The week’s news included; BA’s data breach fine reduced by £163 million, China tests cashless society with $1.5m cryptocurrency giveaway, PwC steps down as Boohoo auditor over governance issues, Instagram cracks down on influencers
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- The Fashion Law – British Fashion Brands Will Face at Least One Major Change in Protecting Their Designs Post-Brexit.
- BBC News – Why Africa’s animation scene is booming
- Legal Cheek – What lies ahead for the banking and finance sector?
1. BORIS TELLS BUSINESS TO PREPARE FOR NO-DEAL
Boris Johnson has told the nation to “get ready” for a no deal Brexit as negotiations reach an impasse. He claimed the EU has abandoned the goal of a Canada style free trade deal. Talks are set to continue but Johnson told his EU counterpart not to bother unless there was a “fundamental change of approach”. Senior figures, however, suggest that this is merely posturing, and the two sides will meet to hash out a deal. Time is running out though as negotiators only have until early November to secure a deal in order for it to be ratified by the EU before the 31 December deadline.
The negotiations have stumbled on somewhat totemic issues such as fishing, while the backbone of the economy, services, has been largely ignored. Both sides seem intransigent about rights over access to fishing waters, despite fishing making up well under 0.1% of the UK and EU economies. The professional service industry, however, has warned the government of catastrophic damage if it loses unfettered access to EU markets. €150 billion of UK assets have already shifted to France due to fears of a no deal. With a no deal situation becoming increasingly likely, thousands of staff and hundreds of billions in assets are likely to shift to the EU over the next few months.
2. BA’S DATA BREACH FINE REDUCED BY £163m
The Information Commissioner’s Office has reduced British Airways’ fine over a data breach by £163 million to just £20 million. British Airways suffered a cyber hack in 2018 where the data of 430,000 customers was stolen. BA had inadequate protections and failed to detect the breach until it was brought to its attention. The ICO subsequently issued a huge £183 million fine to BA’s owner International Airlines Group. Under GDPR the regulator can issue fines of up to 4% of global annual turnover.
The ICO decided to reduce the fine significantly due to the coronavirus outbreak. It recognised the financial pressure BA is under, noting that BA is struggling severely and is on the brink of collapse. BA already slashed a huge 10,000 jobs in August as the airline industry reels from the severe decline in travel. With many countries now reintroducing greater restrictions, the airline industry looks set to struggle well into 2021.
3. AMAZON AVOIDS DIGITAL SERVICES TAX
The credentials of the UK’s new digital service tax have been damaged as Amazon will not have to pay it on products it sells. The Digital Services tax applies to service fees not sales, targeting the primary revenue sources for tech giants like Amazon, Google and Facebook. The 2% levy was designed to effectively tax tech giants who generate huge revenues but pay minimal taxes. Amazon however, had already said it will pass the tax onto third party sellers but not to advertisers.
This practice will essentially make Amazon’s sales on its own platform even cheaper than competitors. Google and its subsidiary YouTube have already informed advertisers that additional fees will be passed on to them to cover the tax.
The UK government is facing increased pressure to clamp down on Amazon both with regards to tax and its treatment of workers. Amazon has long been facing allegations of harsh conditions and overworking staff. Unions suggest the UK government should use the £630 million in state contracts as leverage over Amazon but whether the government will take action remains to be seen.
4. CHINA GIVES OUT CRYPTOCURRENCY
China has given out $1.5 million worth of its digital yuan to 50,000 citizens as part of a trial. The government in Shenzhen is making moves towards a cashless economy and launched the largest government trial of its cryptocurrency. 2 million residents applied for the government’s lottery to win a share of 10 million digital yuan. The 50,000 winners can now spend the digital currency at over 3,000 stores in Shenzhen.
The currency is, unsurprisingly, not decentralised like other cryptocurrencies like Bitcoin and Ether. The digital yuan is completely controlled and monitored by the People’s Bank of China. Many would argue a cashless society is the way of the future. Critics, however, say removing cash entirely gives governments another means of bringing about a surveillance state. This surveillance state is however, largely already exemplified in parts of China, where all the activity and interactions of citizens are constantly monitored. Central banks across the globe are considering launching their own currencies. How quickly and how far this concept will be adopted in the West remains to be seen.
