Section 90/90A FSMA Claims: What Rising UK Securities Litigation Means for Brokers & Insurers
The UK securities litigation landscape is going through a transformation. Shareholder claims brought under Sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA) are climbing – and this has serious implications for insurers and brokers advising corporate clients, particularly those listed on public exchanges, due to increased claims. Clients can mitigate their exposures, but it takes brokers who are alert to the growing risks associated with investor claims to advise on the types of insurance that can offer protection.
Recent legal challenges in the UK are demonstrating the potential financial impact of these claims and the reputational harm they can do. It’s critical for clients to appreciate their evolving risks and have appropriate protections in place.
Graham Constable, Managing Director of Management Liability at Travelers Europe
Understanding FSMA sections 90 & 90A
FSMA provides a statutory framework for investor claims against issuers of securities in the UK. Section 90 concerns liability for untrue or misleading statements or omissions in prospectuses or listing particulars for securities. Investors can bring claims if they acquired shares based on documents containing such inaccuracies – and they don’t need to prove they were aware of the misleading information and acted upon it.
Section 90A, by contrast, applies to other published information provided to the market, such as annual reports and trading updates. These claims do require the investor to prove they were relying on the inaccurate information when they acted upon it. These cases hinge on the existence of a dishonest or reckless misstatement, or a dishonest delay in correcting an inaccurate statement.1
Why FSMA securities claims are rising
Several converging factors explain the uptick in FSMA Section 90 and 90A litigation:
- Growth of institutional investor activism: Large institutional investors are more willing than ever to take legal action when a company’s disclosures cause significant losses. High-profile accounting scandals and other events have made investors more proactive in protecting their interests.
- Developments in collective action: While the UK lacks the same US-style class action mechanisms, procedural vehicles such as Group Litigation Orders (GLOs) and representative actions under CPR 19.8 have evolved. This has made it more viable for groups of shareholders to pursue claims collectively. One notable case in this area is Allianz Global Investors GmbH v RSA Insurance Group Ltd, which tested the boundaries of how representative actions under CPR 19.8 can be used in Section 90A claims.2,3 Furthermore, these trends more broadly have been exacerbated by the rise of litigation funding, helping to fund these types of collective actions.
- Increasing regulatory scrutiny and public disclosures: The Financial Conduct Authority (FCA) has been vocal about improving market transparency and holding issuers to higher disclosure standards. Having more stringent requirements and sophisticated data analysis tools makes it easier for discrepancies or delays in disclosure to be identified – and litigated.
Key legal challenges may forecast direction of D&O market
Section 90A claims remain challenging to prove due to the reliance and fault elements. Claimants must show not only that the issuer made a dishonest or reckless misstatement, but also that they relied on it in making their investment decision.
However, recent cases have signalled increasing judicial willingness to entertain complex securities claims. In relatively quick succession, there have been section 90A claims brought against companies such as Boohoo, Serco and Entain, all on the back of particular events (e.g. those related to ESG or HMRC investigations). Other litigation, including claims against Glencore and Serco, will likely clarify legal issues such as the threshold for “dishonesty” and whether investors can rely on the integrity of the market.4 In the case of Serco, the parties settled while the case was at trial, which meant that any precedent couldn't be set.
The role of D&O insurance in managing FSMA risk
The increase in FSMA litigation has direct implications for Directors & Officers (D&O) liability insurance and related protection:
- D&O insurance: This remains the cornerstone cover for FSMA-related risks. It typically covers legal defence costs, settlements and judgements in securities litigation where companies and directors are named. Brokers should ensure their clients' D&O policies include protection for securities claims brought by shareholders and provide sufficient limits – especially given increasing litigation costs.
- Entity securities cover (Side C cover): Some D&O policies extend cover to the company itself (Side C) for securities claims. Brokers should confirm whether FSMA claims are included and if any sub-limits apply. It’s important to understand how FSMA claims are treated under different policy wordings.
- Reputational risk and crisis management cover: FSMA claims often trigger intense media scrutiny – and the resulting reputational damage can be as costly as the litigation itself.
- Stand-alone extensions of cover: Firms might consider purchasing stand-alone crisis management or reputational harm policies, or D&O extensions that offer PR and communications support in the wake of regulatory investigations or litigation.
What this means for brokers and insurers
Brokers advising publicly listed clients can take a proactive approach to mitigating risk. Review D&O policies annually, especially after mergers and acquisitions, capital raising, or regulatory investigations. In policy wordings, make sure you’re clear about term definitions. Finally, stay informed of legal developments, particularly in group litigation procedures and FSMA interpretations of them.
FSMA sections 90 and 90A are increasingly being used by institutional investors to recover losses – and these claims bring significant financial and reputational risks for listed companies and their directors.
Graham Constable, Managing Director of Management Liability at Travelers Europe
The financial impact of these claims hasn’t yet been reflected in D&O premium in the market, but that is likely to change. Ensuring robust D&O cover, tracking pending litigation, and maintaining a forward-looking risk strategy will be essential as securities litigation in the UK continues to evolve.
Travelers Europe has been a D&O insurer for over 20 years, working in both the primary and excess market, and has an AA financial strength rating from S&P Global. To learn more about how Travelers can support you and your clients, visit: https://www.travelers.co.uk/what-we-cover/management-liability-insurance.
This article is provided for general informational purposes only. It does not, and it is not intended to, provide legal, technical or other professional advice, nor does it amend, or otherwise affect, the provisions or coverages of any insurance policy issued by Travelers. Travelers does not warrant that adherence to, or compliance with, any recommendations, best practices, checklists, or guidelines will result in a particular outcome. Furthermore, laws, regulations, standards, guidance and codes may change from time to time and you should always refer to the most current requirements and take specific advice when dealing with specific situations. In no event will Travelers be liable in tort, contract or otherwise to anyone who has access to or uses this information.
Travelers operates through several underwriting entities in the UK and Europe. Please consult your policy documentation or visit the websites below for full information.
Sources
1 https://www.pinsentmasons.com/out-law/guides/securities-litigation-liability-remedies
2 https://www.stewartslaw.com/news/claimants-in-rsa-shares-case-succeed-in-reorganising-structure-of-split-trial/#:~:text=Claimants%20in%20RSA%20shares%20case%20succeed%20in%20reorganising%20structure%20of%20split%20trial,-Share%20this%20on&text=Investment%20management%20giant%20Allianz%20and,(%E2%80%9CReliance%20Issue%E2%80%9D)
3 https://disputeresolutionyearbook.traverssmith.com/yearbook-2024/uk-securities-litigation-key-trends-and-issues/
4 https://www.stewartslaw.com/news/investor-litigation-on-the-rise-in-the-uk-keith-thomas-speaks-to-the-financial-times/
