Craig Francis Donaldson & Anor v The Financial Conduct Authority [2025] UKUT 00185 (TCC)

“(a) must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter; and (b) on determining the reference, must remit the matter to the decision-maker with such directions (if any) as the Tribunal considers appropriate for giving effect to its determination.”

“There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.”

“Neither the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied in determining the facts. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies.”

“1. Capital requirements for credit risk on exposures to SMEs shall be multiplied by the factor 0,7619. 2. For the purpose of this Article: (a) the exposure shall be included either in the retail or in the corporates or secured by mortgages on immovable property classes. Exposures in default shall be excluded; (b) an SME is defined in accordance with Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises. Among the criteria listed in Article 2 of the Annex to that Recommendation only the annual turnover shall be taken into account; (c) the total amount owed to the institution and parent undertakings and its subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential property collateral, shall not, to the knowledge of the institution, exceed EUR 1,5 million. The institution shall take reasonable steps to acquire this knowledge.” (a) the exposure shall be included either in the retail or in the corporates or secured by mortgages on immovable property classes. Exposures in default shall be excluded; (b) an SME is defined in accordance with Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises. Among the criteria listed in Article 2 of the Annex to that Recommendation only the annual turnover shall be taken into account; (c) the total amount owed to the institution and parent undertakings and its subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential property collateral, shall not, to the knowledge of the institution, exceed EUR 1,5 million. The institution shall take reasonable steps to acquire this knowledge.”

“information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.”

“For the purposes of paragraph 1, information shall be deemed to be of a precise nature if it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred or which may reasonably be expected to occur, where it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments...In this respect in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be precise information.”

“An issuer shall inform the public as soon as possible of inside information which directly concerns that issuer. The issuer shall ensure that the inside information is made public in a manner which enables fast access and complete, correct and timely assessment of the information by the public…”

“An issuer…may, on its own responsibility, delay disclosure to the public of inside information provided that all of the following conditions are met: a. immediate disclosure is likely to prejudice the legitimate interests of the issuer; b. delay of disclosure is not likely to mislead the public; c. the issuer…is able to ensure the confidentiality of that information. In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, an issuer…may on its own responsibility delay the public disclosure of inside information relating to this process, subject to points (a), (b) and (c) of the first subparagraph.”

“We bear in mind the dangers of hindsight, which include analysing each conversation or note line by line, and attributing greater significance to such matters in the light of subsequent events, instead of considering matters as participants saw them as they occurred, or assuming that what happened subsequently was bound to happen.”

“[17] …psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. …External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. [18] Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs…. [19] The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events… [20] Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial…The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events. [21] … [22] In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.”

“In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party’s internal documents including emails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence.”

“…Gestmin is not to be taken as laying down any general principle for the assessment of evidence. It is one of a line of distinguished judicial observations that emphasise the fallibility of human memory and the need to assess witness evidence in its proper place alongside contemporaneous documentary evidence and evidence upon which undoubted or probable reliance can be placed.…a proper awareness of the fallibility of memory does not relieve judges of the task of making findings of fact based upon all of the evidence. Heuristics or mental short cuts are no substitute for this essential judicial function. In particular, where a party’s sworn evidence is disbelieved, the court must say why that is; it cannot simply ignore the evidence.”

“(i) The general rule in civil cases, as stated in Phipson, 20th ed, para 12-12, is that a party is required to challenge by cross-examination the evidence of any witness of the opposing party on a material point which he or she wishes to submit to the court should not be accepted. That rule extends to both witnesses as to fact and expert witnesses. (ii) In an adversarial system of justice, the purpose of the rule is to make sure that the trial is fair. (iii) The rationale of the rule, ie preserving the fairness of the trial, includes fairness to the party who has adduced the evidence of the impugned witness. (iv) Maintaining the fairness of the trial includes fairness to the witness whose evidence is being impugned, whether on the basis of dishonesty, inaccuracy or other inadequacy… (v) Maintaining such fairness also includes enabling the judge to make a proper assessment of all the evidence to achieve justice in the cause. The rule is directed to the integrity of the court process itself. (vi) Cross-examination gives the witness the opportunity to explain or clarify his or her evidence. That opportunity is particularly important when the opposing party intends to accuse the witness of dishonesty, but there is no principled basis for confining the rule to cases of dishonesty. (vii) The rule should not be applied rigidly. It is not an inflexible rule and there is bound to be some relaxation of the rule…Its application depends upon the circumstances of the case as the criterion is the overall fairness of the trial. Thus, where it would be disproportionate to cross-examine at length or where, as in Chen v Ng, the trial judge has set a limit on the time for cross-examination, those circumstances would be relevant considerations in the court’s decision on the application of the rule. (viii) There are also circumstances in which the rule may not apply: see paras 61-68 above for examples of such circumstances.”

“Mr Stanley: There was no suggestion at this meeting of any dissentfrom the decision to reclassify risk-weighted assets, was there? Mr Arden: There was no decision to reclassify the assets at this stage…the committee explicitly didn't approve the paper. It noted the paper. Mr Stanley: Yes, it noted the paper, but nobody suggested that that reclassification shouldn't happen, did they? Mr Arden: No, because I knew that Deloitte were coming in at that stage. Mr Stanley: Nobody suggested that there was any error - that there hadn't been an error in relation to how the assets were classified. Mr Arden: At this stage I was waiting for Deloittes to come in.”

“Mr Stanley: Did you think you had any idea what the bank's risk-weighted assets actually were at 30 September 2018? Mr Arden: That's a good question. We were carefully considering and doing work at pace to understand what the exact bank's RWAs were [sic]. Mr Stanley: Does that mean you didn't actually know what they were? Mr Arden: As you know, we were doing work to get to the bottom of the issues that we were facing.”

“The question whether an adverse inference may be drawn from the absence of a witness is sometimes treated as a matter governed by legal criteria, for which the decision of the Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR P324 is often cited as authority. Without intending to disparage the sensible statements made in that case, I think there is a risk of making overly legal and technical what really is or ought to be just a matter of ordinary rationality. So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s) on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”

“Audit reviewed the June and September 2016 returns and identified a number of errors (e.g. omissions, inconsistent interpretation of rules) which are summarised below. The Regulatory reporting team had subsequently rectified and corrected the majority of the errors in the March 2017 COREP returns, the details of which are attached in Appendix 1. The errors in the June and September returns resulted in a net understatement of required capital in the range of £0.95m to £12.59m (0.26% to 3.50% of total required capital) for June 2016 and £0.8m to £11.46m (0.21% to 2.97% of total required capital) for September 2016 respectively…”

“This is due to a lack of information in the systems to allow proper classification. Since the identification of this error by audit, the Regulatory Reporting team has started categorising (and calculating the impact of) the CRE loans manually until an automated solution is in place. Commercial Lending have a project underway to assign a more granular classification to loans which will allow Regulatory Reporting to automate the classification of loans. As at 8 May 2017, the estimated understatement of capital requirement is in the range of £11.1m to £21.7m for the quarter to September 2016 and £9.12m to £20.76m for the quarter to June 2016. A remaining portion of CRE loans amounting to £223m (36% of approx. total CRE loans) is still being worked on to establish the appropriate risk weights to be applied.”

“In case of Exposures secured by Commercial immovable property the Bank has been prudent and applies a 50% risk weight to that part of the Exposure which has an LTV<50%. However, as per the CRR rules exposures with LTV <60% are applied a Risk weight of 50%. Management should reconsider if this prudent approach is still appropriate.”

