Context
The FCA has released its Consultation Paper CP21/14: Preventing claims management companies phoenixing by financial services firms. Phoenixing occurs when a firm winds-up and an individual connected with it re-opens under a new guise to avoid the liabilities of the old firm. Typically, the directors, shareholders or senior staff, whose former firms owe significant sums and/or have engaged in misconduct, reappear in connection with a new firm doing very similar business.
Although this Consultation focuses on the claims management sector, the Regulator has commented in the past about phoenixing. All senior management and Directors of financial services firms, therefore, should perhaps note the Regulator’s views as set out in this Consultation.
Key points to note
- The consultation is open for comment until 21 June 2021.
- Potential harms of phoenixing include:
- Public confidence in the regulatory system and the integrity of the market being undermined
- FS firms potentially being incentivised to act against the interests of their customers
- CMCs which have not benefited from phoenixing may suffer a competitive disadvantage
- The FCA is proposing to prohibit CMCs from managing FSCS claims if a person connected to the CMC is or was linked to the financial services activity that is the subject of the claim
- The Consultation also proposes that CMCs must notify the FCA of certain connections they have or had with financial services activity and with persons involved in financial services activity.
Next actions
Whilst this item is included for information purposes firms should take note of the FCA’s stance on phoenixing as this may be applied to further financial services firms in the future.