TheChek News Flow

FCA’s move aimed at increasing diversity after industry-led efforts yielded little progress

The UK’s top financial regulator is gearing up to grill banks, insurers and brokers on the level of sexual harassments and bullying complaints in their workplaces and whether they have used non-disclosure agreements to hush up grievances.

Sarah Pritchard, the Financial Conduct Authority’s executive director for markets and international, told MPs on Wednesday that the regulator was intensifying efforts to tackle non-financial misconduct across the City.

The issue has been in focus after a number of high-profile cases of sexual misconduct — including that of hedge fund founder Crispin Odey, who was ejected from the company he founded after an investigation by the Financial Times revealed multiple claims of sexual harassment and assault against him.

Appearing before the Treasury select committee’s “Sexism in the City” investigation, Pritchard said wholesale banks, wholesale insurers and brokers would be asked for data on the number of complaints of non-financial misconduct in their businesses, as well as “methods of detection and methods of resolution”.

A person familiar with the exercise said participation would not be optional. Pritchard said companies would be asked to provide the data in a “very short period of time” and added that the FCA hoped to complete its analysis on the data “by the summer”.

The regulator could not immediately say whether the results would be made public.

“One of the reasons that we’re going out with the piece of work . . . will be so that we can see how cases of non-financial misconduct are resolved,” Pritchard told the committee.

“If we see, for example, use of NDAs alongside non-financial misconduct coming through that data . . . we will be able to take that into account in our future supervisory work.”

Pritchard did not elaborate on how the FCA’s supervision division might deal with a firm that was persistently using NDAs but stressed that there were “a number of valid reasons why an entity might use a non-disclosure agreement to keep confidential the commercial terms of a settlement”.

Robert Dedman, a financial services partner with law firm CMS and former head of enforcement at the Bank of England, said the exercise marked “the first time that the FCA has tried to get an industry-wide sense of the level of non-financial misconduct in the industry”.

“The historic lack of regulatory guidance in this area meant firms had to make their own judgments about what constituted non-financial misconduct,” he added. “This may lead to inconsistency in the information the FCA receives from firms, which the regulator will need to be alive to when calibrating its supervisory response.”

The FCA published a consultation last September on how firms identified and dealt with non-financial misconduct, as part of a broader consultation on improving diversity after decades of industry-led efforts yielded scant progress.

The measures do not mandate companies to report their use of NDAs to the FCA.

“We recognise there has been feedback on this point in the consultation so we’re open to understanding whether those are refinements we can make to collect statistics,” said Nikhil Rathi, the regulator’s chief executive. He added that the FCA could see “there could be a case for looking at” collecting data around NDAs.

Pritchard stressed the proposals would give the regulator “much better visibility around non-financial misconduct regardless of whether an NDA is used. A NDA won’t prevent any notifications to the regulator.”

The proposals include clearer guidance on the FCA’s view that non-financial misconduct is “relevant to fitness and propriety” of individuals to hold roles in financial services and offering firms examples of the kind of issues it is concerned about.

Shanchun Huang said he intends to fight the SEC’s lawsuit in court and provide evidence he didn’t trade in the company’s stock before he became chief executive

The chief executive of Future FinTech Group, Shanchun Huang, denied allegations from the U.S. Securities and Exchange Commission that he artificially inflated the company’s share price before taking over as CEO.

Through his attorney, Huang said Wednesday morning that he intends to fight the SEC’s lawsuit in court and provide evidence that he didn’t trade in Future FinTech’s stock before becoming CEO in March 2020.

The agency alleged last week that Huang used manipulative trading techniques in early 2020 to push the fintech firm’s share price up, with the intention of preventing the stock from being delisted from the Nasdaq exchange for trading below the $1 minimum bid price.

According to the SEC, the trades were placed after Future FinTech’s founder and former chief executive approached Huang about taking over as CEO. The securities regulator also alleges that Huang failed to make required filings about his ownership stake in the company until a year after he became CEO, by which time he no longer owned any company stock.

Huang said Wednesday that he relied on advice and counsel of retained professionals in connection with his disclosure obligations. The CEO claims he has cooperated with the SEC and testified in the investigation that led to the lawsuit.

“I will not permit the SEC’s case to interrupt my and the board’s vision for the growth and success of the company,” Huang said.

The SEC is seeking fines and to have Huang barred from serving as an officer or director of a public company.

Future FinTech said on Tuesday that it has established an independent committee to review and investigate the SEC’s claims, adding that it has placed restrictions on Huang’s ability to trade in company stock while the SEC’s litigation is ongoing. The SEC lawsuit won’t affect company operations, according to the board.

New partnership from next year comes as industry grapples with disruption from terror attacks in the Red Sea

Two of the world’s biggest container shipping lines have announced a new partnership, in a major reshaping of the industry’s commercial relationships.

