FCA urges whistleblowers to report ‘polluting’ firms
The FCA has urged whistleblowers to help it clamp down on regulatory polluters - the firms causing some of the biggest problems and then running away from their liabilities.
In new guidance, the FCA said that some firms were trying to avoid their liabilities while still benefiting from the assets of the business.
It has asked those working in the industry to, “identify and report polluting behaviour.”
The watchdog said all financial firms needed to prepare to compensate customers when they provide poor advice, products, or services.
The FCA said firms must plan ahead, revisit and monitor their consumer outcomes and, “make adequate financial provisions for potential and actual liabilities.”
The regulator said some firms plan ahead but it was, “increasingly seeing firms trying to avoid potential or actual liabilities whilst still benefiting from the assets of the business.”
The FCA has identified six key types of ‘polluting behaviours.’
They are:
Basic phoenixing
This occurs when an authorised firm shuts down and a new firm emerges in its place, taking the previous firm’s assets with it. The previous firm ceases trading or is dissolved, often entering insolvency, leaving behind its unresolved consumer liabilities.
Lifeboating
Lifeboating is when a firm connected in some way to an existing authorised firm is used as a method of preserving assets. Lifeboats can be set up from scratch or acquired and may include appointed representative arrangements.
Fronting
Fronting is a process whereby one or more individuals with a clean regulatory history are put forward as the controllers or managers of a firm in an authorisation application, when in reality these individuals are a ‘front’ for the real controllers or managers.
Sale at an undervalue
This occurs when a firm sells its assets, usually its client bank, at below-market value. The sale then impacts the ability of the firm to cover its potential or actual liabilities. In some instances, the FCA has seen individuals moving from the firm with liabilities to the firm to which the assets have been sold.
Restructuring
Restructuring refers to changing the corporate structure of the group to isolate liabilities and protect assets. This may include the insertion of a holding company, selling or transferring the client bank, or overpaying dividends.
Proceeds of sale not applied to redress
This behaviour describes when a firm has funds available from the sale of an asset or assets and has potential or actual redress liabilities, but the funds are not used to address those liabilities.
The FCA said: “A firm which 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.
“We want polluters to pay for the liabilities that they create so customers and market participants can feel confident about doing business with authorised firms. And we want firms to compete for business on a level playing field, so those firms that do put good consumer outcomes and market integrity at the heart of their business do not lose out.”