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Appendix 3 »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Appendix 5 »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Part VI Early Perceptions of Legal Risk, 21 A Case of Conceptual Impossibility »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter discusses the case of Re Charge Card Services Ltd, which concerned the relationship between a company and a finance house that provided funds to it, pursuant to an invoice discounting agreement, by purchasing trade debts of the company. Under certain circumstances the company was obliged to repurchase trade debts, which it guaranteed would be paid. The accounting and payment system operating between the parties gave the finance house various rights to hold on to monies, make deductions from payments, and exercise set-offs. When the company went into liquidation, it was contended that certain rights of the finance house were void as against the liquidator because they constituted charges over book debts and they had not been registered as required under the Companies Act 1948.

Part X Conclusions, 33 A Convergence of Agendas »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter ties together the loose threads of the preceding discussions. It suggests that the role of the in-house lawyer has become further involved with risk management rather than simply the provision of legal advice. It presents some legal and conduct risk management objectives as a starting point for legal departments planning to take a ‘risk-based’ approach to its function. The role of regulators will be also crucial in managing risk, not merely as ‘supervisor’ and ‘enforcer’ in the traditional sense, but also as an effective cross-pollinator of ideas. Moreover, it is important that the Financial Markets Law Committee (along with other similar bodies) continues to perform the valuable roles of: (1) identifying concerns; (2) providing expert analysis of the relevant law in relation to specific concerns; (3) acting as an informal ‘bridge’ to the judiciary; and (4) being an authoritative voice for City lawyers when representations need to be made.

Part VI Early Perceptions of Legal Risk, 20 A Landmark Case and its Aftermath »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter discusses the case of Hazell v Hammersmith and Fulham London Borough Council, which had a profound effect on how the City of London perceived the dangers posed by legal risk. It involved a House of Lords decision on an ultra vires point — specifically, the power of the council in question to enter into ‘swap’ transactions. The case arose because this power was challenged by the auditor appointed by the Audit Commission. The surrounding circumstances and the unprecedented manner in which the City of London responded to the case provide both the classic case study and a historical explanation of why legal risk is seen to be so important and how seriously it is taken by those concerned with orderly financial markets.

Part V Legal and Conduct Risk in Interconnected Financial Markets, 19 ‘Brexit’ »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter considers the legal risks raised by Brexit. These include change of law risk for financial markets and especially for institutions that wish to do cross-border business in the EU. For example, while the UK remains in the EU, financial institutions carrying on certain ‘regulated activities’ are afforded so-called ‘passporting’ rights pursuant to which, broadly, they can take advantage of the fact that they are established and appropriately authorised in one member state to do business in other member states, without the need for separate permissions or authorisations in those other states. If the UK leaves the EU, such passporting rights may be terminated unless the Brexit negotiation results in them being preserved in some way.

Part VII Characteristics of Legal Risk, 25 Causation »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter first considers the relationship between the sources of legal risk considered in Chapter 24 and the causes of loss attributable to legal risk identified in the International Bar Association definition. Whereas the sources describe the social circumstances that cause legal risk to arise, the definition is concerned with how an institution, when faced with a legal risk-originated problem, should answer the question: how did this happen (or how can we prevent this happening)? Consideration of the sources helps us to understand why legal risks arise in the broader social context but it is the definition that provides the pointer to the more immediate causes of risk and loss in any specific context. The remainder of the chapter turns to relevant case law.

Contents »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Part VII Characteristics of Legal Risk, 23 Definition »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter first reviews the changing perceptions of ‘legal risk’ over the years. It then considers a school of thought that holds that a definition of legal risk is not necessary. It examines the relevance of the definition of legal risk in the allocation of responsibility and effective risk management, impact on policy, responsibility for corporate misbehaviour, advantages of a ‘norm’, and the need for flexibility. Next, it sets out the International Bar Association’s definition of legal risk. The final section deals with the issues raised the employee who ‘goes off the rails’, or the ‘rogue trader’.

Part IX Legal and Conduct Risk Management, 29 The Essentials of Legal and Conduct Risk Management »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter first discusses the general approach of regulators to risk management. Regulators often claim that they take a risk-based approach to the regulation of banks and other financial institutions. What matters to the regulator is compliance with the substance of its enunciated principles, not merely with their form. ‘Creative compliance’ and trying to find ‘ways round’ a clearly stated regulatory principle are not options. However, legal and conduct risk can be affected simply by a change of attitude on the part of the regulator without there being any change in rules or regulations. The remainder of the chapter covers risk management principles, the scope of the risk management function, examples of risk scenarios, identification of risks, assessment of risks, monitoring, and control and mitigation.

