Bank of England and Financial Conduct Authority
Suspension of nickel trading on the LME - FCA and Bank of England publish statements on supervisory action - 3 March 2023
The FCA and the Bank of England (the Bank) have published statements in respect of the suspension of nickel training on the London Metal Exchange (LME) during March 2022. This follows a joint statement by the FCA, the PRA and the Bank, published in April 2022.
The FCA statement indicates that it has reviewed the events surrounding the suspension of the nickel market and opened an enforcement investigation into some of LME’s conduct, and the systems and controls in place, during the period between 1 January and 8 March 2022. It confirms that it is undertaking the investigation considering the public interest in these matters and will not make any further comment in line with normal policy.
The FCA also states that, since the suspension, LME has implemented changes to its control framework and committed to a wider package of market reform, following the recommendations of an external review commissioned by LME and LME Clear. The FCA welcomes LME's focus on increasing the transparency of over-the-counter trading to support robust risk management in its on-exchange trading and will monitor closely the LME board's oversight of the implementation of these changes.
Further to this, the Bank reviewed the operation of LME Clear during the period following the nickel events to determine whether lessons should be learned in relation to LME Clear’s governance and risk management. The Bank was assisted by the appointment of a ‘skilled person’, under section 166 of FSMA, to conduct a targeted independent review into events at LME Clear. LME Clear and LME also jointly commissioned Oliver Wyman to conduct an independent review into the factors that contributed to nickel market conditions in March 2022. Collectively, these reviews pointed to several shortcomings across LME Clear’s governance, management and risk management capabilities. In response, LME Clear will need to strengthen its governance arrangements, increase management independence and improve on its wider risk management. The Bank expects LME clear to appropriately address all the findings and welcomes LME Clear’s stated commitment to the publication of its implementation plan and timely execution thereafter, which the Bank will monitor closely.
Recognising the importance of the timely implementation of the remedial actions to enhance the resilience of LME Clear’s clearing services and maintain public confidence in the stability of the UK financial system, the Bank intends to use its statutory powers under section 166, FSMA to appoint a skilled person to independently monitor, assess and report to the Bank regularly on LME Clear’s implementation progress against remedial actions. The Bank will incorporate those reports into its supervisory strategy for LME Clear.
The Bank will continue to work closely with the FCA, in its capacity as supervisor of LME, where remediating actions are also relevant to LME.
Bank of England press release
FCA press release
R (Charles Street Securities Europe LLP) V Financial Ombudsman Service  EWHC 448 (Admin) - 3 March 2023
Financial Ombudsman Service - FOS - investments - client classification
The Administrative Court handed down judgment on 10 February 2023, dismissing a claim for judicial review of a Financial Ombudsman Service (FOS) decision dated 27 March 2021, brought by the Claimant, Charles Street Securities Europe LLP (CSSE), against the Defendant, the FOS (the Final Decision).
R (the Interested Party) was a retired businessman and investor who had signed a private client agreement with the Claimant and had indicated that he was prepared to accept a high level of risk in respect of 20% of his investments. He then signed an agreement to be treated as an intermediate client and indicated that he was prepared to accept a high level of risk on 25% of his investments (his loss limit). He later complained to the FOS in respect of the poor performance of investment opportunities the Claimant had presented to him over a three-year period, contending that the Claimant was responsible for the losses he had suffered. The Claimant's position was that all the investments were specifically identified to R as being high-risk and high reward.
The FOS held that the Claimant had not taken sufficient care to ascertain R's true financial position or his level of investment experience when he signed the second agreement and had, therefore, incorrectly categorised him as an intermediate client. The Claimant should also have ascertained R's capacity for loss and not recommended high risk investments above his loss limit (25% of his investments). The FOS found that, in practice, the Claimant had advised, rather than merely provided information to, R and, as such, was required to do more than ensure the information provided to R was correct - in addition, it was required to ensure that the investments and, therefore, its advice was suitable for R, taking into account his financial position. The FOS held that the Claimant had failed to comply with its duty: it was unreasonable to continue proposing high risk investments to R when it was clear he could not sustain the losses involved. The complaint was upheld, and the FOS recommended that the Claimant pay additional compensation in excess of the statutory cap of £150 plus interest.
The Claimant submitted that the FOS had reached irrational conclusions in respect of: (i) the Claimant's duty to give R suitable investment advice; (ii) compensation; and (iii) causation. Its application for judicial review was, however, dismissed in full by Mrs Justice Heather Williams on the basis that:
- the FOS’s decision was determined in accordance with its duty under section 228(2) FSMA, namely by reference to what was fair and reasonable in the circumstances;
- the FOS considered evidence provided by the Claimant and R and had noted multiple references to advice given by the Claimant. No irrationality or error of law was identified;
- the FOS had not misunderstood the difference between the provision of investment information and the provision of investment advice; and
- the FOS had examined what R would have done if the Claimant had stopped making recommendations to him beyond the threshold of his capacity for loss. The decision it reached had been logical, rational and based on the evidence.
R (Charles Street Securities Europe LLP) V Financial Ombudsman Service  EWHC 448 (Admin)