Concerning Conduct: Quarterly Cases - Q3 2024

A summary of recent cases concerning culture and conduct.

1. Morgan Stanley and Barclays are the latest banks to remove the London bonus cap.  
2. Research uncovers “rip off” management fees for some UK pension funds.
3. 44% of UK adults in financially vulnerable circumstances.  
4. Germany’s BaFin says Deutsche Bank flouted accounting rule.  
5. New UK Labour government details ambitions in the King’s Speech.
6. Global disruption from software security update.
7. Meta agrees to $1.4bn settlement over data harvesting claims.
8. “Old fossil” awarded £3.2m in age discrimination case.
9. PwC fined £15m for LCF audit failings.
10. Entain is the latest to face a lawsuit from investors over bribery.
11. Coca Cola raises borrowing in anticipation of tax litigation settlement.
12. Ukraine bondholders reach agreement on writedown.
13. AI firms hit by copyright claims.
14. UK capital markets revamp urged in report.
15. Groundbreaking treaty on AI agreed.
16. Bank of London faced unpaid tax winding-up petition.
17. Deloitte reinstates in-person interviews for graduates.
18. Apple ordered to pay €13bn in Irish back tax.
19. Lloyd’s of London consult on misconduct rules.
20. SEC charges the auditor of collapsed FTX with misconduct.

Morgan Stanley and Barclays are the latest banks to remove the London bonus cap.

The EU-mandated cap on bankers’ bonuses of two times base salary was removed in 2023 in the UK as part of a push to boost the City of London post-Brexit. Morgan Stanley followed the lead of Goldman Sachs and JPMorgan in withdrawing its cap on UK employee bonuses. Barclays then became the first British bank to remove the cap. Barclays is understood to be following the same approach as JPMorgan by setting the bonus for its material risk takers at up to ten times fixed pay whilst keeping base pay at the same level. Citigroup are thought to be moving towards a similar change.

Research uncovers “rip off” management fees for some UK pension funds.

Research by data analytics provider ClearGlass revealed an “extremely” large range of charges from asset managers to UK defined benefit pension schemes. Some plans were found to be paying up to 14 times more for the same product than rivals. It is hoped the research will aid calls for greater transparency to enable the market to function more effectively.

44% of UK adults in financially vulnerable circumstances.

A study by not-for-profit entity Fair 4 All Finance and research agency Trajectory found 20.3m people – 44% of the UK adult population – to be in financially vulnerable circumstances.

Germany’s BaFin says Deutsche Bank flouted accounting rule.

In what some see as an attempt to toughen up enforcement of accounting standards after the Wirecard fraud, Germany’s financial watchdog announced that Deutsche Bank had failed to include key details in its 2019 accounts that were required under international financial reporting standards. The failure related to disclosures of tax losses in the US. Given that it just related to a “footnote”, there was no fine nor any need to restate the accounts.

New UK Labour government details ambitions in the King’s Speech.

The incoming Labour government in the UK revealed its plans over the next five years including a number of initiatives related to financial services – a new £7.3bn “national wealth fund” to decarbonise heavy industry, pension legislative changes to consolidate small pension pots and encourage better fund performance, replacing the Financial Reporting Council with a new Audit, Reporting and Governance Authority to tackle bad financial reporting and a new clean energy production company called Great British Energy.

Global disruption from software security update.

A global outage on Microsoft systems was blamed on a software security update from US company CrowdStrike. The outage impacted trading systems at JP Morgan, UBS and Bloomberg terminals as well as airlines, trains, broadcasters and many others.

Meta agrees to $1.4bn settlement over data harvesting claims.

Facebook owner Meta agreed to pay $1.4bn to the US state of Texas to settle claims that it had harvested millions of individuals’ biometric data without proper consent. Meta has now closed down the facial recognition feature that is at the centre of the claims. The settlement will be paid over five years.

“Old fossil” awarded £3.2m in age discrimination case.

