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The letters ask senior management to prioritise implementing the Duty.

By David Berman, Nicola Higgs, Rob Moulton, Becky Critchley, Ella McGinn, Jaime O’Connell, and Dianne Bell

On 3 February 2023, the FCA published Dear CEO/Director letters underscoring the immediate (i.e., during the implementation period up until 31 July 2023) and longer-term expectations, priorities, and demands under the Consumer Duty. For further information, see Latham’s recent blog on the FCA’s multi-firm review summarising areas of improvement for firms’ implementation plans.

The timetable sets out three tranches of extensive regulatory changes to UK and EU law in 2023 and 2024.

By Rob Moulton, Becky Critchley, Denisa Odendaal, and Dianne Bell

The “Edinburgh Reforms”, a series of announcements made on 9 December 2022 by the Chancellor of the Exchequer (see here), set out the UK government’s reforms to drive growth and competitiveness in the financial services sector. The Reforms build upon the reform agenda that the government is taking forward through the Financial Services and Markets (FSM) Bill and which implements the Future Regulatory Framework Review.

The FCA stated that the perpetrator’s character is key to non-financial misconduct investigations, which suggests a mismatch with recent case law.

By David Berman, Nicola Higgs, Jon Holland, Andrea Monks, Rob Moulton, and Nell Perks

In last year’s Frensham[1]case, the Upper Tribunal considered how relevant a (non-dishonesty-based) criminal offence committed in one’s personal life is to the perpetrator’s regulatory “fitness and propriety”. The Upper Tribunal effectively reined in the FCA from too readily linking (i.e., considering as relevant) non-work-related misconduct to the perpetrator’s regulatory fitness and propriety to perform a regulated function. In doing so, the Upper Tribunal set out the approach to be taken when determining the relevance of non-financial misconduct in a regulatory context.

This Latham Client Alert highlights the difficulty in reconciling the FCA’s newly published ban of Mr Zahedian with the Upper Tribunal’s findings in Frensham. On the basis of the published Zahedian Final Notice[2], it is difficult to understand how (or even whether) the FCA followed and applied the approach laid down by the Upper Tribunal in Frensham. Indeed, Mr Zahedian may have felt somewhat aggrieved if he had read the Frensham judgment.

European corporate venture capital teams should reflect on their rights in light of falling valuations, revised exit expectations, and other challenges.

By Richard Butterwick, Beatrice Lo, Shing Yuin Lo, Mike Turner, Jon Fox, and Catherine Campbell

This year has been challenging for venture capital (VC). Valuations of VC-backed companies listed on the public markets dropped by 74.2% in the first half of 2022, and evidence indicates private valuations are also declining. While the downturn underlines growing challenges for early and late-stage emerging companies, it also presents risks and opportunities for large corporates, who have significantly increased their presence in VC deals in recent years — with participation growing by 462.5% in the decade to 2021. In Q4 2021, corporate VC participated in 2,858 deals with an aggregate value of US$98.7 billion, a record high.

Given the significant increase in the number of corporates participating in the VC and growth equity space, many corporate VC teams will be dealing with a downturn for the first time. In our view, corporate VC teams should proactively seek to understand any downside protections they benefit from in order to position themselves to manage risk and maximise prospective opportunities.

Defined benefit pension arrangements in the UK may not be immune to cross-class cramdown powers under a Part 26A restructuring plan.

By Shaun M. Thompson, Hafza Hussein, Paul R. Lawrence, and Tim Bennett

As the UK looks set to enter a new restructuring cycle, the question remains whether a restructuring plan (RP) could be used to cram down defined benefit (DB) pension liabilities in the face of opposition from UK pension plan trustees and in light of the new and wide-ranging criminal offences introduced by the Pension Schemes Act 2021. The UK Pensions Regulator (TPR) has a statutory duty to reduce the risk of DB plans entering the Pension Protection Fund (PPF), which is the UK’s “lifeboat” arrangement for DB plans whose sponsoring employers have become insolvent.

The Court of Appeal reiterates the importance of the specific context in interpreting contractual good-faith duties.

By Oliver E. Browne and Alex Cox

English law does not include a general implied duty of good faith. However, the English courts are willing to enforce contractual duties of good faith. In Mark Faulkner & Ors v. Vollin Holdings Limited & Ors[1], the Court of Appeal provided important clarification on the approach to such contractual good-faith duties.

Background

The case related to an unfair prejudice petition under section 994 of the Companies Act 2006, brought by the minority shareholders (the Minorities) in Compound Photonics Group Limited (CPGL) against the majority investors (the Investors) in CPGL.

Consumers and service providers should take note of some of the enhanced risks upon an e-money institution’s insolvency.

By Hongbei Li

Technology is rapidly changing the way customers and businesses interact with financial systems. Fintech companies are a driving force behind the disruption of traditional banking and payment services, with regulatory innovation close behind.

In the 12 months to June 2021, electronic money institutions (EMIs) in the UK processed more than £500 billion of transactions, according to Financial Conduct Authority (FCA) data. In 2019, UK EMIs held £10 billion in customer funds, the UK government estimates. By 2025, more than seven in 10 smartphone owners will be mobile P2P payment users. As a major remittance source country, the UK has seen a 30% growth in its digital remittance market in 2021. According to Statista, this market is predicted to grow to more than $4.6 billion by 2025. These trends are fuelling the UK’s ambition to become a world leader in payments innovation.

The scheme offers a credible implementation alternative, but no “one size fits all” solution exists for German credits.

By Daniel Splittgerber

German credits in sectors such as real estate, automotive, and energy face a worsening macro backdrop. At the same time, the available toolkit for financial restructurings has expanded, offering multiple options without the need for recourse to insolvency proceedings.

Since Germany implemented the EU Preventive Restructuring Directive and introduced its national scheme (the Corporate Stabilisation and Restructuring Act, or StaRUG) in early 2021, the StaRUG has become a credible implementation alternative, and one of the key options for non-consensual implementation planning. In 2021, only a few dozen German schemes were implemented for small and medium-size enterprises (SMEs), a testament to Germany’s economic strength and hot capital markets. This allowed debtors to refinance but often at a high cost. As the last quarter of 2022 and 2023 foreshadow a bleaker outlook from both a macro and an interest-rate perspective, next year is likely to bring a significant uptick in restructuring activity for German credits and a heightened focus on the StaRUG.

Judicial comments cast doubt on the ability to compromise US law-governed debt effectively based on Chapter 15 recognition alone.

By Bruce Bell, Adam J. Goldberg, Howard Lam, Flora Innes, and Tim Bennett

A recent first instance decision in Hong Kong has highlighted an important conflict-of-laws issue that will inform where debtor groups with a Hong Kong presence choose to promote a restructuring. Re Rare Earth[1] relied on the rule in Gibbs to cast doubt on the ability of an offshore scheme of arrangement to compromise New York law-governed debt.

The bill has been introduced into the UK’s Parliament with various amendments to the initial draft published in May 2021, reflecting the extensive feedback received and the challenges in reaching a consensus.

By Gail Crawford, Deborah Kirk, Elva Cullen, Alain Traill, and Victoria Wan

In March 2022, the UK government formally introduced the amended Online Safety Bill into Parliament (the Bill). The Bill features a number of substantial amendments to the government’s initial draft of the Online Safety Bill published in May 2021 (the Draft Bill), as explored below. For background on the broader development of the Online Safety Bill, see Latham & Watkins’ blog series, including a post summarising the Draft Bill.