“ensure that all regulatory announcements, shareholder circulars, prospectuses and other documents issued by the Bank under any legal or regulatory requirement are scrutinised in order to ensure that they are accurate and not misleading and do not omit anything material and comply with applicable legal and regulatory requirements.”

“I just wanted to clarify our starting point to avoid any underestimation of the task or build false expectation. Our commercial portfolio is £2bn and made of circa 3k loans, we have no classification and very few data points, consequently our RWA assessment will not be extremely precise (especially in relation to the CRE exposure). For this reason, whilst we will happily provide access to the documentation, you will not be able to find a lot in it. The same applies to the data captured by the front end…”

“Credit Risk and analytics have performed some analysis and, based on the requirements set out by CRR [Article] 125, we propose the following to be applied and communicated to the teams with immediate effect: 1. The following collaterals need to be classified as commercial propertyin T24 (currently they are classed as retail property): o Housing Association Properties o Houses in Multiple Occupation o Student Accommodation.” o Housing Association Properties o Houses in Multiple Occupation o Student Accommodation.”

“Talking to Suzie Orell and KPMG yesterday, it has come to light that we don’t think we are using the right standardised risk weight for commercial mortgages…in effect all loans secured on commercial property should have a 100% RW – we are still using 50% for our ‘trading business’ loans.”

“Moving from 50% RWAs to 100% for all commercial secured loans would be a large material change, and the PRA quickly realised the magnitude of this. The material uncertainty in Metro Bank’s Pillar 1 RWAs would affect how the PRA considered a number of different areas, including Metro Bank’s key risks, systems and controls, the bank’s AIRB application, and whether the PRA would be able to consider a Pillar 2A offset.”

“I think we need to come clean and simplify the story. The answer is that the 50% is wrong and we know it to be. Otherwise we will be told which will be worse (s166 territory?!).”

“A bit of boring detail to support the previous emails – As confirmed with KPMG last week, the following changes need to be made to our current reporting – The 50% risk weights for “commercial mortgages (mixed collateral)” and “commercial (other)” should be 100%, with SME support factor as appropriate.”

“One upside is that I think that many of the ‘retail commercial mortgages’ on CHL (London & Canberra) currently marked at 50% are loans to ‘personal investment companies’ for residential properties, so would qualify as retail under CRR Article 125 and hence 35%.”

“As you know, we are reviewing the asset classification and/or RWA assigned. The 44% is a result of applying an RWA of 50% and combining the 76% overlay for SME to the loans that qualify for the SME discount. Based on analysis undertaken as part of the asset classification review so far we now believe the 50% to be inaccurate and will be re-stating once the findings of the review are finalised.”

“We can confirm the 50% RWA is the RWA we used in March 2018 but, following our asset classification review, we now believe this to be inaccurate. Once the review has concluded, we will revert with further details.”

“Capital ratios remain robust. Common Equity Tier 1 Capital (“CET1”) as a percentage of risk weighted assets is 12.7%, currently exceeding our Tier 1 regulatory minimum of 9.7%. Risk weighted assets at 30 June 2018 were £6,944m. The Regulatory Leverage ratio is 4.6%... Further growth supported by proposed equity capital raise announced separately today. This will enhance already robust capital ratios. Our Pillar 2A requirement of 1.7% is currently under review with the PRA. We anticipate receiving capital relief as part of the Pillar 2A offset, in effect temporarily reducing the regulatory minimum and hence increasing management buffers, ahead of transitioning to the advanced internal ratings based approach (AIRB) on residential mortgages, expected H2 2019.”

“wehave got to a conclusion on how we should be allocating capital to BTL/PBTL and within both what is the treatment of HMO’s…Impact is that we will have to likely allocate more capital to the back book as the element that needs to move from current 35% RWA to 100% RWA will increase as what has been classed as mortgage lending becomes commercial IPRE [income-producing real estate] lending.”

“No, I don’t believe 50% RW is a valid choice as the PRA has used its derogated powers to deviate from standard CRR and adopt 100% for property secured on commercial property.”

“We have done further work on the RWAs. I think we are much closer to having a minimum estimate for the impact of the change in risk density…I think therefore we need to resolve this issue materially in September. The key points of progress are:  We have been through some challenge on the rules and I think we have a joined up understanding. The outcome is at the higher end of the impact ranges we have discussed as pretty much every commercial loan that is not PBTL is 100% RWA classified (or 75% if SME)  Magdalena and Olivier in the credit risk analytics team have been working to harmonise numbers and I don’t believe we have material disagreements  We still have an outstanding question re £1.7b of PBTL (whether it is in fact PBTL). The credit team are testing a sample of 170 contracts to test our expected level of accuracy.”

“We have talked in the past about some of the issues that occur in our reg reporting, and how they are impacted by both the historic manual nature of some of our processes, and we have talked about the investments we are proposing that will help with that situation. We have also flagged data quality as an issue, but haven’t really got into the detail of that in our conversations. At the moment, we are continuing to find issues with our upstream data that have caused inaccuracies in reg and external reporting…We are dependent upon people elsewhere in the bank capturing the right grain of data, capturing it accurately, and not making changes that impact our processes. The document attached gives a few of the material examples of this problem. I believe that we are in a situation where the risks we are running are now too high. I am keen for us to undertake a piece of work that ensures we have the right processes and controls in place to capture the right data and ensure the data quality is reliable…I think this is an end to end and complex problem and therefore finding a solution might be like eating an elephant. I think the first step is for us to highlight the need and importance of the data that we rely on, and would like your help in ensuring this kind of thing is viewed with sufficient priority.”

“An extra field ‘Facility Type’ (loan purpose) was added to the CRM data at the back end of last year to close an audit point. An extensive exercise was carried out by the relationship manager all across Metrobank to populate this field in the CRM system to enrich the data with the ‘loan facility type’. Following on from this exercise, Credit Risk and Regulatory Reporting teams have performed some sampling testing on the data to check the accuracy of the data populated and we have encountered data errors. For examples: (1) Credit Risk have picked the top two largest exposures classified as PBTL and checked the underlying collateral secured by these loans. It appeared that these two loans classified as BTL are secured by commercial properties but have been classified as BTL. (2) Regulatory Reporting team have also performed some sampling testing and have observed loans secured by residential properties being classified as ‘Commercial Owner Occupier’. Impact: This observation has resulted in us questioning the percentage of accuracy of the data populated upstream. Regulatory reporting process place a heavy reliance on data accuracy coming from upstream data. We are not able to calculate the risk weights correctly if the information we have place reliance on is not populated correctly.”

“Following on from the review of the Credit risk weights by KPMG, it has been highlighted to Metrobank that Professional BTL (PBTL) will need to be risk weighted at 100% instead of 35%. However, PBTL flag does not exist in the current Metro system and therefore it is impossible to distinguish between a BTL and a PBTL loans in order to ascertain the PBTL impact on RWA. Currently, we have about £1b of Pepper and T24 loans that have been flag[ged] as BTL. In order for us to be able to risk weight Portfolio BTL products correctly at 100%, we would need a flag in the system to help us to identify the PBTL loans in the T24 book. Impact: This will result in the understatement of the RWA numbers until such time Metrobank can start to invest resources and extensive staff time to review the loan documents to ascertain what proportion of the current BTL risk weighted at 35% that will need to be reclassified as PBTL at 100% risk weight.”

“Please find attached a short note that details the RWA impacts on two key changes (CRE risk weights change and PBTL definition refinement) required to bring our RWA calculation into compliance. The impact is a circa £900m increase in RWA across Commercial and PBTL books. This represents a circa £70m increase in T1 capital. Mark Stokes has suggested that a meeting to discuss with you next week might be helpful for context.”

