Santander UK Plc & Anor, Re

Santander UK plc (“Santander UK”) and Abbey National Treasury Services plc (“ANTS”) (together the “Applicants”) intend in early 2018 to issue an application under Part VII of the Financial Services and Markets Act 2000 (“FSMA”) for the sanction of a ring-fencing transfer scheme (the “RFTS”). Both Santander UK and ANTS are intended transferors under the RFTS.

Banco Santander, S.A. (“Banco Santander”) is the indirect Spanish parent company of Santander UK and operates a branch in London (“SLB”).

The present application is made by an application notice dated 24 October 2017. It follows a hearing on 26 May 2017 before the Chancellor of the High Court and Snowden J (“May hearing”) for prospective guidance from the Court involving all four banking groups (namely, Santander, HSBC (Footnote: ¹), Lloyds (Footnote: ²) and Barclays (Footnote: ³), together the “Banks”) intending to make applications in the High Court for the sanction of an RFTS. Those applications were made by each Bank pursuant to separate Part 8 claim forms as part of a procedural innovation approved by the Chancellor. The judgment in that application is Re Barclays Bank plc & ors [2017] EWHC 1482 (Ch) (“Barclays No.1”).

Barclays No. 1 sets the prospective timetables for each Bank’s RFTS, which was established in collaboration with the Prudential Regulation Authority and Financial Conduct Authority (“PRA”, “FCA” and together, the “Regulators”). The Order made at the May hearing (“the May Order”, which is in substantially similar terms to those of the other Banks) reflected this timetable and permitted the Applicants to seek further preliminary rulings before issuing the claim form for the RFTS.

Since the May hearing, two of the Banks, Barclays and Lloyds, have each had a further hearing for additional directions relating to their proposed communications plans. The Barclays hearing was on 31 July 2017 before the Chancellor. The Lloyds hearing, before me, was on 25 September 2017.

The present application, like the subsequent Barclays and Lloyds hearings, is made because the Applicants seek more detailed prospective guidance in the form of certain directions relating to the communications programme proposed by the Applicants. These are sought because the Applicants wish to have their approach to communications confirmed in certain respects before the directions hearing for the RFTS, currently scheduled for 5 February 2018 (“Directions Hearing”). This will limit the need to take unexpected steps following the Directions Hearing which might impair the ability of the Applicants to comply with the Court’s requirements for timely communications before the proposed sanction hearing for the RFTS, currently scheduled for 11-12 June 2018 (“Sanction Hearing”).

The Santander proposed RFTS, like the Lloyds RFTS, is structurally different from the Barclays RFTS (and the HSBC RFTS). The Barclays and HSBC RFTSs involve the transfer of their very numerous retail customers from their present bank to a new ring-fenced bank. Barclays and HSBC will create new ring-fenced banks into which their retail and consumer finance customers will be migrated via a RFTS, involving changes to (among other things) retail customers’ sort codes. In the Santander RFTS, retail customers will remain where they are, in the Santander UK Group, and the prohibited business and a limited amount of permitted business will be transferred to SLB.

Thus, more particularly, the Santander RFTS involves the transfer of, at most, 1,620 sophisticated customers, comprising the Santander UK Group’s larger corporate customers, financial institution customers and market counterparties. Retail, SME, business banking and other corporate customers of the Santander UK Group (nearly all of whom are currently served by Santander UK) will not be transferred under or otherwise affected by the RFTS.

Santander UK’s retail customers and Santander business customers will continue to be serviced out of the Retail Division of Santander UK (i.e. the products and services they require will be provided by the Retail Division of Santander UK). Santander UK’s corporate customers will also predominantly be serviced out of the Corporate Division within the RFB. Permitted business will stay within the RFB, with two exceptions. First, a small amount of permitted business with financial institution customers will transfer to SLB. This will allow FIs (permitted business with financial institution customers) to be offered all of the products and services they need from a single entity, SLB, as far as possible from a specialist team serving FIs, rather than having to deal with two banks. Second, some permitted derivative products that constitute permitted business will transfer to SLB in order to provide Santander UK with sufficient headroom required under Article 12 of the Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 (which sets out conditions and limits for permitted derivatives transactions between an RFB and its account holders).

As I have indicated, what the Applicants now seek is, in effect, comfort that the Communication Programme they propose is likely to suffice (absent some material change of circumstance) and is in accordance, or at least not inconsistent with, the guidance given at the May hearing.

Further to the May hearing, it is apparent that a great deal of thought has been given both by the Applicants and by the Regulators as to how to strike the balance which must be struck in devising the Communication Programme between, on the one hand, sufficient notification to enable those concerned both to know that a ring-fence scheme is in the offing and its effect on them and, if adversely affected, their statutory right to appear in court and, on the other hand, the dangers, including risks of fraud, of corresponding with people who in point of fact and law will most likely not be adversely or materially adversely affected by what is proposed so that there is no present basis for anticipating that they could reasonably wish to make submissions in court. The proposals for my consideration now have been designed with a view to achieving that balance.