5. PREMIER LEAGUE SHAKEUP REJECTED
Plans to reform the top league of English football and to support lower leagues have been unanimously rejected. “Project Big Picture” would have seen the Big Six clus obtain more voting power and a reduction in the size of Premier League from 20 to 18 clubs. The Big Six clubs, Arsenal, Chelsea, Manchester City, Manchester United, Liverpool and Spurs would all gain more power in the decision making of the league, ending the “one club, one vote” system. Furthermore, the Premier League would provide a £250 million rescue package for clubs in the three lower English football leagues and 25% of Premier League broadcasting revenues. All 20 Premier League clubs rejected the proposals.
The Premier League will still offer a £77.2 million financial support package for English football clubs League One and Two. Clubs in the lower leagues do not have large broadcasting or sponsorship deals and rely largely on matchday sales. An offer for the English Championship, the league directly beneath the Premier League, is still being discussed.
6. PwC RESIGNS AS BOOHOO AUDITOR
Big Four accounting giant PwC has stepped down from its role as auditor of Boohoo due to concerns over its governance. Boohoo has been embroiled in scandal over the past few months. In July, it transpired one of its supplier’s Leicester factories paid some workers receiving as low as £3.50 per hour, less than 50% of the minimum wage. Workers were not given PPE and operated without social distancing despite working throughout the first peak of the pandemic. Furthermore, multimillion-pound fraudulent activity was uncovered at this supplier factory. The company had been committing VAT fraud by creating fake invoices and using shell companies.
Now, Boohoo is facing an internal scandal by approving a £150 million pay out to its bosses, without shareholder approval. This conduct allegedly breaches UK corporate governance code, but the company insists it is acting within the applicable regulations. All of these issues fundamentally result from poor governance and this is reportedly the reason behind PwC’s decision to step down. Boohoo states however, PwC has not officially resigned but a tender for a new auditor has begun.
7. KLARNA INVESTIGATED
Financial services company Klarna is being investigated by the Information Commissioner’s Office over its collection of data. A number of people complained to the regulator after receiving a newsletter from Klarna despite having never dealt with the company. Klarna apologised and said the email had been sent in error, assuring customers they hadn’t been added to a marketing list. The question remained however, how Klarna came into possession of the emails in the first place.
Klarna is best known for providing short term finance options at the checkouts of online retailers, including ASOS and TopShop. The company says they are permitted by their privacy notice to promote products where customers have used their checkout technology. Users agree to their terms and privacy notice by checking out. Although Klarna admits users should not receive promotional material unless they opt in and they are investigating how this happened. The ICO has said it will enquire into the case.
8. INSTAGRAM INFLUENCER CRACKDOWN
Instagram has announced that it will crack down on influencers who do not disclose when they have been paid to post content. This follows an investigation by the Competition and Markets Authority. Research showed that around 75% of Instagram influencers do not label their posts and this potentially misleads followers. Without disclosing they have been paid to post content, it gives the impression the influencer is personally endorsing a product or service. For influencers however, posting ads on their pages can have a negative impact on their relationship with their followers. Too many adverts can reduce engagement levels and therefore reduce the amount of payment they can demand. Influencers with over 1 million Instagram followers can be paid up to $20,000 per post by advertisers.
Instagram will now include a prompt requiring users to confirm whether they have been paid. It will also introduce the use of algorithms to monitor potential advertisements that have not been flagged. Social media is almost entirely unregulated and as regulators familiarise themselves with the issues in the space, new regulations will undoubtedly doubt be introduced.
9. JUST EAT SALES UP
Just Eat has seen orders in the UK spike over the last quarter, up 43%. This has been attributed to its new partnerships with McDonald’s, Greggs and KFC. Just Eat is one of the few companies who benefitted from the lockdown and subsequent restrictions as more people opted for takeaway food. The company made 46 million deliveries in the quarter in the UK alone, with 151.4 million deliveries worldwide.
It has been a busy year for Just Eat. Earlier this year, Just Eat merged with Takeaway.com and earlier this month the combined company approved a £5.75 billion takeover of US takeaway firm GrubHub. Just Eat recently announced it would be ending the use of gig economy workers to give its workers greater benefits and job security. The company has also been hailed for its recent marketing strategy, securing Snoop Dogg to do a TV advert.
10. ASOS PROFITS
ASOS has posted a huge 329% rise in profits as sales spiked during lockdown. During the lockdown customers returned fewer items and spent 50% more on sportswear and casualwear. This growth in sportswear sales offset the steep decline in “going out” clothing seen over the lockdown. The company also announced it will pay back to £1.8 million in claimed in furlough due its resilience over the period. Overall revenues rose by 19% in the year to August, down 2% from the revenue posted in the first half of the year. It foresees a dip later in the year due to the inevitable cancellation of large Christmas celebrations. ASOS now boasts 23.4 million customers worldwide.