Barclays Bank Plc, Re

The applications before the court concern the Ring Fencing Transfer Schemes that each of the major deposit-taking banks in the United Kingdom is required by statute to have in place by 1^st January 2019. The schemes are required for any banks that have an average total of deposits from individuals or SMEs of more than £25 billion. The schemes are intended to isolate the banks’ retail banking activity from its wholesale or investment banking activity.

There are four claim forms before the court, each issued on 5^th May 2017, by respectively Barclays Bank Plc and Woolwich Plan Managers Ltd (together “Barclays”), HSBC Bank Plc (“HSBC”), Lloyds Bank Plc and Bank of Scotland Plc (together “Lloyds”), and Santander UK Plc and Abbey National Treasury Services Plc (together “Santander”).

The claim forms look forward prospectively to the claimants’ expected future applications under s.107 of the Financial Services and Markets Act 2000 (“FSMA”) for orders sanctioning under s.110 of FSMA four ring fencing transfer schemes (“RFTSs”) in the High Court in London, and one in the Court of Session in Edinburgh.

Each claim seeks relief broadly as follows:

These applications then arise because the banks cannot make their formal applications to sanction their RFTSs without the consent of the PRA under s.107(2A) of FSMA, and the PRA cannot give their consent until they have considered the scheme report prepared by a Skilled Person under s.109A of FSMA.

The banks have therefore been required to issue claim forms to seek the court's prospective guidance in relation, in particular, to communications to persons potentially affected by the RFTSs, and the timetable for the future conduct of the substantive applications. In the light of the importance of the RFTSs and the need for them to be completed by 1^st January 2019 the procedural innovation provided by these claim forms is, in my view, well within the inherent jurisdiction of the court to regulate its own procedure.

I should also record that given the importance of these applications I have directed that two judges should hear them. I did so on the basis that s.66(1) of the Senior Courts Act 1981 provides that:

It goes without saying that the court will give such assistance as it can in cases of this kind to ensure that the applications proceed expeditiously and efficiently, and that all necessary parties are heard, and that the issues are resolved and concluded within the statutory timetable. It is nonetheless important for the parties, and all those affected by the RFTSs with which we are concerned, to understand that the directions which the court will give at this stage are given on the information currently available to the court. They are not to be regarded as set in stone. They are necessarily subject to any further directions and orders that the court may make in the individual application for each bank. That is especially true because although the hearing before us has been attended by counsel for the banks and for the Regulators (the FCA and the PRA), the hearing has not been notified to consumers, customers or stakeholders, or to others who may be affected, nor even to representatives of such groups. Such people, therefore, have had no opportunity to make representations concerning the process which is to be adopted.

Moreover, although the FCA, as part of its regulatory function, will give consideration to the best interests of customers of the banks and consumers, and it has indicated that it currently intends to be represented at all the forthcoming hearings, I take the view that the banks and the Regulators should ensure that adequate publicity is given to the forthcoming Directions Hearings concerning the banks’ communication programme. Therefore customers, consumers and others who might wish to have a voice on the process to be adopted can, at least, have the opportunity to be heard.

In essence the Barclays and HSBC proposals involve a transfer of the ring fenced business to a newly authorised ring fenced body (an “RFB”). The Lloyds ring fencing plan involves a transfer of business out of the existing entities and into a newly formed entity, which will be a non-ring fenced bank. The business transferred out will be business which a RFB will be prohibited from carrying on. The Santander plan involves transfers of certain largely prohibited business between existing authorised banks.

Section 106B of FSMA provides as follows:

Section 107 provides as follows:

Section 109A of FSMA provides as follows:

Insofar as it applies to RFTSs, s.110 of FSMA provides as follows:

Section 111 of FSMA provides as follows:

A relevant definition for the purposes of any RFTS is that of "consumer" in s.1G of FSMA. This terms is defined very broadly to include persons who use, or have used, or may use regulated financial services or services which are provided by persons other than authorised persons, but are provided in carrying on regulated activities.

In relation to critical issue for the scheme report by the Skilled Person of the identity of "persons who are likely to be adversely affected" by the scheme, the FCA's guidance states as follows:

The PRA has also stated similar views as follows:

Against this background the FCA has considered the question of notification of the court proceedings. The FCA guidance includes the following passages:

As I have already pointed out the banks' schemes differ somewhat. It is important to consider the evidence of each bank on the communication plans they propose.

