Contentious financial services pre-summer primer webinar - transcript

LD: Morning everybody. Thank you very much for joining us today and so this is another one of our webinars which we've been doing for the past couple of years now and welcome to those of you who haven't joined us before, thank you very much.

So this is the last of our sessions before the summer break and we thought we'd pull together the key topics as we see them at the moment which would likely be of interest to you and then when we get back in September we'll be delving into some of those in more detail for you.

So just to run you through the speaking order. So first of all we've got Tom Connor who's going to speak about FCA enforcement trends, who's on your screen. Then to my right is Anna Varga who's going to speak to us about ESG and potential routes for investors to bring ESG related security claims in the UK. Anna will be followed by Ruby Hamid who heads our financial crime practice who's also there on the screen and will give us a round-up of the key developments in financial crime, and following which Nathan Wilmott, who's on my left, will speak to you about the conduct rules and whether they're fit and proper for sanctioning non-financial misconduct, which is something which we're seeing a lot of in the market at the moment.

So it's short sharp sessions. I hope you enjoy them and over to Tom.

TC: Thanks very much Lynn.

So I'm going to say a few words now about FCA enforcement trends and, in particular, picking up on some of the commitments which the FCA themselves made in this area and a good starting point for that is to look at the FCA Business Plan that was published in April, so a couple of months ago, and this document sets out the FCA's areas of focus for the next 12 months or so and forms part of their broader three-year strategy that runs to 2025.

In the Business Plan, the FCA have grouped their commitments into three broad areas which you can see on the top in the boxes there. So "Reducing and Preventing Serious Harm". So, for example and we'll keep coming back to this, protecting consumers in particular from harm that may be caused to them, whether that's through poor treatment, fraud or otherwise. "Setting and Testing Higher Standards - Putting Consumers' Needs First" – this means enabling consumers to help themselves, having a strategy for positive change, for example, in relation to ESG, and minimising the impact from operational disruptions, for example, in relation to testing firms' resilience. So the FCA is setting and will be testing a higher standard and that's obviously highly relevant when it comes to their enforcement agenda.

And then the sort of third main area of commitment is "Promoting Competition and Positive Change". The FCA want to use competition as a force for driving better consumer and market outcomes.

So those are the sort of three areas in which the FCA have grouped their commitments. What does that mean in terms of some enforcement priorities. We've picked out a few points on the slide, some of these are big picture but also some of them are a bit more detailed as to where we think the FCA may be going over the next year, looking at what they themselves are saying in their Business Plan and elsewhere.

Point no. 1, no surprises, financial crime. The FCA are going to be using their enforcement powers, in their words, to disrupt and sanction those committing financial crime and their enablers. Ruby's going to come on and talk about financial crime later but just to illustrate this point, in the last month, so from June, we've seen the fines in relation to Ghana International Bank who perform airmail and counter terrorist financing controls. In that case that was a situation where there was actually no evidence of actual money laundering being detected but the risk was significant as a result of failures so there's been a fine in relation to Ghana, there's also been a fine for the insurance broker JLT for failing to have in place appropriate checks guarding against the risk of bribery and corruption. So focus on financial crime, no surprises and as I say we'll return to this later.

Secondly, market abuse, obviously closely related to financial crime, remains a core area of focus, although I think an area which is quite difficult to secure enforcements. Just picking up maybe a couple of points in relation to market abuse. Firstly, the failure of… the FCA's looking closely at listed issuers and the announcements and whether or not they are disclosing inside information promptly and accurately. We, at Ashurst, we just continue to see this from the FCA, it's pretty routine now where there's a market drop in share price to get the letter from the FCA with a request for chronologies, insider list, documents, that's not just direct to the issuer but all of their various advisers as well. I think we also see claimant law firms who are interested in this area because of the potential for follow-on claims encouraging the FCA to investigate, which probably acts as another sort of stimulus in relation to this and it will raise interesting issues I'm sure as we may go into an economic downturn and questions about at what point business deterioration becomes inside information needs to be announced. So that's one point around publicly traded issuers.

