On-site ESMA Inspections: Chancery Division Gives Procedural Guidance

3 05 2015

European Securities & Markets Authority (ESMA) v DTCC Derivatives Repository Ltd [2015] EWHC 1085 (Ch) (25 April 2015)

This is a first of a kind judgment given by Mrs Justice Rose. It involved the application of the European Securities and Markets Authority (ESMA) for authorisation to conduct an inspection at the premises of a trade repository, the DTCC Derivatives Repository Limited (DTCC), in England. Rose J began her judgment by clarifying that DTCC was not suspected of engaging in misconduct and that the intended inspection was simply part of ESMA’s general supervisory functions. DTCC, which was notified, agreed to cooperate fully with the visiting ESMA officials but the agency nevertheless required the High Court’s authority to proceed with the inspection. In light of the novelty of the situation, the court handed down a short judgment to set out the principles that apply to the exercise of ESMA’s power. The court reiterated the Chancellor’s guidance that future applications for authorisation by either ESMA or the Financial Conduct Authority (FCA) under regulation 17 of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (the Domestic Regulations) can be submitted for consideration on the papers in certain cases.

First, where the company subject to the inspection has been informed of the inspection and has indicated its intention to submit to the inspection. Second, where the application is made by ESMA, that the FCA has been informed and does not wish to be heard at a hearing of the application. Third, the application does not seek a power to seal business premises or books and records, does not include a request for records of telephone and data traffic and does not request the issue of a warrant. Her Ladyship also said that the judge or master, on considering the application, may indeed decline to deal with the matter on the papers and direct that a hearing should take place. Read the rest of this entry »





Supreme Court: The Meaning of “Criminal Property” in POCA 2002

2 05 2015

R v GH (Respondent) [2015] UKSC 24, 22 April 2015

The Supreme Court (Lord Neuberger PSC and Lord Kerr, Lord Reed, Lord Hughes and Lord Toulson JJSC) heard this case on appeal from a judgment of the Court of Appeal (Lloyd Jones LJ, Irwin and Green JJ) reported at [2013] EWCA Crim 2237. Unanimously allowing the appeal of the Director of Public Prosecutions (DPP), giving the only judgment Lord Toulson held at para 47 that the “character of the money did change on being paid into the respondent’s accounts.” This case involved fraud. It had been perpetrated through the Internet via four “ghost” websites falsely pretending to offer cut-price motor insurance. To execute his plans, B used associates who opened bank accounts for transmitting the proceeds generated by the scam and H was an associate of this nature. A ghost website in the name of AM Insurance was operated from 1 September 2011 to January 2012. Before the site became live online, two bank accounts, in Lloyds Bank and Barclays Bank, were opened by H and B subsequently took control of these accounts and bank cards linked to them. The Supreme Court held that section 328 of the Proceeds of Crime Act 2002 (POCA) does not require property to constitute criminal property before an arrangement came into operation because such a construction is likely have serious potential consequences in relation to banks and other financial institutions.

The public was swindled into paying £417,709 into the Lloyds’ account and £176,434 into the Barclays’ account for insurance cover that did not exist. Charged under section 328(1) – i.e. entering into or becoming concerned in an arrangement which he knew or suspected would facilitate the retention, use or control of criminal property, namely the money received into the accounts, by or on behalf of B – H was tried in the Central Criminal Court. To the jury, the DPP articulated its case on the premise that whilst H may not have known the details of B’s fraud, the circumstances in which the accounts were opened pointed to H’s knowledge (or at least suspicion) that B had some criminal purpose. Yet Recorder Greenberg QC held that no criminal property existed at the point in time H entered into the arrangement and that H therefore had no case to answer. Read the rest of this entry »





Navinder Singh Sarao: Criminal Mastermind or Sacrificial Lamb?

