Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.
European Edition
21st June 2021
Together with

THE HOT STORY
Grant Thornton loses Supreme Court hedge accounting case
Grant Thornton must pay £13.4m in damages to former audit client Manchester Building Society after Supreme Court judges ruled the firm failed in its duty of care by advising the mutual in 2006 that it could prepare its annual accounts using hedge accounting. By relying on that “incorrect and negligent” advice, the building society entered into long-term interest rate swaps as a hedge against the cost of borrowing to fund its mortgages, the court said. This hid swings in the building society’s capital position and led to a severe mismatch between the negative value of the swaps and the value of mortgages they were meant to hedge, the court added. Grant Thornton realised its error in 2013, leaving the society with insufficient capital to meet Bank of England rules. “To remedy the situation, the society closed out the interest rate swap contracts early at a cost of over £32m pounds,” the court said. City firm Squire Patton Boggs, which represented the appellant, said: “Claimants who have suffered loss as a result of negligent advice are likely to turn to this judgment as providing both a more generous and more common sense test for scope of duty.” Janine Alexander, financial services partner at Collyer Bristow added: “This case forms part of an intensifying focus on the duties owed by accountants, and in particular, auditors when scrutinising the finances of large enterprises - a reminder that the courts and regulators expect more from them than a box ticking approach.”
RESEARCH
68% of FTSE finance professionals call for UK’s proposed audit reforms to be delayed

Audit reform, long in the works by The UK Department for Business, Energy and Industrial Strategy (BEIS), is fast becoming a tangible reality, with the Department’s March announcement of a consultation into reforms to modernise the country’s audit and corporate governance regime. In this research document commissioned by Galvanize, Censuswide surveyed 250 CFOs, finance directors, heads of risk, and audit managers, within UK-listed companies. Download the report and infographic to see what they had to say about audit reform in the UK.
Read the report now >>

