Scotland-based renewable energy producer SSE has been fined £2 million by the Office of Gas and Electricity Markets (Ofgem) for failing to publish timely information about the future availability of its generation capacity, the government body reported on Thursday.
Ofgem stated that the disclosure breach related to capacity at the Fiddler’s Ferry power station, which is under SSE’s contract with National Grid. The failure to disclose relevant information could have had a “significant effect” on wholesale electricity rates.
While SSE had not “acted in bad faith,” the steepness of the fine “sends a strong message” to all entities in the energy market, Ofgem stated.
Martin Pibworth, SSE’s Energy Director, conceded in a separate statement that SSE’s approach to disclosure was not in line with Ofgem’s requirement for disclosure to the market at an earlier stage, but emphasised that the company acted in good faith and published contract details “in line with our interpretation of the REMIT regulations at the time.”
“SSE did not benefit from disclosing only once the contract was signed and remains committed to clear and transparent rules for all market participants. We will be pressing regulatory authorities for additional guidance for market participants going forward,” he continued.
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Ofgem confirmed that SSE qualified for a 30% discount on the predicted penalty due to its early settlement and cooperation during the investigation.
The £2 million fine was the first of its kind to be issued in the UK and Europe for failure to achieve “effective and timely” disclosure of insider information under REMIT (Regulation on Energy Market Integrity and Transparency).
London-based airline EasyJet revealed on Tuesday that nine million customers’ personal information was stolen in what it called a “highly sophisticated” cyber-attack.
In addition to email addresses and travel details being accessed, 2,208 of those customers affected also had their credit card information stolen. EasyJet clarified that no passport details were uncovered in the breach, and that it would contact those affected.
It is not yet known how the historically large data breach occurred, but EasyJet said that it had “closed off this unauthorised access” and reported details of the incident to the Information Commissioner’s Office (ICO) and the National Cyber Security Centre.
The size of the breach raises the possibility of EasyJet being forced to pay significant compensation, as was the case for British Airways after the personal information of 500,000 customers was stolen. In that case, the ICO fined the airline £183 million.
A similarly sized fine would likely be a significant blow to EasyJet, which has already said it expects to make a loss of around £275 million this year as the COVID-19 pandemic continues to drive demand for air travel through the floor.
Reacting to the news, Tony Pepper, CEO of Egress, called the breach “another stark reminder that airlines must take a comprehensive risk-based approach towards protecting customer data”.
“For organisations, it remains crucial they continue to prioritise data security at all times, but especially when there’s widespread introductions of new systems as there has been in response to sustained remote working during the COVID-19 pandemic.”
Lawyers have claimed the recent ruling between Christopher & Joanne Doran and Paragon Personal Finance is a new precedent that could mean that banks are liable for another £18bn in payouts.
This could mean huge changes to the way firms operate in this sphere, although there are many parts of the puzzle that remain unclear, namely in regard to commission, premiums and compensation. At this point, banks are on high alert for impending changes to the PPI deadline.
This week Finance Monthly reached out to a number of experts in the legal/banking sector to hear Your Thoughts on the potential for further PPI payouts.
Elis Gomer, Commercial Barrister, St John’s Buildings:
There doesn’t appear to be any basis for the FCA’s statement that there is a fixed tipping point at which a particular level of undisclosed commission becomes unfair. According to the FCA, only those people who unwittingly paid over 50 per cent of their total premium in commission are entitled to compensation. The regulator’s argument that the only appropriate remedy in these instances is to repay the excess compensation over and above that notional 50 per cent level is inconsistent with recent court rulings, and the legal principles around mis-sold PPI.”
Mrs Doran gave evidence that she would not have taken out the policy at all had she known about the commission level. Accordingly, the judge ruled she should be awarded the full amount of the premium in damages. This judgment - whilst not binding on other courts - is likely to have far-reaching significance, showing not only that the faulty FCA guidance is not legally binding, but also that it is a castle built on sand. If claimants challenge it, they could be repaid in full – at a potential total cost of up to £18bn to the banks.
