Interest Rate Hedging Product Claims - "a case based on hindsight"

On 27 November 2015, the High Court handed down judgment in the latest of a long line of interest rate hedging product claims. The claimant, Thornbridge Limited had taken out an interest rate swap and pursued Barclays for claims in negligence, breach of contract and breach of statutory duty.

Thornbridge's claim was wholly unsuccessful. The Court held:

  1. Barclays did not, as a matter of fact, advise Thornbridge to enter into the swap and did not assume an advisory role.
  2. Even if Barclays had provided advice to Thornbridge, Barclays could rely on basis clauses in its terms of business which served to estop Thornbridge from pursuing its advice claim. The Judge held "recent authorities have been very clear that parties may agree the basis on which they are entering into a relationship". The basis clauses where not exclusion clauses and even if they were, they would not be unfair pursuant to the Unfair Contract Terms Act 1977.
  3. The Court accepted that "in execution-only deals [the duty of care required] is no more than to take reasonable care to ensure that the information provided is accurate and not misleading". There is no duty to educate. Barclays was not under any duty to "give full information about the competing advantages and disadvantaged of [different IRHP] products".
  4. In Barclays' terms of business  it was noted that the transactions were subject to "Applicable Regulations". This did not serve to extend the terms of the contractual obligations to include FCA rules, rather it was an attempt at "dealing with the possibility of conflict".
  5. Following MTR Bailey Trading Limited v Barclays, Thornbridge had no direct right of action for any alleged breach of the COB rules.

Completion of a re-mortgage transaction ordinarily includes the redemption of prior changes

In Aldermore Bank plc v Rana, the Court of Appeal rejected Aldermore's appeal against the dismissal of its claim against the respondent borrower.

The underlying dispute arose in the context of a transaction which involved Aldermore obtaining a first legal charge over three properties which had been gifted to the borrower. The mortgage advance was misappropriated by the borrower's solicitors instead of being used to redeem existing charges. In the absence of any security. Aldermore sought repayment of sums due from the borrower.

It was held that "completion of a re-mortgage transaction ordinarily includes the redemption of the prior charges". Redemption of the prior charges was termed "a necessary component of completion" in this case, resulting in the conclusion that the mortgage had not completed. The borrower could not, therefore, be liable to repay the loan advanced by Aldermore.    

Delayed challenge of an unsecured loan found to constitute an abuse of process.

In Dickinson v UK Acorn Finance Ltd, the Court of Appeal held that a mortgagor's attempt to rely on the unenforceability of a secured loan, two years after the lender issued possession proceedings and obtained a possession order, constituted an abuse of process. The mortgagor had tried to argue that the secured loan was unenforceable as the lender did not hold the necessary regulatory permissions at the time of the lending.

Financial Ombudsman Service

Ombusman News

The Financial Ombudsman has issued its newsletter for November/December 2015, which includes articles on older people and retirement, illustrative case studies and feedback to FOS from businesses.

Regulatory Decisions

Barclays fined £72 million for poor handling of financial crime risks

The Financial Conduct Authority (FCA) has fined Barclays Bank plc for failing to minimise the risk that it may be used to facilitate financial crime.

The failings relate to a £1.88 billion transaction for a number of ultra-high net worth individuals executed in 2011 and 2012. The clients were politically exposed persons but were not subject to the required enhanced due diligence process for such clients.

The fine comprises disgorgement of £52.3 million and a penalty of £19,769,400

PRA fines Raphaels Bank for outsourcing failures

The Prudential Regulation Authority (PRA) has fined R. Raphael & Sons plc (Raphaels) £1,278,165 for failing to properly manage its outsourcing arrangements.

The failings relate to the outsourcing of Raphaels' ATM finance function to a team within another company in its parent's group. The PRA found that Raphaels did not have appropriate controls around this arrangement.

Between 2007 and 2014, the team responsible for managing the outsourced function improperly transferred funds without Raphaels' knowledge or consent. As a result of failing to have appropriate controls around the outsourcing arrangement, Raphaels failed to understand and accurately report its capital requirement and failed to understand that it had a large exposure to its Group of more than 25% of capital resources. This would have led to severe financial repercussions if the outsourcing company had become insolvent.

Raphaels agreed to settle at an early stage of the PRA's investigation and qualified for a 30% discount on the financial penalty applied.


Regulatory Round-Up November

This month's Regulatory Round-Up touches on a number of issues, including the FCA's restriction and suspension powers when dealing with enforcement actions.

In its recent appearance at the Treasury Select Committee, the FCA explained that it would use restrictions and suspensions in enforcement actions where it felt such powers would be more effective in changing behaviour than applying financial penalties.

Tracey McDermott Speech on Personal Accountability

Tracey McDermott, acting Chief Executive of the FCA, delivered a speech on the Senior Managers and Certification Regimes at the City and Financial conference on Personal Accountability in the Financial Services Industry.

FCA Consultation on changes to PPI Complaint Handling Rules

The FCA has published its consultation paper on its proposals for new rules and guidance for handling PPI complaints in light of the decision in Plevin v Paragon Personal Finance Ltd.

The deadline for responding to the consultation paper is 26 February 2016. 

FCA Consultation on changes to the Compensation Sourcebook

The FCA has published a consultation paper on its proposed changes to some of the rules in its Compensation sourcebook that govern the operation of the Financial Services Compensation Scheme.

The deadline for responding to this consultation paper is 29 February 2016