Context
The Financial Conduct Authority has published a consultation on proposed guidance for firms who seek to limit their liabilities by way of a ‘compromise’ arrangement. The FCA has seen an increase in the number of firms developing proposals, such as schemes of arrangements, to deal with significant liabilities to consumers, in particular redress liabilities.
Key points to note
- Firms using company or insolvency law to manage their liabilities have been warned that they could face “assertive action” if their proposals unfairly benefit them at the expense of their customers.
- The FCA has warned firms it will be unlikely to issue letters of non-objection (LNOs) in relation to proposals to manage liabilities and will instead assess each proposal on a case-by-case basis, to ensure firms are meeting their regulatory obligations, including treating their customers fairly.
- The FCA has told firms it expects to be informed as soon as a firm is considering a scheme of arrangement or other compromise to manage liability and set out the information it should receive.
- The FCA has made it clear to firms seeking to limit their liabilities that they should provide the “best possible outcome” for customers. This will include providing the maximum amount of funding possible to meet compensation claims by customers. Failure to do so could result in the FCA objecting to the firm’s proposals in court.
Next actions
The consultation is open until 1st March 2022.