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The Bank of England has issued a warning to lenders, saying they must improve the oversight of their dealings with private equity firms. The central bank has found that many lenders lack a clear picture of their lending to the buyout sector and individual private equity firms. It has ordered them to tighten up their risk management and conduct internal stress tests to gauge potential losses. In a letter to several large UK and international commercial banks signed by Rebecca Jackson and Charlotte Gerken, officials at the Bank's Prudential Regulation Authority, the Bank said lenders' boards need to be regularly informed of their bank's overall private equity exposures to ensure they are comfortable with the risks they face. Ms Jackson, the Bank's executive director for authorisations and international supervision, said: "The overall risk here is that when banks fail to properly measure and assess their aggregate exposures, and in the absence of a defined risk appetite framework and board engagement, it's very easy to develop an outsized and concentrated exposure that leaves one open to the risk of a large loss . . . The need for significant improvements in risk management is clear, and it's clear that these need to happen now. It's better, as Shakespeare said, to be three hours too soon than a minute too late.” Her speech follows a broader view from the BoE on Monday on the role of private equity, its links to banking and concerns that opacity on leverage in the $8 trillion global sector raises. Banks have been told to report back to the regulator by August 30.

 

Financial Times

The Times

Daily Mail

The Guardian

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The European Parliament has approved rules to ban the sale, import, and export of goods made using forced labour in the EU. The move was driven by concerns about human rights in China's Xinjiang province. The United States enacted a similar law in 2021 to protect its market from products potentially tainted by human rights abuses in Xinjiang. National authorities in the EU will be able to investigate suspicious goods, supply chains, and manufacturers. If a product is found to have been made using forced labour, it will no longer be allowed to be sold in the EU market.

 

Reuters

The Treasury and the Investment Association (IA) have declared that funds investing in companies making weapons can be considered "ethical" or "sustainable." This statement aims to support the UK defence industry and promote the compatibility of armaments investment with ESG factors. The Treasury's stance puts it at odds with the Church of England, which restricts arms investments due to their incompatibility with its Christian ethos. While ESG typically focuses on environmental damage and diversity, it is also seen as applicable to "sin industries" like weapons. Some funds and institutions already boycott defence companies on ethical grounds. The IA, representing major UK asset managers, has £35bn invested in UK defence companies.

 

The Times

The Financial Conduct Authority (FCA) is looking to expand its sustainable investment labels framework and is consulting on extending the requirements on how sustainable investments are labelled and explained. The City watchdog said: "As the regime is focused on delivering outcomes for retail investors, the proposals are primarily aimed at wealth management services for individuals and model portfolios for retail investors.” New rules for portfolio managers are expected to be similar to the rules introduced for asset managers which aim to help consumers understand what their money is being used for. The FCA has also launched anti-greenwashing guidance, saying that any claims made in relation to sustainability should be correct and capable of being substantiated. The guidance says it is “important that firms regularly review their claims and any evidence that supports them, to ensure the evidence is still relevant for so long as those claims are being communicated.” Firms, it adds, “should also ensure that their claims remain compliant with the anti‑greenwashing rule on an ongoing basis.”

 

FT Adviser

The Daily Telegraph

The regulatory burden placed on businesses has risen by £6bn a year under the Conservative government, according to a new report. Impact assessments attached to over 3,500 pieces of legislation have cost firms a gross £35bn a year, with £39.6bn in one-off costs. The report, The Future of Regulation, found that despite accompanying benefits, the annual net burden rose by £6bn. The Centre for Policy Studies warned that its figures were an underestimate due to "glaring flaws" in the regulatory regime. The report calls for a new regulatory audit office, oversight by a senior minister, and re-examination of regulations after five and 10 years.

 

City AM

A court in Russia has convicted the spokesperson of US technology company Meta, which owns Facebook and Instagram, of justifying terrorism. Andy Stone was sentenced to six years in prison in absentia. The charges stem from Stone's remarks in 2022 following Moscow's invasion of Ukraine, where he announced temporary changes to Meta's hate speech policy. Stone's statement allowed for forms of political expression that would normally violate the company's rules. The Russian authorities opened a criminal case against Stone, describing his statement as "illegal calls to violence and killings of Russian citizens." Stone was also barred from administering websites for four years. Meta declined to comment on the verdict. In April 2022, Russia barred Meta CEO Mark Zuckerberg from entering the country.

 

U.S. News

Rival pharma firms Moderna, Pfizer, and BioNTech are embroiled in a legal dispute over the rights to life-saving vaccine technology patents. The trial, taking place at the High Court in London, focuses on alleged patent infringement and the revocation of Moderna's patents. Moderna is seeking compensation for alleged infringement by Pfizer and BioNTech's Comirnaty vaccine, while the defendants argue that the patents are invalid. The trial also examines the validity of one of the patents.

 

The Independent

The Serious Fraud Office is investigating issues with its evidence disclosure software that could undermine historic convictions. Lawyers are seeking clarity over the possible impact on past and current cases.

