The Financial Conduct Authority (FCA) has outlined new advice for firms on how to meet their redress responsibilities and address “polluting” behaviour.
In an update today, the regulator said it wanted “polluters to pay for the liabilities that they create so customers and market participants can feel confident about doing business with authorised firms”.
It added that it wanted firms to compete on a “level playing field”, so firms that do prioritise good customer outcomes and market integrity “do not lose out”.
The FCA said a company that “causes the market to pay for its mistakes through the Financial Services Compensation Scheme (FSCS) levy or shifts that loss onto the customers isn’t playing fair and damages the reputation of the market”.
The FCA outlined six main examples of polluting behaviours, including basic phoenixing, when an authorised firm shuts down and a new firm takes its place.
There is also lifeboating, when a company connected to an authorised firm is used as a method to preserve assets, and fronting, where someone with a “clean regulatory history” is put forward as a controller and manager of a firm in an authorisation application but they are not the real controller or manager.
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The regulator also pointed to sale at an undervalue, restructuring and proceeds of sale not applied to redress.
The FCA said companies should “not seek to avoid potential or actual redress liabilities”.
“We expect firms to ensure they and the appointed representatives they oversee adequately plan and provision for potential and actual redress liabilities, including holding adequate financial resources to meet them,” it explained.
The regulator said firms should notify it if they do not have adequate resources to provide potential redress, intend to sell or transfer the client bank, which could impact its risk profile, value or resources, or if they want to offer consumers less redress that they might be due.
Regarding cancelling authorisation, it said it expected firms to “identify and meet any potential liabilities before we will cancel their authorisation”.
“Actions we may take include use of past business reviews and deed polls to ensure liabilities to consumers are identified and met,” the FCA said.
It continued: “Where firms are unable to meet their liabilities and accountable individuals seek to restructure or move to another firm, leaving the liabilities behind, we will seriously question their fitness and propriety to hold a role that requires FCA approval.”
Examples of good and bad practice can be found here: https://www.fca.org.uk/firms/redress-liabilities-polluter-pays/update-firms
