Undue influence? Due diligence!

Although the UK government has promised to reduce the regulatory burden on companies as part of its plan for economic growth, the latest Supreme Court decision in Walter-Edwards v One Savings Bank plc shows that help with that agenda is unlikely to come from the courts. The finding that a mortgage lender should have been on notice of undue influence - even where the loan / security partly benefitted the victim as well as the perpetrator - points towards an increase in the due diligence burden on financial institutions. It follows a trend also seen in connection with IFAs and SIPP providers where past failings in due diligence have come back to bite individuals and firms via customer claims and regulatory scrutiny.

It remains to be seen whether the Supreme Court’s decision will open banks and other lenders up to a multitude of historic claims or whether the eye of the FCA will turn on those firms’ due diligence processes. In the meantime the judgment is a reminder to firms to check that their PI cover protects not only against customer claims, but also new and developing regulatory interventions.