 

Financial Times

A study commissioned by internet provider Vorboss indicates that London businesses have lost almost £6bn due to connectivity outages over the past year. The report shows that 60% of businesses in the capital reported one or more losses of service over the last 12 months, with nearly 30% seeing at least three outages. Such outages cost the London economy £5.7bn, while across the UK the cost totalled £17.6bn. For businesses based in London, the average loss was £18,620, with an average of 314 hours lost. Vorboss has urged sector regulator Ofcom to introduce an automatic compensation scheme for fixed business connectivity providers. Tim Creswick, the firm’s chief executive, said: “As the data in this report shows, the productivity uplift that would come from improved network quality is massive.”

 

City AM

The government borrowed £6.6bn more than expected over the last year, raising doubts on Jeremy Hunt's ability to implement substantial tax cuts ahead of an anticipated general election. The deficit for March reached £11.9bn, higher than City analysts' expectations. The Office for National Statistics estimated borrowing for the fiscal year 2023/24 at £120.7bn, surpassing the projection of £114.1bn by the Office for Budget Responsibility (OBR). The debt-to-GDP ratio increased to 98.3%, driven by increased government spending due to the financial crisis, the Covid-19 pandemic, and the energy price shock. Despite increased spending on public services and benefits, the deficit still fell. Hunt is considering a third reduction to national insurance and raising the threshold for stamp duty. However, economists question the feasibility of his plans. The Conservatives are expected to oversee the largest increase in the tax burden among developed countries, with taxes reaching 37.1% of output in 2029, according to the OBR.

 

Bloomberg

The Times

The Bank of England's chief economist, Huw Pill, says that while interest rate cuts are "somewhat closer" than they were last month, the recent fall in inflation is not necessarily enough reason for the Bank to start reducing rates. Mr Pill, a member of the Bank’s rate-setting Monetary Policy Committee (MPC), argued that there are “greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate.” He added: “This assessment further supports my relatively cautious approach to starting to reduce bank rate." Elsewhere, fellow MPC member Jonathan Haskel has said labour market tightness - as measured by the ratio between job vacancies and unemployment - is reducing, but "rather slowly," adding that it is unclear if it is falling fast enough to keep inflation on target.

 

Reuters

The Daily Telegraph

Company failures have increased by 17% in the first quarter of 2024, according to data from restructuring firm Kroll, with 338 companies falling into administration. Manufacturing and construction sectors were hit the hardest, followed by the retail sector. The rise in interest rates has affected corporate balance sheets, leading to financial difficulties for a number of firms. Smaller businesses accounted for most of the increase in insolvencies, but larger companies are also showing signs of distress. Sarah Rayment, global head of restructuring at Kroll, said: "Insolvencies have been steadily increasing due to the ongoing economic headwinds together with an increased cost of financing. Put simply, some companies are running out of steam and directors are unable to avoid insolvency." She added: "While there may be green shoots in the economy reported, borrowing costs are still significantly higher to when businesses initially took on finance. At some point, even if equity holders can inject cash into the business, if there is no turnaround, cash reserves will dwindle."

 

The Times

A former top in-house lawyer for the Post Office has claimed that senior figures expected her to manipulate a review of the Horizon IT system by forensic accountants. The lawyer, Susan Crichton, suggested that then Post Office chairwoman, Alice Perkins, may have expected her to "manage or manipulate" the investigation. The inquiry into the Post Office Horizon IT system also heard that Post Office chiefs were concerned about the organisation's reputation and the effect the report could have on funding negotiations with the government. Meanwhile, the inquiry also heard that senior figures at the Post Office began describing computer bugs as "exceptions" as they saw increasing complaints from sub-postmasters. Paula Vennells, Post Office chief executive at the time, reportedly made the suggestion to colleagues after she asked her husband for advice on a "non-emotive" way of referring to computer problems.

 

Sky News

Daily Mail

Three people have been arrested in Germany on suspicion of passing sensitive military technology to Beijing. The suspects, including a Chinese spy, used a front company based in London to trick German universities into conducting research into naval technology. They also managed to establish an agreement with an unnamed German university for a study on high-grade engines used in battleships. The financing for the study came from a Chinese front company funded by China's MSS intelligence agency.

 

The Daily Telegraph

Martin Rolfe, the CEO of the UK's air traffic services provider, has defended engineers who work from home, telling MPs the ability to problem solve remotely when called upon was "a bonus." NATS - formerly National Air Traffic Services – came under fire last year when an IT systems failure led to air traffic chaos and grounded flights, with Ryanair boss Michael O'Leary accusing engineers of "sitting at home in their pyjamas." Mr Rolfe has defended NATS’ staffing arrangements, telling the Transport Committee his organisation operated a "very similar model to almost all of the rest of critical national infrastructure." He insisted that there were always engineers on site to solve problems but noted that expert "design engineers" were needed for particularly complex issues. Remote working technology, he argued, enables these engineers to look into issues immediately.

 

BBC News

KPMG plans to hire more ex-offenders after a successful two-year trial. The move is a boost for the government's efforts to reduce reoffending rates and encourage big businesses to recruit prison leavers. Data shows that stable employment reduces the reoffending rate by up to 9 percentage points. Ex-offenders hired by KPMG work across all areas of the business, including senior roles. Jon Holt, KPMG UK's chief executive, has urged other white-collar employers to follow the firm's lead, saying: "There's a very strong business case because these people are extremely hard working and successful." 

 

The Times