 
CORPORATE GOVERNANCE
Cevian hints at Aviva board move
Cevian Capital has defended its approach to overhauling companies days after calling on Aviva to hand billions to shareholders. Harlan Zimmerman, senior partner, said in a piece for the Times that it “aims to create value that is shared with all shareholders and stakeholders.” He notes that at companies outside the UK it is common for activists to take board seats, fuelling speculation that Cevian will seek to appoint a director at Aviva. The Anglo-Swedish firm revealed earlier this month that it had taken a near 5% holding in Aviva worth £800m and said that the FTSE 100 insurer “has been poorly managed for many years.”
GSK faces struggle to convince investors as activist Elliott lurks
The FT considers the struggle ahead for GlaxoSmithKline CEO Emma Walmsley to convince activist investors of her strategy for the group. One key question is whether Walmsley should stay to push through the transformation planned for GSK after it spun off its consumer health division last year. The Observer also looks at Walmsley’s plans ahead of her presentation on Wednesday, citing Barclays analyst Emily Field who says the mood around GSK had been frenetic since the Elliott stake was revealed, with everyone looking for a quick fix, but the company’s turnaround isn’t going to happen overnight.
Audit reforms risk backfiring, accountants warn
Official plans to increase significantly the number of companies subject to stringent governance standards risk straining audit firms and their new strengthened regulator to breaking point, accountants have warned.
WORKFORCE
High earners working from abroad pose tax threat
The Treasury could lose out on up to £32bn in tax receipts if high earners move abroad amid the shift to home working. Research published by the British Tax Review shows chief executives and managing directors account for around one sixth of all income tax paid in the UK and are more likely to be able to work from home. Rita de la Feria, a Leeds professor who has co-written the British Tax Review study, said the effects of working from home policies would be felt "more significantly" in the UK and similar countries. "New mobile workers are likely to be at the top of the income distribution and even a small number could result in significant revenue losses to the UK, of between £6bn and £32bn," she said, adding "The likely effect will be a tightening of employment rules, introduction of new tax-avoidance rules and increased personal income taxes competition with countries fighting to attract new mobile workers."
US firms lure staff from Magic Circle with bumper starting salaries
The Sunday Times reports that US law firms such as Latham & Watkins and Kirkland & Ellis are luring junior lawyers away from Britain’s 'Magic Circle' practices – Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Slaughter and May - with huge pay packets. This month, Milbank increased base salaries for newly qualified (NQ) lawyers, including those in London, by $10,000 to $200,000 (£140,000). Following the move, Davis Polk & Wardwell increased NQ pay to $202,500 for first-year associates worldwide, which was matched by Akin Gump. This compares to magic circle base salaries for first-year solicitors of between £90,000 to £100,000.
Andrea Leadsom: Some furloughed workers do not want to return
Former business secretary Dame Andrea Leadsom has said some people on furlough are avoiding a return to work because they are enjoying the time off. The Conservative MP also said there was a mental health issue about some people fearful of going back. Speaking to BBC Radio 4's Any Questions, Leadsom said some businesses in her constituency "simply can't get people to come back to work," adding: "They can't get staff because people have, to be perfectly frank, become used to being on furlough."
Bagpipes and barbecues: incentives abound to lure staff back to the office
The fine line between enticement and coercion to lure staff back to the office will become a divisive issue in global workplaces as lockdowns ease, writes the FT’s Andrew Hill.
CORPORATE
BoE not looking at fairness of LV= deal – Bailey
In a letter to MPs on the all-party group for mutuals, Bank of England Governor Andrew Bailey said 36 meetings had been held with managers of LV= since it began exploring a takeover by the US private equity group Bain Capital. Lawmakers are calling for greater scrutiny of LV=’s plan and Gareth Thomas, Labour chairman of the parliamentary group, expressed shock that officials had not once met with LV= members. But Mr Bailey said the Financial Conduct Authority would be assessing the fairness of the Bain deal for policyholders. The Bank was concerned only about the safety and soundness of any transaction and whether it secured a degree of protection to policyholders, he explained.
COMPLIANCE
EU clears banks barred from bond deals after ‘declaration on honour’
The European Union has reinstated eight banks previously excluded from taking part in bond sales for the bloc’s €800bn recovery fund after tasking measures to improve standards. The banks are Deutsche Bank, Crédit Agricole, JPMorgan, Citigroup, Barclays, UniCredit, Bank of America and Nomura, according to sources. NatWest and Natixis will continue to be excluded for the time being.
OPERATIONAL
Toxic culture could trigger 'large scale failures'
Carolyn Rogers, secretary general of the Basel Committee on Banking Supervision, has warned that unless toxic corporate culture is purged there is a significant risk it could lead to “large scale failures.” Ms Rogers said: “This is a topic that bank supervisors and banks themselves actually need to focus on over the next few years. We still see scandals, we still see billions of dollars in fines levied on banks for various, what I would call, cultural failings or misconduct risk.”
British steel industry under threat from Brexit
Removing protections inherited from the EU to safeguard UK steel producers could deal a hammer blow to the industry, MPs and industry leaders warn. Gareth Stace, director general of UK Steel, said the Trade Remedies Authority’s decision to “terminate steel safeguards for half of the product categories exposes the UK’s steel sector to uncontrolled surges in imports.” Stace added: “The UK Government is squandering the opportunity to make Brexit work for domestic industry and is letting an arm’s length body harm the British steel sector, not support it. We want to work with the Government to level up Britain, instead they are levelling down our steel sector.”
LEGAL
British-owned avocado farm drops lawsuit over abuse allegations
Kakuzi, a British-owned avocado farm in Kenya, is withdrawing a lawsuit against charities that supported alleged victims of abuse by the farm's security guards. The move comes after British supermarkets stopped selling the farm's produce following reports last year that its security guards had allegedly attacked villagers and workers. The farm's British owner, Camelia, earlier this year paid £4.6m to alleged victims of abuses in a settlement. However, Kakuzi then launched a lawsuit against charities in Kenya that had publicised the settlement. It is now understood that Tesco and Sainsbury's are considering using the supplier again if there is enough evidence of progress on human rights issues. 
STRATEGY
Britain remains on top for financial services
Analysis by EY suggests that Britain remains the most attractive destination in Europe for financial services despite losing some activity to the Continent because of Brexit. EY found that foreign companies invested in 56 financial services projects in the UK last year, 43 fewer than in 2019 but seven more than in France, the second most popular location. The EY report indicates that the UK will retain its status as the financial capital of Europe, and was judged to have the most investment-friendly Covid recovery plans and was the most attractive for financial services investment overall.
Santander looks to muscle way into European investment banking
Santander, Europe’s largest retail lender, has set its sights on becoming a major force in European investment banking, challenging the Wall Street powerhouses that have come to dominate the industry.
REGULATION
FCA urges thousands to seek compensation over pension transfers
The Financial Conduct Authority has written to over 2,600 people urging them to lodge claims for compensation after being wrongly advised to transfer out of their guaranteed “final salary” pensions.
REPUTATION
Is City’s sterilisation unhealthy for markets?
Oliver Shah in the Sunday Times laments the loss of strident voices from the City of London, listing a slew of characters that he contends probably wouldn’t be welcome in today’s “sanitised modern City.” Shah says the willingness of the likes of Richard “Ratty” Ratner, David Cumming or Richard Buxton to speak out didn’t necessarily endear them to their bosses and their personalities now would be constrained by corporate compliance departments. Shah argues that the loss of voices like these from big institutions “reflects . . . a growing aversion to any kind of reputational risk” while institutions “will wield less clout on issues such as ESG if they are unable to brandish the stick of an articulate, commercial spokesperson.”
Carbon counter: ESG activism will give mile-high snub to executive jets
The FT’s Lex mulls the use of executive jets and contends that in an era of ESG activism, their use is likely “to become a serious embarrassment to public company owners.”
SUSTAINABILITY
Activist shareholders must push for environmental change
Writing in the FT, Lakshmi Naaraayanan says divestment campaigns may have become popular with the rise of ESG funds, but they also mean investors lose their voice at companies where change is needed.
TAX
Surge in workers unwittingly put into ‘tax avoidance’ arrangements
TaxAid and the Low Incomes Tax Reform Group have said a growing number of people have contacted the charities after having been placed into tax avoidance arrangements by employment agencies without their knowledge.
OTHER
New season tickets go on sale for part-time commuters
New flexible season tickets go on sale from today aimed at commuters who only travel to work two or three days a week. The new tickets can be used for eight days in any month-long period. The National Rail website will allow passengers to calculate savings and book the new tickets. Transport Secretary Grant Shapps said the new tickets would offer "greater freedom and choice about how we travel, simpler ticketing and a fairer fare." Anthony Smith, chief executive of the independent watchdog Transport Focus, said the changes would help persuade people to choose rail travel again. "Our research with passengers showed us there was strong demand for a new ticket that suited people who expected to commute less frequently in future," he said.

Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.

Content is selected to an exacting brief from hundreds of influential media sources and summarised by experienced journalists into an easy-to-read digest email.

Risk Channel enhances the performance and decision-making capabilities of individuals and teams by delivering the most useful news and knowledge in a cost-effective way, while promoting a sponsor's brand to the risk and leadership communities.

If you would like to sponsor a Risk Channel special report, reaching thousands of influential professionals, companies, business leaders and decision makers through our US and/or UK & Europe editions, please get in touch with us via email sales team

This e-mail has been sent to [[EMAIL_TO]]

Click here to unsubscribe