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The Law Spot: Edition 11

08 June, 2017Caroline Murray

The Law Spot highlights some legal points of interest / cases / legislation which have arisen during the month in the UK.  It is not intended to be comprehensive in any way, merely a summary of a selection of the legal issues which have affected the financial services industry during the period.

This edition covers whistle-blowing, which is very pertinent to those interested in ethics, or banking law, and also has several articles of interest to people studying, or working in the corporate market.

Whistleblowing Rules

The FCA and PRA has published new rules on whistleblowing procedures for UK branches of AEE and non-EEA banks, which will apply from 7 September 2017.

The rules supplement the statutory protections all employees and workers have under employment legislation, and require the affected banks to ensure their staff are informed of the option of reporting to the regulators, but also given access to the internal whistleblowing arrangements of any UK group company. Staff handbooks or policies will need to be updated by 7 September 2017. 

Banks must also appoint a whistle-blowers champion with prescribed responsibility for overseeing the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing.

Full details of the rules can be found on the respective regulator’s websites, or a summary from:

Herbert Smith Freehills (2017) FCA/PRA publish whistleblowing rules for UK branches [online].  Available at: http://sites.herbertsmithfreehills.vuturevx.com/20/13209/landing-pages/fca-pra-whistleblowing-rules-uk-branches.pdf.  [Accessed: 5 June 2017]

Duty to Report Payment Practices

The Reporting on Payment Practices and Performance Regulations 2017 (Regulations) came into force on 6 April 2017. The Regulations impose a duty for large businesses* to report on payment practices with criminal sanctions as a potential penalty for both companies and their directors where the duty is not met. 

*A large company is currently defined as one which on their last two balance sheet dates have more than £36 million annual turnover; £18 million balance sheet total; and / or over 250 employees.  At least two of the criteria must be met.  The regulations cover quoted and unquoted companies and limited liability partnerships.

The Regulations were designed to encourage large companies to settle invoices in a timely manner, with the Minister for Business and Enterprise (at the time The Regulations were first proposed) stating that “We are determined to make Britain a place where late payment is unacceptable and 30-day terms are the norm - with a clear 60-day maximum.” 

The Regulations cover all contracts for the supply of goods (including intellectual property and other intangible assets) and/or services, except for:

a) financial services and
b) contracts without a significant connection to the UK.

Relevant companies have to report:

  • ‘Average’ number of days taken to pay (which means the ‘arithmetic mean’, which should help to avoid a distorted picture);
  • Percentage of payments paid: - Within 30 days - Between 31 and 60 days - Over 60 days;
  • Percentage of payments not paid within the contractual payment period (one to watch!);
  • Whether the company has deducted money from a contract as a charge for a supplier to remain on its supplier list (another one to consider carefully);
  • The company’s dispute resolution process for contractual payments;
  • Whether the company offers e-invoicing (including invoice tracking) and supply chain finance;
  • Whether the company is signed up to a voluntary payment code and, if so, which one (consider PR benefits here versus the cost of complying with the code).

There is no requirement to report on interest paid on late payments.

Reports must be published twice yearly within 30 days after the end of each reporting period (linked to their financial year end).

The Regulations will hopefully mean we will see the end of the worst cases of large companies with strong bargaining power squeezing their smaller suppliers and placing pressure on their cash flow by delaying payments to them.

Continued Support for the Funding for Lending Scheme

The Funding for Lending Scheme (the “FLS”) was launched jointly by the Bank of England and HM Treasury in July 2012.  Its aim was to improve access to credit for a wide range of parties at a time when lending levels were low following the Credit Crunch, by providing an £80bn funding backstop and incentivising banks and building societies to boost their lending.

The scheme initially covered a wide range of lending, although as Jones (2017) notes “mortgage and other household lending levels bounced back more quickly than commercial lending; to reflect this, the FLS was first tapered in November 2013 to remove household lending incentives. During 2014, credit conditions eased for larger corporates, partly due to the price of bank funding and partly due to greater access for larger corporates to non-bank sources of finance, such as share and bond issuances”.

As a result, access to the scheme for large corporates was removed in December 2014 although it has now been confirmed that it will remain available to small and medium sized companies until January 2018.

And Finally...

Company security may be changing with the establishment of the Secured Transactions Law Reform Project to consider the effectiveness of the law and how it can be improved. Pennington Manches (2017) note that the Project “has published discussion papers on certain aspects of security. The papers include discussions on fixed and floating charges, registration and priorities.

Potential changes to the law considered by the papers include:

  • replacing the distinction between fixed and floating charges;
  • filing notice of security at Companies House before it is created; and
  • determining priority by the date notice of security is filed at Companies House”.

Watch this space…


Herbert Smith Freehills (2017) FCA/PRA publish whistleblowing rules for UK branches [online].  Available at: http://sites.herbertsmithfreehills.vuturevx.com/20/13209/landing-pages/fca-pra-whistleblowing-rules-uk-branches.pdf.  [Accessed: 5 June 2017]

Jones, C (2017) Further extension of the Funding for Lending Scheme [online].  Available at: https://www.wrighthassall.co.uk/knowledge/legal-articles/2017/05/17/further-extension-funding-lending-scheme/.  [Accessed: 5 June 2017)

Pennington Manches (2017) Providing security could be about to change [online].  Available at: http://www.lexology.com/library/document.ashx?g=d46db5b5-2300-4642-9e9e-e5b99722dfb6. [Accessed: 5 June 2017]

Caroline Murray is a Senior Lecturer in the full-time banking and finance degree programmes at The London Institute of Banking & Finance.