[2025] UKUT 00185 (TCC)

The NEDs were told in September that “the RWA error amounted to a £40m capital amount”, but at the subsequent Board meeting they were provided with Ms Gillan’s report, which said that the RWA reclassification “could” increase regulatory capital by around £40m, and did not include the change to the risk-weighting itself.

The October meeting of the ROC was attended by five of the ten NEDs. The Committee had been provided with the RWA Report, which included the slides which said that RWAs were expected to increase by an estimated £642m including £574m relating to CLIP loans, and that “any further adjustments to calculations are not expected to be material”. However, the ROC was also told, incorrectly, that “the commercial business was now largely correctly risk weighted”. It is thus not surprising that these NEDs went to the subsequent Board meeting thinking that there was no continuing issue.

At the October Board meeting, in reliance on the information provided to the Audit Committee, Mr Bernau recommended the Q3 Update to the Board. However, that information was incomplete and in important respects also incorrect. The Board was provided with the 2019 Budget Paper and the Chief Risk Officer’s report, but neither gave a clear explanation of the CLIP loan error or of its materiality. Although the £600m figure was provided orally by Ms Gillan, this was after the Q3 Update had been approved, and given in the context of the incorrect and incomplete information already provided to Board members.

We therefore reject the Applicants’ submission that the Bank acted reasonably because proper internal governance procedures had been followed. Some of the information provided at the relevant meetings was partial, some was wrong, and the overall impression was misleading. A reasonable issuer in the position of the Bank would have ensured, before the Q3 Update was considered by the Board, that the position as set out in the RWA Report was explained and understood.