Lenders’ Litigation Forum: responsibility of senior managers – roundtable highlights

On 25 June 2024, Foot Anstey hosted the latest Lenders' Litigation Forum (LLF) in London. During this in-person roundtable session, Foot Anstey's Head of Banking and Lender Disputes, James Gliddon and Sonya Zywko, who leads Foot Anstey's Contentious Regulatory practice, were joined by Georges Chalfoun from 3VB as well as clients from across the market to exchange views and insights on topical themes and issues. With a wide range of perspectives to share, the session was broken down into three bitesize conversations focusing on:

1. Updates in the market.
2. The Financial Conduct Authority (FCA's) current focus on vulnerability and the responsibility of senior managers.
3. Supporting senior managers' role in disputes and investigations.

Updates in the market

We provided an update on the current lending market and reflected on how this compared to the last LLF in September 2023.

At that time, the market was stressed with property values being reviewed and Bank of England base rates having just reached their current peak. Fast-forwarding to the current environment, despite the end of what turned out to be a short recession at the beginning of 2024, the market has not necessarily rebounded strongly and this has been reflected in the rise of pre-enforcement instructions Foot Anstey has received in recent months.

The Treasury Committee's recent activity was also noted in relation to themes such as de-banking, the adequacy of dispute resolution forums for small and medium sized enterprises (SMEs) and particularly, whether the wide use of personal guarantees is a potential block to SME borrowing (as argued in the Federation of Small Business' "super-complaint" in December 2023). In addition, recent policy and regulatory changes were considered, such as the failure to prevent fraud offence under the Economic Crime and Corporate Transparency Act 2023 and the incoming APP fraud mandatory reimbursement requirement for payment services providers, which are hot topics many clients are grappling with.   

To conclude, two notably consistent themes ran through recent instructions. The first was the increasing frequency of litigants in person, which will often be costly and challenging for lenders to manage. The second was the heightened concern surrounding how disputes are conducted – even in the unregulated, commercial lending space. This was particularly in light of the Mindful Business Charter's recent guidance on the topic – a change being driven by the evolving policy/regulatory landscape, reputational concerns and the approach of the courts.

The FCA's current focus on vulnerability and the responsibility of senior managers

Sonya Zywko chaired a discussion on the regulator's focus on vulnerable customers in light of the recent HSBC fine concerning its treatment of customers in financial difficulty and what firms (and senior managers) can expect as borrowing costs remain high and the cost of living crisis continues to bite.

At the outset, it was stressed that whilst the FCA's guidance on the fair treatment of vulnerable customers focuses on natural persons, the FCA's Principles, such as the obligation to put in place effective systems and controls and to treat customers fairly, extends to all customers and therefore remain an important consideration for commercial lenders. The HSBC decision was an example where responsibility for collections and recoveries was missed in the risk framework and the senior manager responsibility mapping exercise. 

The FCA's recent decision against HSBC also demonstrates the importance of internal procedures and having adequately trained staff for identifying vulnerable customers. This is particularly relevant following both the joint letter published by the FCA, Ofgem, Ofwat and Ofcom outlining that lenders' debt collection practices must support customers in financial difficulty including vulnerable customers, as well as the FCA's ongoing review of the fair treatment of vulnerable customers (which will include a review of information gathered from firms, customers and customer representatives through the lens of its Consumer Duty) to consider whether product design, communication and customer support are suitable for vulnerable customers.

In relation to senior managers, whilst an FCA decision against senior managers is yet to be issued, this could soon change, particularly given the time lag between the conduct in question and any regulatory outcome (as demonstrated by the HSBC decision which concerns conduct from 1 June 2017 to 31 October 2018). Therefore, in order to mitigate the risk of intervention, senior managers responsible for vulnerable customers should carefully consider the lessons learned from cases and guidance to date, including whether procedures are working as expected, and lenders should ensure there is a clear map of responsibility within the organisation.

To find out more about why firms must focus on the fair treatment of vulnerable customers in the context of high inflation and borrowing costs, visit our dedicated webpage.

Supporting senior managers' role in disputes and investigations

Georges Chalfoun, Barrister at 3VB with a particular specialism in substantial civil fraud claims, explained how senior managers can be brought into these types of proceedings, referencing certain recent (and increasingly common) unlawful means conspiracy cases.

One example is Suppipat v. Narongdej, in which claims were brought against a large number of defendants including SCB Bank and two members of its board of directors, in relation to c.$1–2bn worth of finance provided for an onshore wind project in Thailand. In that case, all claims against SCB Bank failed given that, amongst other reasons, the lender's compliance function put in place adequate contractual protection. It highlighted the importance of having well-trained employees as well as the potentially significant consequences of senior managers being defendants in these types of claims.

The natural discussion is how the burden and potential liability on senior managers are increasing, which becomes materially impactful for smaller players in the market. Whilst it was acknowledged how difficult unlawful means conspiracy claims can be to anticipate, risks can be mitigated by increasing the awareness of transactional staff and board members, including the importance of asking questions where information concerning actual (or threatened) litigation comes to light during a credit approval process, following up to obtain satisfactory answers and creating an internal audit trail. Once conspiracy claims have been issued, these can be challenging to manage and give rise to complex questions around whether defendants should be jointly or separately represented and how common interest privilege will operate.

If you have any questions or would like more information on the LLF, please contact James or Sonya.

For further information regarding Georges Chalfoun's practice, please contact him directly.