The Regulators

We predict in 2022 that the number of minor data breaches reported to the ICO will continue to fall; however, for the cases the ICO does investigate it will issue significant fines, which we predict will include two investigations leading to eight-figure penalties.

Why?

In 2021 the ICO imposed 32 monetary penalties, compared to 17 in 2020 and only 1 in 2019. While the bulk of the 2021 penalties have related to unsolicited marketing activity, rather than significant data breaches, the pace of the regulator’s enforcement activity is clearly increasing. However, the size of penalties imposed has fallen radically compared to those in late 2020 in relation to data breaches at BA and Marriot International.

This contrasts with the global trend. Monetary penalties for breaches of the GDPR in the EU have increased markedly in 2021: in the last six months fines have been announced of €225m (WhatsApp) and €750m (Amazon). New data protection legislation in California, DIFC, Cayman and, in particular, China have also increased regulatory activity worldwide.

However, we expect this decline in the relative significance of the ICO’s enforcement activities to change going forward as:

• Some disruption to the initiation of new investigations appears to have occurred as a result of the pandemic;
• The significant increase in the volume of cybercrime and data breach incidents during the pandemic will feed through into live ICO investigations; and
• The volume of minor breaches reported to the ICO, and the related drain on resources, seems to be falling on account of a growing market practice of reporting only material breaches. We expect this to continue and for the number of reports to the ICO to fall below 8,000 (in 2020/21 the ICO received 9,532 reports, an amount that has decreased since 2018/19). There are suggestions of reform to the same effect designed to enable the ICO to pivot from handling a high volume of low-value breaches to tackling serious reports that threaten public trust.

Prediction authors: Robert Allen, Emily Agnoli, Thomas Bowen

We predict in 2022 that the Pensions Regulator (tPR) will make use of its new powers to carry out interviews, as well as new broader powers to compel production of documents and search premises.

Why?

Following hurdles encountered by tPR in investigating the issues arising in BHS, the tPR now has investigatory powers under the Pensions Act 2021 which go beyond those of the Serious Fraud Office. They enable tPR to:

• carry out interviews, either compulsory or voluntary (under caution);
• compel the production of documents (enhancing its pre-existing powers); and
• search premises.

These investigatory powers are backed up by financial penalties and criminal sanction for non-compliance, and sit alongside two new criminal offences (where there is conduct which detrimentally affects the likelihood of scheme benefits being received, or there is avoidance of an employer debt).

The new powers are particularly important for those involved in the operation of company pension schemes, or in corporate restructurings which have an impact on such a scheme. There is likely to be a period of uncertainty while tPR gets to grips with the operation of the new powers in practice.

Prediction author: Nick Benwell

We predict in 2022 to see from Serious Fraud Office (SFO):

• At least one global Deferred Prosecution Agreement (DPA);
• The first foreign tax evasion DPA prosecution settled involving the SFO;
• An increase in fraud related Covid investigations, and individual prosecutions due to the increased pressure on UK law enforcement to tackle the scale of fraud arising out of the pandemic.

Why?

The SFO will:

• Investigate complex large-scale Covid related domestic fraud cases;
• Increase its focus on cooperation with other regulator/ enforcement agencies; and
• Increase its focus on recovering money from economic crime investigations eg asset recovery, confiscation, money laundering.

We expect to see continued use of DPAs and the first foreign tax evasion DPA to be settled because:

• DPAs are the SFO’s USP and unlike the FCA and HMRC, the SFO have this prosecutorial tool and it is important that the SFO shows its working in practice.
• It is important for the SFO to maintain its “brand” in terms of taking DPA applications to court which are likely to be approved by the sentencing court.
• Despite the perceived success of cases like Petrofac (guilty plea to corporate bribery charges) there is still an incentive for corporates to cooperate and achieve the certainty that comes with outcome of a DPA.
• The SFO needs to work well with global law enforcement to maintain its role in policing bribery and corruption offences and so, post-pandemic, will be seeking to re-engage with its global law enforcement partners
• HMRC has stated in a FIO request that it has 14 open investigations into foreign tax evasion and it is likely at least one of those cases will lead to charges.
• The SFO is the lead agency for the prosecution of the corporate failure to prevent foreign tax evasion offence and as there have been no prosecutions to date under this piece of legislation, it will be pushing to reach a DPA settlement on the first case to utilise the cooperation from the corporate.

We expect to see continued prosecution of individuals and Covid-related fraud because:

• COVID-19 impacted and slowed the progression of new SFO enforcement investigations against both firms and individuals.
• The DSFO has stated the SFO is seeing more complex related Covid fraud case work and it is likely that the SFO will seek to progress these to prosecutions.
• There has been a huge uptick in Covid related fraud work to which the SFO will be under pressure to respond and play its part in the economic law enforcement landscape.
• The SFO will want to continue to prosecute individuals for serious economic crime as a necessary means of enforcement and of punishing wrongdoing.
• There may be an increased sense of a turf war between a more prosecutorial focused FCA (eg Natwest) and the SFO.

Prediction author: Camilla de Silva

We predict in 2022 the FCA will investigate at least 1 firm and the relevant senior manager where there is perceived to be excessive use of synthetic LIBOR, whilst the CMA/FCA will seek to launch 1 competition investigation into the transition process undertaken.

Why?

Firms must transition to an alternative risk-free interest rate end-2021 but UK law LIBOR legacy contracts will have the benefit of synthetic LIBOR for the duration of 2022, and possibly beyond. However, synthetic LIBOR is stop gap and firms are still expected to actively transition.

We expect the FCA to track usage of synthetic LIBOR through 2022 and they will expect the usage to reduce dramatically. Firms that don’t actively manage their remaining “tough legacy” will be under regulatory scrutiny.

In addition, existing syndicated loan facilities face competition risk whilst transitioning from LIBOR where, e.g., the lenders’ discussions result in a ‘sub-optimal’ outcome for the borrower as compared to a fairly and bilaterally negotiated outcome; or, give rise to inappropriate information exchange between lenders.

We expect the CMA/FCA to test and seek to investigate potential anti-competitive collaboration between lenders during transition, specifically as to whether processes were transparent vis-à-vis the borrower and how the lenders collaborated with each other.

Prediction authors: Caroline Hunter-Yeats, David Trapp

We predict the PSR will fine 2 firms during 2022.

Why?

When it was established in 2015 the PSR was the first economic regulator of payments systems in the world. But we have now been waiting for almost 7 years for it to show its enforcement teeth – so far there is only 1 Final Notice (published in 2017) and that was for a technical breach and resulted in no financial penalty.

The PSR has had a number of investigations going for a number of years relating to alleged compliance failings with both the Interchange Fee Regulation and the Payment Services Regulations 2017. Although the PSR is currently struggling with being under resourced in its enforcement team, even delayed investigations come to an end and we expect to see some action in the year ahead.

Prediction author: Caroline Hunter-Yeats