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FCA plans to strengthen safeguards against ‘phoenixing’

/j/l/t/UK_London_Eye_Bird_Gloomy_480.jpgThe FCA has said it is taking a closer look at how it might be able to identify advice firms attempting to avoid their liabilities through so-called phoenixing.

The practice has hit the headlines a number of times in recent years, where individuals or firms that see future complaints coming down the line decide to fold into the Financial Services Compensation Scheme, leaving the wider advice profession to cover the mis-selling claims, only to become re-authorised by the FCA at a later date.

Money Marketing research earlier this year found that, of the 91 firms that were declared in default and therefore open to compensation claims between the start of the year and the end of July,  46 still have directors listed as active on the FCA Register.

In a paper today outlining how the regulator plans to approach authorisations, it notes that respondants to its consultation had criticised an alleged lack of rigour at the point of authorisation, as opposed to fines and penalties once mis-selling was committed.

The FCA says: “We know that there is an issue with firms or individuals seeking to avoid liabilities by liquidating and transferring their assets to a new or different firm where they will continue to trade…The challenge here is that evidence of misselling and resultant liabilities to consumers can take a long time to emerge and is often not available when firms or individuals seek authorisation in new or different firms.”

Is the FCA’s approach to phoenix firms on the right track?

The regulator adds that it is assessing options on how to “strengthen the quality and timeliness of the data we gather on firms”, with specific reference made to the financial advice sector.

The FCA is also rolling out training for caseworkers to help them pick up phoenixing by financial advisers.

However, the regulator cautions that its vetting proceedures will never be perfect.

It says: “An authorisation process, no matter how effective, cannot guarantee that firms or individuals will not subsequently treat customers unfairly or engage in misconduct.

“While previous misconduct will be considered as part of an application for an individual  approval, it is not an automatic bar to being approved. The severity of the misconduct, the time that has elapsed, the efforts taken to rehabilitate, the nature of the role applied for and the controls in place to oversee individuals’ conduct will all be considerations.”

Money Marketing also understands that earlier this year the FSCS was preparing an internal paper on the issue of phoenixing.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I really don’t see why the FCA claims to be so chronically impotent when it comes to identifying individuals planning to dump their highly probable liabilities onto the rest of us by way of the FSCS, phoenix into a new firm and acquire the old firm’s client bank for a token sum. Such individuals should be refused re-authorisation or, at the very least, not be permitted to do so unless the new firm takes on the liabilities of the old one.

    The first thing the FCA should investigate is why the old firm is being or perhaps already has been wound up. Then start digging deeper. What type of business has the old firm been transacting? What is its complaints history? Does it have sufficient CapAd to cover the claims excesses on any upheld complaints? What debts does it have? Does its PII policy cover all its activities? FFS, it’s hardly rocket science is it?

  2. Julian, you stole my words.

    The regulator seems to imply things are so difficult to police yet IT is the single source for the authorisation process.

    Can’t be that hard to see that a new application has come from someone who’s been through the process before!

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