Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 29 January 2019 |
| Neutral Citation | [2019] EWHC 129 (Ch) |
| Docket Number | Case No: CR-2018-008846 |
| Court | Chancery Division |
| Date | 29 January 2019 |
and
and
[2019] EWHC 129 (Ch)
Mr Justice Snowden
Case No: CR-2018-008846
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
COMPANIES COURT (ChD)
Royal Courts of Justice
Rolls Building,
Fetter Lane,
London, EC4A 1NL
Martin Moore QC and Stephen Horan (instructed by Clifford Chance LLP) for the Applicants
Hearing dates: 22 and 23 January 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
Barclays Bank PLC (“BBPLC”) and Barclays Bank Ireland Public Limited Company (“BBI”) seek the sanction of the Court for a banking business transfer scheme (the “Scheme”) under Part VII of the Financial Services and Markets Act 2000 (“ FSMA”).
Under the Scheme there are two transferring entities: BBPLC and Barclays Capital Securities Limited (“BCSL”). BCSL is a subsidiary of BBPLC. The transferee company is BBI, which is also a subsidiary of BBPLC and is a company incorporated in the Republic of Ireland. All three companies are members of the group of which the ultimate parent company is Barclays PLC (the “Barclays Group”).
Taken together, the businesses of the three companies include (i) corporate banking, (ii) investment banking and (iii) private banking and overseas services (“PBOS”). The business of BBPLC and BCSL is conducted in the UK, and through branches of BBPLC in Germany, France, Spain, Italy, the Netherlands, Portugal and Sweden. That business is distinct from the ring-fenced UK retail, business banking and wealth and investment management business of the recently formed Barclays Bank UK PLC.
The commercial purpose of the Scheme is to deal with some of the issues which might arise for the international business of BBPLC and BCSL following the UK ceasing to be a member of the EU (“Brexit”). In particular the Scheme is designed to deal with the consequences for BBPLC and BCSL of a “no-deal” (“hard”) Brexit, which it is envisaged would result in the two companies losing their “passporting” rights which currently permit them to provide investment services and conduct investment activities in the remaining 27 EU Member States. The design of the Scheme has been based upon an assumption that there will be no favourable outcome of the current political negotiations between the UK and the EU as regards passporting or the grant of equivalence status to the UK in respect of financial services.
The Scheme potentially applies to any “Clients” of BBPLC or BCSL. That expression is very broadly defined to include any person to whom BBPLC or BCSL provides a product or service in the course of its business, or with whom either of them has entered into a trade or transaction. It therefore potentially includes both persons who would be regarded as “clients” in the conventional sense, as well as market counterparties. The identity of the particular Clients who will actually be affected by the Scheme is limited to those so-called “In-Scope Clients” who are mainly identified on a USB memory stick held by Barclays' solicitors, Clifford Chance LLP, but include others who can be added by agreement. Those In-Scope Clients have been selected on the basis of an assessment of the risk that, after Brexit, BBPLC or BCSL would be required to carry out activities in relation to those Clients which the authorities in the relevant EEA jurisdiction might take the view that BBPLC or BCSL no longer had any authorisation to carry out.
To address this possibility, the Scheme is designed (i) to duplicate in the name of BBI the existing contractual framework of terms of business and master agreements under which BBPLC and BCSL currently conduct their businesses with In-Scope Clients, (ii) to transfer the rights and liabilities in relation to existing trades and transactions with those Clients from BBPLC and BCSL to BBI, and (iii) to transfer the assets of the relevant European branches from BBPLC to BBI. The transferred business will then be conducted by BBI throughout the EEA after Brexit using BBI's EU passporting rights. BBI will also be the counterparty for future business with such In-Scope Clients.
Because of local law and regulatory concerns, including whether the transfer under the English Scheme of contracts and transactions governed by local laws will be recognised in some jurisdictions, the transfer of the business conducted from the branches in the Netherlands, Sweden and Portugal, and some of the business of the German and Italian branches, will be achieved by novation or other bespoke agreements with individual clients outside the Scheme.
