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FCA draws blank on phoenixing estimates

Fire-Blaze-700.jpgThe FCA has drawn a blank on providing an estimate of the level of so-called “phoenixing” by financial advice firms.

Phoenixing is the term used to describe the practice where directors of advice firms with impending complaints wind the firm down, so do not pay out on the claims, which then have to be handled by the Financial Services Compensation Scheme to which all advisers contribute.

The directors can then resurface under a different company or brand and continue to trade, causing upward pressure on advisers’ regulatory levies.

Announcing a new strategy earlier this year on how it authorises firms, the FCA said that it was looking at ways to strengthen the quality and timeliness of data it gathers on individuals, making particular note of the financial advice sector.

It also set up a case officer training scheme to help staff spot advisers that phoenix based on the better data it will collect.

Money Marketing lodged a Freedom of Information Act request with the regulator for more details on that work.

The FCA said it could not separate out how much it spent on the phoenixing training programme specifically, since it falls under “business as usual” costs.

Alan Hughes: FCA finally grasps the nettle on phoenixing

The regulator also said it did not have an estimate of the scale of financial adviser phoenixing.

The FOIA response reads: “We do believe that the incidence of financial adviser phoenixing is relatively low; however, when it does occur it can cause significant harm to consumers.

“We have made it clear that it is unacceptable for directors to deliberately avoid their liabilities to customers, in particular those resulting from awards made against them by the Financial Ombudsman Service, by closing down companies and starting new ones.

“The avoidance of any type of liabilities to consumers is unacceptable and we have a range of tools to help us identify, and act against, firms or individuals who try to avoid their responsibility to their customers.

“It is also important to note that most UK companies that fail don’t do so because of any wrongdoing on the part of the directors, and companies can be dissolved or face financial difficulties for a range of reasons.

“In UK law companies are entitled to dissolve and set up as new companies to carry on a similar business if the individuals involved are not personally bankrupt or disqualified from acting in the management of a limited company.”

Last year, Money Marketing reviewed records from the FSCS, FCA Register and Companies House.

While companies can liquidate for a host of reasons, our research suggested that of the 91 firms that were declared in default by the FSCS and therefore open to compensation claims between the start of 2018 and the end of July, 46 still had directors listed as active on the FCA Register.

Of those, 28 had at least half of their former directors listed as still active. Overall, more than 40 per cent of directors at the firms open to FSCS claims appeared to still be active.

Money Marketing understands the FSCS conducted research on phoenxing as part of an internal briefing to its own staff last year.

‘Prevent and protect’: How the FSCS is trying to stop phoenixing

According to the FCA’s response to our FOIA request, it has not conducted a formal data collection exercise within financial advice firms specifically related to phoenixing in the last five years.

The FCA writes: “We do, however, review the existing data provided by firms and collected as part of our ongoing supervision of firms in order to detect potential incidents of phoenixing and take appropriate action.”

Money Marketing also asked the regulator for details of any internal briefings, papers or research on the ways the FCA is looking at to strengthen the quality and/or timeliness of data gathered, as well as details of any work with the industry to gather intelligence, for example data requests, roundtables, meetings, or research collaboration.

The FCA said it did not hold a central record of this information, so to respond to the questions would exceed the time limits of the FOIA.

The regulator did publish an updated page on its website in December setting out its position on financial advisers who deliberately avoid their liabilities, encouraging fianncial advisers to report firms they suspect of attempting to phoenix or, if they had been the subject of a complaint, to contact them if they fear they will not be able to afford the redress.

The FCA’s “questions to ask your financial adviser” about phoenixing

  • Have you been a director of a firm which has gone into liquidation?
  • Is the advice you are giving me covered by your professional indemnity insurance?
  • Is your recommended product covered by the FSCS?

