The Supreme Court’s decision to back Lloyds in a bond issuance case has raised questions for the Financial Conduct Authority, according to an analyst.
Mark Taber, a researcher at Fixed Income Investments, said the judgment made no reference to arguments made in court over the statutory requirements that prospectuses should be accurate and contain all the information investors need to make an informed decision.
He said if the courts would not consider those requirements, then the responsibility should fall to the FCA to revisit the rules for prospectuses.
“Having read the judgement it raises a lot of questions for the regulators in terms of the statutory regime of the requirements for prospectuses,” commented Mr Taber. “They need to make sure their prospectuses are written accurately.
They (the FCA) need to make sure their prospectuses are written accurately.“The judgement itself has not commented on that, which does raise the question of where the FCA sits on this.”
The investment terms of the more than £3bn of high income-paying bonds, meant that Lloyds could redeem the ‘enhanced capital notes’ (ECNs) early at face value, as they no longer counted towards the bank’s capital buffer.
But investors believed the bonds were worth more than par and the terms did not allow for them to be called in early.
Yesterday (16 June) the Supreme Court ruled by a 3-2 majority that the ECNs must play a part in enabling Lloyds to pass the stress-test
In March 2009, the bank failed a stress test carried out by the regulator, showing it had a shortfall in core tier one capital.
Lloyds therefore implemented a strategy to raise the necessary core tier one capital, involving a rights issue and a restructuring of some of its securities as enhanced capital notes, which provided an advantage in the context of the regulator’s stress tests.
The number of complaints made against the FCA shot up in February to 154, from 48 received the previous month and 30 in December, which the regulator attributed to a large number of complaints being received about their role in the Lloyds issue.
A spokesman for the regulator said: “The FCA has always maintained that the legal effect of the clauses under dispute is a matter for the courts.
“Legal clarity has now been achieved following the Supreme Court’s judgement.”