The other point which the FCA has talked about in this context is observing higher levels of personal account dealing since the onset of Covid-19 and I think we can continue to see that as an area of interest, questions about potentially suspicious personal account dealing conducted by individuals and also questions around firms' controls in relation to that will be something we think the FCA will be interested in.

Thirdly, protection of consumers. This is right at the heart of the FCA's agenda and we've spoken about this in the past, in particular around the consumer duty. I think if you look at the information about the FCA's current enforcement portfolio, if you look at the stats, then you see a lot of cases relating to retail misconduct. A big theme I think around customer communications, making sure they're clear. That is related to the topic of sustainability and ESG which I know we'll come on and talk about. Focus on financially vulnerable customers, the FCA's talked about the fact that the pandemic has increased the number of financially vulnerable customers and also interestingly the FCA saying in the Business Plan that they'll be enforcing consumer protection legislation, so the Consumer Rights Act and fair trading regulations as well, where they think they can to address harm effectively. So protection of consumers right at the heart of the FCA agenda.

Moving to a more specific point, it's interesting in the Business Plan to see the FCA talking about threshold condition breaches, contemplating that they will take more action against firms for failures in relation to threshold condition breaches and expanding the types of breaches that they take action against. What does that mean? It's difficult to know but I think in broad terms what they're saying is there will be more actions against firms who over a period of time are showing that they do not have adequate resources, they don't have the adequate management to operate in the interests of consumers, those who do not operate in the interests of the market without the regulator having to intervene. So closer scrutiny on threshold conditions.

Another specific point around principals, high risk principals are there, the FCA are threatening more action here in relation to their failures around ARs (Appointed Representatives). So principal firms are responsible for ensuring ARs comply with the FCA rules. I think the FCA's view is, and in the Business Plan, is that many principals are just not doing that adequately, they're not overseeing the activities of their ARs adequately back to consumer protection. This leads to risks for consumers, consumers are at risk of being misled/mis-sold and the FCA are promising action in relation to this.

The FCA also talk about being more assertive in their use of powers to start insolvency processes when necessary to mitigate harm caused by firms, we've certainly seen evidence of the FCA using those powers and also in particular threatening to use them in the past. Lynn's done a lot of work in this area in particular and it's clearly highly relevant in the current economic climate and how it might develop over the next few months with questions around financial stability likely to be high up the agenda for the FCA.

Some of the points were around crypto assets where the FCA's talking about rapid intervention that's required, clearly here focused in particular on money laundering regulations and compliance with the MLRs. Any suggestion or any concerns around firms being used as conduits for illegal or inappropriate activity, clearly the FCA is going to be looking to address and of course any risks to consumers or wider market integrity.

And then, finally, I think we've continued to see an increase in the amount of action against senior managers. We've seen a number of cases which were on foot against senior managers for a range of reasons. One of the questions that that brings into focus is the conduct rules, whether the conduct rules are fit for purpose, that's something Nathan's got some views on and is going to talk about as we move on through the session but I think we can continue to expect more action against senior managers and the firm and senior managers being jointly [inaudible] engaged.

So I think those are Business Plan, as I say I think all of this needs to be thought about in the context of the broader economic climate, we can expect potentially downturn exposing behaviours that may lead to enforcement action but to summarise where the FCA's priorities are, I think the big picture is consumer harm and financial crime, those are the two real key areas and really pretty much everything, or a lot of it, comes back to those key areas focusing on consumer harm, consumer protection and investigating financial crime.

Well those were the points that I wanted to run through just to give you an overview of the FCA's enforcement priorities and trends and now I'll hand over to Anna to pick up in relation to ESG.

AV: Thanks very much Tom. Morning everyone.

So I'm going to talk about ESG in the context of the judgement in HPM economies and how that might impact on the likelihood of possible ESG related securities claims.

Now we have spoken about this before, in particular we spoke about how this litigation risk might crystallise and we flagged two options: under FSMA, the first being Section 90 of this month, that's not going to be spoken about today and the second being Section 90A or now Schedule 10A of FSMA. That's the one we're going to be focusing on today. We noted in our previous sessions that actually these two sections were really quite possible avenues or attractive avenues when it came to ESG related class actions. And that's really what we're going to try and think about in terms of this judgement and what that means for that particular aspect.

