Fatal inability to provide proof of terms of biz opens firm up multi-million liability.

The Chancery Division of the High Court in February delivered a judgment which will be of considerable interest to many regulated investment firms. The case in question was Singularis Holdings Limited (in official liquidation) v Daiwa Capital Markets Europe Limited. see

The case amounted to a suit against Daiwa by the liquidators of Singularis for $200 million.   Before its insolvency, Singularis had been a client of Daiwa, and investment management company holding client money. When that client relationship came to an end, the sole shareholder and director of the company instructed Daiwa to make payments of Singularis money to another two companies – an amount of $200 million. This instruction was held by the court to be an attempt to defraud the creditors of Singularis.   The judgment awarded some $150 million to Singularis’ liquidators. 

So what can we learn?

The key conclusion that the firm’s record keeping was inadequate. Heard that one before?

In this case, the firm could have been fully indemnified through all the carefully crafted disclaimers in its terms of business that we know and love. But they amounted to a hill of beans because the firm had not retained a record of presenting them to its client. In the absence of this record the judge was able to completely disregard them all and hold the company liable.

It may get worse because following this judgement the FCA may well find Daiwa were exposed to the fraud due to inadequate systems and controls. 

We suggest you send out your terms of business on a regular basis - say annually and together with other documentation such as annual reviews and valuations.  Best of all get your Suitabilty Report files checked by us for proof.

John.downs@ifac.eu