Financial services litigation in 2022: Push payments, crypto fraud, ESG and a jump in interest rates
Push payments, cryptocurrency fraud and a jump in interest rates could lead to more litigation in the financial services sector in 2022, an industry expert discussed with City PM this weekend.
One of the biggest drivers of financial disputes this year could be authorised push payment fraud.
Authorised push payment fraud involves fraudsters duping consumers or individuals at a business into sending payments to a bank account controlled by the fraudster.
A rising number of large corporates are now being affected by push payment fraud, as emboldened fraudsters pursue larger targets than consumers, according to Daniel Hemming, partner at law firm RPC.
The Saudi subsidiary of engineering multinational Maire Tecnimont recently fell victim to a push payment fraud. The company started legal proceedings against its bank, NatWest, for failing to prevent the fraud.
“Authorised push payment fraud represents a growing problem for corporates who fall victim to it and the banks operating the accounts involved in the fraud. The risk of this type of fraud is only going to get bigger in 2022 and could lead to a rise in disputes,” Hemming explained to City PM
Crypto fraud
Another area which could see rising financial disputes is cryptocurrency fraud. This is an area which was previously seen as a consumer issue with relatively small-scale cases, but it is now generating higher-value disputes and is likely to continue to grow in 2022.
One recent dispute involves a cryptocurrency exchange in the US, where a large amount of cryptocurrency was lost to fraud. A number of people have made claims against the cryptocurrency exchange to seek recovery of their assets.
These cases are often challenging as identifying the fraudsters and tracking the stolen cryptoassets can be difficult. But RPC adds that with sophisticated tracing tools and freezing orders against ‘persons unknown’ there is hope.
ESG
2022 could also be the year in which ESG claims against financial institutions hit the mainstream, Hemming continued, including issues around the mis-selling of products in terms of their green credentials.
Increasing ESG disclosure requirements means any gaps between what financial institutions say on ESG and what they do could lead to more litigation against financial institutions.
This is particularly true if they overstate the ESG credentials of their products.
“Most banks are very focussed on their potential exposure on ESG issues. There have been some claims already, mainly brought by NGOs and activists trying to get disclosure about banks’ activities,” Hemming said.
“But there could well be mis-selling claims against banks and fund managers, for example if products turn out not to have the advertised ESG credentials and investors suffer losses,” he added.
Interest rates
Finally, further hikes in interest rates next year could also lead to a range of financial disputes, Hemming stressed.
The last time there was a significant move in interest rates was the financial crash in 2008. This was a major cause of financial disputes and affected derivatives contracts in particular.
Hemming noted that interest rate derivative contracts frequently give rise to disputes between the parties that enter into them.
They can often be profitable for banks, but leave them open to disputes when interest rates move sharply and leave customers facing substantial losses.
There have been few new claims in this area of an historic period of low and stable interest rates, but if rates continue trending upwards after last week’s increase in the base rate to 0.25 per cent there will be winners and losers, Hemming concluded.