On 27 July 2015, the Financial Conduct Authority (FCA) published its finalised guidance on risks to retail customers driven by poor performance management in firms: FG15/10: Risks to customers from performance management at firms. The guidance is aimed primarily at financial services firms with staff who deal directly with retail customers and some small and medium-sized enterprise customers. The guidance advises firms on how to manage the risk of mis-selling caused by performance management practices, and sets out examples of good and poor practices. The guidance aims to address the FCA’s concern that inappropriate performance management can lead to an undue pressure on sales staff with regard to sales results.

In the guidance the FCA states that it has received information from whistle-blowers and the media indicating that in some cases, changes made by firms to their reward structures have not resulted in a shift away from a sales-focused culture, but have led to an increased pressure on firms’ staff to increase sales performance by other means. However, the FCA acknowledges that it has not identified evidence of widespread issues in this regard.


On 23 July 2015, the Financial Conduct Authority (FCA) published a policy statement, PS15/19: Improving complaints handling, feedback on CP14/30 and final rules, which contains the final rules implementing the new complaints handling requirements for FCA- regulated firms.

The main changes to the FCA’s complaints handling requirements are set out below:

  • the “next business day” rule, which allows a firm to deal with a complaint informally without sending a final response letter, as long as the complaint is dealt with to the complainant’s satisfaction within one business day of the firm receiving the complaint, will be extended to three business days;
  • all complaints must be reported to the FCA, whereas previously it was not required for complaints dealt with informally under the “next business day” rule to be reported;
  • where complaints are resolved informally under the new “three business day” rule, raising consumer awareness of the Financial Ombudsman Service by requiring firms to send a summary resolution communication after the resolution of such complaints;
  • new limits will be placed on the cost of calls consumers make to firms to a maximum “basic rate”, including all post-contractual calls and all complaints calls; and
  • the introduction of a new FCA complaints return, which requires firms to send to the FCA data twice a year on the number of complaints they receive.

The changes will come into force on 30 June 2016, save for the changes to the rules on call charges, which will come into force on 26 October 2015.


On 3 September 2015, the Financial Conduct Authority (FCA) published a consultation paper CP15/27: UCITS V implementation and other changes to the Handbook affecting investment funds, which contains a number of proposed changes to the FCA rules and guidance affecting regulated investment funds.

Part I of the consultation paper sets out proposals for the new FCA rules and guidance that will be necessary to transpose the changes required by the UCITS V, the informal name for the latest EU Directive to amend the Directive for Undertakings for Collective Investments (2009/65/EC). The UK is required to transpose the changes introduced by UCITS V by 18 March 2015.In Part I, the FCA consults on the requirements applicable to management companies, including on remuneration principles and transparency obligations towards investors, as well as on changes to the regime for depositaries, including to the eligibility criteria for firms acting as depositaries of UCITS and the capital requirements applicable to them.

Part II of the consultation paper sets out proposed changes to the FCA Handbook to ensure compliance with the Regulation on European Long-Term Investment Funds ((EU) 2015/760) (ELTIF Regulation), which, from 9 December 2015, will create a new cross-border framework for long-term investments, intended to increase the availability of non-bank long-term capital to companies and projects across the EU. The FCA proposes amendments to its current rules for depositaries wishing to act for an ELTIF; sets out its proposed regulatory fees for authorising and supervising ELTIFs; and sets out its views on the redress model that should be applied to ELTIFs and their managers in order to bring them within the remit of the Financial Ombudsman Service and the Financial Services Compensation Scheme.

Part III sets out other miscellaneous proposed changes to rules and guidance in the FCA Handbook to ensure that the rules and guidance for authorised investment funds are up-to-date.

The FCA requires responses in relation to Part I of the consultation paper by 9 November 2015, Part II by 5 October 2015 and Part III by 7 December 2015.


