What are the big issues for in-house litigators in banks in early 2025?

Intermediary commission issues will remain a big focus

With multiple specialist claimant law firms and claims management companies actively bookbuilding claims, and in the process of seeking litigation funding to pursue those claims en masse, all eyes will of course be on the Supreme Court in early April 2025 when it hears the motor finance appeal from the Court of Appeal judgment in October 2024 (Johnson v FirstRand – see our briefing here). 

It remains to be seen how viable the various threatened motor finance group actions are, given that the FCA is likely to require some form of redress scheme.  The breadth of such a redress scheme will be heavily impacted by the Supreme Court's decision, as the FCA's area of concern has moved away from just discretionary commission arrangements (DCAs), to any commission paid on taking out a motor finance loan, as a result of last year's Court of Appeal decision. 

The Court of Appeal's reasoning in Johnson was also industry agnostic.  This means, in principle, that any commission paid as part of a sales process is potentially at risk of claims.  We are already acting for clients in defending threatened class and group actions concerning secret commissions in other sectors and, subject to the Supreme Court reversing the Court of Appeal's decision, 2025 is likely to see claimant law firms pursuing claims in respect of other financial products and in other sectors.

Author: Tim West

Failure to prevent sexual harassment and the Employment Rights Bill

Our 2024 predictions on potentially contentious restructuring and collective redundancy exercises, and the challenges with generative AI use in the employment lifecycle, stand true for 2025.  Additionally, 2025 will see a big shift in the employment landscape which may result in employee disputes arising. 

Sexual harassment in the workplace is too often making the news headlines and the recently introduced employer duty to take reasonable steps to prevent sexual harassment in the workplace brings this into sharper focus for in-house disputes teams because of the potential for added reputational risk.  Where employers fail to comply, the Equality and Human Rights Commission can take enforcement action such as conducting investigations and issuing notices for breach.  Although the duty doesn’t give rise to a freestanding claim for employees and only kicks in if an employee succeeds in a sexual harassment claim, tribunal compensation can be uplifted by up to 25%.  

2025 will also see organisations preparing for the Employment Rights Bill (ERB).  We suspect consultations on the detail of the ERB will come thick and fast; keeping abreast of their impact so that policies and procedures are business-ready for when the ERB becomes law will be key to avoiding possible disputes arising down the line.  In-house disputes teams may also want to keep an eye on the new Fair Work Agency's enforcement powers.  Potentially it will have a range of powers to investigate and sanction non-compliance with relevant employment legislation including minimum wage, sick pay and working time, for example.  Liability for non-compliance may also extend beyond the corporate entity, and individuals such as directors and partners may be personally liable where they consented, willingly allowed the offence or it occurred as a result of their neglect.

Author: Crowley Woodford

Greenwashing will remain an area of focus

The introduction in May 2024 of the FCA's anti-greenwashing rule meant that many in-house lawyers devoted time last year to ensuring that their firms' marketing and financial promotion processes accorded with the new guidance. 

Firms should therefore be well placed in 2025 to identify and mitigate greenwashing risk.  Regulators (including, but not only, the FCA) are likely to remain focused on this issue, though. 

Two UK developments in 2025 will be relevant to this risk.  First, the Competition and Markets Authority (CMA) will gain new enforcement powers from April 2025 – enabling it to impose fines of up to 10% of worldwide turnover for breaches of consumer law, including misleading consumers.  Second, a new failure to prevent fraud offence will come into effect in September 2025. "Large organisations" will be at risk of criminal enforcement if fraud is committed on their behalf.  The government's guidance makes clear that "green claims" are likely to be a particular area of scrutiny.

What remains to be seen is how aggressively UK regulators will enforce greenwashing breaches.  Other jurisdictions provide examples of what active enforcement looks like, with Australia standing out.  The Australian Securities and Investments Commission published a report in August 2024 outlining its recent regulatory interventions on greenwashing.  These include civil penalty proceedings brought against financial services firms in the Federal Court.  The regulatory and political context may be different, but these cases illustrate the ways in which firms can fall foul of regulatory expectations on greenwashing, and how to avoid this. 