A 58-year-old senior manager at FTSE 250 engineering company Vesuvius was awarded £3.2m by an employment tribunal after being dismissed and replaced by a younger manager. Vesuvius had implemented a policy encouraging managers not to hire people over the age of 45, and the senior manager was told he was an “old fossil” and that he “didn’t know how to deal with millennials”.

PwC fined £15m for LCF audit failings.

The UK’s Financial Reporting Council fined accountancy giant PwC £15m for failing to raise the alarm in relation to London Capital & Finance (LCF). LCF collapsed in 2019 after a minibond scandal that saw investors lose around £237m.

Entain is the latest to face a lawsuit from investors over bribery.

UK-listed gambling company Entain is facing a lawsuit from a group of institutional investors for compensation after bribery in a Turkish subsidiary trashed the share price. The lawsuit follows similar claims against Barclays and Standard Chartered.

Coca Cola raises borrowing in anticipation of tax litigation settlement.

Coca Cola is expected to settle a decade-long dispute with the US tax authority that could involve as much as $16bn in back taxes. It is alleged that the soft drinks group has been hiding profits in low tax countries. Coca Cola raised €1bn in a bond issue to add to the $7bn of borrowing it has already raised in 2024.

Ukraine bondholders reach agreement on writedown.

In a rapid workout Ukraine agreed with bond investors to reduce the economic value of their $20bn debt by about 60%. Ukraine will pay interest on the reduced level of debt. The workout will release around $11bn for the country over the next three years.

AI firms hit by copyright claims.

Artificial intelligence firms are facing claims that they are aggressively scraping data from the web without paying licence fees to do so. A key example is a case brought by the New York Times against OpenAI and Microsoft that alleges the companies are profiting from “massive copyright infringement, commercial exploitation and misappropriation” of its intellectual property.

UK capital markets revamp urged in report.

The “Capital Markets of Tomorrow” report, commissioned by the UK’s Capital Markets Industry Taskforce, said the UK had fallen behind the US since the global financial crisis. Urging significant action, including on tax and regulation, the report said £100bn of new capital was needed annually for the next decade to fund “a period of regeneration and support growth”.

Groundbreaking treaty on AI agreed.

Major countries including the US and UK signed up to the EU’s convention on AI. The convention requires signatories to be accountable for any discriminatory or harmful outcomes on AI systems. It also requires outputs to respect equality and privacy rights, and that victims of violation have legal recourse.

Bank of London faced unpaid tax winding-up petition.

Bank of London – a clearing and transaction bank with a board that includes Carlyle CEO Harvey Schwartz and Lord Peter Mandelson – faced a winding-up petition from the HMRC over unpaid tax. Apparently, it was simply an administrative delay, and the money has now been paid.

Deloitte reinstates in-person interviews for graduates.

Big four accounting and professional services firm Deloitte has reintroduced in-person interviews after moving to a fully online recruitment process during the pandemic. The move coincides with allegations of cheating in recruitment tests and the increasing use of generative AI.

Apple ordered to pay €13bn in Irish back tax.

Apple was ordered to pay €13bn in back tax to Ireland by the European Court of Justice. The court confirmed that Ireland had granted Apple “unlawful aid”, which it is now required to recover.

Lloyd’s of London consult on misconduct rules.

Insurance market Lloyd’s of London launched a consultation on boosting its byelaws to crackdown on misconduct at member firms. The proposed changes include a new, non-exhaustive list of unacceptable behaviour including harassment, bullying and discrimination. The proposal makes it clear that misconduct outside of work but in presence of other participants will be in scope of the rules, and that some conduct (for example illegal drug taking, harassment or bullying) is inherently unacceptable.

SEC charges the auditor of collapsed FTX with misconduct.

The auditor of the collapsed cryptocurrency exchange FTX, Prager Metis, has been charged by the SEC with misconduct. The charge says that the firm took on FTX as a client without having the competence, experience and knowledge to appropriately conduct the audit.