PE Must Strike the Right Balance With Unions

By Latham & Watkins LLP on January 30, 2023 Posted in M&A and Private Equity

PE acquirers should view unions as stakeholders and factor possible or actual engagement obligations with them into the deal process.

By Kendall Burnett, Tom D. Evans, David J. Walker, Paul Lawrence, and Catherine Campbell

Widespread economic pressure — including pay, inflation, and the ongoing cost of living crisis — has increased union visibility. As the number of workers interested in union membership grows and the frequency of strikes surges in the UK and elsewhere, PE deals teams should remain mindful of the presence and role of unions in M&A.

PE on Red Alert for Greenwashing in Light of UK Developments

By Latham & Watkins LLP on January 30, 2023 Posted in Litigation, M&A and Private Equity

PE firms face growing regulatory and litigation risks from greenwashing claims as they navigate a fragmented anti-greenwashing landscape.

By Tom D. Evans, Nell Perks, Anne Mainwaring, David J. Walker, and Catherine Campbell

Amid concerns of exaggerated or misleading sustainability claims, the UK Financial Conduct Authority’s (FCA) recent proposal for new labelling and disclosure rules to combat greenwashing (see text box) should put PE firms on alert for a growing range of greenwashing risks. The FCA proposals are just the latest in a wave of new rules and requirements being enacted and contemplated as regulators across jurisdictions look more carefully at green claims and seek to hold regulated firms (including PE sponsors) to account for exaggerated credentials and misstated investment policies.

Similarly, investor and other stakeholder claims over greenwashing are on the rise as firms and portfolio companies come under greater scrutiny and are required to publish ESG disclosures in market-facing and other public information. These claims can be brought under different and overlapping laws, including statute, securities regulations, and “soft law” provisions, making a consistent and proactive risk management approach essential.

Buying Bonds or Selling Tulips: Dutch Auctions and Other Debt Repurchase Strategies for PE

By Latham & Watkins LLP on January 30, 2023 Posted in M&A and Private Equity

Bond issuers may wish to pursue an unmodified reverse Dutch auction for debt repurchases, an effective but underutilised transaction template that is gaining popularity.

By Francesco Lione, Tom D. Evans, David J. Walker, and Catherine Campbell

During the second half of 2022, amid ongoing market dislocation and as debt trading prices shrunk, paring back financial obligations by repurchasing debt at a discount became an increasingly attractive option for PE-owned businesses. Beyond the more commonly encountered issues that companies must navigate when embarking on debt repurchases (see Navigating Debt Repurchases in Europe: What You Need to Know), borrowers have taken a fresh look at liability management templates. Dealmakers have deployed unmodified reverse Dutch auctions with increasing frequency — a development that we see continuing to gain traction as long as the current economic slowdown and tight financing conditions persist.

Whistleblow Insights — Recurrent Themes and Common Drivers

By Latham & Watkins LLP on January 30, 2023 Posted in Conduct of Business, ESG, Finance and Capital Markets

A new Latham & Watkins guide examines the recent increase in whistleblowing and poses self-assessment questions against which firms can benchmark themselves.

By David Berman, Andrea Monks, Nell Perks, Nathan H. Seltzer, Becky Critchley, and Charlie Bowden

Many sectors, including financial services, have encountered a discernible increase in whistleblows in recent times — a trend that shows no signs of abating. Indeed, some whistleblowers have seen fit to publicise their concerns in the press and/or share them with the Regulator — often due to a frustration that their issues were not addressed satisfactorily (or at all) when raised internally.

This guide identifies the recurrent themes and common drivers that underlie many whistleblowing incidents in the financial services sector. It also offers practical insights and observations, together with thought-provoking questions — with the overarching objective of helping organisations prevent the underlying circumstances that commonly serve as whistleblow catalysts.

Access the guide by clicking on the thumbnail below.

The “Edinburgh Reforms”: Timetable of Key Changes

By Latham & Watkins on January 24, 2023 Posted in Finance and Capital Markets

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.

