The week’s news included; EU agrees new restrictions on big tech, JPM sues Tesla for $162m, KPMG facing £1bn lawsuit over Carillion audit, Tarantino sued over Pulp Fiction NFT.
Below are our top 10 stories that you need to know about. Be sure to check our twitter page, Facebook page and Instagram 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:
- City A.M. – A global tax cartel with a minimum corporation rate will undermine Britain
- FT – Was COP26 in Glasgow a success? (Subscription required)
- Investopedia – How Interest Rates Affect Private Equity.
- City A.M – It’s about time for Rishi Sunak to make his mind up on road tax for electric vehicles
1. EU AGREES NEW BIG TECH RULES
EU lawmakers have agreed new rules to regulate big tech firms. Lawmakers have argued over the scope and term of the proposed Digital Markets Act (DMA) and have now reached a compromise. The new rules will target large tech firms with €8 billion in turnover and an €80 billion market capitalisation. Ecommerce firms, web browsers, social media companies, cloud and messaging service providers will all be within scope.
Tech firms can now face limitations on their ability to acquire smaller and emerging competitors. Firms will also face a total ban on targeted advertising to minors. There will also be stronger restrictions on the bundling of different services together. Larger fines for repeated breaches of the rules could also be issued, up to a maximum of 20% of annual turnover.
Regulators have failed to keep with the pace of changing technology. The rules in place are inadequate for regulating the conduct of modern tech firms and lawmakers have been scrambling to. The Digital Markets Act appears an important first step to tackling the growing dominance and intrusiveness of big tech firms. The proposals are expected to be adopted this coming week (22 November) and voted on in December.
2. JPMORGAN SUES TESLA FOR $162M
Investment bank JPMorgan has sued Tesla for $162 million over a breach of contract relating to warrants. A warrant is a derivative that gives a party the right, but not the obligation, to buy or sell a security at a certain price. JPMorgan was due to receive shares or cash from Tesla if its share price went above an agreed level before a certain date. The bank however, adjusted the value of the warrant in 2018 after Tesla CEO Elon Musk tweeted that he was considering taking the electric car maker private which saw its share price rise. Musk however, scrapped the plans just a few weeks later and got in hot water with regulators over the whole fiasco (see previous top 10). JPMorgan again, readjusted the value of the warrant. Tesla claims these adjustments were “unreasonably swift” and tried to take advantage of its share price volatility. Tesla did not adhere to the adjusted warrant, but JPMorgan contends that it was entitled to adjust the warrants and is now suing for the 228,775 shares of Tesla common stock it was allegedly owed.
Amazon has announced that it will stop accepting payments from Visa credit cards issued in the UK from next year. The tech giant blamed Visa’s high cost of payments for the decision. While they anticipate costs to reduce over time, Amazon.co.uk will not accept Visa credit card payments from 19 January 2022. No new restrictions will apply to Visa debit cards or non-Visa credit cards. Visa has said it is “very disappointed” in Amazon’s decision and claims it harms consumer choice. The payment processor has said it will work with Amazon UK to find a solution.
Separately, Amazon is reportedly planning to open over 260 Amazon Fresh stores across the UK over the next 3 years. The pioneering checkout-free stores have been open in a handful of UK locations but now will roll out stores nationwide. 60 stores are expected to be opened by the end of 2021.
In the US, Amazon reached a $500,000 settlement over claims it failed to properly inform its warehouse workers about COVID-19 cases in the warehouse. The tech giant did not admit wrongdoing in agreeing to the settlement.
4. KPMG FACING £1BN CLAIM OVER CARILLION
Big Four Auditor KPMG is facing a legal claim over its audit of collapsed construction firm Carillion that could cost it up to £1 billion. The Official Receiver is advancing the claim against KPMG and now KPMG has four months to provide more details. The Official Receiver is an officer of the UK Insolvency Service and acts as a liquidator. It acted as liquidator for Carillion and is suing for damages given the scale and severity of negligence by the auditor. The Official Receiver is suing for dividends which were unduly paid, advisory fees and for compensation for trading losses prior to Carillion’s collapse. The total cost of these damages could run up to £1 billion. Carillion collapsed under a £7 billion debt pile in 2018, costing thousands of jobs. KPMG failed to spot clear warning signs and a lack professional scepticism of the accounting figures received from the firm. KPMG is still facing a separate investigation from the accountancy regulator over its audits. The Big Four have since been obligated to separate their audit and consultancy businesses to help mitigate the risk of a lack of scrutiny. There is concern that audit firms avoid scrutinising their audit clients if such clients are also providing lucrative consultancy work. If successful however, this claim from the Official Receiver, would be one of the largest actions against an accountancy firm in UK history.
5. TARANTINO SUED OVER PULP FICTION NFT
Film director Quentin Tarantino is being sued by Miramax film studio over plans to release Pulp Fiction NFTs. Non-fungible tokens (NFTs) are essentially digitally generated collectible images or videos that exist on blockchains. When an NFT is generated, there is only one original, regardless of whether it is a publicly available image or video, and it has a unique code. Similar to artwork, regardless of the number of replicas available online or for purchase, the original piece of art is of the most significant value. NFTs often sell for hundreds of thousands and sometimes millions of dollars, which is why Tarantino may be keen to get involved.