In a surprise announcement on Wednesday, Denmark’s Maersk and Germany’s Hapag-Lloyd said they would establish a “new long-term operational collaboration” from February 2025.

Container shipping alliances offer customers a wider range of destinations and services because lines share space on each other’s ships.

Maersk, operator of the second-biggest container ship fleet, announced last year that from January 2025 it would end its 2M alliance with Mediterranean Shipping Company, the world’s biggest container line.

Hapag-Lloyd, which operates the world’s fifth-biggest fleet, will leave the THE alliance, of which it is the largest member.

News of the “Gemini Cooperation” comes as container lines grapple with disruption from terror attacks in the Red Sea that have forced them to divert nearly all services travelling though the Suez Canal to longer routes via the Cape of Good Hope.

Services between Asia and Europe have been most affected, although shipping between Asia and the US east coast via Suez has also been hit.

Simon Heaney, senior manager in container research at London-based Drewry Shipping Consultants, said alliances were vital for shipping lines and their customers.

“Alliances . . . allow operators to get more efficiency from their networks,” Heaney said. “From a shipper perspective, you get more competition between any two given ports.”

The announcement took the industry by surprise because Maersk, which controls 14.6 per cent of global container ship capacity, had been expected to operate without alliance partners after January 2025. Maersk is part of Denmark’s AP Møller-Maersk.

Hapag-Lloyd’s departure from the THE Alliance puts the remaining alliance members — Japan’s Ocean Network Express, Taiwan’s Yang Ming and South Korea’s HMM — “under the spotlight”, Heaney said. Hapag-Lloyd operates 6.9 per cent of global container ship capacity, according to figures from Alphaliner, an information service. The remaining THE alliance members account for just 11.6 per cent of the world fleet.

“What are they going to do?” Heaney asked. “They don’t have the scale to continue as they were.”

The other big alliance — the Ocean Alliance — between France’s CMA CGM, China’s Cosco and Taiwan’s Evergreen — controls 29.3 per cent of the fleet.

Another industry veteran agreed the new deal was likely to force changes in other alliances.

Ocean Network Express said it had been “aware” of the possibilities of changing partnerships and would continue to provide a “broad, high-quality service network” beyond 2025.

The Gemini Cooperation will cover seven significant trade routes, including Asia to the US West Coast, Asia to the US East Coast and Asia to Northern Europe.

Johan Sigsgaard, Maersk’s Chief Product Officer, said both companies expected the Suez Canal to be back in normal use by February 2025, when the new arrangement came into force.

But he added: “If that’s not the case, we’ll need to look at the alternative.”

According to figures from Clarksons, a shipping services company, container ship arrivals in recent days at the mouth of the Red Sea are 90 per cent down on levels in early December last year. Most vessels have diverted to travel via the Cape of Good Hope, a route that adds up to two weeks to sailings between Asia and Northern Europe.

Son-in-law of late mining magnate claims the fintech cancelled his account because of ‘malicious’ allegations

Revolut has called on London’s High Court to throw out a lawsuit brought by the son-in-law of a late mining magnate, who claims the fintech group cancelled his account because of “malicious” claims against him.

The court on Wednesday heard an application to dismiss what Revolut alleged was “disproportionate” litigation brought by Ildar Uzbekov after it froze his money account in 2020.

The case comes amid scrutiny of how UK financial institutions deal with high-profile customers who may pose a reputational risk. Private bank Coutts last year dropped Nigel Farage, the former leader of the UK Independence and Brexit parties, having raised concerns about his political views. Dame Alison Rose, chief executive of Coutts’ parent NatWest, and Coutts chief Peter Flavel both stepped down in the ensuing scandal.

Uzbekov, whose father-in-law was the magnate Alexander Shchukin, said Revolut “stonewalled” him while his account was frozen and he “suffered significant distress and inconvenience” in dealing with the company.

Patrick Green KC, representing the Kazak-born British citizen, alleged in written submissions that Revolut closed his account unlawfully on the basis of “factual mistakes” and “spurious” claims.

The barrister said Uzbekov was seeking a “correction of the factual record” to “vindicate his reputation”.

Tony Singla KC, for Revolut, told the court that Revolut suspected that Uzbekov could have been involved in money laundering and that the company was “not required to investigate” the allegations.

He noted that Revolut was subject to several regulatory obligations “concerning anti-money laundering and financial crime”.

Singla said so-called debanking related to “free speech rights, for example concerning the expression of political views” and that was “entirely distinct” from Uzbekov’s claim.

He added that Uzbekov was not seeking financial damages “as he accepts that he suffered no loss” as a result of the account closure.

Green said in written arguments that sources on which Revolut’s money laundering concerns were based were not “credible”. He added that Revolut’s application to strike out Uzbekov’s claim was “without merit”.

A ruling on Revolut’s application will follow in due course.

Revolut’s account opening process has attracted scrutiny in the US, where the company is facing a class-action lawsuit over the way it handles biometric data collected through customers’ self-recorded identification videos.