But before this judgement really there was very little by way of judicial dicta, particularly in terms of Schedule 10A and Section 90, there was nothing like that for it. So there was really little to guide claimants or indeed defendants to understand the proper remit of the statutory framework.

So turning then to Section 90A, I think it's worth just reminding ourselves what actually are the key fake aspects of it. So Section 90A, Schedule 10A, the Schedule 10A is the new version of the Section 90A, introduces a cause of action to hold public companies accountable to their shareholders where an issuer makes an untrue or misleading statement or omission in published information. Now the quintessential example of that is things like annual reports, for example. This doesn't include listings or prospectuses, listing particulars or prospectuses. The statement must be made knowingly or recklessly, that's going to be relevant for some of the points we're going to go on to discuss, or relate to a dishonest delay in publishing that information. Couple of key additional facts to remember is for the claimant to prove that they acquired, continued to hold or disposed of those shares in reliance on the published information and what's to come, this is important, and in circumstances where reliance is reasonable and as a result they suffered loss as a consequence of those mis-statements or omissions. Now, as noted in the Autonomy Judgement, this provision actually is a framework for claims that otherwise would be really difficult to bring at common law and really what we have in mind here is, for example, the tort of deceit. The fact pattern that gives rise to a potentially successful Section 90A would be very problematic from a causation point of view, for example, in the tort of deceit.

It's also worth noting that actually this particular section has been on the statute books for over some 16 years and really the closest we ever got to before Autonomy to this being before a court was in the Tesco matter, but ultimately that was dropped back in 2020. So what was hotly anticipated in terms of what exactly Section 90A meant didn't really happen in 2020 but now thankfully we have Autonomy on this front, now Autonomy is a very useful case because it answers some questions but ultimately it still leaves some unanswered and the aspects that it leaves unanswered are in fact the ones that probably have the most relevance in terms of the ESG securities claim space.

So very quickly in terms of the factual background to the case itself. So the judgement was handed down in May of this year. It numbers about 1700 pages so it's quite the long read, quite a mound of judgement there, and it deals with the high profile claim brought by various Hewlett Packard group companies against Dr. Lynch, that was the founder and former CEO of Autonomy and Mr. Hussain, the former CFO of Autonomy. Now the outcome of that judgement? So Mr. Justice Hildyard held that Autonomy was liable under Section 90A, so that's the predecessor to Schedule 10A of FSMA, for publishing misleading information about his business which HP relied on in agreeing to buy Autonomy for an inflated price. In turn, Dr. Lynch and Mr. Hussain were liable to Autonomy as they knew about that misleading information.

Now you can imagine that with a 1700 page judgement you could actually spend hours dissecting the various aspects of it and there is a lot to dissect there, but realistically, in the time available to us, I think it is more sensible to focus on two aspects. And those two aspects are also a distilled dissection of really what one can say about those. So the two issues I wanted to flag: the first was to do with could the issuers, and this is Autonomy, be held liable for losses caused by all alleged misrepresentation or only those that the person discharging the managerial responsibilities, so that's the statute phraseology and commonly known as PDMRs, so in our case we're talking about Dr. Lynch and Mr. Hussain, is being used to be untrue. Well the judgement confirms the latter. That's good news for defendants because really, unless one can evidence and prove that the PDMRs in this context knew those statements to be untrue or at least knew them to be reckless, the case is bound to fail.

Now, how does that relate to ESG claims. What they suggest is that peripheral sections or high level statements of mis-information may become much more challenging to bring and if you think about ESG claims that's often where this kind of high level statement where there is a risk for that claim to crystallise, so particularly when it comes to, for example, ESG credentials. So it remains to be seen whether actually, those are now a basis to bring a claim. Moreover, if you think about a particular context of this case and the test for dishonesty for the PDMRs, so the test that was applied as it concerns Dr. Lynch's and Mr. Hussain's behaviour, it's worth noting that again this aspect of Section 90A is at odds with common law dishonesty because it imports a subjective test unlike what the current test is at common law which is solely objective. So we've got an objective and a subjective test where it crosses Section 90A.