“In September a paper will be brought to CRPAC to advise ELT [Executive Leadership Team] of inconsistencies in current RWA calculations that will result in a significant increase in RWAs. There are two key drivers of the increase (All RW are quoted before potential SME factors): 1. Assets backed by commercial real-estate are currently in Metro allocated a standardised risk weight of 50%. This is based on a simplistic interpretation of the European CRR rules. Following detailed PRA statements and reviewing BIPRU confirms that the PRA have used their permitted powers of derogation to ensure that relevant assets in the UK backed by commercial Real Estate should receive a 100% RW. This interpretation has been confirmed by a full KPMG review. • As a result of this reclassification we estimate that RWAs increase by £640 million (June month end). 2. PBTL assets are backed by residential properties and currently receive a 35% risk weight. Stratified random sampling however reveals that circa 37% of the balances in the book are actually secured on Multi-Family Dwellings (many leases on a single property), Houses in Multiple Occupation or Student accommodation. These should received a 100% risk weight. • As a result of this we estimate that RWAs will increase by a further £269 million (June month end).”

“There is limited potential mitigation in trading book assets with residential property security but this would need case by case review”

“A decision to recognise the section of corporate loans that will be moving to 100% RWA and to release this in September returns and in the forthcoming ICAAP. We believe the PRA are expecting us to announce this and we risk significant regulatory scrutiny if we fail to act… A decision on the PBTL book (following from the sampling exercise that defined roughly 37% as arguably not PBTL) to either recognise that portion of the book at 100% RWA or delay (but accept that there is ultimately going to be a requirement under IRB to absorb this capital hit… In hope of shifting some commercial trading loans currently RWA 100% to 35% there will need to be a sampling of the commercial loans portfolio to determine what proportion may be secured on purely residential properties.”

“We consider the firm should manage the expectations of external stakeholders more effectively to avoid capital discussions leading to reputational issues or management distraction for Metro. This risk was highlighted by the public announcement in April when you said there would be no expectation to raise further equity in 2018, only to proceed with an equity issuance shortly thereafter. We were also somewhat frustrated that discussions we have had with you over IRB model recognition were recently referenced publicly, and portrayed in a manner which may risk setting false expectations over the timeframe for achieving IRB model approval. We have not yet reached any formal decision on your application but we remain concerned about the depth of your relevant modelling experience. Similarly, in April 2018 you publically [sic] stated an expectation that Metro would benefit from the Pillar 2A offset approach before we had reviewed your ICAAP. We would not wish to see a repeat of this type of instance.”

“Finally, we understand that you are remediating the classification of commercial risk weights which will likely increase the Pillar 1 risk weighted assets that have previously been reported to us…At this stage we areuncertain about the materiality of any prospective adjustment to your capital position. So until this matter is satisfactorily resolved, and we have received reassurance that Metro is holding sufficient Pillar 1 capital against its commercial assets, we will not apply Policy Statement 22/17 which allows the offsetting of certain Pillar 2a variable add-ons.”

“CRO [Chief Risk Officer] to submit the results of the commercial risk weighting exercise and the CFO to provide an attestation on the accuracy of regulatory reporting. This should be supported by an internal audit review of the remediation exercise… We have chosen not to apply PS22/17 because we have been unable to confirm the adequacy of the commercial risk weights provided by you during the course of the capital assessment. Once you have completed the remediation project and we have received assurance from Internal Audit that you are correctly reporting risk weights for your commercial book, we will be willing to consider an application to apply PS22/17.”

“As per previous discussions, we are now expecting to move ahead with the change of approach on commercial RWAs to include all of our commercial lending secured on commercial property as 100% RWA. Risk have spoken to Deloitte for a second opinion, and they have confirmed our understanding.”

“AS [Mr Salmon] explained that the reporting error had caused agitation on the Panel as it had been perceived as the firm not being able to get the basics right. CD [Mr Donaldson] expressed sincere regret and apology for the error. He expects the reporting to be corrected by October/November and believes c£40m assets are in scope for re-classification It was common ground that Mr Donaldson’s reference to his belief that “c£40m assets are in scope for re-classification” should have been recorded as a statement that the recategorisation would affect £40m of Pillar 1 capital. . He was unsure what this represented in percentage terms. Once the team has worked through the results CD will be seeking external assurance and DA [Mr Arden] will attest as to their accuracy, and the correct numbers will be contained in the new ICAAP. CD fully accepted the PRA’s decision not to apply the Unders/Overs principle as a result, however he asked if this decision could be revisited before the next Panel. AS agreed to a discussion about this once the mistake had been corrected, noting that we would need to understand how the mistake had occurred and to be assured there is no read-across to other reporting aspects.”

“no-one was hiding that. Everyone was agreeing that that was the case.”

“CD asked what Metro could do to help move the AIRB issue along. AS explained there was no decision yet but the high level feedback so far is that the firm does not have the required level of use testing experience and that the CRR is clear on the requirements. AG [Ms Gillan] does not agree regarding the interpretation of the CRR, and CD added that other senior figures at the PRA had been more encouraging about Metro’s prospects of getting AIRB. GS [Mr Sutherland] advised Metro that there would be an internal Challenge Session and there would be an opportunity for the firm to appeal the decision after that.”

“To obtain approval for the decision tree produced by KPMG to determine the correct asset classes, and hence capital treatment, for both the Standardised and IRB approaches for all Commercial assets other than PBTL, which has been reviewed separately. BACKGROUNDReporting the correct risk weight (identified via the exposure’s asset classification) is a mandatory regulatory requirement and drives our 7 year plan and strategy for, amongst other things, lending and deposit growth and future levels of risk weighted assets. In June 2017 Internal Audit identified a gap relating to the asset classification of non-retail exposures resulting in risk weights being wrongly allocated for some non-retail exposures. This was reported to ELT [Executive Leadership Team], Audit Committee and the PRA. MATERIALITYNon-retail assets account for 34% of our balance sheet (June 2018) and are split between our Professional BTL product and our Commercial Lending product.”

“[Ms Gillan] gave the Committee a summary of the errors that were identified on the 2017 COREP (Common Reporting) returns. Inconsistencies in the reporting of commercial RWAs, specifically on commercial lending assets secured on property had been identified. Originally, the Capital Requirements Regulation had stipulated a risk weighting of 50% for these assets. The European Banking Authority Guidance had set discretion for individual national authorities to derogate from this position depending on their view of lending assets. The PRA applied a risk weight of 100%, it had not however published guidance or default data to confirm this and the required limits were therefore ambiguous. As a result the Bank was investigating revising the risk weights upwards from 50% to 100%. The error in reporting had been made based on ambiguous guidelines. There had been similar issues across the industry. The Bank had taken what it believed to be the correct approach at the time, but accepted that the error should be remediated and was working towards this.”

“Standardised RWAs vs plan has exceeded appetite since March owing primarily to the reclassification of CRE assets, the review of which is still ongoing. This will remain in red until the plan is rebased to take into account the higher risk weights. This metric could increase by circa 10% (c.£40m of capital) upon completion of the asset classification project.”

“We understand that you have initiated the Project in response to some self-identified issues around your systems and controls for the calculation of Credit Risk Weighted Assets (“Credit RWA”) and COREP reporting. The Project objectives are to review and remediate your current policies, procedures and controls in this area. Initially, this will involve gathering and reviewing current policies and associated documents, and working with your Regulatory Reporting, Credit Risk and other relevant teams to assess your current practice. The Project will identify any gaps relative to industry standards and regulatory expectations, and seek to close out these gaps with ‘quick win’ remediation where possible. The Project will then set out a road map/action plan for further strategic remediation where appropriate.”

