Money Covered: The Week That Was – 10 May

Welcome to The Week That Was, a round-up of key events in the financial services sector over the last seven days.

The second episode of Season 3 of our podcast, Money Covered – The Month That Was, where the team discusses key developments and topical issues in the financial services area, is now available. This episode features Rachael Healey, George Smith and Rob Morris discussing what impact ESG and AI may have on the financial services sector, in particular Pensions and Accountants.

To listen to this and all previous episodes, please click here.

FCA Developments

FCA bans ex-CEO for putting investors at risk

The FCA has issued a ban to the former CEO (James Lewis) of the investment firm Shard Capital Partners for misleading auditors and clients about cash held by the group. 

Mr Lewis has been banned and fined £120,300 for two instances of providing false information to investors. The FCA's action followed misconduct between June 2015 and May 2017 when Mr Lewis told auditors that the firm held a vast sum of cash for a certain client, but it turned out the money was a large debt owed by another client. Mr Lewis also provided misleading information to another client in June/July 2021, which was discovered when the FCA opened its investigation. Mr Lewis also reported himself to the FCA, which ultimately resulted in a 30% reduction to his penalty. 

To read the FCA's press release please click here.

FCA responds to Treasury Committee questions on consultation proposals to publicly announce enforcement investigations

In a consultation paper (CP24/2) released on 27 February 2024, the FCA set out plans to publicly announce details of enforcement investigations at an earlier stage of the investigation, if it is considered to be in the public interest to do so. The proposals seemingly stem from a drive for greater transparency and act as a deterrent in order to reduce and prevent serious harm, in accordance with the FCA's three-year strategy. 

On 1 May 2024, the House of Commons Treasury Committee sent a letter to the FCA raising questions on the proposal. The committee has now received two responses, one from Therese Chambers and Steve Smart, FCA Joint Executive Directors, Enforcement and Market Oversight, and another from Nikhil Rathi, FCA Chief Executive. The former respond to the committee's specific questions whereas Mr Rathi comments more generally on the consultation process, responses and next steps. Key points of interest include: (a) the FCA has not yet completed a detailed assessment of the range of responses received to CP24/2 although as expected, it is understood that there is generally strong opposition to the FCA's proposal; (b) the FCA recognises the issues raised by CP24/2 are sensitive and can be emotive and (c) the FCA is clear that change and a degree of greater transparency is necessary but they remain open to ideas.  

The proposal will no doubt continue to be of concern to many FCA regulated firms and individuals alike – particularly given the risk of reputational damage. 

RPC's blog on the proposals can be read here. 

Tax Developments

Multiple Dwellings Relief - a problem for tax advisers?

Recent cases before the tax tribunal have highlighted an issue for tax advisers involved with multiple dwellings relief.  RPC consider whether the issue of multiple dwellings relief is about to impact professionals outside of the legal industry.  To read RPC's blog on this topic, please click here.

Pensions Developments

TPR publishes corporate plan setting out key priorities

The Pensions Regulator (TPR) has recently published its corporate plan for 2024-2027 setting out the challenges to the pensions landscape and TPR's priorities for the next three years.  The corporate plan notes TPR's objectives – to protect savers' money, enhance the pension system and innovate in savers' interests.  It is against these objectives and a changing pensions landscape that TPR looks at its focus for the next three years – and what it says will be interesting for professional indemnity insurers and pension trustee liability insurers alike.

To read RPC's blog on the corporate plan, please click here.

To read the corporate plan, please click here. 

Case Updates

Fiduciary Duties Post Liquidation – Mitchell v Al Jaber [2024] EWCA Civ 423

In the recent case of Mitchell v Al Jaber [2024] EWCA Civ 423, the Court of Appeal has confirmed that a shareholder and director may still be subject to a fiduciary duty when purporting to transfer company property even after the company enters liquidation. The decision was made in relation to British Virgin Island (BVI) law, but on the basis of English authorities. 

In this case, the company was subject to a winding up order in 2011. Under BVI law, this means that a director's powers, functions and duties (largely) cease but are not entirely terminated. In 2016, the sole shareholder and director (S) of the company, after trying and failing to terminate the liquidation, executed the sale of shares owned by the company. The Court held that S was not liable in his capacity as the director of the company, but was liable as an intermeddler. That is, a fiduciary duty had arisen as S had purported to exercise a power held by a fiduciary. 

To read the full judgement, please click here.

Upham and others v HSBC [2024] - The High Court rejects a compensation claim by the Eclipse film scheme investors

The Eclipse scheme financed Disney films including Pirates of the Caribbean 2 and 3, Enchanted and others. There were more than 400 Claimants and the claim was originally issued for c.£1.3billion against HSBC.

The Eclipse scheme was challenged by the tax authorities and on investigation it turned out to be worthless. None of the film rights were actively traded. The investment scheme collapsed and in 2016 the Supreme Court found the Eclipse scheme amounted to tax avoidance. The investors faced demands from HMRC for millions and some investors entered into bankruptcy as a result.

The investors launched a claim against HSBC (an advisor to the scheme) alleging fraudulent misrepresentation, unlawful means conspiracy, dishonest assistance in a breach of trust and other causes of action. Mr Justice Bright had great sympathy for the Claimants and the losses sustained but the claim was dismissed with no finding of fraud or dishonesty as HSBC believed the scheme was legitimate. 

The investments that were the subject of the claim were made between 2006 and 2008. The claims were also all stature barred by the Limitation Act 1980.

The Claimants were ordered to pay indemnity costs.

To read more please click here.

With thanks to this week's contributors: Patrick Barclay, Rebekah Bayliss, Anthony Cutler, Damien O'Malley, Faheem Pervez, Tom Spratley