Upper Tribunal Tax and Chancery Chamber

[2025] UKUT 00185 (TCC)

Fecha: 09-Abr-2025

Mr Donaldson

Mr Donaldson

543.

We make the same finding about Mr Donaldson. It is clear from the findings of fact summarised below that he knew the CLIP loans had been wrongly risk-weighted at 50% and should have been risk-weighted at 100%:

(1)

He had received the email of 24 August 2018 from Mr Somers and the attached PowerPoint presentation.

(2)

He had participated in the meeting with the PRA on 12 September 2018 at which the PRA were told of the errors and that they would be remediated.

(3)

He attended the September Audit Committee meeting at which Ms Gillan explained the errors; see §118, §137 and §148.

(4)

He received the RWA Report before the October CRPAC meeting, see §174.

(5)

He attended the CRPAC meeting at which that Report was discussed and did not express any disagreement with the position it set out, see §185.

(6)

Under cross-examination, he agreed that he knew that risk-weighting the CLIP loans at 50% was wrong.

(2)

Whether the Applicants knew the estimated CLIP loan error was material

544.

We also find as a fact that both Applicants knew the estimated CLIP loan error was material to the RWA figure being reported as part of the Q3 Update, for the following reasons:

(1)

It was self-evident from the size of the estimated CLIP loan adjustment of £574m in the context of the Bank’s loans, see §237 and §208.

(2)

Both Applicants attended the September 2018 CRPAC meeting, which considered the Annual Review of Commercial Lending pack, see §146(3). This included the following (our emphasis):

“The executive leadership team had been advised in September that there were ‘inconsistencies in current RWA calculations that will resultin a significant increase in risk weightings’, because commercial mortgages had been weighted at 50% rather than 100%, and that KPMG had confirmed that this was correct.”

(3)

The RWA Report similarly said that the errors “will result in a significant increase in RWs”, see §175.

(3)

Whether the Applicants knew the error was significantly less

545.

We next considered whether the Applicants knew, based on their reasonable belief, that at the time of the Q3 Update the true amount of the CLIP loan error was significantly less than the estimate, such that the figure included in the Q3 Update was not materially incorrect.

546.

We have already made the following findings of fact:

(1)

The RWA Report said that the error was £574m, and that “any further adjustments to calculations are not expected to be material”; at the CRPAC meeting at which that Report was discussed, neither of the Applicants expressed any disagreement with the position it set out, see §185.

(2)

There was no uncertainty about the regulatory interpretation of the PRA’s requirements, instead, both Applicants knew at the time of the Q3 Update that the rules required the CLIP loans to be risk-weighted at 100%, see §366.

(3)

There was no uncertainty as at the time of the Q3 Update about the application of the SME factor, see §380.

(4)

The number of residential loans which were miscategorised as CLIP was small, in the region of £20m, and this was an immaterial difference to the overall risk-weighting correction that was required, see §385.

547.

We have also found as a fact that the CLIP loans estimate was not based on sampling, see §123; instead, it was the PBTL figure which was calculated in that way. However, Mr Donaldson said in his witness statement that one reason he did not accept the estimate was because he understood the CLIP loan figure to have been based on “high-level sampling”, and that as a result it was “not clear that any adjustment would be necessary”. However, under cross-examination he accepted that this may have been because at the time he wasn’t distinguishing between CLIP loans and PBTL loans.

548.

Given the clear information provided to Mr Donaldson about the basis for the CLIP loan estimate, we find that there was no reasonable basis for him to hold the view, at the time of the Q3 Update, that the estimate was based on “high level sampling”.

549.

Mr Arden gave similar evidence, saying that when he was given the estimated figures in September 2018, he “was aware that the methodology…was based on high-level sampling”, but he accepted under cross-examination that this was not the position. As with Mr Donaldson, we find that there was no reasonable basis for him to hold that view.

550.

In the light of the above, we find that the Applicants had no reasonable basis on which they could have thought that the estimate of £574m was much too high and thus that the RWA figure reported in the Q3 Update was materially correct.

(4)

The mitigants

551.

The final issue under this heading was whether the Applicants reasonably believed that, as the result of one or more mitigants, the total RWA figure in the Q3 Update was not materially incorrect.