Glyn Taylor, Solicitor, Anthony Philip James & Co:
This judgement is extremely important as the Defendant, Paragon Personal Finance, tried to persuade the Court that the unfairness related to matters that took place at the time of entering into the agreement and that the court should hold that the limitation to bring a claim should start to run from when the allegations of unfairness happened.
The Defendant also invited the Court to follow the FCA calculation, and only award relief amounting to the commission paid above 50%.
The judge wasn’t persuaded by these arguments and held that you cannot make a judgement on the fairness of the relationship without looking over the full course of the relationship, and therefore limitation doesn’t start to run until the end of the relationship.
The court also held that appropriate redress that should be awarded is the full amount of the PPI policy and the interest paid.
The current rule states that customers can claim back money if more than 50% of their PPI payments went through as commission and this information was not disclosed upon taking the policy.
The average commission banks were paid was 67%, which means millions of people who were sold PPI are entitled to compensation.
This decision is welcomed and shows the Courts are prepared to reject the tipping point approach that has been expressed by the FCA and also allows individuals access to justice through the Court.
The case opens space for a renewed claims frenzy as it suggests that even if the PPI policy was not mis-sold, customers could still reclaim due to excessively high commissions that were paid out.
Tim Dimond-Brown, VP Sales and Operations at Quadient:
The news that those with mis-sold PPI policies may be able to claim billions of pounds more in compensation, following a court ruling in Manchester, will no doubt alarm banks across the UK.
It is estimated that only 1.2 million claims have been made out of 13 million potential PPI pay-outs. The large number of outstanding claims may seem overwhelming for banks, but they can successfully deal with this huge number of potential claims by ensuring they communicate using the Three P’s: Process, Proactivity and Proof. Specifically, this means placing a firm focus on internal processes, acting proactively when reaching out to customers and being able to prove compliance will make it far easier for the industry to ride out the storm. Failing to follow this process means do this means financial services companies will run the risk of facing the FCA’s wrath, while damaging valuable customer relationships.
The real winners to emerge from this saga will be the ones who realise it is a wake-up call. We live in turbulent political and economic times – every stakeholder within the Financial Services sector must be confident they are laying the groundwork for full compliance and traceability, so they will be able to ride out future storms of a similar nature.
Stuart Murdoch, Partner, Burness Paull LLP:
With the 29 August 2019 deadline for new PPI claims approaching, we have started to see and will continue to see claims management companies try to drum up new complaint angles in the lucrative PPI compensation arena.
Traditionally, PPI claims were made on the basis of mis-selling. However, a new ground for complaint was established with the Supreme Court’s judgment in Plevin v Paragon Personal Finance. The Supreme Court ruled that a failure to disclose to a client a large commission payment on a single premium PPI policy made the relationship between a lender and the borrower unfair, under section 140A of the Consumer Credit Act 1974.
The Supreme Court’s view was that anything above 50% commission was excessive and automatically unfair. The consensus was that anything which was paid above 50% should be returned to the Customer. That threshold was endorsed by the FCA and is now reflected in the FCA rules. It was quite common for a large portion of the sum which a customer paid for in PPI to in fact be paid to the intermediary as commission.
Christopher & Joanne Doran v Paragon Personal Finance follows on from the Plevin case. It seems as though the County Court judge has decided that customers should get back the whole commission value (ie. 75% in this case), as opposed to the residual percentage above the 50% threshold (i.e. 25%).
The impact of this judgment remains to be seen; however, the court’s decision has not yet been made public and it was issued by a County Court (4th tier). The FCA has already confirmed that it will not be changing its guidance. Plevin was a Supreme Court judgement (top tier), before five Supreme Court justices, and is binding on all UK courts and beyond. By comparison, the County Court has no binding authority on any court in the UK. Even if the case is appealed, it will not have the status of Plevin, which remains the leading authority in this area.
