Law firms might be licking their lips at the prospect of fat FX settlements in Europe, but the ongoing European Commission investigation and lack of clarity around the UK’s new regime for competition litigation make it difficult to predict their strategy – or their chances of success.
When five banks settled FX claims from pension funds and institutional investors in a New York court in August – bringing the number of banks that had settled this way to nine – there were suggestions the information unearthed would boost similar claims on this side of the Atlantic.
The settlement made by Barclays, Goldman Sachs, RBS, HSBC and BNP Paribas followed similar deals with Citi, Bank of America Merrill Lynch, UBS and JPMorgan, and brought the total paid out to investors to more than $2 billion.
Claims are still being pursued against a number of other banks.
With London accounting for around twice the FX trading volume of US trading desks, surely a much bigger payday was in the offing? Not quite – or at least, not yet.
“There may have been a lot of publicity around potential FX litigation but as far as we are aware there are no claims on file in the UK,” says RPC partner Lambros Kilaniotis.
“However, the US class action settlement is significant given that most if not all of the firms involved in the US now have a presence in the UK and they – along with a number of London firms – are trying to persuade clients to bring claims against the major banks.”
Procedural factors play a significant part in the lack of activity to date, suggests Signature Litigation partner Abdulali Jiwaji.
“One of the issues in England is that there are strict protocols for pre-action correspondence to take place between the parties to exchange information and explore opportunities to resolve disputes before proceedings are issued, which can cause delays in proceedings being issued,” he says.
“Also, some of the contractual agreements between customers and banks may well be governed by arbitration clauses and those disputes will remain confidential.”
According to RPC’s Kilaniotis, while the work done in the US has laid some groundwork for calculating potential losses suffered by European bank clients, they would have to gather a lot of information to support these calculations.
Evidence-gathering is hindered by the fact that access to bank records will not be straightforward, adds Daniel Spendlove, partner at Signature Litigation.
“Banks see disclosure as a real battleground in defending these types of claims and seeking to wear down their opponents,” he says.
“As we saw from the recent Libor-related claims against RBS, arguments about disclosure can take up a significant amount of court time and banks will not hand over key documents without a fight.”
A further challenge, observes RPC senior associate Chris Ross, is that there is no competition-authority decision on which a follow-on claim could be brought.
“The Financial Conduct Authority (FCA) did not look at the competition rules – it fined the banks for failing to control their traders and breaching internal guidelines,” he observes.
“There is a sense among some market participants that what happened was banks trading efficiently for their own accounts and that this behaviour should not give rise to a claim.”
Given the fines that the FCA and US regulators have already imposed on banks, and the extent of the collusion and cartel-type behaviour and misconduct that has been identified, it would be surprising if the European Commission’s investigation did not result in substantial further fines, says Stephen Elam, banking litigator at Cooke, Young & Keidan.
Of potentially greater interest will be the nature of the findings, the level of collusion and misconduct that the banks accept took place and the extent to which that provides a springboard for civil claims in the UK, particularly in the Competition Appeals Tribunal (CAT).
Elam says it is important to note that part of the $2 billion settlement reached in the US required certain banks to provide additional cooperation.
“This allowed a consolidated and amended class action to be brought in the US and it is logical to expect this additional factual information to also support claims in Europe,” he says.
In theory, the new regime for competition litigation under the Consumer Rights Act is a game-changer, extending the remit of the CAT and enabling opt-out class actions (allowing large numbers of lower-value claims to be brought together) and standalone claims (claims without there being any infringement finding from a competition authority) for the first time.
However, Elam warns there remain uncertainties. Funding claims is an issue as contingency fees – the traditional US model for such actions – are prohibited for opt-out collective proceedings.
Further, while the new regime standardises the limitation rules so they match the six-year period seen in the High Court, the old limitation rules – two years from the cause of action arising – arguably continue to apply to any standalone claims that arose before October 2015.
FX-related claims will generally have arisen well before then, so any new standalone FX claim before the tribunal could well be time-barred.
According to Elam, a way round this appears to be to issue in the High Court and transfer to the CAT, but only where the claims are competition-based. Whether FX claims might be brought in that limited way remains to be seen.
Kilaniotis accepts that potential claimants might be waiting to see the outcome of the European Commission investigation. In terms of a likely timeframe for conclusion of the investigation, he expects a statement of objections to be issued later this year, with publication of the findings likely to follow approximately 12 months later.
“Given the scale of the potential infringements and the number of banks involved, the statement of objections could be a sizeable document and the banks will have to be given the opportunity to respond in writing, after which there will be oral hearings,” he concludes.
This article was originally published in Euromoney and can be read here.