What that means is that a claim will be lost or won depending on the findings of fact in terms of what the PDMR had in mind when it made or omitted to make or indeed decided to delay the making of a particular statement. That creates quite a practical difficult hurdle to overcome particularly when one concerns ESG credentials, secondly how that plays out in terms of class actions. The other thing is this judgement in fact doesn't squarely attest because it didn't need to decide a point whether high level statements are sufficient in bringing a claim in ESG's case. And obviously that's where, in terms of the potential for claims, that's where the sweet spot would be, so we remain to see how that plays out in future claims, and there are a few working their way through the courts at the moment.

The other key question that I wanted to focus on and concerns reliance because really the area of greatest uncertainty prior to this judgement, in a lot of ways it answered some of the big headline questions but others remain. So the judgement found that there was a factual presumption that objectively material representation induced the claimant. That presumption is one of fact, however not in law. This is like other deceit-based cases so that's all in line with common law but unlike deceit claims, the claimant must still show that they reasonably relied on that misrepresentation. What does that mean? Well what that means is that the claimant must have read the specific representation and understood and that is important, they understood it in the manner that it is now being alleged. What that means evidentially, and also from a matter of causation, is that this is a really high hurdle to overcome. It means that it is very fact sensitive and it is to be determined by reference in the form and timing of the representation. Practically, that greatly diminishes the attractiveness of Section 90 type claim, both in the ESG space and also in the group action context because really ultimately what one would have to do to make good on such a claim is to evidence and that each claimant in fact relied on that specific representation and understood it in that sense and so practically that becomes quite a difficult aspect to overcome longer term.

There are obviously some unanswered questions that remain to be bottomed-out and the courts undoubtedly will grapple with those in due course but, in terms of Section 90A or Schedule 10A as it currently stands, ESG related claims in the securities space, that is looking evidentially and practically a lot more difficult as a result of Autonomy.

So that's all I had to say on that and I shall now hand over to Ruby.

RH: Thanks so much Anna, that's just such interesting stuff and feeds into all the things that we're talking about today, and of course ESG has reached into financial crime and thanks Tom for setting the scene with what's important to the FCA at the moment.

I'm going to pull out a few things which have been happening in the last few weeks and months to send you into the summer with a little bit of thinking.

So the first thing here on the slide is two points I wanted to make about the long-awaited Law Commission Options paper on corporate criminal liability. I know that many of you have talked to us about this and will have been talking to each other about this topic as well. The Q&A box is available so do please pop any questions you've got in there and this might be something we come back to discuss at the end of the session.

So as I say, long-awaited, this is the Law Commission trying to help the government wrestle with the question of how to ensure that corporations can be effectively held accountable for criminal acts. The purpose of these reforms say the Law Commission is to ensure that corporations and all sites can be properly convicted of crimes but importantly, without placing an administrative burden on law-abiding businesses and, I think we'll have to all come back to think won't we about what administrative burden that turns out to be, particularly because the key recommendation is expanding the failure to prevent model that we're familiar with form Section 7 of the Bribery Act and from the Criminal Finances Act, so far as the facilitation of tax evasion is concerned.

The options that are presented include an offence of failing to prevent fraud by an associated person. Again, an associated person is a category of individuals that we will recognise but the breadth of conduct that those associated persons might commit if the offence covers fraud of all types could be huge and could be anything from theft through false accounting to money laundering which will make a big difference to UKPLC. I think one other important thing to mention is the Law Commission recommending Publicity Orders being more widely used and they mention that that's particularly useful in circumstances where, for example, a company is insolvent or is under financial pressure and therefore the headline fine is relatively low. If there is a Publicity Order then the impact is better felt and I think thinking about what matters to the FCA, I think we'd all agree that impact in terms of deterrent effect is one of the key aspects of their enforcement regime so interesting that the Law Commission is thinking about this, the really broad offence.