The FCA’s to-do list to reseach your financial adviser

  • Check on the Financial Services Register whether the firm or individual you are dealing with is regulated by the FCA. If you deal with a firm (or individual) that is not regulated you may not be covered by the FOS or the FSCS.
  • Consult the FCA Warning List to check if the firm is known to be operating without FCA authorisation and for any FCA enforcement decisions/actions against the firm or adviser.
  • Check the FOS website for the firm’s record of complaints to help inform your decision on whether you wish to receive investment advice from the firm.



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There are 20 comments at the moment, we would love to hear your opinion too.

  1. So in short …

    The FCA don’t have a clue who is where and how much all this running around in the dark costs them ! and then (this is the kicker) suggests the poor consumer do its job for them, with a questions list and yes, here we are, a tick (to do) list.

    And the salary bill for the FCA, equates too….over £101,000 per head

    Oh dear ……i’m feeling inspired …said EEyore

  2. The series of questions about phoenixing is somewhat naive surely. Asking customers to check the work which the Regulator should be policing and acting upon is not the right way forwards.

  3. A group of school kids could do a better job of preventing phoenixing than the FCA.

    Qu.1 ~ Why are seeking fresh authorisation?

    Qu.2 ~ Is the firm of which you have been a principal about to go into liquidation or is it already in liquidation? Why?

    Qu.3 ~ Does that firm have any liabilities, actual or potential, likely to fall on the FSCS? Why?

    Qu.4 ~ Has any firm of which you have in the past been a principal defaulted on any of its liabilities? Why?

    For heaven’s sake, how difficult can it be? The FCA’s incompetence seems to know no bounds.

  4. You’d think they would put a hold on pointless and expensive regulation until they had got the basics like this sorted.

    I entirely echo Julian’s comments above. They spend a fortune of other peoples money and achieve remarkably little.

  5. This the same body which placed great store on its Cost Benefit Analysis in the run up to the RDR?

    Has the calculator been mislaid?

  6. When you can have a company registered with the FCA in it’s own name, A Company Ltd and then have an appointed representative of the same company called A Company Succession Ltd, what do you think they are preparing for?

    Especially when A Company Ltd is heavily involved with DB transfers and has had quite a large number of complaints upheld by the FOS. If the FCA cant spot this on thier own register what hope is there really!?

  7. I did a double take on this. Surely this cannot be right? There must be a relatively short list of default firms and it’s not difficult to see who their directors are. Check that against applications and you have your stats and the ability to do something about it.

    As has previously been mentioned, the checklist for clients is at best naïve. An honest and dishonest adviser will answer the questions the same so how does that help a consumer.

    The FCA Register is not consumer friendly and it’s not always obvious where and how to find information even for the regular user.

    The FOS decisions search function is not easy to use, and the same firm is often listed under slightly different names, presumably because that’s how it was typed in.

    The FCA warning list is clunky and difficult to use and you will soon lose the will to live working through it. It does not provide a simple list of firms as suggested.

    After SMCR is implemented and the FCA Register has less information, how will this benefit consumers?


  8. Actually, phoenixing does not put upward pressure on the FSCS levy unless the subsequent firm goes bust.

    Phoenixing takes a number of different forms. One can be a director of a firm where something that occurred before joining the company has resulted in its failure. In that situation, phoenixing should be allowed subject to conditions about ensuring that compliance and systems controls exist to prevent a recurrence.

    There are other phoenixes which should be stopped by the FCA refusing authorisation of the new firm or removing permissions of a firm previously set up on the basis that the approved persons are not fit and proper. There are some cases in between where the regulator should insist on conditions for phoenixing.

    • “Phoenixing is the term used to describe the practice where directors of advice firms with impending complaints wind the firm down, so do not pay out on the claims, which then have to be handled by the Financial Services Compensation Scheme to which all advisers contribute.”

      I think that’s how most of the community here view it. Are you suggesting the definition given in the article is incorrect (is there even an official definition?) or are we talking semantics?

      • No. I’m suggesting that some phoenixing is at least excusable when the individuals winding the business up were not to blame morally or professionally for the event that generated the failure concerned.