Part III The Conduct Crisis, 12 Ethics and Standards »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
In response to the issues that came to light as a result of the financial crises, the Parliamentary Commission on Banking Standards called for the establishment of a professional body to promote better standards of behaviour in banking. This chapter discusses the Banking Standards Board (BSB) and the FICC Market Standards Board (FMSB). The BSB commenced work in January 2016 and, at the time of writing, has twenty-two member banks and building societies. The aim to the BSB is to set standards of behaviour and competence for banks and building societies, and to define metrics against which they could benchmark. The FMSB was set up in 2015 ‘as a private sector response to the conduct problems revealed in global wholesale Fixed Income Currencies and Commodities (FICC) markets after the financial crisis’.

Appendix 4 Extract from the Turnbull Report »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Part IV Regulatory and Other Developments in the UK 2010‒2016, 13 Financial Services Act 2012: Changes to the Regulatory Architecture »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter charts the passage of the Financial Services Act 2012 (FS Act 2012), from its policy conception through its consultation phase, and to its enactment. The FS Act 2012 received royal assent on 19 December 2012 and came into effect from 1 April 2013. The Act comprised 10 parts and 21 schedules and formally amended the Bank of England Act 1998, the Financial Services and Markets Act 2000, and the Banking Act 2009, to give effect to the reforms. The enactment of the FS Act 2012 represented a significant change in not only the regulatory structure, but the regulatory approach to supervision and enforcement. The new mantra was far a more holistic and intrusive form of regulation. Whether viewed from the perspective of the prudential thresholds, conduct of business requirements and new product intervention powers, or in light of the enhanced investigatory and enforcement priorities and a focus on individual accountability, the reforms were significant.

Part IV Regulatory and Other Developments in the UK 2010‒2016, 14 Financial Services (Banking Reform) Act 2013 »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter charts the passage of the Financial Services (Banking Reform) Act 2013. The Banking Reform Act was enacted in December 2013 and comprises of 8 parts and 10 schedules. The Act was intended to deliver on the government’s plan to create a more robust, better regulated and managed banking system, that supports the economy, customers and small businesses. The Banking Reform Act implemented the recommendations of the Independent Commission on Banking (on banking-sector structural reform) and the key recommendations of the Parliamentary Commission on Banking Standards (on behaviour, culture, and professional standards within the banking industry). The Act amended the FSMA, the Insolvency Act 1986, and the Banking Act 2009. It also provided the legislative platform for an enhanced accountability regime within financial services.

Part IV Regulatory and Other Developments in the UK 2010‒2016, 16 General Legal and Conduct Risk Implications of the Crises and Regulator-Led Redress »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
In the post-financial crisis era, conduct regulation has permeated every facet of an institution’s operations. Not only does the legal framework for the delivery of redress impact the legal risk profile of an activity, but the very ‘approach’ of the regulator exacerbates the legal risk inherent in that activity. This issue is of specific relevance in the context of mis-selling cases, as the regulator may direct (or otherwise sponsor or influence) the terms of redress and in ways that may not be perfectly aligned to a strict application of liability under English common law. This chapter first explores post-financial crisis litigation and criminal charges and the influence of government and regulators on the provision of redress. It then analyzes a legal brake on liability — specifically, the impact of contractual estoppel in mis-selling cases. It concludes with a review of the regulatory factors relevant to redress and the leveraging of post-crises sentiment to promote extra-regulatory schemes.

Part I The General Context, 4 The Global Context »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
This chapter considers how legal risk issues are dealt with outside the UK. Recent developments in law and policy, especially in the financial sector, have been influenced by the impact of globalization. The recent global financial crisis also triggered a new resolve at international, governmental level to seek more effective ways of achieving some measure of globally effective regulation for the financial markets. EU directives are currently (before Brexit takes effect) the single largest source of regulatory change in the London financial markets. Policymakers increasingly look at the comparative position in other similar countries to address the need for English law to remain in step with international developments that assist with the efficient functioning of a financial market wishing to attract international financial institutions and their clients.

Appendix 8 Guernsey Financial Services Commission »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Appendix 1 How the Financial Markets Law Committee works and why we need it: Interview with Lord Woolf »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears

Part III The Conduct Crisis, 10 The Impact of the Libor Scandal: Concerns about Misconduct and Findings of the Conduct Costs Project »

Roger Mccormick, Chris Stears
From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears
The financial market crisis of 2007 was also a crisis of conduct. The events immediately before, during, and after the crisis that stand out, deserve analysis, and indeed, have given rise to some of the most substantial post millennial legal and regulatory changes. This chapter sets the scene, framing the ‘rebuilding trust agenda’ that arose after a plethora of misconduct events — epitomised by the Libor scandal. Using the findings of the Conduct Costs Project, a project of the CCP Research Foundation that collates data on the ‘Conduct Costs’ of twenty of the world’s foremost financial institutions, the chapter highlights the extent to which concerns over a conduct crisis are justified. It concludes by prefacing the issues of sustainability, ethics, standards, accountability, and disclosure that are then taken up in greater detail in later chapters.

Index »

From: Legal and Conduct Risk in the Financial Markets (3rd Edition)
Roger McCormick, Chris Stears