28 04 2015

This article examines the charges against Navinder Singh Sarao and it argues that he is put in an invidious position in comparison to traders protected by predatory global banks. The Parliamentary Commission on Banking Standards (PCBS) had dubbed bankers “the masters of the universe” because of their repetitious recklessness and disregard for customers and shareholders. Yet, the banks are routinely able to pay their way out of trouble. From that perspective, Sarao becomes a sacrificial lamb and a scapegoat in America’s quest for bringing abusers of the market to justice. Indeed, Nick Leeson – the historic “rogue trader” from two decades ago, who wrecked Barings Bank by losing £832 million and subsequently went to ground – was of the view that Sarao is a likely scapegoat and he may not have foreseen the consequences of his actions. But can we trust the words of Leeson, who in his professional career, seems to have been nothing short of a congenital liar? On the other hand, the information available in the public domain points to the existence of a double standard that puts Sarao in a relatively prejudiced position in comparison with other bent individuals who remain above the law and are treated leniently.

Applying the hierarchy devised by Roger McCormick in Seven Deadly Sins: ‘Retrospectivity, Culpability and Responsibility’ – save that Sarao was not a bank operative – it is apparent that Case 1: “Clustered Criminality” has controversially been put behind Case 5: “Individual Criminality”. Clustered Criminality, of which benchmark manipulation is a classic case, occurs “where there is at least strong suspicion that a crime has been committed and although the culprits may not be immediately clear it seems likely that more than one person was involved.” Individual Criminality, which the “rogue trader” classically exemplifies, is “where there is clear evidence that a crime has been committed by a bank employee and the culprit (usually acting alone) is identified.” Thus, recent events may be read as turning the hierarchy on its head by putting Case 5: “Individual Criminality” at the apex of culpability. The approach is questionable because Read the rest of this entry »





Raytheon Systems: e-Borders Arbitration Set Aside for ‘Serious Irregularity’

20 04 2015

See my article  Failure to Deal with the Issues: The e-Borders Award and ‘Serious Irregularity’ under the Arbitration Act 1996. These judgments given by Akenhead J relate to the e-Borders controversy. The e-Borders passenger information system was marketed as a one-stop solution to the UK’s immigration and security problems. Under e-Borders the Home Office sought to create an electronic system to examine everyone entering and exiting the UK by verifying their details against immigration, police and security related watch lists. In Raytheon Systems Ltd [2014] EWHC 4375 (TCC), Akenhead J set aside an arbitral award (in e-Borders contractor Raytheon’s favour) because of “serious irregularity” within the meaning of section 68(2)(d) of the Arbitration Act 1996 (“the 1996 Act”). In December 2014, the court held that the arbitration tribunal failed to deal with all the issues (of fault and responsibility attributable to Raytheon which were highly relevant to quantum) put to it. Subsequently, in Raytheon Systems Ltd [2015] EWHC 311 (TCC), in February 2015, Akenhead J set the arbitration award (£200+ million) aside in its entirety for serious irregularity and ordered a fresh hearing.

The arbitrators’ identities remain undisclosed to the public and the rulings did not intend to reflect on their integrity or general competence. Despite successfully challenging the award in court, the government continued to negotiate and the Home Secretary announced on 27 March 2015 that the settlement with Raytheon was “a full and final payment of £150m.” The earlier judgments, in the Home Office’s favour, were made publicly available in February 2015 and are perhaps the only authoritative documents in the public domain that shed light on the dispute. The award was set aside for serious irregularity because of the arbitrators’ failure to address issues, highly relevant to quantum, of fault and responsibility attributable to Raytheon. Signed in 2007, the e-Borders contract was worth around £750 million in total. The government terminated it in 2010 because of delays and key milestones being missed. Read the rest of this entry »





Changing Banking for Good: What is the Cure for Misconduct?

15 04 2015

Not long ago, in the Changing banking for good (see Vol I and Vol II) report, the Parliamentary Commission on Banking Standards (PCBS), a body established in the wake of the LIBOR scandal, was horrified by shocking and widespread malpractice in the banking sector. It concluded that, in addition to bankers, governments and regulators have contributed to the degeneration of standards. The PCBS recommended wide-ranging changes relating to making senior bankers personally responsible and reforming bank governance by creating better functioning and more diverse markets. It also recommended reinforcing the powers of regulators to make sure that bankers do their job. Putting prolonged and blatant misconduct (which had been evident for a number of years) at the heart of the problem, the PCBS was of the view that its input would alleviate the industry’s woes – it said that the “challenge for government is to follow through on the commitment to far-reaching reform.”