“[They] were tasked with reviewing individual loans to, firstly, understand which classification had been applied, but then applying the decision tree to ensure that the correct classification had, in fact -- so they were comparing what was on the system versus having applied the decision tree, whatclassification should have been applied.”

“We continue to make good progress on remediating the classification of commercial risk weights in our lending portfolio. We are currently in the process of engaging an expert third party to provide external assurance over work completed to date and provide a full review of our RWA calculationsand COREP reporting. This work will be in three distinct phases and take a number of weeks. As you can appreciate, and as was made clear by you in our meeting, Aileen [Gillan] and I need to be sure on the efficacy and accuracy of the results of this exercise before we submit any changes. As a consequence, COREP reporting for September will be materially unchanged, save for any business as usual movements. I trust this is in line with your expectations, though please do not hesitate to let me know if you have any questions.”

“A problem had been identified with the risk weight classification of somecommercial assets; that current estimates based on sampling was c.£600m and the impact on core equity capital of c.£50m but further work was being undertaken (with the help of Deloitte) to finalise the amount; the PRA had agreed that no immediate changes necessary for the Coreg [sic] reporting; and the intention was to notify the market once finalised and resolved in line with our usual full year and Pillar 3 disclosures.. Linklaters concurred with the view that it is neither specific nor material information at this point and was in the ordinary course of ongoing dialogue with the regulator over a complex issue and no market announcement was necessary at this point. The Committee understood that, once fixed, further consideration would nee dot [need to] be given to whether a market announcement was required.”

“It was put through this committee and shown to the general counsel for approval precisely to ensure that there was compliance with, amongst otherthings, the listing rules.”

“Deloitte have asked Olivier [Baixas] to provide information regarding weaknesses in rwa and provision calculation process. He has a long list (ltv calculations, cross collateral, connected parties and others)..as far as I know all of which will prove non-material (the biggies I have highlighted), but to be fair I can’t be sure as there are significant gaps in data recording and you can’t prove what you can’t measure. There is however only so much reporting change you can adopt at any one time so haven’t driven these hard as believe would be more disruptive than constructive. There is the risk this will create more noise than light so you may need to pre warn David Arden? I have asked Olivier for a copy of anything he sends to Deloitte. If you want to review what he is sending in advance then can also do that.”

“I explained to Mr Hill that a potential £600m in RWAs was equal instead to ca. £40m in regulatory capital. Mr Hill then asked how much total regulatory capital we held, to which I told him it was around £1bn. Once I explained this, Mr Hill became noticeably less concerned and laughed. He told us not to use the RWA number when the most important number to the Bank was the potential impact on capital.”

“[Mr Hill] did not think the potential impact on capital was particularly significant. He just told us to fix it. He also emphasised that the potential impact on capital (as opposed to the potential impact on RWAs) was the important number, and that this was what should be focussed on during meetings with the Board.”

“►This paper is to advise ELT (via PQR/CRPAC) of errors in the current RWA calculations for commercial exposures and gives an indication of how the key risk parameters will drive future RWA under IRB ►The correction to Standardised RWAs, primarily for commercial mortgages, leads to a significant increase in RWA of £642 million. Commercial Mortgages – 50% to 100% £574m PBTL ineligible back book on T24 £37m Business Loans ineligible as retail £22m Unsecured retail loans with collateral £9m ►Finance and Credit Risk and Analytics will continue to review RWA calculations as data and processes improve, but any further adjustments to calculations are not expected to be material.”

“reclassification of commercial mortgage loans which accounts for £572m This appears to be an error for £574m but nothing turns on that. of the increase in RWAs. The rest is unsecured reclassified as commercial secured, retail in T$ [T24] which are actually business loans and back book non retail PBTL which is now classed with a RW of 100%.”

“We have experienced some issues with asset classification for regulatory reporting of RWAs. We understand that this is not unique to Metro Bank, however, signals the need for our systems, data, reporting and risk infrastructure to be robust and consistent with what is expected by Regulators and external stakeholders of a Tier 2 UK Bank. ►This will be resolved over a two year period when commercial IRB models (Asset Classification, Slotting and RiskCalc) are finalised, incorporated into an appropriate IT system and made mandatory for new applications and annual reviews.”

“So what this slide is really saying overall is there is 432 million of commercial lending which isn't really traditional commercial lending, and it is comprised of three things, and they are all, really, retail buy-to-let conducted through companies…and, of course…they are not ordinary commercial loans. You can't risk-weight them and assess them and work out their credit risk on the usual basis as with commercial loans. The reality is that it is just retail buy-to-let.”

“Capital ratios remain robust. Common Equity Tier 1 Capital (“CET1”) of £1,164m as at 30 September 2018 is 15.7% as a percentage of risk weighted assets, currently exceeding our Tier 1 regulatory minimum of 9.7%. This was supported by the completion of a £300m equity raise in July. Risk weighted assets at 30 September 2018 were £7,398m. The Regulatory Leverage ratio is 5.7%. Our total capital as a percentage of risk weighted assets is 19.1%.”

“The purpose of this paper is to provide an update on accounting, reporting and control matters that will impact on Metro Bank’s 2018 year end reporting process, and to summarise other significant matters that we would like to bring to the Committee’s attention. Within the paper, we cover the following items: - Update on new accounting standards… - Update on control matters: update on supplier payment practices, implementation of core asset finance system, and reporting of Risk Weighted Assets. - Update on future accounting considerations:…”

“Reporting on Risk Weighted Assets: - Following discussions at the September Audit Committee and Board meetings, we have commenced a piece of work to review our calculation of Risk Weighted Asset reporting to the regulator. - The work, supported by Deloitte, will review our Policies and Rule Interpretation, Data Quality, and Processes and Controls, and will create a remediation plan to resolve both short and long term issues. We expect this plan to impact across different areas of the bank. - We expect to complete this work by year end, and we will update the Committee on any corrections which will be reported to the regulator and any revisions required to our reporting methodologies.”

“Following discussions at the September Audit Committee and Board meetings, the team had commenced the work to review the calculation of Risk Weighted Asset reporting to the regulator. The work, supported by Deloitte, would cover policies and rule Interpretation, data quality, and processes and controls. A remediation plan to resolve both short and long term issues would be implemented. It was expected that the work would be complete by year end, the Committee would be updated on any corrections required to be reported to the regulator and any revisions required to reporting methodologies. AG reported that a separate piece of work was being carried out by the Risk function to ensure that the systems and controls for regulatory reporting were fit for purpose. The impact of incorrect reporting on the balance sheet was not insignificant and the Committee reminded Management of the importance of ensuring that this was remediated fully.”

“Standardised risk weighted assets versus plan has exceeded appetite since March owing primarily to the reclassification of CRE assets, the review of which is still on-going. This will remain in amber until the plan is rebased to take account of higher risk weights. This metric could increase by around 10 per cent (circa 40 million of capital) upon completion of the asset classification project.”

“…increase the risk that the Bank may need to raise additional capital/debt in Q3 2019 and therefore makes the outcome of the AIRB process and PRA’s final response to the Bank’s request for a Pillar 2A offset, of high importance to our capital planning. In 2019 Budget we are proposing to include the benefit of Pillar 2A offset (£50m) as being recognised in our ICAAP by the end of Q1 2019, and the approval of AIRB in respect of residential mortgages being received during Q3 2019. We should have early sight of actual dates on AIRB before our full year results announcement.”