On 7 September 2015, the Financial Conduct Authority (FCA) published a press release announcing the launch of the new Financial Services Register. The register is a public record that shows details of firms that are regulated by the FCA or the Prudential Regulation Authority. The aim of the new register is to make it easier for users to find information on firms, individuals and other regulated entities.

For the first time, the Financial Services Register includes firms that the FCA knows to be running scams, or providing regulated products or services without the required authorisation. These firms are highlighted with red text and a warning symbol which indicate that the FCA advises users to avoid such firms. The Financial Services Register also includes consumer credit firms that have an interim permission from the FCA, rendering a separate search of the Consumer Credit Interim Permission Register unnecessary.


On 29 August 2015, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) launched the new FCA Handbook and PRA Rulebook websites. The new FCA Handbook website provides information about the rules, guidance and provisions made by the FCA, including a complete record of FCA legal instruments. The new PRA Rulebook similarly provides information about the rules and guidance made by the PRA, including banking and investment rules, insurance rules and rules for non-authorised persons.

In addition, the FCA also launched the new FCA Firms website on 6 August 2015. This website is a resource for authorised firms, enabling users to find content relevant to firms, including being regulated by the FCA, information on systems and reporting, the FCA’s work in key product areas and in particular markets, and additional information categorised by types of regulated firms.


The Financial Conduct Authority (FCA) published a press release announcing a thematic review of how consumer credit firms reward and incentivise their staff. The press release, published on 12 August 2015, states that the purpose of the review is to understand the nature of performance management schemes in such firms, with a particular focus on the related risks that can arise, and how to mitigate those risks. The FCA highlights concerns surrounding high-risk incentive schemes and those likely to drive the risk of mis-selling. The thematic review will be aimed at a broad range of consumer credit sectors as well as at firms whose consumer credit business is secondary to their main business.

There will be a two-stage structure to the review, stage one being a desk based review of firms’ incentive and remuneration arrangements, with stage two involving firm site visits and more detailed testing. Analysis of the stage one information request is scheduled to take place during Q3-Q4 2015, followed by stage two visits and analysis during Q4 2015 and Q1 2016. Conclusions and reporting will be due between Q1-Q2 2016.


Throughout the remainder of 2015 and into 2016, the Financial Conduct Authority (FCA) will be performing review work examining how lenders treat customers in early arrears in relation to consumer credit. This was announced in a press release on 12 August 2015. This “discovery” thematic review was referenced in the FCA’s Business Plan for 2015/16, which stated that the FCA would examine how unsecured consumer credit debts are collected, and whether firms are treating customers fairly and following relevant rules during the recovery process. The review will also build upon a previous FCA review of arrears and forbearance into high-cost short-term credit (“payday loans”), this time broadening the scope to cover unsecured lending products including personal loans, credit cards and retail finance.

Stage one of the review will involve a desk based review of firms’ early arrears policies and procedures, and will be analysed during Q3-Q4 2015. Stage two – a customer file review – will then take place in Q4 2015. The final stage will be performed in Q1 2016 and will involve site visits to firms to interview and observe staff involved in firms’ arrears management. Analysis and reporting is due in Q2 2016.


The Competition and Markets Authority (CMA) made the Payday Lending Market Investigation Order 2015 (Order) on 13 August 2015. The aim of the Order is to tackle structural and conduct features of the payday loan market which contribute to a failure by payday lenders to compete on price, as identified in the CMA’s final report on the supply of payday lending in the UK published in February 2015.

Set out below are certain key provisions of the order.

  • Obligation to publish details on price comparison website – payday loan lenders will be unable to supply payday loans unless they continuously publish up-to-date details of their payday loan products on an

FCA-authorised payday loan price comparison website. Furthermore, online payday loan lenders will be obliged to display on their websites a hyperlink to at least one price comparison website on which their own loans appear. These provisions will not come into effect until after (i) the FCA has introduced new rules concerning price-comparison websites for “payday” loan agreements, and (ii) at least one such price- comparison website comes into existence.