The second thing to mention, the grey box on the slide is a recommendation of a failure to prevent human rights abuses as an additional option to the current armoury and this is something that's caused a great deal of interest amongst our client base, thinking as they are at this time of year for many companies about filing Modern Slavery Act statements. If this offence were to come onto the statute book, a company would be guilty of failing to prevent human rights abuses extra-territorially and again a very broad range of offences that this could cover, feeding Anna right back into your ESG agenda that we've talked about already and I think this is where we'll see things coming full circle in terms of criminal liability. The defence would be as we recognise, reasonable prevention procedures but importantly though is a requirement say the Law Commission for the government to publish guidance on what those procedures would look like because this is new territory. So some really interesting things coming out of that paper.

Middle of the slide, I wanted to mention an update on the Financial Action Task Force's engagement with the UK. You might remember that back in 2018, Financial Action Task Force reviewed the UK and its money laundering procedures and found that, in a couple of areas, the UK was considered to be deficient and it expected that those deficiencies would be rectified by the end of the third year following the review. So they expected improvements, in particular, in the way that the UK operated enhanced due diligence measures for correspondent banking and also importantly in the way its financial intelligence unit dealt with SARs and disclosures.

Improvements say FATF in terms of enhanced due diligence, so rated as compliant there but the second area of concern is different. The concern focused around what was called the "operational independence" and the "operational viability" of UK financial intelligence units, mainly because of their lack of resources and in particular their limited ability to analyse the data that they're receiving through the SARs programme. Since that FATF report in 2018, the UK has made some progress say FATF, in particular, there is the SAR Reform Programme that's going on at the moment but the main problem is the expansion of those FR units in terms of their capacity and they note that the expansion from only 81 staff to now 141 staff is insufficient given the size of the UK financial sector, the growth in SARs filed by over 270,000 in the last three years and the fact that FATF recommended an expansion of staff to more than 200 more than 15 years ago.

So in essence, the argument is that the NCA's intelligence capabilities and its capacities in relation to its enquiries is inadequate, that they are under-staffed and under-resourced and that SARs and the NCA's command of SARs play a key role in financial crime prevention and that if there are any money laundering reporting officers on the call, I'm sure that they would have plenty to say on the topic of resourcing or otherwise at the NCA. So clearly more to do on the UK's part there.

Finally, two points on sanctions. The first thing I wanted to mention is the FCA's focus on sanctions. Tom has talked about the FCA's focus on financial crime more broadly. One interesting thing that's happened in recent weeks is that the FCA has opened a page on its website for the receipt of confidential reports on sanctions breaches by regulated businesses and they say about that, that they want to hear about any sanctions evasion issues or weaknesses in sanctions controls where they relate to a firm or any person listed on the registers. Also, a UK listed security and that could be information about poor sanctions controls, suspected breaches of the sanctions regime, actual breaches or any methodology that the reporter thinks might be used by firms to breach the sanctions regime. So a real call to action there and I think we've all been seeing and I know we've discussed with many of you, the general uptake in whistle-blowing, it's something that's keeping us very busy at the moment and this looks to be a new route into the FCA for whistle-blowing complaints so let's watch that space.

I think that leads really neatly into what I've called the US focus on this slide. In a recent speech to the Global Investigations Review London conference, the Assistant Attorney General to the US, Lisa Monaco, talked about the US focus on sanctions enforcement. She referred to the work that the DoJ's doing to promote sanctions compliance and she spoke about the resources that the US government is putting into sanctions and sanctions enforcement. She said that companies should pay particular attention to the fact that the DoJ is well resourced in this area and she described the ways that companies should look to their internal measures at the moment and should be focusing very hard on how to make sure sanctions are complied with.

I think really importantly here and that links back to the FCA's approach to encouraging reporting on sanctions, she said that the US is relying on other countries for close collaboration and that there is both information sharing and joint investigation going on but co-operation really is the name of the game. I think finally the key point there is that she talked about incentivising companies to come forward and self-disclose, she talked about the maths being simple in terms of self-disclosure and that something she was expecting to see both in the US and overseas was an uptake in sanctions enforcement.

So I think for both of us who've been following developments over the last month and those of you who've been using the Ashurst sanctions tracker, keeping abreast of all the different developments globally, I think we've all been thinking haven't we about where we're going to see enforcement action and Lisa Monaco's speech is a bit of an insight there into where we might see the action developing.

