RegZone. Financial Services. Regulatory Actions and Disputes

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Conrad Carson
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1 RegZone Financial Services Regulatory Actions and Disputes November 2011

2 Financial Services Regulatory Actions and Disputes Our team of specialist regulatory and contentious lawyers advises retail and wholesale financial services firms on managing, resolving and avoiding regulatory action and disputes. We combine in-depth knowledge and understanding of regulated businesses and the relevant FSA requirements and processes and have significant experience of handling both FSA and court proceedings. We understand the regulatory context in which our clients operate and recognise the importance of finding commercial solutions. We have also handled Lloyd s, Jersey Financial Services Commission, Guernsey Financial Services Commission, Bundesanstalt für Finanzdienstleistungsaufsicht, Autorité des Marches Financières, and Commissione Nazionale per Le Società e la Borsa investigations. We advise clients in matters ranging from regulatory enforcement actions, investigations and formal disciplinary cases, through to Ombudsman cases, commercial disputes and large-scale litigation. So not only do we have an excellent understanding of how to deal with a regulator, we also know exactly what FSA (and other regulators) are looking for from firms in a wide range of contentious circumstances. The contentious regulatory team is part of our firm s overall dispute resolution practice, one of the largest across Europe comprising 42 partners and 206 associates. Our contentious financial institutions lawyers in the UK comprises 36 partners and 124 associates handling matters across the banking, insurance, securities and investment businesses sectors. FSA regulatory action We have represented firms in over 250 regulatory investigations and enforcement proceedings brought by FSA and its predecessors. We also frequently advise firms on dealing with skilled person reports and in preparing for thematic and supervisory visits. At any time we are usually handling between six and a dozen FSA matters. This experience has given us an excellent understanding of how to deal with FSA in a wide range of contentious circumstances. We advise clients through the entire investigation and enforcement process, taking every step to protect their position and to achieve an optimal outcome. In the initial stages we can assist clients in disclosing the issue to FSA and in working with FSA to avoid a formal referral to enforcement. If a firm is referred to enforcement, we manage FSA document requests, prepare and accompany staff to FSA interviews and draft responses to FSA communications. We also help to identify and limit the scope of any remedial action. On many occasions we have succeeded in satisfying FSA that no formal disciplinary action, or either no or only limited redress, is required. When FSA does proceed to discipline, we seek to maximise damage limitation by reducing the scope of the action, negotiating the content of any public notice and helping the firm to deal with subsequent publicity. Where FSA does not pursue a public outcome and is minded to proceed by private warning, which will form an important part of compliance history, we assist in negotiating, and in seeking to agree the terms of any private warning that is to be imposed. Our experience includes: Wholesale - Acting for the leading fund manager and the leading broker during FSA s investigations into split capital investment trusts. This was FSA s largest ever investigation and we were instrumental in reaching a settlement with no regulatory findings being made or enforcement action being taken against our clients. We also led on the

3 settlement of the separate Jersey and Guernsey regulators investigations against a group of split-capital brokers and managers. - Advising on over a dozen market abuse and insider dealing investigations in relation to fixed income, equity and derivatives trading, managing and research, in each case achieving a successful outcome for the firm. - Acting on two major collapses of hedge funds managed out of London, seeking to limit FSA s recourse against the individual managers. - Acting for an investment manager in relation to FSA s objections to a change of control application including appearing before the Regulatory Decisions Committee. - Acting for two fund managers in an FSA investigation into market timing. We were able to satisfy FSA that the firms management had acted appropriately and that no redress was needed beyond a modest ex-gratia payment into the funds without publicity or enforcement action. - Advising a number of firms on transaction reporting issues and assisting them in dealing with FSA and TMU and avoiding any regulatory action - Successfully representing a major institution before the Regulatory Decisions Committee on FSA s refusal to grant individual approval to two senior directors. - Representing institutions and senior management during FSA investigations into governance structure, fraud controls and derivatives trading, assisting the firm to limit the scope of the investigation and any consequent remedial or enforcement action and, when appropriate, assisting the firm to satisfy FSA with its own report into the issue. Retail - Assisting two well-known financial institutions to notify major problems to FSA a significant systems error and systemic mortgage fraud in such a way that the firms were left to resolve the matter themselves and were neither investigated nor referred to enforcement. - Acting for a financial institution in FSA s first major investigation into a failure to maintain adequate controls against financial crime. - Advising a major card issuer in FSA disciplinary proceedings. FSA described the firm s approach to the enforcement action as a model for how firms should behave. - Acting for a well-known UK financial service provider in relation to an investigation into its sales of mortgages and mortgage repayment vehicles conducted by the FSA including preparing it for a hearing before the Regulatory Decisions Committee. - Advising a life insurer on an FSA investigation into the governance surrounding the management of its with profit fund. - Advising a UK IFA network in relation to enforcement action commenced on the basis of that a lack of proper governance and systems and controls have led to potential retail mis-sales. - Acting for a firm in relation to enforcement action arising out of the sale of Lehman backed structured products and the associated past business review. - Representing a major firm in an investigation concerning the treatment of client money and assets. - Acting for a mortgage lender in relation to an enforcement action arising out of its mortgage arrears handling processes. - Advising a mortgage firm on a past business review and on dealing with FSA as a result of which the firm was able to avoid any regulatory intervention. - Advising a general insurer on a wide ranging skilled person report and FSA investigation into its sales governance, T&C, complaints and claims handling. - Acting for a non-executive director in connection with a Lloyd s investigation relating to reserving practices. - Advising a Lloyd s coverholder on its position where Lloyd s was minded to revoke its coverholder status because of concerns as to the conduct of one of its senior management. 2