Mr. Martin Moore QC, leading counsel for all the banks argued at paragraph 20 of his skeleton argument that:

Mr. Moore also made clear that the court is not being asked at this stage to determine what the term, "likely to be adversely affected by the scheme," in s.109A(4)(a) of FSMA means, nor who is likely to be so adversely affected. Instead the banks ask that the court approves the "general principle" that they are only obliged to consider giving individual notice to those persons (whoever they may be) who are likely to be adversely affected. (See paragraph 30 of his skeleton argument.)

In oral argument Mr. Moore sought to emphasise the relationship between an insurance transfer scheme and a ring fencing scheme of the kind in issue in this case, and to suggest that it was not necessary to give individual notice to every person who might allege that they were adversely affected by the proposed scheme. He submitted that it was all a question of balance and proportionality depending on the views of the Skilled Person and that the court should only consider, in effect, whether and to whom individual notice should be given at a later stage when the communication plan for each bank was placed before the court.

Mr. Rory Phillips QC for the PRA and the FCA pointed out that according to their evidence some of the banks proposed to treat the proposed direction as a minimum requirement; for example by giving notice to all relevant consumers whether or not adversely affected. He indicated, as might be expected, that the Regulators have no objection to that approach (see paragraph 26 of his Skeleton Argument). In oral argument Mr. Phillips did not push back on the suggestion of the court, to the effect that, at least the starting point ought perhaps to be giving notice to anybody who might fall within s.110(4) of FSMA, namely a person who might wish to allege that they would be adversely affected by the carrying out the RFTSs.

The divergence of views between the banks in this regard does raise, in my judgment, a question of principle in relation to who should be notified of the applications.

This question, which has formed the bulk of the argument before the court in the hearing this morning, relates, in effect, to the starting point and not to a final determination of who is to be notified in any particular case. It is quite clear that whatever order the court makes now, each bank will be able to come back to the court with its communication plan and argue that a different cohort of notifications should be sent based on reasons, which are not at this stage before the court. Taking an example that I gave in the course of oral argument, it may possibly-- and I make no determination upon it-- be open to a bank to submit that the customers in a particular part of its business will only be beneficially affected by the scheme in question. They may submit that it is impossible to imagine that such persons could be adversely affected, and in such circumstances it would be inappropriate to give individual notification to them. I know not whether that will be possible or appropriate in the future, but certainly nothing I say now should be taken to rule it out.

Section 110(4) of FSMA provides that, as I have said, "any person (“P”) ... who alleges that P would be adversely affected by the carrying out of the scheme", is entitled to be heard on the court application for sanction of the RFTS.

In these circumstances, it seems to me that it is not for the banks to limit notification of their schemes to persons who they have determined are likely to be adversely affected by the scheme. The statutory framework for potential objections suggests that anyone who might wish to allege that he would be adversely affected by the carrying out of the scheme ought to be notified of it. It may be for consideration in the future whether “anyone who might wish to allege that he would be adversely affected by the carrying out of the scheme”, can only include a person who might reasonably allege, or might reasonably wish to allege that he would be adversely affected by the scheme.

Obviously it is no part of the court's purpose to encourage applications from unreasonable objectors. Nonetheless, in my judgment, it is at least important that anybody who might have a reasonable contention that they would be adversely affected is able to make their point at the appropriate stage in these proceedings.

In saying what I have said, I recognise that in the light of the indications from the FCA and the PRA in setting out the potential range of persons who might be likely to be adversely affected, and since the banks have not asked the court to determine at this stage whether any particular person or group can or should be excluded from notification, it is possible that the net will have to be spread fairly wide. The proposed direction is that:

In my judgment that is not an appropriate direction to be given at this stage for the reasons I have just given. Subject to any specific exclusions that will need to be justified to the court at the hearing to approve each banks' individual communications plan, the starting point must be that individual notice will need to be given to all customers and consumers as defined in section 1G of FSMA, because it has not yet been shown that any of them is not in the category of persons who "might wish to allege that he would adversely affected by the carrying out of the scheme". I quite accept Mr. Moore's submission that if this preliminary view gives the banks difficulty in preparing their communication plan, bearing in mind the complexity of the schemes and the tightness of the timetable over which they have to be executed and completed under the statute, it may be necessary for one or more of the banks to make an interim application to the court for concrete directions as to their proposed communication plan earlier than the Directions Hearing contemplated in the timetable, to which I shall shortly refer. Nothing I have said indicates that such a preliminary application would not be appropriate and, if it is necessary, the court will deal with it in an appropriate fashion at the time.

Accordingly, in my judgment, the appropriate direction to give at this stage in response to the application that has been made to the court in these preliminary proceedings is as follows:

I emphasise, in closing in this section, that this direction is not intended to prejudge the individual circumstances of the banks' cases on any subsequent application when their communication plan is put to the court.

