LCF mini-bond holders withdraw appeal against FSCS

The Financial Services Compensation Scheme (FSCS) confirmed on 23 August that London Capital and Finance (LCF) mini-bond holders have withdrawn their appeal against an important March 2021 High Court decision dismissing their judicial review claim.  FSCS confirmed that the litigation had been concluded without any change to any of its earlier decisions on LCF claims.

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FCA Business Plan 2021/22 – transformation, accountability, and regulatory priorities for the coming year

The FCA’s annual business plan is a closely watched indicator of what we can expect from the regulator in the coming year. The recently published Business Plan for 2021/22 indicates the FCA’s focus on continued transformation and greater accountability as a regulator. It also sets out key priorities for the FCA for  the coming years across a mix of familiar focus areas and more nascent emerging themes.

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Compulsory ADR – Coming soon to a dispute near you?

Alternative dispute resolution (or “ADR”) has long played an important role in dispute resolution. A recent report by the Civil Justice Council (the “Report”), commissioned to consider the legality and desirability of making ADR compulsory, could see ADR playing an even more prominent role in future. Continue Reading

Bank did not breach duties in loan renegotiation

In December 2006, Mr Morley, a commercial property developer, entered into a £75m, three-year loan with Royal Bank of Scotland plc to refinance his property portfolio, add new properties to it and provide him with a “bonus payment” for his personal use. The bank secured the loan over his portfolio of 21 commercial properties in the North of England valued at around £98m.

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Supreme Court establishes new scope of duty test in professional negligence

The UK Supreme Court has significantly reformulated the scope of duty test that applies in cases of professional negligence. It handed down its decision in the case of Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 on 18 June 2021. SPB acted for the successful party, Manchester Building Society.

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FCA issues updated statement on insurers making deductions for Government support from COVID-19 business interruption settlements


Last month, the Financial Conduct Authority (“FCA”) published updated guidance regarding COVID-19 business interruption settlements and deductions made for Government support.

The FCA first commented on this issue in August 2020, following reports that some insurers were making deductions for Government support received by policyholders, when calculating payments for business interruption insurance claims.

The FCA’s recent statement follows its January “Dear CEO letter”, which we discussed in our previous blog post here. In this letter, the FCA re-iterated its expectations that insurers should only deduct Government support from claim payments if the appropriateness of such a deduction has been thoroughly considered and the insurers’ conclusions properly documented.

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Authorised Push Payment Fraud – court rules on scope of banks’ obligations

In March 2018, Mrs Philipp transferred two payments to accounts in the UAE, totalling £700,000, representing her and her husband, Dr Philipp’s savings. In doing so, Mrs and Dr Philipp thought they were assisting an investigation by the FCA and National Crime Agency (“NCA”) into fraudulent activities. Unfortunately for the Philipp family, they were, in fact, the victims of that fraud, not helping to tackle it.

Dr Philipps authorised transfers to Mrs Philipps’ accounts from his own, and Mrs Philipps authorised the transfers to the two UAE-based bank accounts. They knew the destination of the funds, and meant for them to be sent. What they did not know was that the two accounts were controlled by fraudsters, who had tricked them into making the payments to “safe” accounts, as part of investigations into an alleged fraud.

This type of scam is known as authorised push payment (“APP”) fraud. The customer instructs their bank or other payment services provider to transfer money from their account and the transaction is carried out with their consent. As such it is authorised by the customer (even if the authorisation resulted from a fraud). APP fraud is a growing problem in the UK.

Whilst Mrs Philipp’s bank tried to get the funds back from the receiving bank on being made aware of the APP fraud, it was unable to do so. Mrs Philipp sued the Bank, on the basis that it was under a duty to do more to prevent Mrs Philipp failing victim to the scam. This blog analyses the judgment on a summary judgment application made by the Bank, which sought to have Mrs Philipp’s claim struck out.

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GameStopped? Regulators react to the “short squeeze”

While trading frenzies are as old as the markets themselves, the novelty of widespread retail trading in obscure US stocks fueled by Reddit chat forums has prompted recent interventions by regulators on both sides of the Atlantic.

Unfortunately the FCA’s terse 29 January statement on “recent share trading issues” gave little insight into how it viewed these events from a regulatory perspective. The FCA said only that buying shares in volatile markets is “risky“, and “unlikely to be covered” by the FSCS.

Several of the major online securities trading platforms responded to the volatility by stopping orders in affected securities. The FCA was supportive, noting that broking firms “are not obliged to offer trading facilities to clients“, and “may withdraw their services, in line with customer terms and conditions if…they consider it necessary or prudent to do so“.

