FCA Issues Court Warnings
FCA Issues Court Warnings Over Unfair Use Of Insolvency Law Discussed by Hayvenhursts Accountancy Services
As soon as a firm is considering a scheme of arrangement or other compromises to manage liability, the FCA now expects to be informed and has outlined the information it should receive in regards to this.
The FCA has warned any firms using insolvency or company law to manage their liabilities may be prosecuted if their proposals “unfairly” benefit them at the expense of their customers.
In the report, the FCA revealed an increase in companies who are now developing proposals, such as Schemes of Arrangements, to deal with significant liabilities to consumers, in particular redress liabilities.
Emily Curryer reported in Accountancy Today:
The authority has made it clear to firms seeking to limit their liabilities that they should provide the best possible outcome for customers, which will include providing the maximum amount of funding possible to meet compensation claims by customers.
Failure to do so could result in the FCA objecting to the firm’s proposals in court. The FCA will also use its regulatory powers, including enforcement actions for misconduct by firms or their senior managers, when appropriate.
The FCA said it has told firms it expects to be informed as soon as a firm is considering a scheme of arrangement or other compromises to manage liability and set out the information it should receive.
Some firms have requested a ‘letter of non-objection from the FCA in relation to their proposal to manage their liabilities. Today’s guidance consultation confirms that the FCA 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.
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.”
About The Financial Conduct Authority / FCA
Who Is The FCA?
The FCA is the Financial Conduct Authority in the UK. They were formed on 1st April 2013 and assumed responsibility from the FSA (Financial Services Authority) for the conduct and relevant prudential regulation in the UK.
They operate entirely independently of the UK Government and are financed by fees charged to the finance industry.
They work closely with the Prudential Regulation Authority (PRA), which is the prudential regulator of around 1,500 banks, building societies, credit unions, insurers and major investment firms.
Their primary responsibility is to regulate the conduct of financial services firms and markets, of which there are around 51,000.
Their aim is to ensure that consumers in the UK are treated fairly, that financial markets are honest fair and effective and work well for individuals, businesses and our economy.
How Do The FCA Do This?
- They regulate the conduct of businesses in the UK
- They engage, demonstrate care and foresight in supervising 49,000 firms in the UK
- They set standards expected for around 18,000 firms in the UK
The Financial Conduct Authority (FCA) Principles (taken from https://www.handbook.fca.org.uk/handbook/PRIN/2/1.html)
| 1 Integrity | A firm must conduct its business with integrity. |
| 2 Skill, care and diligence | A firm must conduct its business with due skill, care and diligence. |
| 3 Management and control | A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. |
| 4 Financial prudence | A firm must maintain adequate financial resources. |
| 5 Market conduct | A firm must observe proper standards of market conduct. |
| 6 Customers’ interests | A firm must pay due regard to the interests of its customers and treat them fairly. |
| 7 Communications with clients | A firm must pay due regard to the information needs of its clients, and communicate information to them in a way that is clear, fair and not misleading. |
| 8 Conflicts of interest | A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. |
| 9 Customers: relationships of trust | A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment. |
| 10 Clients’ assets | A firm must arrange adequate protection for clients’ assets when it is responsible for them. |
| 11 Relations with regulators | A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice. |
Why Is There An FCA?
Financial services are regulated by the Financial Conduct Authority (FCA) in the UK. Protecting consumers, maintaining industry stability, and promoting healthy competition between financial service providers are some of its responsibilities.
Why Was The FCA Formed?
The FCA was formed in 2013 following the Financial Services Act (2012). The Financial Services Act 2012 is an Act of the UK Parliament that implemented a revised regulatory framework for the UK’s financial system and financial services.
The FCA was created as an independent, non-governmental body that takes responsibility for regulating and managing the conduct of financial services firms and services to protect customers and the UK economy.
The FCA’s Enforcement Powers
The FCA has its own enforcement division that supports its aim of protecting customers and the UK economy by taking action against companies and individuals who don’t meet the rules and standards set for financial services and firms.
Our Enforcement Division supports our objectives by making it clear that there are real and meaningful repercussions for firms and individuals who don’t follow the rules.
A wide range of actions is taken depending on the severity of the misconduct, including court action and these act as a meaningful deterrent to other such businesses. Action taken can include criminal, civil and regulatory for ant firms and individuals that are not meeting the required standards..
The FCA’s enforcement team is essential to the work, objections and success of the organisation and works closely with their Authorisation, Supervision, Strategy and Competition divisions, in addition to other regulators and law enforcement. By doing so, they can identify and act early when enforcement action is needed.
Enforcement Powers Include:
- withdrawing a firm’s authorisation
- prohibiting individuals from carrying on regulated activities
- suspending firms and individuals from undertaking regulated activities
- issuing fines against firms and individuals who breach our rules or commit market abuse
- issuing fines against firms breaching competition laws
- making a public announcement when we begin disciplinary action and publishing details of warning, decision and final notices
- applying to the courts for injunctions, restitution orders, winding-up and other insolvency orders
- bringing criminal prosecutions to tackle financial crime, such as insider dealing, unauthorised business and false claims to be FCA authorised
- issuing warnings and alerts about unauthorised firms and individuals and requesting that web hosts deactivate associated websites
Information sourced here.
The FCA Enforcement information guide can be found here.
For any enforcement action, warning notices are issued that action will be taken, decision notices are issued when action is decided and Final notices are issued when action is taken.
Furthermore, they publish supervisory notices, requirement notices, cancellation notices, and other publications.
All of the notices can be published online and are part of the FCA’s publication scheme under the Freedom of Information Act 2000.
Hayvnehursts Accountancy Services speak to you openly and honestly not using jargon. We promise to build a relationship with you and to understand your business and needs as we want you to talk to us if and when you need us. We commit to providing you with sound and relevant advice that you are able to understand face to face, by phone or by email.
Our accountants can advise you if you are considering a scheme of arrangement or other compromises to manage liability to ensure you are following the FCA guidelines and expectations.
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