  • Cost of borrowing summary – payday loan lenders will be required to provide customers with a summary of the cost of borrowing. These summaries will be required from 13 August 2016.
  • Compliance reporting – online payday loan providers will be required to submit quarterly compliance statements to the CMA. Furthermore, the Order will require payday loan providers to provide any information and documents required by the CMA for the purposes of monitoring compliance with the provisions of the Order. These provisions will come into effect from 13 August 2015.


On 1 September 2015, Payments UK, the new trade association for the UK payments industry, published an interim voluntary code of conduct for indirect access providers (IAPs), entities which provide indirect access to payment services providers (Indirect PSPs) to the following UK Payment Systems: Bacs, Faster Payment Service, CHAPS, Cheque and Credit Clearing and LINK. The main aim of the code is to set out the responsibilities of subscribing IAPs to the Indirect PSPs to which they provide indirect access.

According to the Payments UK website, Barclays Bank plc, HSBC, Lloyds Banking Group and The Royal Bank of Scotland plc intend to subscribe to the code by 30 September 2015. IAPs have been able to sign up to the code since 1 September 2015. Compliance with the code will be assessed using a self-certification approach.


On 29 July 2015 the Prudential Regulation Authority (PRA) published a new statement of policy: PS17/15: The PRA’s methodologies for setting Pillar 2 capital, which sets out the methodologies that the PRA will use in the setting of Pillar 2 capital for firms to which the Fourth Capital Requirements Directive (CRD IV) applies. This follows on from the PRA’s January 2015 consultation paper containing proposals on its Pillar 2 policy.

The aim of the Pillar 2 framework is to ensure the robustness and soundness of firms and to ensure that they have adequate capital to support the risks in their businesses, as well as to encourage firms to use better management techniques in monitoring and managing their risks. The PRA reviewed its Pillar 2 frameworkfollowing the introduction of CRD IV and the publication by the European Banking Authority of guidelines on the Supervisory Review and Evaluation Process (SREP(i.e. the supervisory process required of regulatory authorities under the Pillar 2 requirements of Basel III, CRD IV and CRR).

“Pillar 2 capital” refers to additional capital that the PRA requires a bank to hold where the minimum “Pillar 1 capital” requirements prescribed by Basel III (as implemented in the EU by CRD IV and the Capital Requirements Regulation (CRR)) are inadequate to counter certain prudential risks. The PRA subcategories Pillar 2 capital into “Pillar 2A capital” and “Pillar 2B capital”. Pillar 2A capital is required to be held in order to mitigate credit, market, counterparty and operational risks that are not sufficiently mitigated by the Pillar 1 capital requirements, whereas Pillar 2B capital is held to mitigate risks that a firm may become exposed to in the longer-term, e.g. risks arising from changes in the wider economy. Where the PRA determines that a firm’s risk management and governance is significantly weak, it may also set the Pillar 2B capital requirement to cover the risk posed by those weaknesses until they are addressed by the firm.

The key changes to the Pillar 2 framework implemented by the Policy are set out below.

  • New, more risk sensitive and transparent methodologies have been developed by the PRA for setting firms’ Pillar 2A capital, which can be applied more consistently than under the existing framework.
  • The capital planning buffer, which was previously the amount of Pillar 2B capital required to be held by a firm, will be replaced by a new “PRA buffer”. This will harmonise the PRA’s approach with that prescribed by CRD IV. The PRA buffer will absorb a firm’s losses that might be expected to arise under a severe but plausible stress scenario.
  • Firms will need to submit the necessary data with their Internal Capital Adequacy Assessment Process (ICAAP) submissions for the PRA to run the new Pillar 2 methodologies. The PRA published a new supervisory statement on this topic along with the Policy.
  • Changes have been made to align the PRA’s Pillar 2 framework more closely with the PRA’s supervisory approach document.

The new framework will come into force on 1 January 2016.


HM Treasury has published a press release announcing the launch of a financial advice market review. The press release, published on 3 August 2015 along with accompanying terms of reference, states that the review will examine the “advice gap” experienced by those without significant wealth. The review also aims to ensure that the regulatory environment accommodates affordable financial advice, and will consider how to encourage people to seek financial advice.