4 Financial Ombudsman Service The Ombudsman is now in many ways a proxy regulator. The way in which it resolves a single complaint may, under the lead case procedure, dictate how a firm must treat a large number of similar complaints. FSA s rules on treating complainants fairly can require a firm to implement a FOS decision across a substantial book of business. Our experience and knowledge has allowed us to present the client s position clearly and succinctly, put forward all the relevant information, get on top of the facts and issues, and provide advice to the clients about the wider tactical issues to which these complaints increasingly give rise as well as the available procedures under the FOS process. Our FOS experience includes: - Acting on the industry-lead case on mortgage endowment limitation where we persuaded the Ombudsman to overturn a highly damaging provisional determination of the date of receipt issue. - Acting on over ten further endowment lead cases, dealing with issues ranging from gone aways and market value adjusters to surrenders and not in force. - Assisting clients in successfully invoking the wider implications procedure so that FSA instructed FOS that certain actions taken by firms in relation to de-risking life funds, or altering their equity-backing ratios, were reasonable. - Overturning an Ombudsman decision in the High Court, so confirming a key limit to the Ombudsman s powers of compensation. - Acting for a number of general insurers in challenging complaints made to FOS by parties seeking benefits under their policies, in circumstances where FOS jurisdiction was in question because of the nature of the complainants rights or class of insurance. - Successfully challenging an Ombudsman final decision through an application for judicial review where FOS had failed to establish causation. Managing and resolving disputes We have extensive experience handling claims involving financial institutions, from cases that involve complex and structured products, to breach of mandate claims, mis-selling, negligence, misrepresentation and large-scale fraud. Clients benefit in particular from our understanding of how regulations impact the businesses and their products, and also on FSA s expectations particularly in relation to treating customers fairly for the way in which the matter is resolved. Our dispute lawyers specialise in sectors to service the specific needs of the banking, insurance and investment business sectors, and work closely with each other and our financial services regulatory team, to resource each matter with appropriate specialist expertise. This allows us to achieve a high level of understanding of our clients businesses and the regulatory issues that affect them. Our financial sector experience includes: - Acting for a leading fund manager in defending a professional negligence action arising out of the flotation and subsequent management of an investment trust. The case involved important issues regarding the disclosure of FSA investigation documents to civil claimants that were considered by the Court of Appeal. - Acting for a major UK financial services product provider in defending High Court proceedings brought by the Financial Services Compensation Scheme arising out of alleged negligence, breach of statutory duty and misrepresentation in relation to the promotion of certain investment products and in particular the client s marketing material. - Successfully negotiating settlement between two retail banks concerning a multi-million pound dispute over the handling of customers mortgage endowment complaints consequent on the sale of a business between them. - Acting for a UK credit card issuer in relation to declaratory proceedings before the House of Lords on the interpretation of Section 75 of the Consumer Credit Act Advising on the first criminal prosecution of directors under section 397 Financial Services & Markets Act. - Acting in a multi-million pound dispute concerning liability for payments under mortgage indemnity guarantee policies, including consideration of lending policies and adherence to lending criteria and actions against mortgage administrators in respect of failures under an administration deed. - Advising in relation to claims post the financial crisis involving parties including Madoff, Stanford, Fannie Mae and Freddie Mac, and in respect of Lehmans backed investments. 3