Almost two years on, unconvinced that the deficit of trust has been bridged, Dame Colette Bowe, of the Banking Standards Board (BSB) issued a general warning that the “banking industry must raise its game” because “trust in the system has been badly damaged and it’s no surprise that the public expects change after everything that has happened”. On the other hand, diminishing the weight of their own argument, they also offered a general concession Read the rest of this entry »





CP15/11: Implementing the TDAD and Transparency Rule Changes

21 03 2015

Directive 2004/109/EC or the Transparency Directive (TD) operates principally to harmonise the requirements on companies regarding information disclosure. The TD (i) focuses on what information companies must disclose periodically, how they handle investor disclosures and how they distribute regulated information and; (ii) ensures that investors disclose their stakes in companies. Directive 2013/50/EU or the Transparency Directive Amending Directive (TDAD) amends the TD. It also amends Directive 2007/14/EC (the Transparency Directive Implementing Directive (TDID)) and Directive 2003/71/EC (the Prospectus Directive (PD)). The implementation of the TDAD is a responsibility that is shared between HM Treasury and the Financial Conduct Authority (FCA). Consultation Paper CP15/11 concerns the implementation of the TDAD and other Disclosure Rule and Transparency Rule changes. The European Commission reviewed the TD and the TDAD came into force on 26 November 2013. It undertakes a revision of the regime for notification of major holdings of voting rights, introducing the rule of aggregation of holdings of shares with holdings of financial instruments and harmonising the calculation of notification thresholds and exemptions from the notification requirements.

It is required that each Member State must implement the TDAD within 24 months of that date. At the Treasury’s request, the FCA implemented the new requirement to report on payments to governments, which is effective for financial years beginning on or after 1 January 2015. Moreover, the FCA has already removed the requirement to publish interim management statements from the DTRs. Both changes are reflected in the Disclosure Rules and Transparency Rules (DTRs) contained in the FCA Handbook. The implementation of the remaining provisions of the TDAD are addressed in this consultation. It is a joint consultation between HM Treasury and the FCA Read the rest of this entry »





Supreme Court: Widow’s Contractual Claim Against BP Upheld

20 03 2015

Braganza (Appellant) v BP Shipping Limited and another (Respondents) [2015] UKSC 17 (18 March 2015) 

This case was heard on appeal from a decision of Longmore, Rimer and Tomlinson LJJ, see [2013] EWCA Civ 230, and it threw up two connected questions of principle: first of all, the meaning of the general requirement that the decision of a contractual fact-finder must be a reasonable one; and secondly, the proper approach of a contractual fact-finder who is considering whether a person may have committed suicide. On 11 May 2009, Braganza disappeared between 1am and 7am, while on duty as the chief engineer on the British Unity (an oil tanker in the mid-North Atlantic managed by BP). The Court of Appeal was of the view that Braganza, an Indian national, had thrown himself overboard to commit suicide. Consequently, his widow, Mrs Niloufer Braganza, was precluded from receiving death benefits under her husband’s contract of employment, which contained a clause that compensation would not be payable if “in the opinion of the Company or its insurers, the death … resulted from … the Officer’s wilful act, default or misconduct”.

The question for Lord Neuberger PSC, Lady Hale DPSC and Lord Kerr, Lord Wilson and Lord Hodge JJSC concerned the proper test for the court to apply when deciding whether BP was entitled to reach the opinion that it did. Geared towards improving its systems, BP’s own inquiry about the disappearance identified six factors supportive of suicide and concluded that the most likely scenario was that Braganza deliberately jumped overboard. The six points related to (i) his behaviour being notably different on the voyage involving his disappearance than on previous voyages; (ii) the shoes and sandals he usually wore on board were found in his cabin after his disappearance; (iii) e-mail messages received from his immediate family suggested that he had some family and/or financial difficulties that were causing him concern; (iv) he was not aware, before joining the ship, of its status and reputation and was reported to be unhappy about this Read the rest of this entry »








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