So I'm going to stop there, as I say, the Q&A box is open for any conversation here and we're very happy as always to carry on the discussion on these topics after the session, by email or otherwise but Nathan I'm going to hand over to you to talk about the conduct rules.

NW: Thanks very much Ruby, that's fascinating.

So I'm just going to finish off by speaking briefly about a campaign that we'll be launching in terms of looking at the conduct rules, the co-contractor of the FCA in particular and examining, are they really fit for purpose and this really builds off what we're seeing as difficulties that our clients are facing in dealing with situations of non-financial misconduct and other types of conduct and really trying to fit what the steps the firm is expected to take by the regulator with the rules and the guidance that is currently there in the FCA handbook.

So a quick reminder of the relevant rules. So the five individual conduct rules. I'm going to really focus on the first two of those: the duty to act with integrity and the duty to act with duty, good care and diligence and then in terms of the managerial conduct rules, again, there are well there are five, if you're an insurer there are four for other firms and I'm going to look at the first three of those which we think of as the managerial responsibilities, those that impose obligations on you in relation to the area of the business for which you're responsible to make sure in practice it's managed effectively.

So one of the areas where we feel that the conduct rules are falling short. In the area of non-financial misconduct, so bullying, sexual harassment, discrimination, inappropriate relationships in the workplace, substance misuse, potentially failure to protect the identity of whistle-blowers, a range of behaviour that it's clear that the regulators expect firms to be taking action against individuals where they see that amongst their workplace. We've seen the first case really against a firm in relation to non-financial misconduct, that was actually in the context of the Lloyds' insurance market, where Atrium was fined over a million pounds and had to pay costs of over £500,000 in relation to sort of conduct that plainly the regulator would see as inappropriate in creating the wrong culture within a firm. So a culture of drinking, of inappropriate comments about female colleagues and then having identified other sort of conduct, bullying, the failure to take appropriate action to protect individuals and to take disciplinary action against them. So in that case, the firm was fined but we haven't seen any action against individuals and in fact, all of the cases that the FCA has pursued to date in relation to what we think of as non-financial misconduct have been fitness and propriety cases saying that this person's conduct means that they're not suitable to work within that particular role or within the financial services sector more generally but we haven't seen cases based on breaches of the conduct rules. So why is that? I think the reason is that there's a mismatch between the conduct rules and in particular the guidance that sits behind the conduct rules and the expectations that the regulator has of firms and I really want to define areas.

So firstly, non-financial misconduct in the workplace, does that amount to a breach of individual conduct rule 1, the integrity rule. Now if you look at the guidance that sits behind the duty to act with integrity, all of the examples that are given are in relation to effectively dishonest conduct in an individual's dealings with customers and they're given as non-exhaustive examples, so you might say well does that really matter that none of the examples of non-financial misconduct that we're talking about here are listed there. I think since a case in the solicitors professional misconduct realm was taken to the High Court recently in the case of Beckwith, in that case it was identified that if you want to bring a case against an individual for a breach of integrity, the rules themselves need to be clear as to that particular conduct amounting to that breach of integrity. It needs to come from a proper interpretation of those rules and so in the absence of that, the conduct is not going to amount to a breach of integrity and so our first point is that the guidance in CoCon that sits behind individual conduct rule 1 is inadequate to really enforce the sort of standards that the FCA expects.

There's a similar point in relation to individual conduct rule 2, duty good care and diligence, where other sorts of conduct, so non-deliberate misconduct in the workplace outside of client-facing or transactional matters, once again all the guidance in CoCon relates to client-facing matters or transactional matters. None of them relate to other negligent conduct that might have an impact on the culture of the firm and I think regularly firms are finding that there is conduct where they're taking disciplinary action against individuals, where there is the question does this behaviour amount to a breach of conduct rule 1, integrity or conduct rule 2 due good care and diligence. They feel intrinsically the regulator would expect them to find it to be in breach of one or either of those rules but actually when you look at the guidance in CoCon, it is inadequate to provide firms with the material it needs to support that finding of a breach of the conduct rules.

