Building on our Commercial Litigation predictions, our investigations partners share their insights into some of the key themes for the year ahead.
Please contact us or reach out to your usual Pallas relationship partner if you have any questions or would like further information on these topics.
DOJ’s and SEC’s Focus on Private Credit Will Continue in 2026
The exploding market for private credit showed some cracks at the end of 2025. In September, Tricolor, a subprime auto lender, filed for Chapter 7. Later that same month, First Brands, an auto-parts supplier, filed for Chapter 11.
Interest from the U.S. Department of Justice soon followed. In November, Jay Clayton, the U.S. Attorney for the Southern District of New York (SDNY), commented, “There are definitely some areas of concern for me in private markets. People should know that the financial regulators and the department are looking at those.”
In December 2025, the SDNY announced criminal charges against Tricolor’s CEO, CFO, and COO for operating “an elaborate scheme to defraud Tricolor’s creditors,” including by falsifying data and double-pledging assets. The SDNY is also apparently investigating First Brands and its executives.
We expect that the SDNY, as well as the U.S. Securities and Exchange Commission (SEC), will continue to focus on accounting and valuation fraud in the private fund and credit space in 2026.
The Extension of Corporate Criminal Liability Begins to Bite
By Matt Getz
The failure to prevent fraud offence finally came into force on 1 September 2025. 2026 will be the first full year where it applies. The offence covers all large companies in the UK, regardless of sector.
It covers an extremely wide range of financial offences, and makes companies responsible for such crimes unless they had reasonable procedures to prevent them.
Prosecutors are already looking into possible offences, and we expect investigations and charges to start filtering through in 2026.
At the same time, the extended corporate criminal liability regime, which makes companies responsible for crimes committed by their senior managers – without any reasonable procedures defence – is now a part of prosecutor’s armoury and should start to yield some fruit.
The FCA will Finally Extend its Regulatory Framework on Non-Financial Misconduct
While a hot topic for the last few years, 2026 will finally see, effective 1 September 2026, the FCA extending its regulatory framework on non-financial misconduct. This will include changes to the FCA’s Code of Conduct (COCON) sourcebook to explain how non-financial misconduct can breach the conduct rules, as well as how it forms part of the Fit and Proper test (FIT) for employees and senior personnel. The changes align non-bank SMCR firms, including investment firms, asset and fund managers, and insurers, with banks for whom NFM standards already apply.
Firms will accordingly be required to formalise how they handle, record and report incidents, and to include serious substantiated cases in regulatory references. All in support of the regulatory goal of ensuring that firms (per the FCA’s guidance) “make fair, consistent decisions and take decisive action when standards are breached” and protect market integrity and consumer confidence.
2026 will be a critical year for businesses to embed workplace culture within its regulatory compliance controls, and not just treat culture as an HR issue. We predict:
- Increased internal scrutiny, with firms needing to refresh internal policies and guidance to manage the expected complexities in navigating the new framework.
- Stronger governance frameworks to manage broader firm regulatory and senior manager reputational risk.
- Heightened regulatory scrutiny, with greater regulatory confidence to investigate non-financial misconduct matters.
To view our team’s commercial litigation predictions, please click here, and to view our financial and restructuring litigation predictions, please click here.