High Court Confirms Nuanced Approach to Waiver of Privilege

By Latham & Watkins LLP on January 4, 2023 Posted in Dispute Resolution

A recent decision reminds litigants about the dangers of referring to legal advice in witness statements.

By Oliver E. Browne and Alex Cox

The English courts have recently taken an expansive approach in finding waivers of privilege when legal advice is referred to in witness statements, pleadings, and submissions.[i]

The High Court’s recent decision in Paul Clements v. Adam Frisby[ii] further reminds litigants about the dangers of referring to legal advice when advancing their case. However, it also demonstrates the nuanced and fact-specific approach the court will take in determining whether there has been a waiver and, if so, how widely that waiver extends.

European Commission Proposes Reform on Liability Rules for Artificial Intelligence

By Latham & Watkins LLP on December 22, 2022 Posted in Emerging Companies and Technology, Litigation

The directives aim to assist claimants in proving the causation of damages and product defectiveness in complex AI systems, creating legal certainty for providers.

By Deborah J. Kirk, Thomas Vogel, Grace E. Erskine, Ben Leigh, Alex Park, and Amy Smyth

On 28 September 2022, the European Commission issued two proposed directives to reform and clarify liability rules on artificial intelligence (AI):

The Directive on Adapting Non-Contractual Civil Liability Rules to Artificial Intelligence (AI Liability Directive) introduces rules on evidence and causation to facilitate civil claims for damages in respect of harm to end users caused by AI systems.
The Directive on Liability for Defective Products (Revised Product Liability Directive) seeks to repeal and replace the 1985 Product Liability Directive (Directive 85/374/EEC) with an updated framework to better reflect the digital economy. The Revised Product Liability Directive proposes to explicitly include AI products within the scope of its strict liability regime and to modify the burden of proof for establishing defectiveness of technically or scientifically complex products like AI systems.

Further Evolution of the UK Online Safety Bill Removes “Legal, But Harmful” Content Obligations and Increases Children’s Safety Measures

By Latham & Watkins LLP on December 21, 2022 Posted in Data Protection

The amended bill aims to safeguard freedom of expression whilst still protecting children and adult users in the online environment.

By Gail E. Crawford, Deborah J. Kirk, Alain Traill, and Victoria Wan

The Online Safety Bill (the Bill) was introduced by the UK government on 17 March 2022. The Bill aims to impose obligations on in-scope “user-to-user services” and “search engines” to implement adequate processes to protect users from illegal and harmful online content. Service providers are in scope if they are linked to the UK by either (i) having a significant number of users or targeting users in the UK; or (ii) being accessible by individuals located in the UK and posing a material risk of significant harm to these users. For more information, read Latham & Watkins’ summary of the Bill as initially drafted here and the previous amendments from September 2022 here.

The Bill returned to Parliament on 5 December 2022 with a series of major amendments compared to the previous draft, as detailed in the Written Ministerial Statement on 29 November 2022 and tabled here. The amendments follow criticisms from various stakeholders, including feedback that the obligations relating to “legal, but harmful content” are unclear and/or curtail free speech online and that the obligations relating to children are insufficient to ensure children’s safety online.

FCA Recommends Measures Encouraging Diversity and Inclusion in Financial Services

By Latham & Watkins LLP on December 14, 2022 Posted in Diversity and Inclusion

By David Berman, Sarah Gadd, Nicola Higgs, Rob Moulton, Becky Critchley, and Nell Perks

The FCA’s latest report into D&I highlights the need for additional metrics, social mobility, firm culture, staff development, data quality, and systematic strategies.

In 2021 and 2022, the FCA carried out a survey of firms in respect of their approach to diversity and inclusion. In advance of a full consultation on new rule proposals in 2023, the FCA has provided a progress update. Overall, the FCA remains concerned about the lack of progress in the industry and has highlighted a number of key points that it encourages regulated firms to consider and use.

The FCA’s Approach to Non-Financial Misconduct — A Further Twist

By Latham & Watkins on December 13, 2022 Posted in Finance and Capital Markets

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.