Author: Tom Cummins

Failure to prevent fraud and increased focus on incentivising whistleblowers

A significant development in the second half of 2024 was the publication of the guidance on the failure to prevent fraud offence on 6 November 2024 (FTPF Guidance).  This sets out the procedures that relevant organisations can put in place to prevent persons associated with them from committing fraud offences.  The FTPF Guidance provides a framework for organisations to consider when implementing their fraud prevention procedures, which should be informed by six principles: top-level commitment, risk assessment, proportionate risk-based prevention procedures, due diligence, communication (including training), and monitoring and review.  See our insights here.

As Tom mentions above, the failure to prevent fraud offence comes into force on 1 September 2025 and so organisations now have a little over 7 months to ensure that they have appropriate fraud prevention procedures in place.  

One notable point which arises from the FTPF Guidance is the prominence placed on the importance of whistleblowing and of effective whistleblowing procedures, which has been accompanied by continued public debate around the merits of incentivising whistleblowers.  On 10 December 2024 a research paper by RUSI Research Fellow, Eliza Lockhart, was published which considered whistleblower reward programmes in the US and Canada against historic concerns in the UK and Australia about such schemes.  The SFO Director, in a panel discussion at RUSI on the day of the launch, said the research presented an "unanswerable case" for reform in the UK.  A consultation is likely to precede any change in this area, to ensure that any reward scheme is considered against the UK's specific legal and cultural context. 

One of our summer takeaways was that an effective whistleblowing system is increasingly important, key to what prosecutors expect, something that allows firms to deal proactively with risk and thereby to mitigate the risk that whistleblower reports are raised externally.  The publication of the FTPF Guidance and the RUSI paper demonstrate that this prediction was borne out in 2024 and remains true in 2025.

Author: Judith Seddon

Double-check, or double the cheque

In the year ahead, in-house compliance and litigation teams in banks are likely to spend ever more time reviewing and testing the accuracy and completeness of responses to regulatory requests for information. 

In a sense, nothing has changed: in-house teams have always reviewed and tested responses to regulatory requests for information. However, recent regulatory decisions (including from the FCA, PRA, SEC and CFTC) suggest we are in a period where regulatory tolerance for inaccurate or incomplete responses (however unintentional) is decreasing, and that fines for such errors are increasing.  It is hard to argue with the sentiment – regulators are entitled to expect accurate responses to their requests for information - but the volume and complexity of often-overlapping regulatory requests can create real challenges for banks in responding in a timely and accurate manner.

Most minor errors, especially those caught by the banks rather than the regulators, will still be capable of being remedied through the firm's day-to-day relationships with their regulators, but more material mistakes and omissions (e.g. Käärmann), wilful errors (e.g. H20 LLP), and inconsistencies in responses on the same subject matter between different regulators (e.g. see the FCA's proposed amendments to its case against Staley as reported here), are all likely to come under greater scrutiny.  Consequently, I predict that 2025 will see ever more heightened scrutiny of regulatory responses by in-house teams - which in turn will call for greater resourcing, earlier drafts, and better connectivity between global teams.  

Author: Philip Linton

The new digital markets and competition provisions enter into force, with consumer protection provisions likely to follow in April 2025

The digital markets and competition parts of the UK Digital Markets, Competition and Consumers Act (DMCC) came into force on 1 January 2025.  The new digital markets competition regime will give the CMA the power to designate Big Tech companies as having strategic market status and to impose bespoke conduct requirements on those firms.  The FCA has previously indicated that it will be looking at potential recommendations to the CMA on how it should exercise its digital markets function in relation to financial services, and the CMA and FCA issued a MoU in December 2024 governing regulatory coordination under the digital markets regime. 

The DMCC also introduces widespread changes to competition law in the UK, including as they apply to financial services firms: 

• The CMA will have the power to amend, supplement and revoke remedies imposed following a market investigation. It will also be able to impose financial penalties of up to 5% of a company's global turnover for failing to comply with market investigation orders / undertakings. The Government has confirmed in legislation that these powers will only apply to orders made after 1 January 2025.
• The DMCC Act enhances the CMA’s information gathering powers, for example its ability to obtain and access electronic information held off-premises when executing a search warrant, as well as the penalties for non-compliance.

