FCA publishes guidance consultation for firms who wish to limit liabilities

26th January 2022 | News

New guidance

Businesses who utilise company or insolvency law to manage their liabilities have been warned by the Financial Conduct Authority (FCA) that they could face regulatory action if their proposals unfairly benefit the firm at the expense of their customers.

Recently, the FCA has seen a rise in firms developing proposals, such as the Scheme of Arrangements, to deal with significant liabilities to consumers, in particular redress liabilities.

What regulations must firms follow?

In the proposed guidance released 25th January, the FCA has made it clear that firms who seek to limit their liabilities must provide the best possible outcome for customers, which will include providing the maximum amount of funding possible to meet any compensation claims by customers.

If they fail to do this, the result could be that the FCA will object to the firm’s proposals in court. Furthermore, the FCA reserves the right to use its regulatory powers when necessary, such as enforcement actions for misconduct by firms or their senior staff.

The FCA has told firms it must be informed as soon as a firm is considering a Scheme of Arrangement or other compromise designed to manage liability. The business must also clearly set out the information it should receive.

Some companies have requested a ‘letter of non-objection’ from the FCA in relation to their proposal to manage their liabilities. However, the guidance issued confirms that the FCA would be unlikely to ever issue a letter of non-objection. The FCA will instead be prioritising assessing each proposal on a case-by-case basis. This is to ensure firms are meeting their regulatory obligations, including treating their customers fairly.

Once the assessment is complete, the FCA will discuss any concerns with the firms involved, and if deemed necessary, they will communicate the same to the courts. They will then consider if any further regulatory action is appropriate.

Why is the guidance being updated?

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.’

The consultation will remain open until 1st March 2022. Feedback from all interested parties will be welcomed by the FCA before the final guidance is confirmed and finalised.

As always, if you would like any further information regarding the above, please feel free to contact our offices by email info@williamsoncroft.co.uk.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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