Financial services

The Companies Court gave directions in respect of four claims concerning the ring-fencing transfer schemes that each of the major deposit-taking banks in the United Kingdom was required by statute to have in place by 1 January 2019. The claims were made prospectively, and concerned the claimant banks’ expected future applications, under section 107 of the Financial Services and Markets Act 2000 for orders sanctioning the schemes, under section 110 of that Act. The court held that the procedural innovation provided by the claim forms was well within the court’s inherent jurisdiction and it made various orders concerning, among other things, notification in respect of applications under section 110, and the timetable for the future conduct of the substantive applications.

Background

The court considered four claims concerning the ring-fencing transfer schemes (RFTS) that each of the major deposit-taking banks in the United Kingdom was required by statute to have in place by 1 January 2019. The schemes were required for any banks that had an average total of deposits from individuals or small and medium enterprises of more than £25bn, and were intended to isolate the banks’ retail banking activity from its wholesale or investment banking activity.

In essence, the Barclays Bank plc and HSBC plc proposals involved a transfer of the ring-fenced business to a newly authorised ring fenced body (RFB). The Lloyds Bank ring-fencing plan involved a transfer of business out of the existing entities and into a newly formed entity, which would be a non-ring-fenced bank. The business transferred out would be business which a RFB would be prohibited from carrying on. The Santander UK plc plan involved transfers of certain largely prohibited business between existing authorised banks.

The claim forms were prospective in that they were related to the claimants’ expected future applications, under section 107 of the Financial Services and Markets Act 2000 (the FSMA), for orders sanctioning the RFTSs, under section 110 of the FSMA, in the High Court in London, and one in the Court of Session in Edinburgh (see [4]-[9] of the judgment for the relief sought).

The banks had been required to issue the claim forms to seek the court’s directions in relation, in particular, to communications to persons potentially affected by the RFTSs, and the timetable for the future conduct of the substantive applications.

The court ruled:

Issues and decisions

(1) Whether the court had jurisdiction in respect of the claims.

In the light of the importance of the RFTSs and the need for them to be completed by 1 January 2019, the procedural innovation provided by the claim forms was well within the inherent jurisdiction of the court to regulate its own procedure (see [6] of the judgment).

It was important for the parties, and all those affected by the RFTSs concerned, to understand that the directions which the court would give at the present stage were given on the information currently available to the court. They were not to be regarded as set in stone. They were necessarily subject to any further directions and orders that the court might make in the individual application for each bank (see [8] of the judgment).

(2) Who should be notified of applications under section 110 of the FSMA.

The court considered section 110(4) of the FSMA, which, in essence, provided that any person, who alleged that he or she would be adversely affected by the carrying out of the scheme, was entitled to be heard on the court application for sanction of the RFTS.

In the present circumstances, it was not for the banks to limit notification of their schemes to persons who they had determined were likely to be adversely affected by the scheme. The statutory framework for potential objections suggested that anyone who might wish to allege that he would be adversely affected by the carrying out of the scheme ought to be notified of it. It might be for consideration in the future whether anyone, who might wish to allege that he would be adversely affected by the carrying out of the scheme, could only include a person who might reasonably allege, or might reasonably wish to allege that he would be adversely affected by the scheme. It was no part of the court’s purpose to encourage applications from unreasonable objectors. Nonetheless, it was, at least, important that anybody, who might have a reasonable contention that they would be adversely affected, was able to make their point at the appropriate stage in the proceedings (see [28], [29] of the judgment).

The appropriate direction to give at the present stage was that: ‘Subject to any further directions that might be given in relation to specific persons or groups of persons, individual notice should be given to any and all customers of the Company’s group or consumers (within the meaning of section 1G of FSMA) who might wish to allege that they would be adversely affected by the carrying out of the scheme’. That direction was not intended to pre-judge the individual circumstances of the banks’ cases on any subsequent application when their communication plan was put to the court (see [32], [33] of the judgment).

(3) The appropriate direction regarding electronic notification.

The proposed direction would be made, namely: ‘That individual notice to the customers of the Company’s group or consumers … may be affected electronically, or digitally, where the recipient of the notice has provided an electronic or digital address, or is accustomed to, or has consented to receiving communications from the Company’s group in that fashion’ (see [34], [35] of the judgment).

(4) The appropriate direction to be given as to the length of the individual notices to be given to consumers and customers.

Six weeks was the minimum period of notice that would be appropriate for customers and consumers to assimilate the information that they would be given and to prepare their case if they so wished. Since, however, the RFTS procedure had an additional requirement that persons wishing to appear had to provide a written statement of representations that they wished the court to consider, that six-week period could not end on the date of the hearing itself. It had to run from an earlier date (see [38] of the judgment).

Notification should be no less than 42 days prior to the representation date (see [38] of the judgment).

(5) The appropriate direction on giving notice to stakeholders other than consumers.

The proposed direction was that ‘…individual notice to stakeholders of the Company’s group not referred to in [proposed direction] 2 … need only be affected in accordance with the guidance referred to in [proposed direction] 2(a) where for these purposes such guidance shall be implemented as if it applied to those other stakeholders of the Company’s group’ (see [39] of the judgment).

The proposed direction would need to be broadened so that individual notice was given to any stakeholders of the bank’s group who might wish to allege that they would be adversely affected by the carrying out of the scheme. The persons who might fall within that category might be limited, but it would be up to the banks concerned to devise a plan in each case for working out who such stakeholders might be and to seek the approval of the court to that plan at the communications directions hearing or at an earlier directions hearing, if that was necessary. In making that direction, the court was not seeking to limit the submissions that the banks might wish to make in respect of the detail of their proposed communication plan (see [40] of the judgment).

(6) The appropriate direction in relation to the length and means of notice to stakeholders, other than consumers.

The appropriate direction was as followed: ‘That individual notice to stakeholders of the Company’s group not referred to in [proposed direction] 2 … may also be given in accordance with … [proposed direction] 2(b) and must be given in accordance with [proposed direction] 2(c)’ (see [41], [42] of the judgment).

(7) The appropriate direction in relation to the timing of advertisements in print or electronic media.

The appropriate direction was that advertisements in print or electronic media had to be made not less than 28 calendar days prior to the representation date. The question of which publications were suitable for such an advertisement was a point that would have to be addressed at the communications directions hearing in relation to each bank and its customer base (see [43], [44] of the judgment).

Further directions were made (see [45]-[67] of the judgment).

Conclusion

The orders indicated in the judgment would be made and the indicative timetable, subject to the corrections indicated for the prospective hearings, would be as set out in the amended schedule to the judgment (see [68], [69] of the judgment).

Benjamin Shaw for Barclays Bank PLC and Woolwich Plan Managers Ltd.

Mary Stokes for Lloyds Bank plc and Bank of Scotland.

Stephen Horan for HSBC Bank plc, Santander UK plc and Abbey National Treasury Services plc.

Rory Phillips QC and Robert Purves for the Prudential Regulatory Authority and Financial Conduct Authority.

Carla Dougan-Bacchus Barrister.