At the end of July, the Supreme Court heard the ultimate appeal by Daiwa Capital Management against the judgment of the Court of Appeal in the case of Singularis v Daiwa, in which Oliver Lodge acted as expert witness. Whether the Supreme Court upholds or overturns the Appeal Court’s findings against Daiwa, the case has significant, if widely unexpected, lessons for the banking and investment sectors, or indeed any firm that makes payments on the instructions of its clients. Is it now inevitable that the firm will be held liable for any losses suffered by a client, even where that client has been negligent to the point of recklessness? How can firms minimise the risks and their exposure to them? Few will have recognised the extent of the risks they are running nor the extent to which a client’s failings can result in enormous losses to the firm. We advise every firm that is subject to English law to take careful note of this case.
Although remarkably little has been said about it and the FCA has only just published its Policy Statement (PS 19/13), the revised Shareholder Rights Directive (SRD II) comes into force on Monday (10th June). There is immediate action associated with this new directive.
The impact of the new rules is that investment firms must publish an Engagement Policy and annually disclose how the Policy has been implemented, including how the firm has voted in significant corporate ballots. Alternatively, firms are permitted to ‘explain’, that is to say publicly disclose a reasoned explanation of why they have chosen not to publish an Engagement Policy or the annual disclosed about implementation.
The Policy, which must set out how the firm engages with the companies that it invests in on behalf of clients, should, strictly, be published by Monday. FCA recognises that that is not going to happen and has said that for an ‘initial period’ firms can comply by explaining what they are dong to develop a Policy. That means that all affected firms should have a statement on their website relating to their Engagement Policy by Monday.
Although not irrevocable, firms have an immediate choice of whether to comply or explain. Controversial as it may be to opt out (explain), it is worthy of consideration. There are questions of principle about client confidentiality and there are risks that the disclosure is abused by pressure groups. However, that explanation must also be published by Monday.
Firms wanting further information on this should call us on 020.3911.5528.