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FCA to strengthen safeguards against ‘phoenixing’

The 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 misselling claims, only to become reauthorised by the FCA at a later date.

Research by Mortgage Strategy sister title Money Marketing 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 out yesterday 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 misselling 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.”

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 procedures 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.”



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