Regulatory and structural reforms to the UK's system of financial regulation may have created the conditions for a "perfect litigation storm," according to a
May 2013 client memo from law firm Jones Day. The firm's memo posits that new powers granted to the Financial Conduct Authority (FCA), successor to the Financial Services Authority, coupled with new self-help remedies for investors and consumers, and new ways to finance litigation could prompt a dramatic increase in legal cases brought against UK financial firms.
The Financial Services Act of 2010 changed the power of regulators to bring cases such that consumers of financial services "do not need to bring proceedings themselves if consideration of their complaints and a remedy can be procured by the regulator." The FCA is further empowered in cases where there has been past wrongdoing to make rules imposing a requirement on financial firms that they create a program to redress those past wrongs. Further, the memo points out that the FCA is now allowed to proceed against financial firms based on complaints filed by consumer advocacy bodies that a feature of a market appears to be harming the interests of consumers. In the past, the FSA was only allowed to investigate such complaints from actual investors and consumers. These broad new FCA powers may embolden the agency, and encourage it to make its mark and gather some scalps to prove itself capable of handling its new mandate. Jones Day believes that "we are likely to see greater exercise of enforcement powers (in particular, the imposition of higher fines and consumer redress schemes) as well as increased use of 'regulatory' litigation by consumers (individuals and businesses) as a means of enforcing private rights and recovering compensation."
In addition to new powers granted to the regulators, the UK has implemented some legislative changes making it easier for those who have suffered loss to be able to recover compensation at a proportionate cost. Plaintiffs now have a much easier time of bringing and cases and getting them before courts. New "damages based agreements," akin to contingency arrangements in the US, are now more widely available to individual plaintiffs, and attorneys can now be compensated based on the amount of legal damages recovered, rather than merely on hours worked. As in the US, these kinds of fee arrangements may increase both plaintiffs' and lawyers' appetites for litigation.
While class action suits have not been as popular or as widely used in the UK as in the US, damages based agreements change the calculus of funding large scale litigation of a class nature. Allowing damages based agreements has made "opt out" or class action litigation much more attractive and prevalent.
The looming storm of litigation perhaps was not what lawmakers had in mind when they restructured financial regulation in the wake of the financial crisis. This unintended consequence is yet another case of "be carful what you ask for, because you might get it."