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FSA vows crackdown on mortgage phoenix firms

The FSA has vowed to crack down on mortgage firms that close down and immediately resurrect themselves in an attempt to avoid debts.

Speaking today at the Mortgage Business Expo in London, FSA director of small Lesley Titcomb said the regulator has seen a rise in “phoenixing” and has promised that it will do all it can to stamp out any firms that have attempted to avoid their responsibilities.

She said: “One recent phenomenon is what we at the FSA call ‘phoenix firms’. We previously had the same in the investment advice sector.

“The same directors appear at the new firm, often at the same address, with the same customers and staff and even a similar name in some cases.

“The only thing that doesn’t move is the liabilities.

“The last time it happened we saw off the problem by taking strong action and I want to stress we will do it again.”

She added: “It is sad to say that we have seen evidence of the phoenix initiative rearing its ugly head in the mortgage market.

“Some firms are attempting to walk away from commercial debt some from misselling claims. When they pass on the liabilities to the others through the FSCS they cost good firms money. We want to nip this in the bud.

“What we want to see are firms willing to work with us in protecting the consumer. We cannot stop firms becoming insolvent but we can take steps to minimise the impact.”

The regulator is asking all directors to sign undertakings to honour the liabilities of customer claims on any previous business. It is also encouraging firms to ‘ring fence’ funds to be held by the departing firm to meet any further potential liabilities and avoid future claims.

The FSA says it will also be refusing the application for authorisation of the new business where the directors cannot show that they shut down their previous business in an orderly manner.

Titcomb said the FSA was determined to stop the practice and called on advisers to notify the regulator where they have suspect it is happening.

She said: “Intelligence is the key to making this work.”

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