“On Credit Risk, the Bank remains within appetite overall, though standardised RWA’s continue to be above threshold. Management are presently remediating the classification of commercial risk weights in the lending portfolio. Deloitte have been engaged to provide external assurance over current processes and provide a review of RWA calculations. Further updates will be provided to Board in due course, with detailed findings being taken through ROC.”

“RWAs: standardised RWAs above threshold. Shared with ROC. RWAs up by c £600m.”

“With regard to AIRB, as you know this has a material impact on our capital plans and we are keen to progress our application. Public referencing of the process merely restated the PRA’s published guidelines, though again your comments in this regard are noted and accepted.”

“We are making good progress on remediating the classification of commercial risk weights in our lending portfolio. We have engaged an expert third party to provide external assurance over work completed to date and provide a full review of our RWA calculations and COREP reporting. As you can appreciate, this work will take a number of weeks before the CFO is able to attest to its efficacy and accuracy. Thereafter, the Board will review the long term capital plan in January 2019, as agreed with our supervision team.”

“As we look forward, our application for AIRB is with the PRA, and our expectation remains that that will be an H219 event; that provides significant upside to capital efficiency, and on that path, we see no need for an equity raise until 2021.”

“…the risk weight on the commercial real estate portfolio, if my math is right, it is 60.4%, which just seems low, given where those standardised risk weights should be. Do you mind just helping me understand the disparity there?”

“I have not got the details to hand, so I will probably get back to you. But just rest assured, we continuously look at all the risk weightings we have, and we are constantly reviewing that. I am afraid I have not got the math to hand.”

“This is the kind of problem that you get to, don't you, when you have put a statement out a few days before which has been inaccurate, and which you know is inaccurate, and someone is now asking you about it and you don't feel able to give them a straight answer.”

“► The most significant mis-statement in the RWA calculation is due to the incorrect risk weighting of commercial property at 50% rather than 100%. Impact c. £600m RWA. ► There are multiple other data issues leading to mis-statements, but these are unlikely to be of similar size either individually or in aggregate (based on [Deloittes’] experience with other banks). ► Notwithstanding the above, currently it is virtually impossible to evidence the integrity of the RWA calculation or the COREP reports. This is because there are multiple gaps in the controls framework at every stage of the process, from data sourcing through to report generation. ► The data issues cannot be sustainably mitigated by the regulatory reporting team, and will need fixing upstream at source. ► This means that there are currently no firm grounds for providing attestation over COREP reporting. ► Inability to evidence controls has been a key concern in the PRA’s thematic work around regulatory reporting, and has led to supervisory action against some firms. ► Lack of controls over regulatory reporting is likely to come up as an obstacle in the IRB application process.”

“The entire commercial loans portfolio had to be manually re-classified because lack of source data/inconsistencies in the recording of loan purpose/facility type meant that the data was unfit for regulatory reporting.”

“The bank has been incorrectly risk weighting commercial real estate lending at 50% whereas many other banks who had previously adopted this approach have already moved to a 100% risk weight. The Bank has quantified the RWA impact of applying the 100% risk weight at c. £600m.”

“it is estimated that, in aggregate, the issues identified in the RWA calculation will increase RWA by £0.9-1.0bn, and an increase in capital requirements of c.£100m, at a target capital ratio of 12.6%.”

“David and I would like to update Supervision on the outcome of RWA review that we have recently undertaken, supported by Deloitte. We would therefore like to set up a call or meeting as soon as diaries allow to report back on the outcome. We hope this will then allow us to revisit earlier conversations with Supervision about application of the Pillar 2A off-set approach outlined in the statement of policy on the PRA's methodologies for setting pillar 2 capital.”

“[Mr Arden] discussed the possibility that [the PRA] would allow us to ringfence £300m of RWAs for sale (and hence potentially not require us to increase the number) and that [the PRA] could allow the remaining £600m to be phased in over a period and clarity on that is needed before we inform the market of this.”

“Risk weighted assets at full year are expected to be approximately £8.9bn with the increase driven by both net loan growth and an adjustment in the risk weighting of certain commercial loans secured on property and certain specialist BTL loans to large portfolio landlords. Total capital ratio is expected to be approximately 15.8% as at December 31 2018.”

“Metro released an unexpected trading announcement earlier today, disclosing weaker profits and more importantly, an error in its risk weighted assets calculation which weighed on capital ratios materially. The shares fell -30% intra-day.” (5) KBW updated this later the same day, saying: “Since raising equity capital at £34.22 in July 2018, Metro's shares have plummeted due to a combination of factors, now down -61% since that time including falling -39% today following their negative pre-announcement for Q4 earnings.”

“The Bank accepts that, in publishing RWA figures within the October Announcement that were known to include significant inaccuracies, it did not take reasonable care to ensure the October Announcement was not false and misleading or omit anything likely to affect the import of the information it contained.”

“Mr Stanley: Don't you accept that a person reading a financial statistic given by a bank would assume that it was a reliable and accurate statistic? Mr Arden: I think a person reading a statistic on regulatory capital at a bank would assume that that number had been agreed with the PRA, or reported to the PRA, and that is exactly what had happened. Mr Stanley: Even if it was reported as the wrong number?... Mr Arden: But the PRA understood that. Mr Stanley: And how would I, as an analyst sitting in my office understand that, reading this number? Mr Arden: Until we had agreed the change in number with the PRA, the number was the number. Mr Stanley: So you thought it was acceptable to report an unreliable number until the PRA had agreed the reliable one? Mr Arden: That was the process that we had agreed with the PRA.”

“everybody knows you use the numbers from the COREP in your announcements”, and there was then the following exchange: “Mr Stanley: The PRA had not told you to use those numbers in anything you said to the market, had they? Mr Donaldson: No…We were working on the agreement that was always done, that the COREP numbers were the numbers that were published to the market…and everybody knew we would be using the COREP numbers as they were, and that is what was put in there. Mr Stanley: Presumably normally people would expect that the COREP numbers would be accurate. Mr Donaldson: Within reason, yes. Mr Stanley: They would be numbers that the bank believed would be right, correct? Mr Donaldson: Absolutely, yes. Mr Stanley: And on this occasion, they weren't, were they? Mr Donaldson: No. We had issues to resolve and we needed to resolve them…”

“should not disclose to the public any issues that were the subject of ongoing dialogue with the PRA. This was because conversations with the PRA on such subjects are confidential and not disclosable to the market. The Bank took this seriously and the Board reiterated this to me, and in the response to the 2018 PSM Letter, confirmed that it would not make any future disclosures to the market on any such issues under discussion with the PRA. This was another reason why disclosure to the market of the RWA Issue in the Q3 Announcement was considered inappropriate as it would, inevitably, have been in breach of that undertaking of confidentiality to the PRA.”

“David, please review and add to minutes below as needed: David Arden and I met with Linklaters (John Lane, Jonty Sadler and Rupert Cheyne) at 11.45am today to discuss the ongoing work and dialogue with the PRA on the classification of our RWAs. We explained that we had identified a problem with the risk weight classification of some commercial assets; that current estimates based on sampling was c.£600m and the impact on core equity capital of c.£50m but further work was being undertaken (with the help of Deloitte) to finalise the amount; that the PRA had agreed that there were no immediate changes necessary for our CoReg [COREP] reporting; and the intention was to notify the market once finalised and resolved in line with our usual full year and Pilar 3 disclosures. Linklaters concurred with our view that it is neither specific or material information at this point and was in the ordinary course of ongoing dialogue with the regulator over a complex issue and no market announcement was necessary at this point.”