The overhaul to the UK's consumer law enforcement regime introduced by the DMCC is now expected to enter into force in April 2025.  As Tom mentions above, the CMA will gain new powers to directly enforce consumer law and to fine companies up to 10% of worldwide turnover for breaching consumer law (bringing its consumer law enforcement powers in line with its competition law powers).  Other consumer law regulators (such as Trading Standards and the FCA) will also be able to seek to impose financial penalties by applying for court orders.  The new direct enforcement regime has the potential to have a significant effect in financial services markets, with the CMA expected to work closely with the FCA to determine the appropriate tool for tackling consumer harm in the sector. 

Author: Duncan Liddell

Restructuring plans and directors' duties

The restructuring plan market continued to be busy and contentious in 2024, and there is no sign of this letting up in the year ahead - not least with the high-profile Thames Water restructuring plan process already in full swing.  This includes competing plans from the Company (supported by Class A creditors) and Class B creditors. 

The key battlegrounds in relation to restructuring plans will include valuation and disclosure. It will be interesting to see how much more of the CPR Part 35 machinery used in Part 7 litigation is adopted in relation to expert valuation evidence and how the courts will continue to navigate disclosure applications in the context of the short timelines in restructuring plans.  As more restructuring plans are challenged, how to bring a successful challenge is becoming clearer.  In-house litigators who advise restructuring or distressed desks are increasingly needing to be familiar with the new strategies and how best to position a challenge. 

The largest ever damages award for wrongful trading was awarded last year against the directors of BHS.  As a result, we expect people may be more reluctant to take on directorship roles.  Existing directors will need to carefully consider their obligations in relation to wrongful and/or misfeasant trading at an earlier stage than they might previously have thought necessary.

Authors: Lynn Dunne and Louise Youngman

Expect fewer and faster FCA investigations, plus continued attention on transparency

Last year, we predicted that the FCA's Enforcement division would begin defining its new strategy, with a focus on actively reducing their case portfolio in order that it could begin achieving faster enforcement outcomes.  This is exactly how 2024 played out in practice, with the FCA opening far fewer investigations than in previous years and repeatedly emphasising their focus on publishing enforcement cases more quickly.  In order to achieve this speed, in addition to opening fewer cases, we are seeing the FCA take a more proportionate and pragmatic approach to how it manages investigations.

Given the FCA has now significantly reduced its caseload, it may be able to utilise new found capacity to begin focussing resource on opening investigations into priority areas, including whether firms have adequate systems and controls for managing risks related to the Consumer Duty, Operational Resilience, Financial Crime and Market Abuse. 

There are also a number of important cases that will be heard by the Upper Tribunal this year.  These cases will bring into focus issues including the integrity of SMFs, alleged spoofing behaviour and steps required to ensure the accuracy of market announcements.  

From a policy perspective, part two of the 'naming and shaming' consultation is now in full swing. Whilst the FCA has not abandoned the proposals altogether, significant concessions have been made in the revised proposals.  Whether these concessions will be enough to get industry onboard with the proposed changes remains to be seen.  In our view, the outcome is still very finely balanced and we anticipate that there will again be significant pushback given the serious detrimental impact that these proposals could have on affected firms.  We also expect to see the FCA's new rules on non-financial misconduct published in Q1 and that firms handling of non-financial misconduct (and what this means in the context of wider culture) will be a focus for FCA supervisors in the year ahead. 

Author: Adam Jamieson

Will we see the first case under the Early Account Scheme?

2024 was very much a year of two halves for the PRA Enforcement agenda, with a series of important outcomes against banks in the first six months of the year, but no cases at all published from June onwards.  

A year ago the PRA's new Early Account Scheme (EAS) was introduced, dangling the prospect of a 50% settlement discount – plus much greater control over the investigation process itself – to firms who put their hands up to regulatory breaches at an early stage.  It seems that the PRA was not swept off its feet with issues suitable for the scheme in 2024 but we expect that the EAS will be properly road-tested during 2025.  Participation in the scheme will raise a range of genuinely novel issues for in-house litigators to get to grips with as they guide stakeholders across the bank.