For the In-Scope Clients, the Scheme provides for the automatic duplication of their existing terms of business and master agreements in the name of BBI, and a block transfer of their contracts, trades and transactions to BBI. It is anticipated that this will be administratively highly advantageous and will save considerable time and expenditure, both for the Barclays Group and its relevant Clients. The automatic duplication of contracts, and the collective transfer of existing trades and transactions will also avoid problems of timing mis-matches and execution risk in transferring individual contracts and trades.
It is, however, a feature of the Scheme that investment banking clients or counterparties who do not wish to have certain trades or transactions with BBPLC or BCSL transferred to BBI under the Scheme (e.g. to avoid breaking netting sets) will have the possibility to “opt out” in respect of those trades or transactions. The duplication of the BBPLC and BCSL contractual frameworks in BBI thus allows for some flexibility for Clients to elect to leave specific positions behind with BBPLC or BCSL, rather than have them transfer to BBI.
On any view, the scale of the transfer of business from BBPLC and BCSL to BBI under the Scheme is huge. The Scheme will apply to about 5,000 Clients of the two transferring companies, and on the basis of the accounts for 2017 it is estimated that about €190 billion of external assets will be transferred. The vast majority of those assets will be transferred from BBPLC.
Due to the continuing uncertainty over whether there might be a “no-deal” Brexit, the Barclays Group has determined that it cannot wait any longer to implement the Scheme. In light of the large volume of business to be transferred, the Scheme contains a number of phased dates upon which the transfer of the different types of business, and the business of the branches in Spain, Italy and France, will become effective. The overriding requirement, however, is that BBI must be legally and operationally ready to conduct all relevant regulated business with the In-Scope Clients by no later than 29 March 2019, which is the date currently set for Brexit.
The businesses of BBPLC and BCSL
BBPLC
BBPLC is authorised in the UK by the PRA and regulated in the UK by the PRA and FCA under FSMA to accept deposits and conduct a wide range of other regulated activities.
The business of BBPLC to be transferred is, as indicated above, divided into three lines: corporate banking, investment banking and PBOS. In outline, the corporate banking business comprises the provision by BBPLC of the following,
i) trade and working capital products (such as letters of credit, standby letter of credit, collection services, trade loans, bills or promissory notes, performance guarantees or financial guarantees, invoice discounting, receivables financing and asset based lending and reverse factoring);
ii) cash management products (such as deposits, cash management or liquidity products (including any accounts), services for making or receiving payments, information services and electronic banking services); and
iii) corporate debt products (such as partnership capital subscription loans, overdraft facilities, money market loans, bilateral secured or guaranteed term loans or a bilateral secured or guaranteed revolving credit facilities).
BBPLC's investment banking business involves it entering into,
i) derivative transactions;
ii) repurchase transactions;
iii) securities lending transactions;
iv) secondary loans (trading) transactions;
v) Schuldscheine (certificates of indebtedness issued by BBPLC to an institutional investor under a loan agreement governed by German law pursuant to which BBPLC has undertaken to repay the loan amount in accordance with the terms of the loan agreement); and
vi) NSVs (a registered note ( Namensschuldverschreibung) issued by BBPLC to an institutional investor under German law pursuant to which BBPLC has undertaken to repay the registered note amount in accordance with the terms of the registered note).
BBPLC's PBOS business comprises the provision of,
i) investment services (including investment advisory, discretionary portfolio management, execution or custody services and investment products executed in connection with such a service); and
ii) banking and credit products (including deposit taking accounts, foreign exchange currency and payments services, treasury managements services, term loans, unsecured lending, securities backed lending, financial planning products and services, and tailored lending).
BBPLC's deposit-taking business is conducted across all three of these business areas. There are approximately 1,283 Clients of BBPLC with deposits in aggregate of approximately £1.5 billion (in sterling and other currencies) in the PBOS area, €1.7 billion in Schuldscheine, and €1.7 billion in the corporate banking area that will be transferred to BBI under the Scheme.
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