The objectives of the review also include examining:

  • how to give firms regulatory clarity and create the right environment for them to innovate and grow; 
  • how new technologies could help provide better advice services; and 
  • barriers to the provision of effective advice on both the supply and demand sides.

The scope of the review will include the current regulatory framework governing financial advisory services, and how that framework interacts with the role of the Financial Ombudsman Service and the Financial Services Compensation Scheme with regard to redress. As part of the review, HM Treasury will also consult with consumers on the barriers they face in seeking advice and their attitudes towards it. The markets that the review will examine initially are investments, savings, pensions, retirement income products, mortgages, consumer credit and general insurance. As well as focusing on consumer financial services and products, the review will also examine retail markets.

Ultimately the review aims to produce a suite of reforms to facilitate a broad-based market for financial advice, one in which the regulatory environment enables firms to fill the “advice gap”. The review will also come forward with:

  • a set of principles to govern financial advice and measures to ensure standards of behaviour are in accordance with those principles;
  • proposals considering the proportionality of rules, whether the regulatory perimeter should be amended, and whether a role might be played by regulatory carve-outs;
  • an indication of what resources will be needed to implement the proposals; and
  • a future framework for evaluating how successful the reforms will have been.

HM Treasury hopes to produce a consultation document in autumn 2015, with a view to producing proposals ahead of the 2016 budget. The review will be co-chaired by Tracey McDermott, acting CEO of the FCA, and Charles Roxburgh, Director General of Financial Services at HM Treasury. A separate expert advisory panel comprising 12-15 representatives of both providers and consumers will assist the review and will be chaired by Nick Prettejohn, Chairman of Scottish Widows Group.

The government also intends to consult later in the year on how the current statutory arrangements for the provision of free and impartial financial guidance (including that given by the Money Advice Service and Pension Wise) can be made more effective.


Once a quarter the Financial Conduct Authority (FCA) proposes amendments to its Handbook, inviting all regulated entities to provide their feedback on the proposed changes. On 4 September 2015, the regulatory authority published CP15/28: Quarterly Consultation Paper no.10.

The FCA’s main proposals include:

  • Changes in relation to offshore life insurance bonds – changes to Dispute Resolution (DISP) and Conduct of Business (COBS). The FCA proposes to extend the right to turn to the Financial Ombudsman Service (FOS) when investment advice or discretionary management services are provided in relation to offshore life insurance bonds.
  • Minor changes to the Mortgage Credit Directive.
  • Minor changes to the Training and Competence sourcebook regarding the list for appropriate qualifications.
  • Update the Financial Services Authority’s guidance on Consumer Redress Schemes (CONRED) (regarding triggers, the role of the FOS and FCA’s powers under the Financial Services and Markets Act 2000) and incorporate it into CONRED as FCA guidance.
  • Changes to chapter 16 of the Supervision manual (SUP) to improve the data collection process for both firms and the FCA.
  • Changes to the DISP rules to make complaints reporting requirements more consistent and clear – mainly regarding commencement dates and written communications to complainants.


In the last issue of Exchange – International we reported on how seven new UK-based benchmarks had been brought under Financial Conduct Authority (FCA) regulation along with the London Interbank Offered Rate (LIBOR). On 29 July 2015 the FCA published TR15/11: Financial Benchmarks: Thematic review of oversight and controls, a thematic review into firms’ oversight and controls in relation to financial benchmarks. The FCA has reviewed the changes that firms have made to their approach to financial misconduct and benchmark manipulation. The report provides examples of good and poor practices and sets out key messages for further improvement.


The Financial Conduct Authority (FCA) is expected to make a statement on Payment Protection Insurance (PPI) later in September 2015. There is speculation that the FCA will produce guidance on how banks should respond to the Supreme Court decision in Plevin v Paragon Personal Finance Ltd in relation to PPI claims, after it announced in a statement earlier this year that it was considering additional rules and/or guidance in this regard.

