasing property assets can include: lost capital appreciation, lost rental income and lost development opportunity. It is essential to gather supporting evidence of a specific opportunity at the time and evidence of a causal link between the unfair actions of the bank and the failure to pursue the asset acquisition.

Loss of profits due to asset disposal

Ex-GRG customers that were forced to dispose of assets due to the unfair actions of the bank are entitled to make a consequential loss claim.

Increased cost of borrowing

This head of consequential loss is incurred by businesses that have had to borrow money to meet payment of a direct loss (defined above) or refinance externally with another lender at an increased cost due to GRG’s actions. A claim has a higher chance of success if evidence can be gathered to demonstrate a causal link, for example revised cash flow showing the business would have had sufficient..

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The door has been opened by the Court of Appeal in PAG v RBS [2018] for misrepresentation claims to be brought by a counter-party to a derivative which is linked to LIBOR, FX or key benchmark where the Swap is with a bank which has been found to have engaged in the manipulation of a benchmark.

This judgment is now the leading authority on claims concerning a customer’s ability to rescind contracts with a bank that has manipulated the London Interbank Offered Rate (LIBOR). Although this case focused on LIBOR-linked derivatives, the same principles will surely apply to other key benchmark rigging (including the manipulation of FX markets).

This decision will be of particular interest to customers that believe they have been mis-sold a Forex hedging products or a LIBOR-linked derivative. These customers of RBS, Barclays, HSBC and Lloyds Plc may potentially have grounds to rescind the derivative contract if the implied representations made by the banks are considered false due to regulatory findings of benchmark rigging. RBS, Barclays, HSBC and Lloyds Plc have all either undermined the integrity of LIBOR or have been fined for Forex failings.

The full facts and analysis of PAG v RBS [2018] can be found here.

PAG v RBS [2018]: The steps for a successful mis-sold LIBOR, FOREX or key benchmark referenced derivative claim 1. A bank made an implied representation that it was not and will not manipulate LIBOR/FOREX/key benchmark when selling a Swap

The Court did find that RBS had indeed made an implied representation to PAG that it was not manipulating LIBOR:

“In the present case there were lengthy discussions between PAG and RBS before the Swaps were concluded as set out by the Judge in the earlier part of her judgment….RBS was undoubtedly proposing the Swap transactions with their reference to LIBOR as transactions which PAG could and should consider as fulfilment of the obligations contained in the loan contracts. In these circumstances we are satisfied that RBS did make some representation to the effect that RBS itself was not manipulating and did not intend to manipulate LIBOR.”

Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2018] at para 133

Therefore, the Court disagreed with Asplin J’s judgment that the proffering of Swaps was “not in the context of this case conduct from which any representation could be inferred”. There was an implied representation by RBS that it was not manipulating LIBOR when it sold PAG the Swaps.

If a bank says nothing about LIBOR/FOREX/key Benchmarks this counts as sufficient conduct to create an implied representation that they have not participated in benchmark rigging

PAG’s claim was that, if it had realised LIBOR was manipulated, it would never have agreed to enter into the Swaps in the first place and as such, the Swaps should be rescinded. No such representation was expressly made by RBS, so therefore the question was whether this representation could be implied.

The Court considered the interlocutory observations in Graiseley Properties Ltd v Barclays Bank plc [2013] EWCA Civ 1372 and determined that to some extent, these comments should represent the law. In Graiseley, Longmore LJ strongly disagreed with the submission that when nothing was said by a bank in connection with LIBOR, there was no obligation to disclose its own dishonesty.

The Court accepted the principle that when a bank says nothing about LIBOR, there is an implied representation that “their own participation in the setting of the rate was an honest one”. Therefore, there was sufficient conduct on the bank’s part for such a representation to be duly implied. The Court rejected RBS’s submission that it would be wrong to hold that any representation should be implied as it “covered ground which would normally be covered by an implied term”.

An implied representation exists if the reasonable customer would naturally assume a key benchmark had not been rigged and if it was he would have been informed at the outset

As well as accepting the reasoning of Longmore LJ in Graiseley, the Court also considered Geest plc v Fyffes plc [1999] 1 All ER (Comm) 672 and endorsed Colman J’s “helpful test”:

“In evaluating the effect of the beneficiary’s conduct a helpful test is whether, having regard to the beneficiary’s conduct in such circumstances, a reasonable potential surety would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it.”