Thirdly, this was beyond non-financial misconduct, those three managerial obligations that apply to senior managers are imported in the guidance into individual conduct rule 2. The guidance says if you are in a managerial role, in any position within the firm, so not as a senior manager but as a member of certification staff or conduct rule staff, you are effectively held to the same standards as senior manager conduct rules 1, 2 and 3. Now if that is the case, then that needs to be made very clear to individuals in managerial positions in firms and the way to do that would be really to extend those senior manager conduct rules not just to SMS but to all individuals carrying out managerial responsibilities, so that people can be clear as to what is expected of them.

Fourthly, this has been a bugbear of mine for a number of years, the managerial obligations on individuals have been interpreted in cases in the past to require managers, when they come into a role and periodically thereafter, to go in a real deep dive into the risk management framework and how it applies to the area of the business that they are responsible for. Now you can look in the conduct rules and the guidance on senior manager conduct rules 1, 2 and 3 and you'll find nothing that indicates to senior managers that that's expected of them and so we would expect to see CoCon making that clear. If you expect individuals to take certain steps, set that out in the guidance to the rules because without that is it really fair on individuals to have those expectations without making them clear.

Then a final point, which might feel like a bit of a lawyer's point but under the equivalent of the conduct rules and under the equivalent CoCon, before SMCR, the statements of principle for approved persons, what is now guidance was set out in the evidential rules and that means under the Financial Services Markets Act they have proper evidential value in showing that a breach of the relevant rules has occurred and the same is not true of guidance, it's often treated by the regulator as being equivalent but actually guidance has no evidential value in assessing whether or not a rule has been breached and so we would say that what is currently guidance in CoCon needs to be upgraded to evidential rules in order to have proper effect.

So how those create difficulties in practice, so obviously a disciplinary action gets agreed, does this particular conduct amount to a breach of conduct rules? Firms are being questioned to find breaches of conduct rules but there's a lot of legal uncertainty as to whether they can do so. That then triggers the question of notification obligations and the specific notification obligations that apply in relation to breaches of conduct rules. Similarly, firms are required to provide regulatory references. Would it be right to be referring to breaches of conduct rules in situations where it's actually legally unfair where the particular conduct amounted to a breach or not. There's obviously uncertain exposure to the PRA or FCA enforcement action against individuals and then finally a question of fairness to individuals making it clear what is expected of individuals and what is on the wrong side of a line so that people can adjust their behaviour accordingly.

Now does the regulator understand these failings in its rules? I think there are some signs that it does. In July last year, in the FCA's paper, its discussion paper on diversity and inclusivity, it said "we think it could also be helpful for the regulator to develop guidance on how such behaviour or failure to take reasonable steps to address these kinds of behaviour [this is in relation to diversity and inclusivity] could result in a breach of the conduct rules. We believe that developing this guidance will provide firms and the regulators with clarity leading to a more consistent approach and could have a significant impact on reducing non-financial misconduct in the sector supporting inclusive cultures". So I think the regulators do understand that their rules are not currently fit for purpose. We will be writing to the regulators to bring these matters to their attention. If there are particular issues that you've been facing that you would like us to raise when we engage with the regulators, then please do reach out and let us know.

So that's everything that I was going to cover.

LD: Thank you everybody. One thing I wanted to highlight before we say goodbye to the summer is as many of you will know and you will have heard from some or all of us is how committed we are to growth in this sector so I'm delighted to say that we've been joined this week by Adam Jameson as another partner in our group. Adam is a well-known specialist in regulatory enforcement investigations facing off against the FCA and the PRA and he also spent a year on secondment at the FCA and of course with the market oversight divisions so we're delighted to have him join us which adds to our scope in this area and we'll be introducing him to those of you that don't know him in September when we get back from the summer.

We've afraid run out of time for questions. Thank you to all of you who did submit questions, we're really grateful we'll get in touch with you separately. If you have any further questions, please don't hesitate to contact any one of us and as Nathan said, if you've any observations you'd like us to make in the conduct space, it would be really good to hear it, we're really committed to trying to reform what we perceive as gaps in that area and would be really grateful for any conversations to have with you.

Which leaves me to thank everybody for presenting today, I had the easy job today. I hope you enjoyed it and we very much hope to see you again in September, so have a great summer. Thanks a lot.