Securities litigation

As a major economy, the UK is the headquarters or primary operating centre of many of the world’s largest companies, including but not limited to financial institutions, and many of these are publicly listed on the main market of the London Stock Exchange or on AIM. Many of the world’s largest and most sophisticated institutional investors are located in the UK.

Until recently, however, securities litigation against misbehaving PLCs was not undertaken in the UK. But this has changed, and in the last five-seven years we have now seen three-four major cases in this area.

Yes, there is regulatory and policy support for securities litigation, as policy makers and corporate regulators in the UK and internationally recognise the positive benefits of private securities litigation in driving deterrence objectives, encouraging better corporate behaviour and governance, and enabling investors to obtain redress. This is especially so in circumstances where regulators are sometimes stretched to discharge their functions and can see private securities litigation as being both complementary and supplementary to the investigatory and enforcement actions which they have the capacity to undertake.

Yes, securities litigation should be seen as part of a framework that includes the UK’s Corporate Governance Code (2018) and the UK’s Investor Stewardship Code (2019), each of which is designed to encourage improvements in corporate governance, including better corporate disclosure, at the public companies in which we invest.

Whether co-incidentally or not, securities litigation in the UK is increasing at a time when the availability of third party funding and of innovative alternative fee arrangements has also developed. This has allowed institutional investors who have suffered a loss to participate in securities litigation, if they choose, with no downside risk and no cost to their balance sheet. Securities litigation can be brought without litigation financing, but more often than not it will be brought with the support of litigation finance or alternative fee arrangements where risk and reward are shared.