I can take an explanation of what is proposed directly from the Applicants’ very helpful Skeleton Argument.

The Applicants have divided their customers into four categories, as outlined below (the “Customer Groups”)

The Applicants have helpfully summarised their proposals as regards these categories in a schematic summary exhibited as “AR20” to the second witness statement of Antonio Roman (Chief Financial Officer of Santander UK and a director of ANTS) dated 23 October 2017 in support of the Applications. Those proposals are then detailed in the Appendix to the draft Order.

Put broadly, the overall scheme of the proposals is to notify directly all Transferring Customers and Non-Transferring ANTS Customers; but only to notify Non-Transferring Santander UK Group Customers by more generalised notification through (a) websites (b) references to the RFTS in customer statements (c) a ring-fencing message that has been delivered via a log-off message to customers as they leave Santander Online Banking which will continue until the end of November 2017 (d) displays on ATMs (e) Branch posters and (f) press and gazette notices and (g) media messaging.

In addition, the Applicants have given consideration to the position of customers of the Banco Santander Group outside the Santander UK Group but have concluded that they will not be adversely affected in any way by the RFTS. They are customers of companies with their own prudential regulatory arrangements outside the UK. They have no links to the Santander UK Group other than the fact that Banco Santander is the ultimate parent company of all the companies those customers deal with, and of the customers of the Santander UK Group. The Applicants submit that to seek to notify those wider Banco Santander Group customers of the RFTS would likely only confuse them. It would also be disproportionate in the circumstances given that there are 125 million customers in the wider Banco Santander Group.

The Applicants also submit that it is to be taken into account that the transfer of business under the RFTS to the wider Banco Santander Group is small when considered against the size of the Group. It is expected that the products of up to 730 customers will transfer to SLB under the RFTS (Footnote: ⁴). This will represent 0.0006% by number of the total customer base of Banco Santander Group, 2.6% of its assets and 2.9% of its liabilities. The transfers are not expected to have any adverse impact on Banco Santander’s credit rating, capital or liquidity.

At the May hearing the importance of ensuring proper notification of intermediate hearings was emphasised. Notice of the 27 October 2017 hearing has been included on the Santander microsite since 1 September 2017. On 15 September 2017, the PRA published details of the date of this hearing on its website and on 2 October 2017 the FCA did the same on its website. I am satisfied that the hearing today has been sufficiently advertised.

In assessing the proposals put forward, with which the Regulators are content, I have been concerned to ensure that what is proposed does not as best I can assess it run inconsistent with the guidance that was given at the May hearing in the judgment of the Chancellor and Mr Justice Snowden on that date.

However, it seems to me, reading the relevant paragraphs of that judgment, that the Chancellor envisaged precisely this sort of application in para.31 of his judgment and opened the door to the possibility that it would, assuming the skilled person’s report does not confound the assumption, be possible to ascertain with reasonable confidence certain groups who would not reasonably wish to make submissions or attend and in respect of whom the balance would most clearly favour relying on more general processes than individual communication.

Indeed, I take it to have been a material purpose of the judgment on 26^th May to encourage not a “one size fits all” but a very careful, almost granular approach to the particular circumstances of the applicant in question having regard to the structure of the relevant scheme.

It does seem to me that the balance struck by the proposals, on the information presently available and on the assumption of a benign, if I can put it that way, skilled person’s report (such is presently anticipated), is an adequate and, indeed, commendable one.

It also seems to me, as I have said previously in the context of an earlier application by Lloyds, that the objective of people becoming aware at least in general terms such as to enable them to take more particular advice if they think it appropriate from the multitude of electronic processes and other more general means of bringing the matter to the attention of persons interested should result in what Mr Moore I think described as a wave or tide of knowledge developing in good time before the directions hearing and certainly in good time before any sanction hearing. The balance is adequately struck with proper recognition of those other avenues of bringing the matter to the attention of persons concerned.

In so concluding at this early stage, I do stress, as counsel have also accepted, that the ultimate balance will have to be struck at the directions hearing itself and circumstances may arise, or the skilled person’s report may reveal factors, which militate in favour of more specific communication. The Applicants accept necessarily in my view that anything done today is provisional to that extent. Subject to that caveat I am content to approve the order as proposed.

In point of drafting, it is true that the appendix to the proposed draft order is in somewhat less formal language, because it is extracted from the witness statements supporting the application, than would usually be incorporated in a court order but it seems to me to be both safer and clearer to do it that way, safer because it will exactly match the evidence and clearer because the only way that I perceive there would be of making it more formal would be to, in effect, translate the active to the passive, which seems to me an unnecessary piece of pedantry.

Finally, I am very grateful to counsel concerned. I would like to see a transcript if that could be organised. I reserve the right to make alterations and additions to it. The purpose of my saying something now is so as to indicate, though in the most general terms, the basis on which I approve the order and to confirm that I am satisfied that the proposals at this stage appear appropriate and in line with the guidance given at the May hearing.