In an otherwise quiet month (February) for FCA Enforcement, the UK's conduct regulator imposed a fine of almost £2 million on Vanquis Bank for mis-selling credit card customers an add-on "Repayment Option Plan." The firm is also subject to a costly compensation package. Customers were mainly individuals with poor credit histories and the card was intended to enable them to rebuild their credit record. It is with some irony, therefore, that they were sold a product in respect of which the APR could rise to almost 80% pushing them further into debt. The add-on was a significant revenue stream for Vanquis and this fact serves as a reminder to firms that a very profitable product may be a sign that something is wrong and, potentially, of a failure to treat customers fairly. It is also a warning to firms that the FCA's guidance on Payment Protection Insurance applies to a wider suite of products. No doubt the timing of this announcement was co-ordinated, because on the same day the FCA published its policy statement on new credit card rules (providing more protection to customers in persistent debt or at risk of financial difficulties). This is unlikely to be the last enforcement case against a credit card provider.
Client Best Interest Rule and Terms of Business
A claim that terms of business requiring a spread-betting firm to close out a position (should a margin call go unsatisfied) were at least, in part, to protect customers has been rejected in Aryeh Ehrentreu v. IG Index Ltd. A firm's failure to do so did not mean it had contravened the client best interest rule at COBS 2.1.1R and, therefore, was not in breach of statutory duty. As regards breach of contract, it would require "very clear express words" in the contract, spelling out a duty to protect a customer, before a court could conclude that such an exceptional duty arose. In this decision, the Court of Appeal has once again shown a notable reluctance to protect customers in financial services disputes in circumstances where the customer is seeking to assert right rights to protection that go beyond what was contractually agreed. Although not cited, nor directly relevant, it is very much in the spirit of Springwell Navigation which concerned the duty of care owed to sophisticated investors when marketing and selling complex financial products.
Bank's Quincecare duty
Singularis Holdings v. Daiwa Capital Markets Europe centres on a bank's liability for paying away USD 204 million during the financial crisis at the instigation of its customer's sole shareholder (one of the directors) who had a dominant influence over its affairs. The individual acted fraudulently and the court had to decide whether his knowledge should be attributed to the company, thereby providing the bank with a defence of illegality. The Court of Appeal held that the sole shareholder's fraudulent knowledge and conduct should not be attributed to the company - on the facts it had a functioning (albeit negligent) and innocent board, even if the sole shareholder was its directing mind and will. Moreover, the purpose of the Quincecare duty (see below) operates on the basis that the person whose fraud is suspected is a trusted employee or officer and it is a duty on the bank to protect the customer from that person. The Court both at first instance and on appeal was also cognisant that to deny the claim could impact the increasing reliance on banks to help reduce financial crime - more usually seen in respect of anti-money laundering controls. Should financial institutions be concerned that the courts will more readily find them liable when they fail to spot fraud? Some comfort may be drawn from the judgment which considered that this was an unusual case, the circumstances of which were unlikely often to arise. The Court may have also have been mindful that the company was in liquidation and its creditors (not the perpetuator) stood to benefit.