Phoenix firms could find that the individuals responsible for dumping liabilities on the Financial Services Compensation Scheme are banned from the industry.
Aifa director general Paul Smee warns that the FSA will be looking closely at whether those individuals responsible for instigating a phoenix are fit and proper, and whether they should be allowed to continue in the industry.
Although phoenixing is permitted by company law and cannot be banned by the regulator, the FSA has the power to impose a ban on individuals working in the industry, says Smee.
The FSA is currently examining links between phoenix firms and claims on the FSCS and Financial Ombudsman Service, as revealed by Money Marketing last week.
Aifa is concerned that if firms continue to be permitted to close down and dump their liabilities, it will mean that fewer and fewer firms are picking up the tab for the FSCS. Aifa is therefore keen for the FSA to look at the long-term impact of phoenixes.
It has been suggested that if more due diligence is carried out by IFAs when they are acquiring companies, they will be more aware of what they are buying and will be able to take current and future liabilities of the purchase into account when deciding whether to go ahead.
The practice of phoenixing – when firms wind up subsidiaries, transfer out assets and leave liabilities for the FSCS – has been widely criticised by IFAs already struggling to meet the requirements of the FSCS and unhappy that cost could increase.
FSA spokeswoman Vanessa Wood says: “This is an assessment of the situation. We are considering what can be done to minimise risk to consumers.”
Smee says: “The FSA should carefully consider whether those responsible for phoenixing firms are fit and proper. Clearly, this will need to be decided on a case by case basis.”