Geest plc v Fyffes plc [1999] at p683

Therefore, the Court endorsed the test that the existence of an implied representation can be found if a reasonable potential surety would naturally assume that the true state of facts did not exist and that if it did, he would necessarily be informed of it. This is the first occasion where this “helpful test” has been considered at this level and may now pave the way for future misrepresentation claims.

The approval of the dicta of Colman J is an important win for potential Claimants on this essential point of law, but it must be noted that there must be clear words and/or conduct from a bank from which the representation can be implied.

2. There have been regulatory findings or bank admissions of manipulation of LIBOR, FX or other key Benchmark

If there are regulatory findings of LIBOR (or other benchmark) rigging and the same benchmark has been used in the derivative, a customer will have an implied misrepresentation claim.

The Court did strongly chastise RBS for its LIBOR manipulation and noted that the admitted manipulation of Japanese yen LIBOR and Swiss franc LIBOR was “deeply shocking”. However, crucially for PAG’s case, no specific findings were made in relation to GBP LIBOR and as such there have been no regulatory findings of misconduct on the part of RBS in connection with GBP LIBOR.

The regulatory findings against panel banks (RBS, Barclays, HSBC & Lloyds Plc) are detailed below.

3. The proven manipulation of that particular benchmark is used in the derivative sold to the customer

The Court was unwilling to extend the scope of the representation to a currency to which the Swaps were not referenced. PAG contended that RBS should be held to have made general representations about “LIBOR encompassing every tenor and every currency”, whereas RBS claimed that any such representation should be confined solely to 3 month GBP LIBOR. The Court did not go as far as either contention. It was found that RBS during its discussions with PAG had made an implied representation and this representation extended to all tenors of GBP LIBOR, but not to LIBOR in other currencies.

The Court’s reformulation of Colman J’s helpful implied representation test failed on the facts of this case because although there was an implied representation, due to the particular derivative sold, this was not misrepresentation. Nevertheless, future Claimants will be assured that the Court left open the possibility of future cases extending the scope of implied representation beyond the particular transactions induced in this case.

4. Potentially claims could extend beyond manipulation of that particular benchmark if “cross-contamination” between benchmarks can be proved

The approach of Flaux J in Graiseley was raised by PAG, Flaux J having noted that:

“it is a wholly artificial exercise to seek effectively to divide up the various LIBOR fixings or manipulations into separate currencies. It is quite clear that there was fixing not only of sterling LIBOR but also of dollar LIBOR and of EURIBOR, and that, as I said during the course of argument, there is inevitably scope for cross-infection here.”

Graiseley Properties Ltd v Barclays Bank plc [2013] at para 19

The court recognised the issue of “cross infection” but distinguished RBS because the main sterling submitter for RBS was a different person to other currency submitters.

The Court did strongly chastise RBS for its LIBOR manipulation and noted that the admitted manipulation of Japanese yen LIBOR and Swiss franc LIBOR was “deeply shocking”. But decisively, “that is not, of itself, a reason for holding that representations made to PAG should go further than representations about the sterling LIBOR rate.” Although the Court were clear that “any implied representation cannot legitimately extend further than the particular transactions allegedly induced by the representations”, the door was left open to extending the scope of implied representation if the facts of a case so dictate.

Future cases may test the boundaries of the scope of implied representation. One such example of when the “cross-infection” argument may become relevant was raised by the court: “If, of course, a submitter in yen or Swiss francs had also made sterling submissions, that might render false the representation about sterling LIBOR”.

Claims against RBS, Barclays, HSBC & Lloyds for LIBOR, FX or key Benchmark rigging: regulatory findings

LIBOR is a key interest rate which is set daily by a group of major London banks in relation to a variety of periods and currencies.  While this notionally represents the interest rate applying when banks lend and borrow money between themselves (hence “Interbank”), we now know that at least some of the banks were making fraudulent submissions so as improve their trading positions.

The FCA began its investigations into the FX trading market in October 2013 and has found that, between January 2008 and October 2013, many banks and financial institutions did not exercise adequate and effective control over the business practices in the G10 spot FX market, including insufficient training and supervision of the FX traders. The FCA also found attempts by banks to manipulate the ECB and WM Reuters fix rates for their own benefit and to the potential detriment of some of their clients. Many banks also attempted to trigger clients’ stop-loss orders (which are designed to limit a client’s losses if exposed to adverse exchange rate movements) for their own benefit and to the potential detriment of some of their clients. Moreover, it was found that many banks conducted the inappropriate sharing of confidential information (including client identities and information about clients’ orders).

