BKM203400 - Bank compensation restriction: excluded expenses: expenses in respect of loss or damage attributable to third parties

Expenses arising as a result of the actions of an unconnected third party are also excluded expenses. Examples of this might include third party fraud, phishing or cyber-attacks, or other actions by third parties which can be considered to be beyond the bank’s control.

Another example is where an independent financial adviser sold one of the bank’s products but not under the bank’s direction and the bank subsequently agrees to pay compensation.

For the purposes of this section, “connected” follows the general rule at CTA10/S1122, but is modified to also include employees and directors of the company. As a result, actions of employees which give rise to compensation cannot be excluded under this section.

The test of connection for these purposes is applied at the time of the action giving rise to the loss or damage for which compensation expenses have now been recognised. This is different to the timing of the test for association in CTA09/S133A, which is applied at the time that the expenses are recognised.