The Supreme Court’s judgement, paired with the FCA’s guidance, will continue to be the guiding lights on this issue.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
New rules to be introduced by the Payment Systems Regulator will in future make banks and financial services liable for payment scams and consequent reimbursement. Andy Barratt, UK Managing Director at Coalfire, explains more for Finance Monthly.
During the first six months of this year, victims of Authorised Push Payment (APP) scams were conned out of a shocking £100 million. These simplistic but sophisticated cons have tricked thousands of customers into unwittingly authorising payments in response to fake emails or persuasive phone calls.
Currently, it is most often the victim – the customer – that picks up the tab and any compensation awarded to them is generally qualified as an act of good will, not an admission of responsibility.
But a new contingent reimbursement model being introduced by the Payment Systems Regulator (PSR) in September 2018 will likely shift the responsibility for preventing APP on to banks and payment services providers. Organisations may be obligated to pay out in circumstances where it can be proved they didn’t have adequate security procedures in place or follow best practice.
Though the exact contents of the model is yet to be ironed out, PSR’s focus on redressing the balance between customer and company emphasises the increasing importance for the financial services sector to have its house in order when it comes to protecting its customers from fraud, particularly online.
Legislatory or voluntary?
Whatever the PSR’s judgement, the resulting regulation will likely take one of two forms.
The Government could legislate, based on recommendations from the PSR, for transactional scam protection, which would be underwritten by the Treasury. This would be much like the protection given to individuals and businesses that hold deposits in banks that fail, who are entitled to compensation of up to £85,000.
The government would, of course, be within its rights to recoup these costs from organisations that authorised the fraudulent payment in the first place.
Alternatively, a voluntary system overseen by the PSR could require member institutions to contribute to a collective insurance pot to protect victims.
Both approaches would likely mean greater costs for banks and payment services providers, intensifying the onus on these firms to demonstrate that their defence against APP is as robust as possible.
Preparing for the reimbursement model
It must be said that many financial institutions, and particularly the big retail banks, are working hard to be good corporate citizens.
But across the sector, particularly among smaller lenders or those with more automated service models, a variety of steps could be put in place with reasonable ease that would make organisations far better able to protect customers from APP and less likely to lose money to compensating them.
In the credit industry, for example, a five-day cooling off period is applied to all credit agreements. This allows time for the source and recipient of any payment to be verified. Similar principles could be introduced to other forms of banking. Even in the case of customer-to-customer transactions such as direct debits, payments over a certain value threshold could be held until their legitimacy is confirmed.
Banks with branch networks can also use the personal contact staff have with customers as a way of verifying the identity of a payor or payee. Staff training and awareness days can be used to teach employees how to spot transactions that may be fraudulent.
Alongside this human element, artificial intelligence will play an increasingly key role in helping businesses to detect fraud.
The reimbursement model will necessitate banks and payment services providers to prove they have robust mechanisms in place to monitor consumer behaviour more meticulously and identify and block suspicious transactions effectively.
AI can be used to detect incongruous payments among many millions of transactions – a needle in a haystack for mere mortals. These suspicious payments can then be paused, with the funds placed in temporary escrow, and the customer contacted to confirm authenticity.
This stops the theft from ever taking place, circumventing the debate over who is liable altogether.
Plan ahead
The contingent reimbursement model may not have the wide-ranging, cross-sector implications of other new regulations such as GDPR and PSD2. But one thing it does have in common with these more talked-about directives is the potential to be financially damaging for the organisations that fall foul of it.
The PSR recognises that there is no single measure that will stop APP scams altogether, but impresses on the financial sector the importance of doing everything it can to guard against this form of fraud.
The sector should stay abreast of new developments concerning the contingent reimbursement model and take steps, some examples of which are highlighted above, to ensure they are ready when the regulation takes its full form next September.