“Such an issue required discussion of financial information (provided by the Finance function) for the purposes of advice and guidance by our lawyers and, if appropriate, the brokers, the result of which would be a concluded strategy on a disclosure issue by Management.”

“Notwithstanding the fact that the Bank did not specifically seek advice on the content of the October Announcement, Linklaters would have been aware that the Bank’s Q3 trading update…would have to include RWA figures.”

“The impression I received from David Arden was that there was a high level of uncertainty regarding whether an adjustment would be required. Also, if there was to be an adjustment, the amount could be highly variable due to underlying data and regulatory interpretation issues. Further work was needed to be done with Deloitte along with further interactions with the PRA.”

“David Arden indicated that he didn’t feel that the issue would necessarily be material in terms of impacting Metro Bank’s growth ambitions and future financial performance. He indicated he thought that even in a worst-case outcome Metro Bank would remain well capitalised, in excess of its minimum regulatory capital requirements.”

“I stated that I did not believe the RWA issue would be material in the context of the Bank's future strategy…However, I did not think the RWA issue was an irrelevant issue for the Bank…If I thought it was immaterial I would not have sought the advice of Linklaters.”

“Linklaters concurred with our view that it is neither specific or material information at this point and was in the ordinary course of ongoing dialogue with the regulator over a complex issue and no market announcement was necessary at this point.”

“It seems to me that you are dealing with a complex and confidential matter with your prudential regulator and, until that work is completed, there is nothing to disclose.”

“I do not recollect using these words. I do not believe I gave advice that no announcement obligation could arise before either completion of work or agreement of the PRA. I do not recall any discussion of confidentiality obligations to the PRA.”

“information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments…”

“9.1 A company must notify the Company Announcements Office without delay of any major new act developments in its sphere of activity which are not public knowledge which may, (a) by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to a substantial movement in the price of its listed securities;… 9.2 A company must notify the Company Announcements Office without delay of all relevant information which is not public knowledge concerning a change: (a) in the company’s financial condition; (b) in the performance of its business; or (c) in the company's expectation as to its performance which, if made public, would be likely to lead to substantial movement in the price of listed securities 9.3 … 9.3A A company must take all reasonable care to ensure that any statement or forecast or any other information it notifies to, or makes available through, the Company Announcements Office is not misleading, false or deceptive and does not omit anything likely to affect the import of such statement, forecast or other information. 9.4 The company need not notify the Company Announcements Office of information about impending developments or matters in the course of negotiation and could give such information in confidence to recipients within the categories described in paragraph 9.5… 9.5. The categories of recipient referred to in paragraph 9.4 are: (a) the company’s advisers and advisers of any other persons involved or who may be involved in the development or matter in question; (b) persons with whom the company is negotiating, or intends to negotiate, any commercial, financial or investment transaction… (c) representatives of its employees or trades unions acting on their behalf; and (d) any government department, the Bank of England, the Monopolies and Mergers Commission or any other statutory or regulatory body or authority.” (a) by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to a substantial movement in the price of its listed securities;… (a) in the company’s financial condition; (b) in the performance of its business; or (c) in the company's expectation as to its performance (a) the company’s advisers and advisers of any other persons involved or who may be involved in the development or matter in question; (b) persons with whom the company is negotiating, or intends to negotiate, any commercial, financial or investment transaction… (c) representatives of its employees or trades unions acting on their behalf; and (d) any government department, the Bank of England, the Monopolies and Mergers Commission or any other statutory or regulatory body or authority.”

“(1) Delaying disclosure of inside informationwill not always mislead the public, although a developing situation should be monitored so that if circumstances change an immediate disclosure can be made. (2) Investors understand that some information must be kept confidential until developments are at a stage when an announcement can be made without prejudicing the legitimate interests of the issuer.”

“Participants in the London Stock Exchange understand when they see an RIS announcement that it will always have a metaphorical asterisk next to it that information in here may well be affected by these type of matters [ie impending developments or matters in the course of negotiations] and you have to read this RIS announcement subject to caveats, which everyone in the market understands.”

“There are many circumstances in which you are not under an obligation to say anything, but if you do say something you are under an obligation to take care that it should be accurate.”

“it would be one thing not to mention negotiations, it would be quite another thing to put out an announcement saying ‘there are no negotiations taking place’ when, in fact, there were. That would not be permissible.”

“there is always going to be some sort of threshold. Information is not false if it is substantially true. It is not misleading if it is substantially correct. It is not lacking something that would affect the import of the information if the effect of…saying something more would be trivial or inconsequential.”

“One upside is that I think that many of the ‘retail commercial mortgages’ on CHL (London & Canberra) currently marked at 50% are loans to ‘personal investment companies’ for residential properties, so would qualify as retail under CRR Article 125 and hence 35%.” (2) On 17 August 2018, Mr MacLean emailed Mr Arden with a list of data issues, one of which was that “Regulatory Reporting team have also performed some sampling testing and have observed loans secured by residential properties being classified as ‘Commercial Owner Occupier’”, see §119. (3) The presentation pack provided for the meeting between Mr Arden, Mr Somers, Ms Gillan and others on 3 September 2018 to discuss the RWA issue stated that “there is limited potential mitigation in trading book assets with residential property security but this would need case by case review”, see §128. (4) The minutes of that meeting said (see §129) that “potentially a small portion of this book that was actually secured on residential property and had actually been miscoded. Analysis suggests this is likely no greater than £20m of RWA.”

“I think, therefore , it is the 100 plus million that we had in the work that we had done, and it must be offsetting the overs and unders with the worst case that we considered we would get post the Deloitte work”

“explaining that the Bank had discovered an issue with its calculation of RWA and therefore the RWA figure in the Q3 Announcement was wrong (or might be wrong), even though the Bank was unable to quantify the extent of the error, had not yet completed work to ascertain the correct position and could therefore not confirm its capital position to the market. Such an unprecedented, unquantified and unclear announcement would likely have been catastrophic, as well as being unnecessary in law [and] would have had serious prudential consequences…”

“On 26 January 2023, I informally met with Mr Charles Woods of the PRA. Mr Woods was at the time of the Q3 Announcement (and remains) a Director of the PRA, holding the position of Head of UK Banks Supervision, and I understand is the person with overall responsibility for the prudential regulation of the Bank. At our meeting, I raised the FCA’s criticism that the Bank should have qualified its capital position in the Q3 Announcement. In response, Mr Woods audibly laughed and said that the PRA ‘would have had something to say about that’.”

“…did not simply provide a RWA figure that was known to be incorrect, and did not merely omit the important information that the figure was under review and realistically bound to be revised upwards: it positively invited the reader to draw favourable conclusions about Metro Bank’s capital ratios from that figure (‘remain robust’), and did so where Metro Bank’s capital ratios were regarded as commercially important.”

“On the basis of preliminary investigations into the UK food business, the Board believes that the guidance issued on 29 August 2014 for the Group profits for the six months to 23 August 2014 was overstated by an estimated £250m. Some of this impact includes in-year timing differences. Work is ongoing to establish the extent of these issues and what impact they will have on the full year.”

“our Q3 Trading Update has been prepared on a consistent basis to previous quarterly trading updates and there are no significant accounting or reporting matters to bring to the Committee’s attention.”

“It was expected that the work would be complete by year end, the Committee would be updated on any corrections required to be reported to the regulator and any revisions required to reporting methodologies…The impact of incorrect reporting on the balance sheet was not insignificant.”

