The Financial Conduct Authority (FCA) has said it will object in court to firms which plan to limit their liabilities if they are not treating customers fairly.
The regulator says it has seen an increasing number of firms developing proposals to limit their liabilities to customers, including redress payments, by using Schemes of Arrangement and similar agreements.
The FCA is consulting on guidance which it says makes it clear to firms which seek to limit their liabilities, that they should provide the maximum amount of funding possible to meet compensation claims by customers. The FCA has also told firms it expects to be notified as soon as they consider a Scheme of Arrangement or other compromise agreement.
The regulator says it will take enforcement action for misconduct by firms or their senior managers, when appropriate.
Schemes of Arrangement can be used by firms in financial difficulty to reach agreement with their creditors to pay back all, or part, of its debts over an agreed timeline.
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.”
James Burgoyne of Brunel Professions said: “There is an overlap which regulated firms need to navigate between steps which professional firms can use to allocate risk, and additional considerations stemming from their regulatory requirements. As such, the measures which a firm can employ to satisfy corporate governance requirements to protect the assets and longevity of a company are different between for example an architect and an insurance broker. Firms may well want to consult on these points.”