The proposed direction at para.2(b) of the proposed orders is as follows:

The PRA and the FCA emphasised that there should be a printed method of communication as well as an electronic one, in case the electronic method failed. But subject to that, they did not object to the proposed order. It seems to me the order is entirely appropriate and will abrogate the need for many millions of individual letters to be sent. I would therefore propose that the order suggested is made.

The proposed direction is:

Paragraph 45 of the FCA's guidelines suggests, following the practice in other Part VII transfer cases, that a period of more than six weeks should elapse between sending notices to persons likely to be adversely affected and the date of the court hearing.

I agree that six weeks is the minimum period of notice that would be appropriate for customers and consumers to assimilate the information that they will be given and to prepare their case if they so wish. Since, however, the RFTS procedure has an additional requirement that persons wishing to appear must provide a written statement of representations that they wish the court to consider, that six-week period cannot end on the date of the hearing itself. It must run from an earlier date, which will give the court the chance to consider any submissions and organise the sanctions hearing. That is the purpose of the proposed Representation Dates, which will all be at least 20, and perhaps because of something I am about to say, as much as 27 days before the proposed sanction hearings. I am therefore content to indicate that notification should be no less than 42 days prior to the Representation Date as the parties ask.

The proposed direction is:

Although this direction applies to persons other than customers or consumers, I think it is also affected by the same problem as proposed direction 2(a). It will need to be broadened so that "individual notice is given to any stakeholders of the bank's group who might wish to allege that they would be adversely affected by the carrying out of the scheme". The persons who might fall within this category might be limited but it will be up to the banks concerned to devise a plan in each case for working out who such stakeholders might be and to seek the approval of the court to that plan at the communications directions hearing or at an earlier directions hearing if that is necessary. Again, in making this direction, the court is not seeking to limit the submissions that the banks may wish to make in respect of the detail of their proposed communication plan.

The proposed direction is:

The PRA and the FCA have no objection to this direction and, for similar reasons to those that I have already expressed in relation to notification to customers and consumers, neither do I.

The proposed direction is as follows:

This relates to a “catch all” provision for advertisements as a means of notifying persons who ought to have notice of the hearings but who might, for whatever reason, such as a change of address or individual communications being lost or misdirected, not otherwise get to learn of the hearing. The question of which publications are suitable for such an advertisement is a point that will have to be addressed at the communications directions hearing in relation to each bank and its customer base, but the PRA and the FCA have no objection to the timing of such advertisements in principle, and I am content also to adopt the banks' proposals.

The proposed direction 5 is:

The Regulators do not object to the proposed direction, noting that the court in any event has the inherent power to waive compliance with any communications programmes embodied in an order for directions as proposed direction 8(a) contemplates. I agree. In analogous Part VII cases, subject always to any specific statutory provision to the contrary, the court has a well-established inherent power to waive compliance, or excuse non-compliance with, its procedural directions. The same regime should operate in these cases.

The proposed direction is:

“that the principal source of information concerning the RFTS should be a dedicated section of the website, or part thereof, of the Company's group, provided that hard copy documents be made available on request".

Paragraph 42 of the FCA guidance said this about documentation:

The Regulators do not therefore object to the use of the internet to provide information and documents provided that provision is made for persons with special needs; for example, those who are visually impaired. Modern practice in many recent analogous cases involving schemes of arrangement and Part VII transfer schemes has been to move towards increasing use of a dedicated website, or section of a website, established by the applicant. This enables persons affected, or potentially affected by the scheme, to have easy electronic access to relevant information and documents. In almost all cases this is more efficient and cheaper than the applicant having to print and distribute large numbers of hard copies at great expense.

Accordingly, provided there is a fall-back position under which persons affected can ask for a hard copy, the use of a website in this way is to be encouraged. That is particularly so in a case such as the present where there are likely to be many millions of customers and consumers.

Whilst the detail of the communication programmes will have to be worked out in each case, and the different banks may have different practices as regards communicating with their customers by electronic means, as I say, I agree with this proposal in principle subject to the proviso concerning special needs.

The proposed direction is:

The practice to which this proposed direction refers is one that is said to be most commonly applied in the insurance business transfer context to protect the confidential and commercially sensitive information of the applicant. The practice is for the independent expert who reports on such cases, and the PRA which has to indicate its views on the scheme, to confirm that, based on the information made available to each of them, the necessary solvency tests are met, without revealing the underlying data on which that conclusion is based.

The Regulators do not object in principle to the application of that practice by analogy in the context of an RFTS provided they are satisfied that, in each case, the proposed exclusion or redaction of relevant information does not undermine the clarity, intelligibility or effectiveness of the scheme report to achieve its intended purpose.