Tarantino wrote and directed Pulp Fiction, released in 1994, and announced plans to release seven NFTs based on the film, including unseen footage. Miramax produced the film and was not informed of the plans. It reportedly has its own separate plans to launch NFTs of its catalogue of films, hence its opposition to Tarantino’s plans. It claims that it has “contractual and intellectual property rights” relating to Pulp Fiction and will seek to halt Tarantino’s plans. Miramax also wants to avoid others believing it was involved in Tarantino’s plans or for other parties to explore similar ventures without consent.
Check out our article exploring the world of NFTs in more detail.
6. UK FRAUD OFFICE OUTGUNNED BY TARGETS
The Bureau of Investigative Journalism has found that companies under investigation by the Serious Fraud Office (SFO) spend up to ten times more than the agency, causing major cases to collapse. A chronic lack of funding means the SFO is increasingly unable to tackle the most serious crimes committed by the largest organisations. Furthermore, top senior officials are leaving the organisation to join big law firms representing the very businesses the SFO investigates.
Although the SFO has received £1.3 billion in fines since 2016, this money goes to the Treasury. The SFO’s annual budget is £52 million which pales in comparison to the budgets of the multi-billion dollar companies the SFO investigates. This disparity is illustrated by the number of dropped cases by the SFO, partly due to their inadequate resources to secure successful prosecutions. 30 probes have been dropped in the past 3 years alone, some of those were in cases where investigative journalists found evidence of high-level corruption and fraud. It is worth noting however, that the bar for prosecution is very high and not all evidence is admissible in court. It is difficult to pin criminal charges on large multinational corporations as they are particularly adept in covering their tracks. The SFO has had some wins, as earlier this year, it secured a Deferred Prosecution Agreement with Rolls-Royce over alleged bribery.
The recent Pandora’s papers leak highlighted the UK as a hotbed for money laundering of corrupt money. Analysts are increasingly concerned that the disparity in resources between the SFO and those under investigation brings the SFOs fitness for purpose into question. There is no doubt however, that additional funds and resources would undoubtedly beef up the agency.
7. UNILEVER SELLS PG TIPS
Consumer goods behemoth Unilever is to sell its tea business including PG Tips and Lipton for €4.5 billion. CVC Capital Partners will purchase the Ekaterra tea business through one of its funds. Unilever is keen to focus on higher growth areas and has been keen to offload the business. Ekaterra still brought in €2 billion of revenue last year. Analysts have been critical of the deal and fear that the business could face a demise to similar companies like Debenhams which collapsed after a buyout. Private equity firms often load debt on to newly bought companies and strip their assets for short-term financial gains. Despite this, Ekaterra’s CEO is optimistic about ownership under CVC. The deal is subject to regulatory approval and consultation. It is expected to be completed by mid-2022.
8. UK INFLATION
Inflation in the UK rose by 4.2% in October, the fastest rate in nearly 10 years. This rapid increase in the cost of living has largely been driven by soaring fuel and energy costs. Almost all sectors have faced notable increases in prices but none more than gas. Gas bills have skyrocketed by 28.1% in the past year alone. Also due to the semiconductor chip shortage (explanation here), there is a lack of new cars available for purchase. This has caused prices of second-hand cars to soar 27.4% over the past year.
The Bank of England has an inflation rate target of 2%, so October’s figures are of some concern. The Bank has already announced it expected inflation to continue to rise rapidly due to these macroeconomic factors. Typically, the Bank of England’s Monetary Policy Committee will hike interest rates to combat inflation. If the cost of borrowing increases, spending by businesses and consumers decreases, ultimately leading to a decline in demand and inflation. Unfortunately, the current rise in inflation is caused largely by external factors, not excess demand so raising interest rates may not be effective. Interest rates are currently at their historic lows of 0.25%. How the economic policy makers will respond to this remains to be seen.
9. HS2 EASTERN LEG SCRAPPED
The government has announced that it will scrap the easter section of the HS2 railway line between the Midlands and Leeds. The government has said an alternative plan will be better for the whole country. Instead of HS2, northern railways will receive £96 billion in funding to create new routes in the North and Midlands. The government has said this funding will provide comparable improvements to railway connections and capacity. It will also deliver more services; faster trains and the project is expected to be completed nearly a decade earlier than HS2 proposals. Leeds is also expected to receive funding for a tram service. Critics have said the scrapping of the eastern section undermines the “levelling-up” of Northern cities.
Lines running between London and Birmingham, and also lines covering Manchester and Crewe will go ahead as planned. For more analysis and reactions to the plans click here. Check out our article exploring whether HS2 is worth the money here.
10. ROYAL DUTCH SHELL DROPS THE DUTCH
Roll Dutch Shell is planning to scrap the “Royal Dutch” in its name and is moving its headquarters to London. The oil and gas giant is seeking to simplify its corporate structure and scrap its current dual Anglo-Dutch structure. Another reason for the move may be the 15% withholding tax charged on dividends in the Netherlands. Shell had described this tax as problematic in the past. The new proposals will see just one class of shares and Shell’s tax base will be in the UK. This will make payments to shareholders easier. Shareholders will soon vote on the proposals.