The following panel banks undermined the integrity of LIBOR or have been fined for FX failings. Please click here for a full list of benchmark fines issued by the FCA against panel banks.

If a customer has entered into a benchmark- linked derivative with any of these banks, a claim could exist that there are grounds to rescind the contract, due to implied representation:

Claims against RBS Regulatory findings that RBS was involved in LIBOR manipulation

As the PAG case demonstrated, RBS has been found guilty of manipulating LIBOR. The Financial Services Authority (FSA) (now known as the FCA) investigated widespread LIBOR manipulation and in particular found that RBS had committed substantial breaches of Principles 3 and 5 of the Principles for Businesses. These breaches resulted in a fine of £87.5 million for RBS in February 2013.

In addition to the FSA fine, RBS had also been fined $325 million by the US Commodity Futures Trading Commission and $150 million by the US Department of Justice. The US Attorney General has described RBS’s conduct as “a stunning abuse of trust”.  The CFTC notes that the unlawful conduct went back to at least 2006 and continued even after RBS was aware of the Commission’s investigation.  The FSA describe the abuse as “widespread” and notes that in response to a specific query in March 2011, RBS assured the FSA that it had proper systems in place to prevent LIBOR manipulation, when this was false.  All in all, the outcome of this international investigation into RBS’s affairs is a damning indictment of its culture and management practices.

Regulatory findings that RBS was involved in FX rigging

RBS were fined £217 million by the FCA for FX failings in November 2014. RBS were also fined $290 million by the United States Commodity Futures Trading Commission (“CFTC”) in relation to investigations into failings in the bank’s Foreign Exchange business within its Corporate & Institutional Banking division. The fines were for “attempted manipulation of, and for aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.” One of the primary benchmarks that the FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates).

Claims against Barclays Regulatory findings that Barclays was involved in LIBOR & EURIBOR manipulation

Barclays was fined £60 million by the FSA in June 2012. Barclays  admitted to misconduct. The US Department of Justice and the Commodity Futures Trading Commission (CFTC) imposed fines worth £102m and £128m respectively, forcing Barclays to pay a total of around £290m. According to the FSA, Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders

Regulatory findings that Barclays was involved in FX rigging

In the largest fine imposed for any banks by the FCA, Barclays was fined £284 million by the FCA in May 2015. The bankers attempted to manipulate vital benchmarks used by companies around the world as a peg for foreign exchange transactions in the $5.3 trillion-a-day market. One Barclays trader wrote in electronic chats: “If you aint cheating, you aint trying.” Barclays also received fines from the Commodity Futures Trading Commission, New York State Department of Financial Services, US Departement of Justice and The Federal Reserve totalling $2.3 billion.

Claims against HSBC Regulatory findings that HSBC was involved in FX rigging

HSBC was fined £216 million by the FCA in November 2014. HSBC was also fined $275 million by the CFTC, and recently paid a $100 million settlement of currency rigging to the US Departement of Justice. The FCA found that HSBC failed properly to control its London voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put HSBC’s interests ahead of the interests of its clients, other market participants and the wider UK financial system.

Claims against Lloyds Bank plc Regulatory findings that Lloyds Bank of Scotland was involved in LIBOR & BBA Repo rigging

Lloyds Bank of Scotland was fined £105 million by the FCA in July 2014. The bank breached Principle 5 and Principle 3 of the Authority’s Principles for Businesses through manipulating submissions to two benchmark reference rates, the Repo Rate and LIBOR, in order to seek to manipulate those rates. The Repo Rate benchmarked the rates offered by major banks in London for dealing GBP general collateral repo transactions, and was in operation between May 1999 and December 2012 when it was abolished.

LEXLAW LIBOR Litigation & Financial Services Dispute Resolution

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks. Call us on  02071830529 or complete our online contact form.

Financial Services Litigation Team, LEXLAW

The post LIBOR, FX and Key Benchmark Rigging Claims against RBS, Barclays, HSBC & Lloyds set to Strengthen for Customers Mis-sold Derivatives appeared first on LEXLAW Solicitors & Barristers.

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