In Plevin, the Supreme Court held that a failure to disclose to a client a large commission payment on a single premium PPI policy made the relationship between the lender and the borrower “unfair” under section 140A of the Consumer Credit Act 1974. The Court did not define “large commission”. Therefore, the only existing benchmark is the 71.8% commission charged on the PPI policy in Plevin.

The determination that a creditor-debtor relationship arising out of a credit agreement is “unfair” can lead to a creditor having to repay all sums paid by a debtor under the agreement or any related agreement. Therefore, there is a possibility that the FCA will take the view that the Plevin case means that banks will be required to payout in respect of an increased number of PPI policy sales.



The Governor of the Bank of England established the Fair and Effective Markets Review (FEMR) in June 2014 to assess the operation of the wholesale Fixed Income, Currency and Commodities (FICC) markets. The aim of the FEMR was to help restore trust in those markets by seeking to improve market conduct. On 10 June 2015, the FEMR published its Final Report, setting out its findings of FICC market practices. It made 21 recommendations.

Please refer to our Regulatory Risk Update published in June 2015 for further background.

Since the publication of our update, there have been some developments arising from the FEMR recommendations. A brief overview of these are set out below.

On 7 July 2015, the Financial Conduct Authority (FCA) announced in CP15/22: Strengthening Accountability in Banking: Final Rules (including feedback on CP14/31 and CP15/5) and consultation on extending the Certification Regime to wholesale market activities that they have decided to delay making rules and guidance in relation to requirements on firms to obtain references as part of their assessment of a person’s fitness and propriety in light of the FEMR‘s recommendations. The FCA expects to consult on this issue in Autumn 2015, with final Handbook text to be in place in time for commencement of the regime in March 2016.

Similarly, on 7 July 2015, the PRA announced in PS16/15: Strengthening Individual Accountability in Banking : Responses to CP14/14, CP28/14 and CP7/15 that they expect to amend their final rules (to take into account the FEMR‘s June 2015 recommendations) on the requirement to require a reference from former employers before the Senior Managers Regime and Certification Regimes come into force in March 2016.

On 24 July 2015, the FCA published a speech made by Tracey McDermott (FCA director of supervision) in which she explained what the FCA considers its role to be, and what it expects of firms in light of FEMR‘s recommendations.

On 30 July 2015, the Bank of England (BoE) launched a consultation on reform of the Sterling Overnight Interbank Average (SONIA) benchmark interest rate. SONIA was brought within regulatory scope on 1 April 2015, following implementation of the FEMR recommendations. The consultation closes on 1 October 2015 and the BoE expects to consult on detailed plans for the reform of SONIA in Q2 2016.

The BoE‘s intention is that from early 2017, some or all of the daily data on overnight unsecured money market transactions will be used in the calculation of a reformed SONIA benchmark. The BoE anticipates making the following four main changes to SONIA over the next 18 months:

  • the BoE will take over the administration of SONIA;
  • the coverage of SONIA will be broadened to include overnight unsecured transactions negotiated bilaterally as well as those arranged via brokers;
  • the BoE will consider whether there is a need to make other changes to the methodology for calculating SONIA; and publication of SONIA will take place at 09.00 on the business day following the day to which the rate pertains.



On 11 August 2015 the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) each published a final notice censuring the Co-operative Bank PLC for a wide range of failings between July 2009 and December 2013. The publication of the two notices follows a joint FCA and PRA investigation into the bank.

The PRA determined that the Co-operative Bank failed to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk controls, in breach of Principle 3 of the PRA’s Principles of Business. The bank was found to have had an inadequate control framework which was flawed in design and operation.The bank did not have adequate management oversight of its business, in particular in relation to its corporate division. The bank failed to properly assess the level of risk it assumed and failed to manage its finances and capital in line with its “cautious” risk appetite. The PRA determined that the Co-operative Bank had a culture which encouraged the prioritisation of the short-term financial position of the bank, rather than taking prudent and sustainable actions for the longer term. The PRA also determined that the bank did not have adequaterisk management framework policies in relation to corporate lending and capital management. Furthermore, management information produced by the bank was inadequate, with a consequence that the bank’s board was not appropriately informed of key issues, which impeded its ability to deal with them.

