1. Freshfields Bruckhaus Deringer LLP Global financial services litigation and regulatory enforcement trends Aaron Marcu, Richard Chalk, Dimitri Lecat Cover – option 3

2. 1 Global financial services litigation and regulatory enforcement trends What we will cover: Regional litigation and regulatory enforcement round up for: ­Continental Europe ­UK ­Asia ­US Global trends and observations

3. 2 Continental European litigation trends Significant litigation relating to derivatives products sold to: ­Public entities (France/Italy) ­Mid-sized corporates - for example CMS spread ladder, swap/cross currency swaps (Germany) ­Retail bank customers - for example interest rate swaps (Spain) Significant litigation involving mis-selling to retail investors. For example: ­Financial products (France) ­Madoff related investments, Lehman/Icelandic Bank bonds, Preferred shares in Spanish banks (Spain) ­AIG investment bonds (Italy) ­Insurances, film funds (Germany) Increase in class action type mechanisms ­Class actions now exist (and are being used) in Italy ­Being proposed in France ­Extension of KapMuG procedure in Germany

4. 3 Continental European regulatory enforcement trends Regulatory enforcement activity is increasing, especially in Italy and Spain Upward trend in size of penalties (France, Spain) Increased focus on investor protection (France, Germany) Increase in criminal investigations/prosecutions (Italy) Particular areas of focus include: ­Short-selling breaches ­Market soundings ­Market manipulation/market abuse/insider dealing ­Mis-selling ­Systems and controls

5. 4 UK litigation trends Post financial crisis - increase in wholesale litigation Issues being litigated include: ­Construction and obligations under ISDA contracts ­Duty of care to investors ­Interpretation of contractual documentation for complex transactions Significant increase in retail litigation focused on mis-selling of particular products: ­Overdraft charges ­Payment protection insurance ­Structured products (SCARPS) sold to retail investors ­Derivatives products sold to SMEs Key issue – fact-based decisions or possible adverse precedent? Introduction of damages based agreements (in April 2013) could result in more claims against financial institutions

6. 5 UK regulatory enforcement trends Since financial crisis, a marked increase in FSA enforcement investigations AND more aggressive approach AND upward trend in terms of size of financial penalties Particular areas of focus include: ­Mis-selling (P6) ­Systems and controls (P3) ­Self-reporting (P11) ­Senior management responsibility ­Also market abuse cases but note increased prosecutions for insider dealing Recent enforcement cases (e.g. GSI; Barclays/UBS/RBS LIBOR; Pottage) Looking ahead to 2013 – twin peaks regulatory structure ­More intrusive and interventionist regulatory approach

7. 6 Asia financial services litigation trends Hong Kong Some financial services litigation cases (e.g. in relation to mis-selling of investment products) BUT many disputes are settled via global settlement agreements/locally developed ADR mechanisms Proposals for class action mechanism for “consumers” – could have impact on retail financial institutions depending on how “consumer” is defined Japan Increase in litigation related to derivatives products Litigated cases involving individuals/SMEs often resolved in favour of individuals/SMEs Many derivatives cases resolved via mediation (JBA for banks or FINMAC for securities firms)

8. 7 Asia regulatory enforcement trends Hong Kong Increased regulatory enforcement activity by Hong Kong regulators Particular areas of focus include: ­Insider dealing ­Short selling ­Sponsor due diligence (e.g. Mega Capital/Hontex decision) / proposed changes to sponsor regime ­Unlicensed activities ­Change to the disclosure of price sensitive information regime – effective in January ­Confirmation by the courts of SFC’s powers (e.g. Tiger Asia) ­Confirmation by the courts of partial waiver of privilege (e.g. CITIC)

9. 8 Asia regulatory enforcement trends China Increasing enforcement under strengthened anti-bribery laws Greater coordination among PRC government agencies Foreign discovery obligations in US, HK, and elsewhere increasingly conflict with PRC state secrets laws (e.g. Deloitte/Longtop, E&Y/Standard Water) Regulatory authorities often lack resources, resulting in unpredictable or inconsistent enforcement efforts Vaguely drafted laws and regulations often result in limited ad hoc or piecemeal guidance Policies may shift with new leadership, but not necessarily toward liberalisation

10. 9 Asia regulatory enforcement trends Japan Number of financial services regulatory enforcement actions have decreased in recent years – in 2011 only 6 FSA enforcement actions However there are indications that this is changing Particular areas of focus include: ­Alleged manipulation of benchmark rates ­Internal systems and controls ­Insider trading Recent enforcement cases (e.g. Citibank Japan, UBS Tokyo, Mizuho) Record high fine of JPY 200 million imposed on Nomura Securities by the TSE for sharing of price sensitive information

11. 10 US litigation trends Rely on regulators to identify and pursue institutions Complex instruments, securitizations ­CDO ­RMBS ­ARS Fraudulent misrepresentation and collusion, e.g., LIBOR manipulation Consumer protection on rise: mortgage foreclosures, Consumer Financial Protection Bureau Class actions again on rise e.g. against Chinese companies raising capital in U.S. (e.g., reverse merger)

12. 11 US regulatory enforcement trends Significant regulatory action continues to rise ­Profit and attention centers Areas of focus: ­Fraud as to quality of assets underlying financial products (new disclosure obligations under Dodd-Frank) ­Securitizations of complex and/or diverse assets (e.g. CDO and RMBS investigations) ­Consumer financial protection (foreclosures, lending) ­Alleged manipulation of benchmark rates ­Insider trading (Rajaratnam, Gupta) ­Anti-money laundering (e.g., HSBC) ­Sanctions violations (e.g., Standard Chartered) ­Role of senior management (e.g., Goldman, BofA/Merrill, JPMC, HSBC) Criminal prosecutions against individuals proving difficult (other than insider trading) Increased judicial scrutiny of settlements with regulators

13. 12 Global trends and observations Trends Increased litigation and regulatory enforcement; often linked Enforcement penalties getting tougher Increasing focus on senior management Similar issues in multiple regions Increase in cross-border issues/investigations More regulator cooperation

14. 13 Global trends and observations Observations Multi-jurisdictional investigations ­Managing multiple regulators, including across borders ­Self-reporting ­Different approaches in different jurisdictions ­Dealing with and managing different regulators’ expectations and (sometimes political) agendas ­Demands for documents by one country that are subject to laws of another country (DPA, blocking statutes, bank secrecy) ­Need to balance legal obligations and rights in multiple jurisdictions ­Spotting risks from global sale of products in multiple countries with different legal limitations

15. 14 Questions?

16. 15 LON24406293 This material is for general information only and is not intended to provide legal advice. © Freshfields Bruckhaus Deringer LLP 2013