5 - Acting for a large US bank in a multi-party international trade finance fraud, which involved court proceedings in London, New York, and Bahrain, and a massive electronic disclosure search in several locations. Mediations were conducted on both disputes, which were eventually settled on advantageous terms. - Acting for a major UK IFA in proceedings brought by the Financial Services Compensation Scheme following the insolvency of a major product provider. - Acting for an online forex, share and CFD market maker in resisting investor claims involving allegations of breach of contract, negligence and misrepresentation. - Acting for a bank in providing crisis management following the discovery of a serious internal fraud, and in relation to a number of claims which were made against it, or which it pursued for recoveries, arising from that fraud. - Advising a hedge fund on potential claims against a major Swiss bank in relation to the bank s alleged misrepresentations concerning the pricing of various CDOs. The claim was successfully settled. - Advising on a multi-million dollar potential claim against an IFA arising from the receipt of secret commissions, including advice on cross-border issues concerning Russia and the Czech Republic. Risk management We work with a number of clients in identifying and managing risk within their businesses, which includes how to avoid disputes or regulatory action. This can involve reviewing or auditing certain parts or elements of a client s business, as well as providing bespoke training to meet specific needs. By way of example, we have conducted pre-arrow, fraud, conflict and market abuse control reviews and have carried out briefings and regularly provide training on a number of risk areas including: - Governance - Senior management responsibility including preparation for SIF interviews - Approved persons regime - Preparation for FSA supervisory and thematic visits - Board effectiveness - Treating Customers Fairly (TCF) - Complaints handling and dealing with the Financial Services Ombudsman - Market abuse - Staying out of enforcement and defending enforcement proceedings - Reducing the cost of disputes - Reputation management, including dealing with privacy, breach of confidence, defamation, malicious falsehood, and press and broadcast issues. Value-added services We believe that the value of appointing a law firm with cross-sectoral capabilities is that it gives you access to the marketleading added-value services that we offer our clients, to ensure that we support their businesses. Seminar programme We run a frequent series of seminars on FS regulatory issues. Recent seminars have included the new regulatory regime, corporate governance, handling a regulatory crisis, skilled person investigations and complaints handling and dealing with FOS. We also offer training sessions throughout the year on all key legal and practical issues for our clients and contacts to attend. These events are free. We are also happy to put together bespoke seminar and training packages for our key clients allowing us to tailor issues to your particular needs and to give you the opportunity to address skills gaps within your business. 4

Information services As well as seminars and training we can provide our clients with access to our firm s comprehensive legal library ( the Exchange ) and dedicated information service, staffed by

Our award-winning free email alert and online information service called Law-Now is able to deliver quick updates on the relevant legal issues that are affecting your business.

Emails are written in plain English and use the minimum of technical jargon, with a strong emphasis on the practical. There is also a fully searchable archive of over 3,000 articles, guides and cases.

6 Information services As well as seminars and training we can provide our clients with access to our firm s comprehensive legal library ( the Exchange ) and dedicated information service, staffed by qualified information professionals giving you access to the knowledge resources of a major international law firm, thus offering potential savings in overheads. Our award-winning free alert and online information service called Law-Now is able to deliver quick updates on the relevant legal issues that are affecting your business. We have over 28,000 subscribers. The service allows you to choose the topic areas and jurisdictions you are interested in from over 70 categories. s are written in plain English and use the minimum of technical jargon, with a strong emphasis on the practical. There is also a fully searchable archive of over 3,000 articles, guides and cases. RegZone The CMS Cameron McKenna Financial Services team recently launched its new Regulatory Zone (RegZone); this is a free to view online resource for CMS clients providing a wealth of materials to help financial institutions deal with the fastchanging world of regulation in the UK and Europe. We also offer clients a monthly RegZone Online Newsletter containing all new and updated materials on the site and comprehensive news coverage from our monitoring reports. We would be happy to provide you with a comprehensive list of all our other added-value services and hard-copy publications. Contacts Simon Morris Partner, Financial Services T: +44 (0) E: simon.morris@cms-cmck.com Maxine Cupitt Partner, Financial Services (Insurance) T: +44 (0) E: maxine.cupitt@cms-cmck.com Alison McHaffie Partner, Financial Services (Investigations) T +44 (0) E alison.mchaffie@cms-cmck.com 5

7 CMS Cameron McKenna s free online information service Receive expert commentary and analysis on key legal issues affecting your business. Register for free alerts and access the full Law-Now archive at CMS Cameron McKenna LLP Mitre House 160 Aldersgate Street London EC1A 4DD T +44 (0) F +44 (0) The information held in this publication is for general purposes and guidance only and does not purport to constitute legal or professional advice. CMS Cameron McKenna LLP 2010 CMS Cameron McKenna LLP is a limited liability partnership registered in England and Wales with registration number OC It is able to provide international legal services to clients utilising, where appropriate, the services of its associated international offices. The associated international offices of CMS Cameron McKenna LLP are separate and distinct from it. We use the word partner to refer to a member, or an employee or consultant with equivalent standing and qualifications. Further information about the firm can be found at CMS Cameron McKenna LLP is a member of CMS, the organisation of nine European law firms providing businesses with legal and tax services in 27 jurisdictions, with 53 offices in Western and Central Europe and beyond. CMS aims to be recognised as the best European provider of legal and tax services. Clients say that what makes CMS special is a combination of three things: strong, trusted client relationships, high quality advice and industry specialisation. CMS combines deep local expertise and the most extensive presence in Europe with cross-border consistency and coordination. Further information can be found at Registered address: Mitre House, 160 Aldersgate Street, London EC1A 4DD

Financial Services Regulatory Actions and Disputes

Financial Services Regulatory Actions and Disputes Our team of specialist regulatory and contentious lawyers advises retail and wholesale financial services firms on managing, resolving and avoiding regulatory