        • So you just have a different definition of phoenixing then because it’s difficult to see how it would ever be excusable under the definition in the article. If complaints end up at the FSCS then the individuals responsible must be to blame at least professionally – otherwise it wouldn’t have been upheld.

          Terminology aside, I agree with your general assertion about blame.

          • If you are running a business which receives a complaint relating to the defective work of an adviser that left the firm before you joined it, that is not your fault even if your company is legally responsible for it.

          • Of course it’s your fault, you were responsible for the supervision of the individual and the governance, systems and controls within the firm. Whether that’s enough to bar you is another matter. Quite possibly not if you can show you acted reasonably.

  9. Because of the relative ease in finding the names of directors that have phoenixed, it makes you wonder if the FCA actually has the power to do anything.

    MM how about requesting a FOI on;

    1. The number of firms the FCA have closed or rejected an application from because of phoenixing in the last 5 years

    2. It would also be interesting to see the number of firms / advisers that have had their applications rejected in total in the last 5 years

  10. If you were a director of a failed firm, then go to work as an adviser for someone else’s firm, is that phoenixing?

    If you’re a director of a firm that’s not (externally) obviously failing and you set up another firm, is that phoenixing?

    I suggest:

    (1) the answer to both the above is no (if you disagree, go read the Insolvency Act 1986) and

    (2) these are the commonest modes of so-called phoenixing that people complain of.

    They’re also both pretty much unstoppable by a system that is subject to legal review.

    • The Insolvency Act is irrelevant (I’ve read bits of it).

      The FCA will have their own definition of Phoenixing and have all the tools they need to prevent it, albeit it might have to take a few modest risks along the way and be prepared to justify itself in court (I’m pretty sure they would win far more than they would lose).

      They are within their rights to refuse to grant permissions to a firm that poses a threat to its objectives (section 55 FSMA) and/or the registration of any individual they consider not fit and proper (Section 61 FSMA).

  11. You cannot be morally or professionally responsible for the supervision of an individual that left your firm before you arrived even though your firm could legally be liable and if not incorporated you could be personally liable for that person’s behaviour. The same applies if you were not in a supervisory role at the firm when the behaviour occurred. In either case, the FCA often does permit phoenixing and with good reason, particularly if the firm shows that it has reviewed its procedures and practices properly (and ideally independently) since the event occurred.

  12. There are 3 FOS Decisions against a firm DRN3961560 between the complainst reaching the FOS and the decision, the Ltd compnay ceased to trade it appeared and became an LLP. This may be abolutely find and innocent and I get and agree with what Adam Smith is saying, but it would be useful to know that when a firm continues with a simialr name after uphedl complaints, that FCA has made sure the situation is as Adam Smith describes , i.e allowed to phoneix as sins of the father

  13. I agree when Adam Samuel 21st February 2019 at 10:25 am

    If you are running a business which receives a complaint relating to the defective work of an adviser that left the firm before you joined it, that is not your fault even if your company is legally responsible for it.

    When complaints are outstanding with FOS, should a firm be blocked from phoenixing whilst complaints are outstanding and if not (innocent until prove guilty) and authorised as a new firm, should the firm be reassessed once FOS decisions are reached?

  14. I also agree with Gray Area, but the problem is innocent until proven guilty (which I agree with), but (suspected)no follow up after auhtorisation.

    FCA are within their rights to refuse to grant permissions to a firm that poses a threat to its objectives (section 55 FSMA) and/or the registration of any individual they consider not fit and proper (Section 61 FSMA).

    If FCA are aware of (or not made aware of by directors of firm) that FOS decisions are outstanding, even if they feel able to approve authorisation/phoenixing on the basis of innocent until proven guilty, shoudl the FOS DRN’s be reviewed and the firm reassessed re Fit and proper in the light of DRN notices and eitehr authorisation remvoed for the phoenixed firm or at least additional oversight and an action plan to ensure the same doesn’t occur again?

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