The US Securities and Exchange Commission (SEC) US was only slightly more forthcoming, stating that it would “work to protect investors, to maintain fair, orderly, and efficient markets” and would “act to protect retail investors when the facts demonstrate abusive or manipulative trading activity”.

This brevity is perhaps understandable when regulators are responding to rapidly emerging issues. We hope they will comment further when time permits, because these events raise a range of regulatory issues.

Market manipulation

The first vexed question these events raise is whether the Reddit traders have done anything wrong.

The Market Abuse Regulation (preserved in UK law post-EU exit) proscribes behaviour which “gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument” that falls within its jurisdictional scope, including by “disseminating information through the media, including the internet, or by any other means”. While it appears some traders have profited enormously from encouraging trading, it is not clear if they have given false or misleading signals as to supply, demand, or price. The trading strategy being promoted was for enough retail investors to buy target securities to drive up prices, forcing short sellers to buy at those prices to close out short positions. The short positions are made public in regulatory disclosures: UK investors must make a public notification when short on 0.5% or more of a company’s shares; and similar requirements apply to US funds. The signals given were arguably therefore accurate and based on public regulatory filings.

MAR also proscribes “conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument…which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sale prices, or creates, or is likely to create, other unfair trading conditions“. This provision could be engaged, but it seems doubtful whether this ad hoc crowdsourcing amounts to collaboration or securing a dominant position.

US-traded GameStop’s shares are not within the scope of MAR, but other instruments that are within MAR (such as instruments and securities linked to silver prices) have been targeted using the same strategies. It would be helpful to know how the FCA sees these issues, given that we can likely anticipate copycat incidents in relation to UK/EU traded financial instruments sooner or later.

Market integrity

More broadly, whether crowdsourced trading strategies are legitimate or not under current law, they pose novel challenges for the FCA as a conduct regulator tasked with ensuring the integrity of UK financial markets, protecting consumers, and preventing financial crime. While the FCA monitors vast amounts of markets data, it cannot possibly monitor every online chatroom or forum that might be used by retail traders. It may be that market conduct rules will need to be reformed if it is concluded that the current regime cannot respond, and that the extreme volatility witnessed is not conducive to efficient market functioning.

Protection of consumers

Consumer protection is a key FCA focus. It is active in seeking to warn consumers of the risks of financial fraud and scams through ScamSmart and public awareness campaigns. The regulator has weathered recent criticism for high profile failures to protect ordinary investors from high risk investments marketed using social media and online advertising. That is reflected in the FCA’s focus on risks to retail investors and FSCS cover in its 29 January alert. There is growing debate over how regulators can protect retail investors from fraud and excessive risk in the digital age without having a chilling effect on consumer access to genuinely innovative investment opportunities.

Trading platforms

Online trading platforms are put in an immensely difficult position when markets become highly volatile. As the FCA notes, platforms will generally have the contractual right to suspend trading access. But that must be balanced with the need to treat its retail customers fairly, both in explaining clearly to customers that the power exists, and in deciding when and how to exercise it. The SEC, warned that it would “closely review actions taken by regulated entities that may disadvantage investors or unduly inhibit their ability to trade certain securities”. Class action claims have already been initiated in the US, where “stock drop” securities litigation is commonplace. US platforms are accused of suspending retail trading, while allowing more remunerative institutional clients to continue to trade. Similar claims may follow in other jurisdictions, although in the UK securities litigation is still underdeveloped. Platforms will want to review their policies for responding to abnormal volatility and trading patterns around particular securities and assess their exposure.

Institutional investors

Some hedge funds were caught out and suffered significant losses in closing short positions in affected securities. It is unclear to what extent any funds managed by UK-regulated managers have been materially impacted, let alone whether losses might reflect any failure of regulatory risk management requirements. However, fund managers deploying short selling strategies will need to ensure that their risk management processes for short trading are adequate to avoid exposure to losses of a magnitude that could put their viability in jeopardy.


Arguably these events are not anomalous, but are a symptom of wider trends. The democratizing effect of ready access to securities trading platforms, mass communications, and abundant data for retail traders, combined with the fragmentation of the financial services ecosystem, create growing challenges for regulators such as the FCA in ensuring market integrity, protecting consumers, and preventing fraud and financial crime. The regulatory framework and the approach of regulators will need to continue to develop to keep pace with rapid innovation in all forms in the financial markets.

FCA Launches Defined Benefit Advice Assessment Tool

Last month, the FCA launched its Defined Benefit Advice Assessment Tool (“DBAAT“) as part of its strategy to reduce harm to consumers and improve the suitability of defined benefit (“DB“) transfer advice. The tool will help firms to understand precisely how the FCA assesses the suitability of DB transfer advice.


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