Banking litigation in 2020 – what to look out for

The growing use of class actions and the replacement of LIBOR are expected to be key issues to look out for in banking litigation in 2020, says RPC, the City-headquartered law firm.

There are approximately £25 trillion in outstanding contracts referencing GBP LIBOR*. Many of these contracts were never drafted with a provision to allow their reference index to permanently be switched away from LIBOR – creating the risk of legal disputes.

The way that LIBOR’s replacement, called SONIA, performs is likely to be very different from LIBOR – meaning investors and borrowers could lose out from the changeover. With SONIA giving a different interest rate the amount owed or paid out under the adjusted contract could be very different from that under the old LIBOR based agreement.

Whilst the Bank of England expects usage of LIBOR to have ceased by the end of 2021 many banks are already transitioning over to the use of SONIA.

Explains Chris Ross, Partner, of RPC: “With such large amounts of money at stake, across the spectrum of financial products – including loans, bonds and derivatives - the risk of litigation is very real.”

“The outstanding stock of LIBOR instruments has grown substantially since the Bank of England confirmed the shift to SONIA which just adds to the complexity of the transition.”

“If a contract is switched from LIBOR to SONIA then there is a very high chance that one party or other will lose out – the only question is how big that difference will be.”

RPC also explain that 2020 may see the continued growth in the use of class actions in the financial markets. The progress of the Tesco plc shareholder class action (relating to false and misleading statements) in 2019, despite attempts by Tesco to have the claim struck out, is a positive sign for shareholders.

Adds Chris Ross: “There is a continuing trend of group litigation claims in the financial markets – from RBS to Lloyds/HBOS to the Tesco s.90A claim. These actions are becoming part of the legal landscape in the UK.”

“Shareholders, like pension funds, are likely to be more willing to participate in shareholder litigation as a lot of the trail-blazing work has been done and they become more mainstream.”

Decision on competing Forex cartel cases also expected

RPC says another feature of 2020 is likely to be the ongoing actions against a large number of investment banks in relation to Forex-rigging claims. There are now three claims underway – one in the High Court and two competing class actions in the Competition Appeal Tribunal (CAT). Other claims are expected. 

The CAT will have to decide which of these two claims, on behalf of pension funds and other asset managers, against banks can go forward. The claims follow an EC finding that the banks had broken the law by engaging in cartel like activity. A further EC finding is expected shortly. 

*Source: Bank of England