“…proceed on the basis that Ms James had no concerns regarding the scope of Linklaters’ advice regarding disclosure, the manner in which they had been instructed or the application of the advice (as it had been reported to them) to the decisions that the Bank was taking and that Mr Arden proceeded on that basis.”

“She did not suggest that Linklaters had been inadequately or incompletely briefed. She did not suggest that the external legal advice that had been obtained was insufficient, and did not suggest that more advice was needed.”

“(1) The court may, on the application of the appropriate regulator…make an order under subsection (2) if it is satisfied that a person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and (a) that profits have accrued to him as a result of the contravention; or (b) that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention. (2) The court may order the person concerned to pay to the regulator concerned such sum as appears to the court to be just having regard– (a) in a case within paragraph (a) of subsection (1), to the profits appearing to the court to have accrued; (b) in a case within paragraph (b) of that subsection, to the extent of the loss or other adverse effect; (c) in a case within both of those paragraphs, to the profits appearing to the court to have accrued and to the extent of the loss or other adverse effect.” (a) that profits have accrued to him as a result of the contravention; or (b) that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention. (a) in a case within paragraph (a) of subsection (1), to the profits appearing to the court to have accrued; (b) in a case within paragraph (b) of that subsection, to the extent of the loss or other adverse effect; (c) in a case within both of those paragraphs, to the profits appearing to the court to have accrued and to the extent of the loss or other adverse effect.”

“I think that ‘knowingly’ means with knowledge of the facts upon which the contravention depends. I think it is immaterial whether the director had knowledge of the law or not. I think he is bound to know what the law is, and the only question is, did he know the facts which made the act complained of a contravention of the statute?”

“No person shall carry on, or purport to carry on, investment business in the United Kingdom unless he is an authorised person under Chapter III or an exempted person under Chapter IV of this Part of this Act.”

“(1) A person (‘A’) must not, in the course of business, communicate an invitation or inducement to engage in investment activity. (2) But subsection (1) does not apply if— (a) A is an authorised person; or (b) the content of the communication is approved for the purposes of this section by an authorised person.” (a) A is an authorised person; or (b) the content of the communication is approved for the purposes of this section by an authorised person.”

“the concept of being ‘knowingly concerned in a contravention’ for the purposes of section 382 required satisfaction of two discrete elements, namely (i) that the person must have been actually involved in the contravention, and (ii) that the person must have had knowledge of the facts on which the contravention depends.”

“all that is required is knowledge that a communication has been made which invites or induces investment activity or claims management activity, and knowledge that this is in the course of business.”

“In almost every case where a person is ‘concerned’ in a breach of section 21 FSMA they are likely to have the requisite degree of knowledge, since all that is required is knowledge that a communication has been made which invites or induces investment activity or claims management activity, and knowledge that this is in the course of business.”

“…knowledge of the facts which make the act complained of a contravention of the statute must include knowledge of the factual circumstance that prevents a potentially relevant disapplication from operating.”

“Suppose a statute were to prohibit any communication inviting or encouraging the making of an investment, but also provided that such prohibition is not to apply at weekends. It would not be sufficient to establish liability under section 382 if a defendant director knew that an advertisement inviting an investment had been placed in a newspaper by his company. Those facts alone would not indicate whether a contravention of the prohibition had occurred. The missing fact which the director would also have to know is that the advertisement was not in a newspaper published at a weekend.”

“…one of the purposes of introducing powers to make a restitution order against someone who was ‘knowingly concerned’ in unlawful investment activity was to prevent directors from ‘hiding behind the corporate veil’ of an insolvent infringing company.”

“…the Judge interpreted section 382 in a way that imputed to the legislaturean intention to impose personal liability on directors (or others) simply on the basis that they knew of the actions that the company was taking in the course of its business. That would be a far-reaching step indeed. Business is normally conducted, and investment opportunities are routinely offered, by companies with limited liability. The interpretation adopted by the Judge would result in limited liability being disregarded irrespective of whether the company was in fact rendered insolvent by the contravention of FSMA, and in a much wider set of circumstances than those in …which the courts have conventionally thought it appropriate to pierce the corporate veil. Such grounds conventionally require some finding that the directors or corporators have established the company as a sham or façade for the purposes of some fraud. The corporate veil has never been disregarded simply because the directors were aware of the actions that their company was taking in the course of its business. In my judgment, the intention to introduce such a radical departure from the principles of limited liability in the financial services field should not be attributed to the legislature in the absence of some very clear indication – of which there is none.”

“Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context. The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the ‘intention of Parliament’ is an objective concept, not subjective. The phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used.”

“237. I think that Snowden LJ’s meaning here is clear - a director of a firm who has the ordinary knowledge of the firm’s activities which a director is expected to have should not automatically be liable under s.382 on a breach by their firm of a regulatory requirement. Directors of financial firms are entitled to the same company law protections as directors of any other company…the proposition as articulated by Snowden LJ seems clearly correct. The ordinary rules of director’s liability are not dispensed with simply because the firm concerned engages in unauthorised financial business. The FSMA does provide the FCA with the ability to pursue directors personally, but an essential threshold condition for such pursuit is, as Snowden LJ put it, ‘some fraud’. 238. The conclusion from this is that in order for s.382 to apply, there must be some involvement by a director in the contravention of a regulatory rule by his company which goes some way beyond the normal involvement of a director in the affairs of the company.”

“This is, in principle, a good argument. To describe a person as ‘knowingly concerned’ in a contravention of the law in circumstances where he has obtained independent advice that the activity concerned is not in contravention of the law is to strain the meaning of the word ‘knowingly’ beyond any reasonable compass.”

“If he had read the McGee opinion dispassionately, it should immediately have been clear to him that what it was in fact saying was that, in differentcircumstances, and against a different factual matrix, the contracts which had been put in place would not necessarily constitute participation in a scheme. This opinion is entirely correct. However, it does not help Mr Forster in this case.”

“The key points here seem to me to be twofold. First, it is absurd to suggest that a lay client should not rely on the advice which he has received as regards the legal analysis which it contains. Provided that he has sought the advice of an appropriate professional, he cannot be criticised for relying on the advice which he has received. Second, however, is that all legal advice is necessarily based on assumed facts. Legal advice cannot take any other form than that “if the facts are X, the conclusion is Y”

“reasonably led the issuer to believe that the announcement is accurate and complete, [t]he receipt of such advice might arguably demonstrate that the issuer had taken reasonable advice to ensure accuracy and completeness.”

“My clear understanding from the conversation with Mr Arden was that until Deloitte's work had been concluded and discussions to agree the final capital position with the PRA had taken place no market announcement was necessary. In other words, it was my understanding that the Bank did not need to make any specific disclosure about the RWA Issue in the Q3 Announcement and I relied on that advice.”

“It was the FCA's submission, and I accept, that in determining any penalty under section 129, the starting point for the court should be to consider the relevant DEPP penalty framework that was in existence at the time of commission of the market abuse in question. To do otherwise would risk introducing an inequality of treatment of defendants depending upon whether the proceedings were taken against them under the regulatory route or the court route and depending upon how long the proceedings had taken to come to a conclusion. By the same token, however, in common with the Upper Tribunal, the court is not bound by that framework, or by the FCA's view of how it should be applied. But if the court intends to depart from the framework in a particular case, it should explain why it considers it appropriate to do so.”

“The FCA will consider all the relevant circumstances of the case when deciding whether to impose a penalty or issue a public censure. As such, the factors set out in DEPP 6.4.2 are not exhaustive. Not all of the factors may be relevant in a particular case and there may be other factors, not listed, that are relevant.”