A complaint filed to an Illinois court in November last year alleged that the company breached state privacy law by failing to appropriately disclose how it collects and stores this data, which prospective customers are asked to record in order to open accounts. Revolut plans to contest those allegations according to a person familiar with the situation.

The hearing comes as the fast-growing London-based fintech awaits an important decision on its UK banking license application, which it submitted three years ago and would give it a boost in its home market.

The payments group previously attracted scrutiny from the UK’s Financial Conduct Authority about alleged failures to freeze money from accounts flagged as suspicious by the National Crime Agency.

Revolut plans to dispute those allegations in court, according to a person familiar with the situation.

Revolut declined to comment on both current lawsuits.

A tie-up with Frontier might be the cleanest way forward

No one likes making the wrong choice when deciding on an expensive trip. On Monday, a US federal judge nixed JetBlue’s all-cash buyout for Spirit Airlines, with an equity value of $3.8bn. The court decided that Spirit’s ultra-discount model was too important in the airfare marketplace to sacrifice in the deal. Instead of getting about $34 per share, Spirit equity holders have a piece of paper trading for $6.

Adding to the anguish, Spirit directors had a choice in 2022. The airline had initially signed up to a stock merger with Frontier Group, a similar deep discounter like Spirit. But the board, under heavy pressure from hedge funds, went for broke by taking a premium bid from JetBlue hoping against hope that it could push a deal past the US Department of Justice and eventually the judiciary. That wager has imploded spectacularly. It serves as a cold lesson in modern corporate governance and capital markets.

According to the court’s reasoning, JetBlue’s objective in buying Spirit was mostly about acquiring planes, pilots, routes and other infrastructure, rather than preserving its business model. The jilted Frontier had previously warned that the only way to make the JetBlue/Spirit combination work was to reduce Spirit’s capacity.

As for JetBlue, it has been searching for a way to keep up with the big four US carriers — American, United, Delta and Southwest — who through their own dealmaking now control 80 per cent of the domestic US market. Its shares rallied slightly on Tuesday after the ruling.

JetBlue will pay $470mn in total reverse termination fees through various interesting mechanisms. The Florida-based airline has already paid Spirit shareholders $2.50 a share upon the target’s successful shareholder approval vote. It separately has paid a 10 cent per month “ticking fee” to Spirit shareholders for a year. Spirit itself will only get $70mn.

Thanks to 2022’s deal wrangling, much of Spirit’s shareholder register now comprises merger arbitrage investors. These firms probably would not have supported a Frontier merger. Instead they wanted to play the long odds of a JetBlue all-cash takeover, along with the various interim payouts.  

In the intervening two years, the US airline industry has suffered from the plateauing of the post-pandemic travel surge. At the same time, labour and operating costs have soared, creating greater impetus for consolidation.

Spirit’s market capitalisation is down to $700mn against a net debt load of $5.5bn, including leases. It could very well face bankruptcy. The Biden administration and others cheering the JetBlue decision should reflect on that possibility. Spirit’s cleanest remaining route might be the one originally forsaken: a tie-up with Frontier.

Firm headed by Andrew Law finishes 2023 down 9% in its Macro fund

Caxton Associates, one of the oldest and best-known global macro hedge fund managers, lost money in its two main funds in 2023, say two people who have seen the numbers, in a turbulent year for bond markets.

The London-based firm, headed by Andrew Law, lost 9.2 per cent in its Caxton Macro fund, while its flagship Caxton Global Investments fund lost about 1 per cent. The macro fund takes more concentrated bets than the flagship.

Caxton did not immediately respond to a request for comment.

The macro fund was down as much as about 20 per cent last year, following losses in the first half of the year, but made back some ground in the remainder of 2023, investors said.

“At the start of the year there was so much volatility in rates the fund got whipped around,” said a person close to the firm.

Caxton was founded in 1983 by Bruce Kovner. Global macro funds trade moves in bonds, currencies, commodities and equities on the back of economic trends.

The performance figures punctuate a challenging year for macro hedge funds. After a sharp sell-off in debt markets at the start of the year, as central banks raised interest rates to fight inflation, bond prices rocketed as the collapse of Silicon Valley Bank sparked a flight to safety, taking many hedge funds by surprise.

Caxton’s losses last year mark a change in fortunes after strong gains in 2022, when the macro fund was up roughly 35 per cent. 

Brevan Howard, another prominent global macro manager, also had a tough year in 2023. Its flagship fund was down 2.1 per cent while its Alpha Strategies fund was up 2.4 per cent, according to people who have seen the figures. 

However, Rokos Capital Management, run by former Brevan Howard co-founder Chris Rokos, ended 2023 up 8.8 per cent. BlueCrest Capital, the family office of billionaire trader Mike Platt, gained 20.3 per cent last year, according to people familiar with the performance.

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