The FCA determined that the Co-operative Bank breached Listing Rule 1.3.3R (misleading information not to be published) in relation to statements made on its capital position in its financial statements for the year ending 31 December 2012.

In failing to notify the FCA and PRA of intended changes with regard to two senior positions within the bank, both regulators determined that the Co-operative Bank did not appropriately disclose matters of which the regulators would reasonably expect notice under Principle 11 of the FCA and PRA’s Principles of Business.

The Co-operative Bank avoided what would have been a substantial financial penalty as the regulators concluded that given the “exceptional circumstances” of the bank, a public censure was a more appropriate and proportionate measure, as it would not jeopardise the financial soundness of the bank.


On 3 August 2015 Tom Hayes was found guilty of eight counts of conspiracy to defraud relating to manipulation of the London Interbank Offered Rate (LIBOR). He is the first individual to be convicted in the UK under the Serious Fraud Office’s (SFO) investigation into the LIBOR scandal. Mr Hayes, whilst working at UBS and Citigroup as a yen derivatives trader, conspired with numerous other individuals to manipulate yen LIBOR rates, prejudicing the economic interests of others. Controversially, Mr Hayes has been sentenced to 14 years in prison. Mr Justice Cooke stated in his sentencing remarks that the conviction would transmit a robust message to all bankers that probity and honesty are essential elements in the banking world. Commenting on the case, Director of the SFO David Green CB QC said: “The verdicts underline the point that bankers are subject to the same standards of honesty as the rest of us.

The conviction follows recent FCA final notices issued on 30 July 2015 and on 27 February 2015, banning Lee Bruce and Paul Robson, former money markets traders at Rabobank, from performing functions related to any regulated activity, after they each pleaded guilty to the US Department of Justice for fraud relating to LIBOR manipulation.


On 13 August 2015, the Financial Conduct Authority (FCA) published a final notice issued to Robert Shaw, a former director of advisory firm TailorMade Independent Ltd (TMI), banning him from holding senior positions in regulated financial services firms, and fining him £165,900.

TMI provided advice to customers who were considering transferring their pension funds to unregulated investments such as biofuel oil, farmland and overseas property through self-invested personal pensions (SIPPs). Mr Shaw was found to have breached Principle 7 of the FCA’s Statements of Principle for Approved Persons by failing to ensure the suitability of investments made through SIPPs for the customers of TMI. Mr Shaw was also found to have benefitted financially as the director and shareholder of TailorMade Alternative Investments (TMAI), an unregulated introducer which referred clients to TMI. The financial benefit he received created a conflict of interest with his duty to TMI’s customers.

As a result of the failings, which occurred between 2010 and 2013, 1,661 of TMI’s customers were at significant risk of transferring their pension funds into SIPPs which were unsuitable for them. The failings were compounded by Mr Shaw’s reluctance to act and disclose conflicts of interest to customers despite the warnings of external compliance consultants.


On 27 July 2015, the Financial Conduct Authority (FCA) published a press release announcing that Ariste Holding Ltd, trading as Cash Genie, has agreed to provide over £20 million redress to more than 92,000 customers who have incurred losses following serious financial failings and unfair practices. The FCA used provisions under the Financial Services and Markets Act 2000 (FSMA) to impose consumer redress schemes on firms, requiring them to establish and operate compensation schemes for consumers who suffer loss as a result of firms’ failure to comply with their regulatory obligations. These schemes, which are set out in sections 404 and 404A of FSMA, provide that a firm should investigate whether it has engaged in unfair practices causing significant damage and loss to clients and, if such failures are identified, the firm must voluntarily notify the FCA and proceed to adequately compensate clients. In June 2014, Cash Genie voluntarily notified the FCA of serious failings dating back from September 2009 relating to the charge of unfair fees and interest, the refinancing of loans without client approval and the use of confidential customer information without clients’ explicit consent.


