FCA reprimands firms seeking to shirk their liabilities

‘We will take action against firms that don’t meet their obligation to treat customers fairly’


The UK financial watchdog has made it clear that businesses could face ‘assertive action’ if they use company or insolvency law to manage their liabilities at the expense of customers.

It follows an increase in the number of firms developing proposals, such as scheme of arrangements, to deal with significant liabilities to consumers, especially where matters of redress are concerned.

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.”

Letter of non-objection

In proposed guidance published on 25 January, the FCA says it has made clear to firms that they should provide the best outcome for customers, which includes providing the maximum of funding possible to meet compensation claims.

Failure to do so could result in the watchdog objecting to the firm’s proposals in court.

The FCA said it will also use its regulatory powers, including enforcement actions for misconduct by firms or their senior managers, where appropriate.

It added that it expects to be informed as soon as a firm is considering a scheme of arrangement or other compromise to manage liability.

Some firms have requested a ‘letter of non-objection’ from the FCA in relation to their proposal to manage their liabilities.

The guidance consultation confirms that the FCA would be unlikely to ever issue a letter of non-objection. It 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.

Pritchard added: “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.”

The consultation closes on 1 March 2022 and can be found here.