Santander UK Plc v Abbey National Treasury Services Plc

A ring-fencing transfer scheme may be sanctioned where the statutory jurisdictional conditions are met and the court considers sanction appropriate in all the circumstances. The court must address whether persons other than the transferors are likely to suffer adverse effects and, if so, whether those effects are greater than reasonably necessary to achieve the statutory purposes.

The court must exercise a genuine discretion. It should give appropriate weight to the skilled person’s report, the regulators’ views, stakeholder representations and the directors’ commercial judgment. It is not required to select the best possible scheme where the chosen design is statutorily compliant and its adverse effects are not excessive.

Santander UK Plc and Abbey National Treasury Services Plc applied under Part VII of the Financial Services and Markets Act 2000 for sanction of a ring-fencing transfer scheme. The scheme transferred prohibited and specified permitted business to the London branch of Banco Santander and permitted business to Santander UK, implementing a wide ring-fenced-body model.

The court considered the statutory preconditions, the skilled person’s assessment of adverse effects, notification and objections, the consequences of Brexit for the transferee’s authorisation, and whether the scheme’s design was appropriate. The central issue was whether the scheme should be sanctioned notwithstanding identified risks and adverse effects.

1. The court sanctioned the Santander ring-fencing transfer scheme. The statutory definition and application requirements were satisfied. The necessary skilled person’s report, regulatory consent, certificates and authorisations had been obtained.
2. Under section 111 of the Financial Services and Markets Act 2000, the court had to consider whether sanction was appropriate in all the circumstances. The statutory question required consideration of whether persons other than the transferors were likely to be adversely affected and, if so, whether the adverse effect was greater than reasonably necessary to achieve the ring-fencing purposes.
3. The court adopted the approach stated in Re Barclays Bank plc and others [2018] EWHC 472 (Ch). Relevant considerations included the mandatory nature, scale and importance of ring-fencing, the implementation deadline, the directors’ commercial judgment, the skilled person’s conclusions, the regulators’ views and stakeholder representations. The court’s discretion was genuine and was not a rubber stamp.
4. The skilled person had identified adverse effects concerning set-off, netting, valuation adjustments, ratings triggers, guarantees, employees, pension scheme members and market counterparties. He had considered mitigation and alternative designs and concluded that the adverse effects were not greater than reasonably necessary. His reports were meticulous, comprehensive, clear and candid, and disclosed no material inconsistency or illogicality.
5. The Brexit-related uncertainty concerning the London branch’s passporting rights did not make the scheme inappropriate. The contingency arrangements, the proposed third-country authorisation and the regulators’ assessment reduced the risk. No alternative scheme was shown to offer a risk-free or overall better solution.
6. The written objection did not provide a sufficient basis for refusal. The court also approved minor amendments and held that sections 112 and 112A supplied sufficiently broad ancillary powers to give effect to the scheme, including unwinding the cross-guarantees.