I agree with the proposed direction. I would however make it clear that such a direction would not prevent the court from making an order in due course for the disclosure of such information, if it considers that necessary for the proper determination of the application, and of any objections from interested parties. In any such case, however, it is to be expected that the court would seek to ensure that any such sensitive information was protected by suitable confidentiality undertakings.

The proposed direction is:

As I have indicated, s.110(5) provides that a person, who alleges that he would be adversely affected by the carrying out of the scheme, is not entitled to be heard unless he has filed with the court a written statement of his representations, and served copies of the statement on the PRA and the transferor concerned.

Although s.110(5) does not prescribe any timetable for the filing and service of such written statements, it is implicit that this should take place before the hearing. In my judgment that is plainly designed to enable the applicant, the Regulators and the judge hearing the application to have written information concerning any objections in advance of the hearing, and in sufficient time to enable such objections to be considered, and for the parties in the court to be able to plan for the efficient conduct of the hearing.

I therefore think that it is consistent with s.110(5) for the court to give a direction setting a specific time in advance of the hearing, by which written submissions should be produced. The proposed Representation Date is in each case 20, or perhaps now 27, days before the proposed sanction hearing, and is before the CMC, which precedes the hearing. That should hopefully give sufficient time for all concerned. As Mr. Phillips said in his Skeleton Argument at para.60:

I agree with that submission. I do not therefore accept that it is permissible for a person who falls within s.110(4), and who has filed and served a statement before the hearing so as to comply with s.110(5), to be barred from being heard or required to seek the court's leave because he has not done so by the Representation Date. Section 110(4) gives him an entitlement to be heard subject to compliance with s.110(5). It seems to me that the appropriate sanction for non-compliance with the Representation Date is that the court may exercise a case management power to restrict the manner and time in which such a latecomer is to be heard, and might in a suitable case impose cost sanctions.

I would therefore remove the words, "failing which P shall not be entitled (save with the leave of the court) to be heard, whether orally or in writing at the sanction hearing of the RFTS," from the proposed direction.

I have already given an indication as to some of the timetabling issues that arise and the parties have provided the court with a provisional timetable for each of their applications. In the course of the hearing Mr. Moore indicated that he would prefer to move each date for the CMC back by about seven days so as to give greater time for preparation of the sanctions hearing after the identity and nature of the objections are known. I have no objection to that as a matter of principle, but it is important that the proposed timetable fits in with the court's availability.

I shall attach to this judgment a document entitled "Note of indicative dates for prospective RFTS hearings," the original version of which the court prepared and circulated to the parties prior to the hearing. This gives the dates of the proposed hearings and the identity of the judge nominated to hear them. In this case, diary commitments have required that two judges hear the four applications. Those judges are likely to be me and Hildyard J, although those judges may change if diary commitments change. I will indicate now that the parties should apply to the Listing Office immediately after this hearing to seek to move each of the CMCs approximately seven days earlier, and in addition that the Representation Dates identified in the papers before the court will also be moved seven days earlier in each case.

I should say this. I recognise that even these dates may be unworkably tight if, for example, the court required that a particular issue or objection to the scheme should be the subject of a supplementary scheme report, or if the evidence filed by objectors had to be responded to by the banks and the Regulators. If that did require the date for the sanction hearing to be postponed, then that would have to be a consequence. But it is to be hoped that by moving the CMC date seven days forward that can be avoided. Mr. Moore indicated that the sanctions date is particularly important because the implementation activities that need to be undertaken after the sanctions date and before the final date of the 1^st January 2019, are very substantial indeed. Likewise, the current proposal is that each sanction hearing should be set for two days. That length of hearing may have to be reconsidered at the CMC in the light of any objections received.

The proposed direction is:

I am content to give such a direction providing for permission to apply on reasonable notice to the Regulators. I have already indicated that it may be necessary for such a preliminary application to be made by one or more banks in relation to their communication plans in the light, particularly, of the direction that the court has given under paragraph 2(a) of the proposed orders.

I would also reiterate the point I made at the outset that consideration should at every stage be given to providing proper notice to customers, consumers and others who may wish to allege that they adversely affected by the schemes, and by the particular issues raised before the court.

If Snowden J agrees with this judgment, the orders that I have indicated will be made and the indicative timetable, subject to the corrections that I have indicated for the prospective hearings, will be as set out in an amended schedule to this judgment.

I agree with the judgment the Chancellor has just given and have nothing to add.

Before The Chancellor

Before Mr Justice Hildyard

Before The Chancellor

Mr Justice Hildyard