“(a) the level of benefit gained or loss avoided, or intended to be gained or avoided, by the individual from the breach, either directly or indirectly; (b) the loss or risk of loss, as a whole, caused to consumers, investors or other market users in general; (c) the loss or risk of loss caused to individual consumers, investors or other market users; (d) whether the breach had an effect on particularly vulnerable people, whether intentionally or otherwise; (e) the inconvenience or distress caused to consumers; and (f) whether the breach had an adverse effect on markets and, if so, how serious that effect was. This may include having regard to whether the orderliness of, or confidence in, the markets in question has been damaged or put at risk.”

“(a) the nature of the rules, requirements or provisions breached; (b) the frequency of the breach; (c) the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach; (d) the scope for any potential financial crime to be facilitated, occasioned or otherwise occur as a result of the breach; (e) whether the individual failed to act with integrity; (f) whether the individual abused a position of trust; (g) whether the individual committed a breach of any professional code of conduct; (h) whether the individual caused or encouraged other individuals to commit breaches; (i) whether the individual held a prominent position within the industry; (j) whether the individual is an experienced industry professional; (k) whether the individual held a senior position with the firm; (l) the extent of the responsibility of the individual for the product or business areas affected by the breach, and for the particular matter that was the subject of the breach; (m) whether the individual acted under duress; (n) whether the individual took any steps to comply with FCA rules, and the adequacy of those steps; (o) in the context of contraventions of Part VI of the Act, [which includes the vires for the Listing Rules] the extent to which the behaviour which constitutes the contravention departs from current market practice;…”

“Metro Bank is a premium listed issuer that was listed on the FTSE 250 at the time of the breach. The Bank’s inclusion of a total RWA figure calculated using the incorrect CLIP Loans risk weight, without any qualification, had the potential to mislead its investors and affect the import of the information contained in the October Announcement. The fact that, following the January 2019 announcement, there was a drop in Metro Bank’s share price of 39% on the day of the announcement and adverse market commentary indicates that Metro Bank’s breach of LR 1.3.3R, in respect of which [each Applicant] was knowingly concerned, had a serious adverse effect on financial markets and risked damaging confidence in the financial markets (6.5B.2G(8)(f)). The existence of the CLIP Loans error only became known to investors three months after the breach, when the January 2019 announcement was released. This delay caused a risk of loss to new and existing individual shareholders who traded between the October Announcement and the January 2019 announcement (DEPP 6.5B.2G(8)(c)).”

“…aware that Metro Bank calculated the total RWA figure in its October Announcement by, amongst other things, incorrectly applying a risk weighting of 50% to its CLIP Loans and failed to take adequate steps to ensure that Metro Bank complied with LR 1.3.3R. [They] failed to ensure that Metro Bank considered whether the October Announcement ought to have included a qualification or sought legal advice or input from its professional advisers on this question. [They] also failed to ensure that the Audit Committee and the Board considered whether the inclusion of the inaccurate RWA figure in the October Announcement without any qualification was appropriate (DEPP 6.5B.2G(9)(n)).”

“(6) The FCA will assess the seriousness of a breach to determine which level is most appropriate to the case. (7) In deciding which level is most appropriate to a case against an individual, the FCA will take into account various factors which will usually fall into the following four categories: (a) factors relating to the impact of the breach; (b) factors relating to the nature of the breach; (c) factors tending to show whether the breach was deliberate; and (d) factors tending to show whether the breach was reckless.” (a) factors relating to the impact of the breach; (b) factors relating to the nature of the breach; (c) factors tending to show whether the breach was deliberate; and (d) factors tending to show whether the breach was reckless.”

“(a) little, or no, profits were made or losses avoided as a result of the breach, either directly or indirectly; (b) there was no or little loss or risk of loss to consumers, investors or other market users individually and in general; (c) there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the breach; (d) the breach was committed negligently or inadvertently;…”

“If the FCA considers the figure arrived at after Step 3 is insufficient to deter the individual who committed the breach, or others, from committing further or similar breaches then the FCA may increase the penalty.”

“That payment was made to compensate him for the loss of a bonus payment that his former employer (Sainsbury’s Bank) would otherwise have paid. It was therefore not paid by the Bank as a reward for his services in the relevant period. Instead, it compensated him for services that he had performed in the past for a different employer, which are unrelated to the alleged wrongdoing, and which he forfeited by leaving.”

“(1) The FCA may increase or decrease the amount of the financial penalty arrived at after Step 2…to take into account factors which aggravate or mitigate the breach. Any such adjustments will be made by way of a percentage adjustment to the figure determined at Step 2. (2) The following list of factors may have the effect of aggravating or mitigating the breach: (a) the conduct of the individual in bringing (or failing to bring) quickly, effectively and completely the breach to the FCA's attention (or the attention of other regulatory authorities, where relevant); (b) the degree of cooperation the individual showed during the investigation of the breach by the FCA, or any other regulatory authority allowed to share information with the FCA; (c) whether the individual took any steps to stop the breach, and when these steps were taken; (d) any remedial steps taken since the breach was identified, including whether these were taken on the individual’s own initiative or that of the FCA or another regulatory authority; (e) whether the individual has arranged his resources in such a way as to allow or avoid disgorgement and/or payment of a financial penalty; (f) whether the individual had previously been told about the FCA's concerns in relation to the issue, either by means of a private warning or in supervisory correspondence; (g) whether the individual had previously undertaken not to perform a particular act or engage in particular behaviour; (h) whether the individual has complied with any requirements or rulings of another regulatory authority relating to the breach; (i) the previous disciplinary record and general compliance history of the individual; (j) … (k) whether FCA guidance or other published materials had already raised relevant concerns, and the nature and accessibility of such materials;…” (a) the conduct of the individual in bringing (or failing to bring) quickly, effectively and completely the breach to the FCA's attention (or the attention of other regulatory authorities, where relevant); (b) the degree of cooperation the individual showed during the investigation of the breach by the FCA, or any other regulatory authority allowed to share information with the FCA; (c) whether the individual took any steps to stop the breach, and when these steps were taken; (d) any remedial steps taken since the breach was identified, including whether these were taken on the individual’s own initiative or that of the FCA or another regulatory authority; (e) whether the individual has arranged his resources in such a way as to allow or avoid disgorgement and/or payment of a financial penalty; (f) whether the individual had previously been told about the FCA's concerns in relation to the issue, either by means of a private warning or in supervisory correspondence; (g) whether the individual had previously undertaken not to perform a particular act or engage in particular behaviour; (h) whether the individual has complied with any requirements or rulings of another regulatory authority relating to the breach; (i) the previous disciplinary record and general compliance history of the individual; (j) … (k) whether FCA guidance or other published materials had already raised relevant concerns, and the nature and accessibility of such materials;…”

“The teach-in presentation was given to the PRA only, and the admissions contained in it concerned historical governance, controls and the process for preparing COREP reports. The presentation and its contents were therefore not directly relevant to the Authority’s investigation and so the Authority does not consider that Mr Arden’s co-operation should be considered a mitigating factor.”

“Metro Bank disclosed the corrected RWA figure to the market in the January 2019 announcement to comply with its obligations under Listing Principle 1 and Article 17 of MAR rather than in order to remedy directly any harm arising from its breach of LR 1.3.3R.”

“...did not bring this to the attention of the Authority, and so the Authority does not consider the fact that the PRA was notified of the RWA error to be a mitigating factor.”