Financial litigation trends in 2023

The current economic climate driven by rising inflation and the war in Ukraine means that 2023 is likely to be a busy time for financial services litigators.

In the article we take a high level look at some of the possible types of financial services claims which might start to trouble the Courts in 2023.

Liability-driven investments

The big question in financial services litigation in 2023 is whether we will see start to see claims relating to liability-driven investments (LDI) being issued. The disastrous mini-budget in September 2022 led to a pension funding crisis because of the use of LDI strategies to manage interest rates and inflation. Many defined benefit pension schemes became subject to collateral calls due to rising interest rates. The collateral calls led to a ‘fire-sale’ of scheme assets or trustees entering into emergency arrangements to enable the scheme to meet these calls. In November 2022, experts estimated to the Department of Work and Pensions that pensions were ‘missing’ over £500bn in assets.

Litigation could be launched by scheme trustees against advisers who put the LDI strategies in place or against the asset managers who managed the funds in order to recover some of the losses suffered by funds when scheme assets had to be sold off to meet the collateral calls.

Environmental, Social and Governance (ESG)

ESG, meaning “Environmental, Social and Governance”,  is likely to become a buzz word (or should that be a ‘buzz acronym’?) in 2023 as ESG reporting has become further regulated through the introduction of the Sustainability Disclosure Requirements.

Businesses will have to be mindful of their disclosures about their ESG practices. This might lead to litigation by shareholders who believe that they have been misled into investing due to false statements by companies about their ESG practices. For instance Section 90 of the Financial Services and Markets Act 2000 makes any person responsible for listing particulars liable to pay compensation to any person who has acquired securities to which the particular apply and who has suffered loss as a result of any untrue or misleading statement in the particulars and claims could be brought under that basis against businesses who make misleading statements about their ESG practices in their particulars.

In Autumn 2022, the FCA also consulted on introducing a package of measures aimed at clamping down on ‘greenwashing’ in the promotion and selling of investments. The anti-greenwashing rule will apply to all FCA authorised firms. We expect complaints could be brought by customers that sustainability-related claims made by businesses in promoted produces were unclear, unfair or misleading.

Cryptocurrency

The well-publicised collapse of FTX has brought the dangers of investing in cryptocurrency into the public eye and has given further impetus to the government and regulators to increase the regulation of cryptocurrency.

Hitherto, the cryptocurrency industry has been largely unregulated, and the FCA has been unable to properly protect consumers from mis-selling, false advertising and fraud in the promotion and sale of cryptocurrency. However, 2023 will see extensive government reforms in the shape of the new Financial Services and Markets Bill, which will bring the regulation of cryptocurrency under the remit of the FCA. These new powers will allow the FCA to oversee the cryptocurrency industry more broadly, including the ability to monitor how such companies operate and advertise their products.

As a result of increased regulation, the Courts are in turn likely to see increased claims when cryptocurrency operators fall foul of the regulatory regime. There is also likely to be litigation arising out of collapsed cryptocurrency trading platforms (such as FTX), with investors attempting to recover their loss monies. This is likely to keep the Court very busy into 2023 and beyond.

Contact a financial litigation solicitor

Our team specialise in financial litigation matters, including financial mis-selling claims, and regulatory disputes.

If you or your business is faced with a potential dispute, call for a free initial consultation today on 0800 652 8025 or get in touch online.