Santander UK Plc v Abbey National Treasury Services Plc

The court was asked to sanction a ring-fencing transfer scheme under Part VII of the Financial Services and Markets Act 2000, implementing the new Part 9B introduced by the Financial Services (Banking Reform) Act 2013. The judge examined the statutory pre-conditions to jurisdiction (including the PRA's consent, scheme report by an approved skilled person under s.109A, and the certificates required by s.111 and Schedule 12), the Companies' Communications Plan, and the detailed scheme provisions addressing transfer mechanics, security and continuity of contracts.

The Skilled Person concluded that some cohorts (principally certain corporate and market counterparties) would be adversely affected but that the adverse effects were not likely to be greater than reasonably necessary to achieve the statutory ring-fencing purposes. The PRA and FCA took part in the hearing and did not oppose sanction; necessary certificates and authorisations (including financial resources certificates and notification to the ECB) were in place.

The court gave weight to the Skilled Person's reports and the Regulators' positions, explored Brexit-related risks arising from the use of a non-UK transferee branch (SLB) and contingency planning, and concluded that the Companies' chosen model and mitigations were reasonable. The court therefore sanctioned the Santander Scheme, approving the unwind of intra-group guarantees where necessary to secure the scheme's implementation.

Background and parties: Santander UK plc and Abbey National Treasury Services plc (the Companies) applied for the Court's sanction of a ring-fencing transfer scheme under Part VII FSMA to implement the statutory ring-fencing regime introduced by Part 9B FSMA (via the Financial Services (Banking Reform) Act 2013). The scheme separates retail/core activities into a ring-fenced body and moves prohibited or excluded business to a non-ring‑fenced establishment (notably transfers to the London branch of Banco Santander (SLB)).

Nature of the application / relief sought: An application for an order sanctioning the ring-fencing transfer scheme so that the transfers provided for in the Scheme could take effect under sections 111 and 112 FSMA.

Issues framed by the court:

• Whether statutory jurisdictional pre-conditions were met (definition of an RFTS under s.106B, entitlement to apply under s.107, PRA consent, presence of a scheme report by an approved Skilled Person under s.109A, and obtaining required certificates under s.111 and Schedule 12);
• The Statutory Question in s.109A(4): whether persons other than the transferor are likely to be adversely affected, and if so whether adverse effects are likely to be greater than reasonably necessary to achieve the ring-fencing purposes;
• Whether communications and notification arrangements gave affected persons a fair opportunity to make representations or objections;
• The Court's wider discretion under s.111 and the scope of ancillary orders under s.112/112A (including unwinding of cross-guarantees); and
• Specific risks, including those arising from Brexit and use of a non-UK transferee branch, and whether contingency planning made the chosen model appropriate.

Court's reasoning and conclusions: The judge set out that an RFTS must satisfy statutory pre-conditions. He found that the Santander Scheme met the definition of a ring-fencing transfer scheme, the PRA had consented to the application, and a Scheme Report had been prepared by an approved Skilled Person (Mr John Cole) in a form approved by the PRA. The PRA certified approval and the required certificates (including financial resources certificates and notification/response from the ECB) had been obtained. The court accepted the Skilled Person's method and conclusions: he identified certain adverse effects (set‑off and netting consequences; valuation and capital adjustment issues; rating-trigger consequences for RFIs; employee and pension effects; and a small number of market-counterparty risks) but concluded the adverse effects were not greater than reasonably necessary in order to achieve the Scheme's statutory purposes. The Companies' Communications Plan and customer support arrangements were implemented satisfactorily. The court engaged with Brexit-related risks posed by the use of SLB but accepted the evidence on contingency planning and the PRA's supervisory approach; the Regulators did not object. On ancillary powers the court was satisfied it could effect unwinding of the Cross-Guarantees as necessary to implement ring-fencing. Having weighed the Skilled Person's findings, the Regulators' views and the Companies' commercial judgment, the court sanctioned the Scheme.

Procedural posture: First-instance sanction hearing following substantial engagement with the PRA, FCA and a Skilled Person and after prior interlocutory directions and publication of the Skilled Person's reports; one written representation was received and did not require refusal of sanction.

The court sanctioned the ring-fencing transfer scheme. The judge concluded that all jurisdictional pre-conditions under Part VII FSMA (including s.106B, s.107, s.109A and s.111 and Schedule 12 certificates) had been satisfied; the Skilled Person’s report demonstrated that, although certain cohorts would be adversely affected, those adverse effects were not likely to be greater than reasonably necessary to achieve the statutory purposes; the Companies’ communications and mitigation measures were adequate; PRA and FCA had been properly engaged and did not object; and Brexit-related risks arising from use of a non-UK transferee were addressed by contingency planning. For these reasons the Court exercised its discretion under s.111 to sanction the Scheme and made the ancillary orders required under ss.112 and 112A, including unwinding the intra-group guarantees insofar as necessary for implementation.