FCA has explained what it will look at and how it will act when firms are selling their client banks. Client banks are key assets of firms, and may include a right to income streams from past clients. While firms may want to sell client banks for legitimate reasons, such as merger or retirement, FCA is concerned that there have been cases where firms have sold their client bank to others either knowing of redress liabilities or having failed to realise that these liabilities existed. Together with its concerns on phoenixing and its proposals for capital retention for Personal Investment Firms, FCA is trying to shore up all loopholes that could allow firms to escape liabilities or pass them on to others.
FCA says that the Consumer Duty obliges firms to be open and honest, to act in good faith and avoid causing foreseeable harm and this translates to their activities when considering selling a client bank. It will expect firms to tell it when selling a client bank, where the sale could affect the firm’s risk profile, value or resources. It also notes:
- selling firms should carry out due diligence on the buying firm to ensure the buyer can provide appropriate levels of service;
- when a firm transfers business, the receiving firm should provide its new customers with a basic agreement;
- FCA will look closely at arrangements a firm has with employees or third parties to check they do not present risks to effective supervision, undermine a firm’s ability to meet regulatory requirements or threaten FCA’s objectives;
- FCA will investigate firms or individuals if it suspects they are structing their business to avoid liabilities;
- FCA will encourage firms to amend agreements to reduce any risk of phoenixing;
- FCA will consider imposing a voluntary asset retention requirement on selling firms, or requiring an attestation that a firm leaving the market will keep an increased level of capital until FCA has approved the cancellation of its permissions;
- FCA will consider a voluntary requirement on buying firms such that those closely associated with the selling firm cannot receive benefits from the sale or use of the client bank at the new firm, or a deed poll to assume some or all liabilities.