On 6 August 2015, the Information Commissioner’s Office (ICO) published a monetary penalty notice imposing a fine of £180,000 on Instant Cash Loans Ltd (trading as The Money Shop) for failing to keep its customers’ personal information secure. The Money Shop is a nationwide provider of services relating to consumer loans, pawnbroking, purchase of gold, travel money, retail jewellery and cheque cashing.

The fine was given in relation to two separate incidents where servers containing the personal data of customers and staff were stolen from two Money Shop stores in the UK. The incidents occurred within six weeks of each other last year. The Money Shop was found to have not encrypted all of the personal data contained on its servers and computer equipment. Furthermore, a number of The Money Shop’s branches did not have a “safe heaven” or alternative physical security measures for servers containing personal data.

The Money Shop was found to have breached the seventh data protection principle under the Data Protection Act 1998, which requires data controllers to adopt measures against the unauthorised or unlawful processing of personal data.

The ICO considered that the loss of unencrypted personal data was substantial given the nature of the data and the fact that the servers had not been recovered. Therefore, the damage and distress to The Money Shop’s customers were potentially significant. The ICO’s head of enforcement, Steve Eckersley, said the data breach had the potential to lead to “fraud and financial loss to customers, which is unacceptable”.



The Court of Appeal determined in its judgment of NRAM plc v Jeffrey Patrick McAdam and another [2015] EWCA Civ 751 (23 July 2015) that it is not possible, unless very clear wording is used, to contract into the Consumer Credit Act 1974 (CCA) or to imply into a contract the provisions of the CCA. Simply using loan documentation in the form required by the CCA would not be sufficient to incorporate the CCA into the contract.

The case was brought by NRAM plc – formerly Northern Rock (Asset Management) plc, the “bad bank” that resulted from Northern Rock’s January 2010 split – as a test case to enable the court to determine whether certain borrowers benefited from rights under section 77A of the CCA. Lady Justice Gloster noted in her judgment that the cost to NRAM of having to provide redress to these borrowers would have been £258 million, if it were determined that the borrowers did benefit from rights under section 77A.

Section 77A creates an obligation on lenders to issue periodic statements to borrowers. Failure to comply renders the relevant contracts unenforceable during the period of non-compliance, and leaves borrowers with no liability to pay interest and default charges during such period. NRAM did not correctly implement these requirements and as a result provided redress to customers whose agreements fell within scope of the CCA.

Prior to 6 April 2008 there was a £25,000 limit on the amount of lending covered by the CCA (a limit that has since been repealed). Therefore, NRAM did not provide redress to borrowers whose loans exceeded £25,000, on the basis that such loans were not covered by section 77A of the CCA. However, despite this, NRAM had documented all of its credit agreements (including those for amounts over £25,000) as if they were regulated by the CCA. Hence the purpose of the test case was to determine whether the use of such documentation resulted in the provisions of the CCA (including section 77A) being incorporated into the contracts. If this had been the case, NRAM would have had to provide redress to borrowers under credit agreements that were not intended to fall within the remit of the CCA.

The High Court had previously decided that the rights and remedies under the CCA had in fact been implied into the contract. However, on appeal, the Court of Appeal decided that in documenting the contracts as if they fell within the remit of the CCA, NRAM had not incorporated the provisions of the CCA into the contracts, but had merely made a representation or warranty that the contract was regulated under the CCA. Therefore, the borrowers in question did not benefit from the protections under the CCA, but rather, could bring claims for misrepresentation or breach of warranty on account of the contract not in fact being regulated under the CCA. The making of such claims could prove problematic for these borrowers as the limitation period during which each claim must be brought commences on the date that the false representation is made.