Financial Services and Banking Litigation: key trends from 2024 and predictions for 2025
Insight
All eyes on motor finance
There is significant concern throughout the financial services sector about whether the Supreme Court will uphold the Court of Appeal’s decision in the motor finance mis-selling case.
Although the practice of offering commissions to brokers had been compliant with FCA regulations, the Court of Appeal, ruling on three linked appeals, held that car dealerships that acted as a credit broker had both a disinterested duty and a fiduciary duty to their customers. Both duties were breached in instances where the car dealerships accepted commissions to encourage customers to take out loans from particular lenders that did not necessarily offer the best terms available.
The Court also ruled that lenders and brokers had a duty to disclose to customers if a commission has been paid to the broker for encouraging customers to choose a particular finance product, and that this disclosure must be made clear – typically by being included clearly in the terms and conditions. This ensnared the lenders as they were held to be liable by association for having procured the breach of the brokers’ duties.
Whilst comparisons to the PPE scandal of the 2010s may be overstated, the effects of this case (if upheld by the Supreme Court) could be wide-ranging and it would not be a surprise to see the costs rise into the billions of pounds for lenders who are ultimately found liable for brokers’ practices.
The Supreme Court’s decision will be watched extremely closely because although the specifics of the case relate to motor finance, the principles are likely to have wider application, with an impact on financial institutions that potentially extends beyond car finance.
The Supreme Court has granted permission for an expedited appeal, with a judgment expected in the first half of 2025. While it is never possible to predict the outcome of Supreme Court judgments with complete certainty, the Supreme Court has previously taken a very strong line against similar financial practices as they might be considered to be a form of bribery.
In readiness for this, many banks and other lenders will no doubt be reviewing their own product offerings carefully to establish which may have breached the three duties identified by the Court of Appeal, and if the ruling is upheld, we can expect to see a surge of compensation claims.
BlueCrest Appeal
Although the motor finance case captured most of the headlines, the Court of Appeal handed down another very significant judgment for the banking and financial services sector in FCA v BlueCrest Capital Management.
This decision has clarified that the FCA can enforce redress on an individual firm, with the threshold for regulatory intervention lowered by the Court of Appeal’s ruling. This overturned the Upper Tribunal’s ruling that the FCA had to demonstrate loss, causation and breach of duty, and an actionable loss for those who were to be compensated.
We can accordingly expect to see the FCA require regulated firms to make redress to customers more frequently in 2025.
Name and shame no more?
There was considerable consternation throughout the financial services sector when the FCA’s plans to introduce a "name and shame" policy for firms under investigation were first announced last year. The strength of opposition was such that whilst the policy has not been dropped, it does appear to have been significantly watered down.
The FCA has been at pains to clarify that the firms under investigation will only be named under a very specific and quite narrow set of circumstances, with the decision subject to a public interest test and with the expectation that instances of firms being named will in practice be few and far between.
Upholding the competitiveness objective
It will be interesting to see how the FCA, and the PRA, interpret their secondary objective to support the international competitiveness and growth of the UK economy, particularly because reducing regulatory red tape appears to remain a key priority for political decisionmakers despite the change in government.
If this does result in the FCA regulating with a lighter touch, this may in turn lead to less litigation. However, the wheels of financial regulatory reform turn slowly, and so this is unlikely to have a direct bearing on the volume of financial services litigation in 2025.
Off-channel communications
Although the regulatory effort to crackdown on off-channel communications, particularly WhatsApp, was largely confined to the pandemic, when the volume of finance professionals working from home made this exceptionally difficult to manage, off-channel communications often remain highly relevant to litigation.
In particular, in the event of an investigation or litigation, the proliferation of other communication channels means that emails no longer provide anything resembling a complete picture. Accordingly, off-channel communications are likely to remain a significant cause of litigation, and we can expect this to continue in 2025 even as off-channel communications fall down the list of regulatory priorities.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2025
Dispute resolution trends and predictions
This insight is part of our wider report – "Dispute resolution trends & predictions" – which includes comprehensive analysis from our specialists together with valuable viewpoints from our clients.
