No. of Recommendations: 78
Liberty Taker / freddythefish etc. Here is my attempt at summarising this very complex and lengthy saga for you -

Back in November 2009 Lloyds Bank (LBG) offered novel bonds (known as 'Enhanced Capital Notes' (ECNs) to over 123,000 of its existing retail investors in exchange for their perpetual preference shares and former building society PIBS.

The ECNs were developed by the FSA and Lloyds as a key part of a plan for LBG to withdraw from the Government Asset Protection Scheme (GAPS). The plan was estimated to save LBG, and indirectly the taxpayer, £14 billion compared to entering GAPS and its success required a large take-up of the ECNs amongst retail investors.

LBGs marketing presentations for the offer described the ECNs as having been developed with the FSA to attract fixed income investors looking for certainty in maturity and coupon payments.

At the time of the offer LBG described it as 'the largest retail offer of its kind in this country.'

The offer prospectus was prepared under regulatory directives and rules intended to protect retail investors and preserve market integrity and was approved by the FSA as such.

The FSA was also involved in ensuring that retail investors to whom the offer was addressed were able to access it. As a result approximately 85% of retail investors accepted the offer to convert their existing perpetual preference shares and former building society PIBS into ECNs.

Following issue retail series of ECNs were listed on the London Stock Exchange Order Book for Retail Bonds.

In December 2014, following announcement of the PRA's 2014 stress test results, LBG announced that a right to redeem the ECNs early had been triggered under a clause in the prospectus terms of the ECNs and that they intended to redeem the notes many years in advance of contractual maturity.

It was not apparent from the prospectus terms as drafted that a right to redeem had been triggered and opinion from leading counsel supported this.

Retail investors raised the issue with the FCA asking for protection of their rights under the ECN prospectus.

The FCA's operational objectives are to:

• secure an appropriate degree of protection for consumers
• protect and enhance the integrity of the UK financial system
• promote effective competition in the interests of consumers
[Source: Para 1.14 of The FCA’s approach to advancing its objectives 2015 -

The FCA says the consumers it aims to protect include retail investors in financial instruments (such as shares and bonds.)
[Source: Para 1.22 of The FCA’s approach to advancing its objectives 2015 -

Successive HM Treasury ministers have stated that investors should always be treated fairly and in accordance with their legal rights (for example Andrea Leadsom, Treasury Minister – 22 Feb 2015.)

Despite being offered, and refusing, copies of opinions from leading counsel the FCA decided not to intervene and stated that consumers would have to pursue the matter through the courts. The FCA made this decision without establishing that LBG were claiming they made a mistake in the ECN prospectus.

In March 2015 the Trustee for the ECNs applied to the High Court for a declaratory judgment on the early redemption clause LBG was seeking to rely upon.

In May 2015 the case was heard by the Chancellor of the High Court who judged that LBG did not have the right to redeem the ECNs early.

It emerged in LBG's submissions in Court that they claim they made a 'mistake' in drafting the early redemption clause in the ECN prospectus and that the Court should apply a different meaning to what was written.

Lloyds had never mentioned any mistake in the prospectus between issue of the ECNs in November 2009 and the court proceedings in May 2015. The FCA only became aware of the fact when notified by retail investors during proceedings.

LBG did not accept the judgment of the Chancellor, the FCA again decided not to intervene, and so LBG appealed.

On 10 Dec 2015 the Court of Appeal allowed LBG's appeal. The judgment is very controversial because, in reaching its determination, the Court decided to disregard the facts that LBG chose to address the prospectus to over 123,000 retail investors and that the prospectus is a regulated document prepared under regulatory rules and directives intended to protect consumers and preserve market integrity.

In the last 2 weeks the Trustee has filed an application to the Supreme Court for permission to appeal on grounds which include there is matter of law of public importance arising from the Court of Appeal having disregarded retail investors and regulatory directives and rules intended to protect them in its judgment on LBG's claim of a mistake in the prospectus. LBG has objected to the application for permission to appeal claiming it is not a mater of public importance and attempting to play down the number of retail investors to whom the prospectus was addressed, or who relied on it in the secondary market, with an interest in this case.

Where there is a divergence between two independent public bodies (the FCA and the judiciary) it can only fall on the authorities (HM Treasury and the FCA in this instance) to take appropriate action to protect the rights and property of consumers. So MPs should be raising the FCA's failure to act in accordance with its powers and duties under the Financial Services & Markets Act and the public importance, involving the wider precedents that would be set for consumer protection and market integrity, that the appeal is heard by the Supreme Court with HM Treasury, the FCA and the Treasury Select Committee.

Like "freddythefish", I would appreciate some up-to-date advice on what to write...
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