Companies use company law or insolvency laws to handle their liabilities in a way that is both efficient and cost-effective. unfairly benefits them at the expense of their customers have been warned they could face ‘assertive action’ by the Financial Conduct Authority.
FCA stated that it would act in response to a rising number of companies proposing Scheme of Arrangements (to deal with heavy liabilities for consumers and redress liabilities)
The FCA published today’s proposed guidance, stating that companies seeking to reduce their liability should offer the best outcome to customers. This will include providing maximum funding to cover compensation claims.
Action: The FCA said it planned to act amid a rise in the number of firms developing proposals, like Scheme of Arrangements, to deal with hefty liabilities to consumers
The FCA could object to the proposals of the firm in court if it fails to comply, the FCA said. When necessary, the FCA may also exercise its regulatory power, which includes enforcement actions against firms and their top managers for misconduct.
“The FCA informed firms that it expected to receive information as soon as the firm considers a scheme or compromise to manage its liability.
A Scheme of Arrangement allows a company facing financial difficulties to make a binding agreement with creditors for the repayment of all or part of its outstanding debts. This is done within an agreed timeframe.
A number of firms requested an FCA ‘letter de non-objection’ in connection to the management of their liabilities.
The FCA is unlikely to issue any letter of objection after today’s guidance consultation.
To ensure that companies are complying with their regulatory obligations and treating their customers fair, the FCA instead will evaluate each proposal case by case.
The FCA said that it will inform firms and, if needed, the courts of any concern and take any other regulatory actions after the assessment.
Sarah Pritchard (executive director Markets at FCA) stated: “Under the existing company and bankruptcy law, companies have options to limit or eliminate their liabilities.
“When they make use of them, they still have to treat their customers fair.” Companies that do not meet this standard will face legal consequences.
“The guidance that we are providing should enable firms to understand what our expectations are and help them to avoid proposing compromises to consumers.
The consultation will be open through March 1, and the FCA stated that it is interested in hearing from any parties. “Although it is providing guidance about the conditions in which FCA will apply its existing rules to this matter, the FCA would welcome feedback from interested parties before finalizing guidance.”