As for individual accountability of SMFs, this seems to have been almost abandoned by the FCA's Enforcement team with only one SMF (and no Certification Staff or Conduct Rules Staff at all) being placed under investigation in the 14-month period from 1 October 2023 to 9 December 2024.  This is a huge change under the FCA's current Heads of Enforcement as they prioritise being seen to handle cases quickly and efficiently over personal responsibilities – as they know full well that investigations into Conduct Rule breaches require proper evidence analysis and formal interviews, and are less likely to lead to an early settled outcome.  As a result, we expect the PRA to continue to be the regulator that takes the lead on issues of personal accountability, particularly in relation to SMF responsibilities.  

Author: Nathan Willmott

The Data (Use and Access) Bill and Cyber Security and Resilience Bill

Six months ago, I noted that data protection law in the UK was finally looking like it was going to be subject to successful reform (after a series of stop/start moves).  The Data (Use and Access) Bill (DUA Bill) has been making its way through parliament and is expected to receive Royal Assent in the Spring of this year. 

The Bill contains fewer changes to UK data protection law than its predecessor (the Data Protection and Digital Information Bill) and focusses on the greater use of data to grow the economy, improve public services, and make people’s lives easier.  According to the UK government, the DUA Bill is largely focused on making better use of data across many sectors of the UK’s economy and improving public sector services.  The DUA Bill therefore does not represent a significant departure from the UK’s existing data protection law but it does contain changes that will require banks and other firms to review their compliance frameworks.

The King’s Speech also referred to a new Cyber Security and Resilience Bill to “ensure that more essential digital services than ever before are protected”.  The current Network and Information Systems (NIS) Regulations 2018 (which is retained EU law) has been replaced in the EU by the NIS2 Directive and accompanied by the Cyber Resilience Act which regulates the security of products with a digital element. 

Finally, in a trilogy of forthcoming data regulation in 2025, the UK Government is set finally to legislate on AI, targeting companies responsible for the most powerful large language models.  What will be of interest to companies who do not fall within that narrow scope is the sector-specific guidance and regulation expected over the coming months, particularly in the financial services sector.  The government's pro-innovation approach expects sector regulators to shape AI regulation within their domains. 

Author: Rhiannon Webster

Expect enforcement and more turbulence in the world of sanctions

Ensuring robust sanctions compliance continues to be a priority for bank in-house teams, as the UK government is ramping up enforcement.  In October 2024, the FCA imposed a £29 million fine on a challenger bank relating to its sanctions processes and related issues.  This action underscores the FCA's continued focus on regulated firms' sanctions related systems and controls.  In the same month, the new Office of Trade Sanctions Implementation went live with powers to penalise—on a strict liability basis—violations of certain trade sanctions, including restrictions on direct or indirect provision of financial services or funds relating to trade in restricted goods.

In his November 2024 appearance before the Treasury Committee, the Director of the Office of Financial Sanctions Implementation (OFSI) indicated that, in 2025, the OFSI will publish a number of enforcement actions relating to Russia sanctions.  As and when these actions come out, firms should distil lessons learnt from them.  

On the global stage, attention turns to the return to power of President Trump.  The new administration is expected to continue to enact sanctions and export controls against Iran, China and Venezuela.  While President Trump has suggested a quick end to the war in Ukraine, lifting of all US sanctions on Russia is unlikely in the short term.  It is more likely that the US, UK and EU sanctions on Russia will be an important bargaining chip and a potential lever to bring Russia to the negotiating table.  Firms should expect the unexpected and ensure they have adequate resources and processes to react quickly to change in sanctions policy.

Author: Andris Ivanovs

Authors: Tom Cummins, Partner; Tim West, Partner; Duncan Liddell, Partner; Rhiannon Webster, Partner; Crowley Woodford, Partner; Andris Ivanovs, Counsel; and Louise Youngman,Senior Associate