Yahoo Finance UK firms warned over shortchanging customers via insolvencies
The Financial Conduct Authority has warned firms in insolvency proceedings that they could face “assertive” action if their proposals “unfairly” benefitted them at the expense of their customers.
The regulator said it was seeing an increase in the number of firms developing proposals, such as scheme of arrangements, to deal with significant liabilities to consumers, in particular redress liabilities.
The FCA is making it clear to firms seeking to limit their liabilities that they should provide the best possible outcome for customers, which would include providing the maximum amount of funding possible to meet compensation claims by customers.
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The financial watchdog warned that failure to do so could result in the FCA objecting to the firm’s proposals in court.
The FCA said it was also prepared to use its regulatory powers, including enforcement actions for misconduct by firms or their senior managers, when appropriate.
Sarah Pritchard, executive director of markets at the FCA, said: "Under existing company and insolvency law, firms have options to limit their liabilities. When making use of these, they still have a responsibility to treat their customers fairly.
“We will take action against firms that don’t meet this obligation. The guidance we are consulting on should help firms understand our expectations and ultimately help firms to avoid proposing compromises that are unacceptable to us because they fail to provide the best possible outcome for consumers.”
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Some firms have requested a "letter of non-objection" from the FCA in relation to their proposal to manage their liabilities.
In the proposed guidance published this Tuesday, the FCA confirms it would be unlikely to ever issue a letter of non-objection. The FCA will instead focus on assessing each proposal on a case-by-case basis to ensure firms are meeting their regulatory obligations, including treating their customers fairly.
Following their assessment, the FCA will communicate any concerns to firms, and if necessary the courts, and consider any further regulatory action.
This consultation is open until 1 March 2022.
