Some firms try to avoid liabilities while still benefiting from the assets of the business. Learn how to identify and report polluting behaviour.
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Financial firms may need to compensate customers when they provide poor advice, products, or services. To do this quickly and effectively, firms need to plan ahead, revisit and monitor the consumer outcomes and make adequate financial provisions for potential and actual liabilities.
Some firms do this effectively, applying the value in their business to remediate poor advice, products or services. But we are increasingly seeing firms trying to avoid potential or actual liabilities whilst still benefiting from the assets of the business. We call this ‘polluting behaviour’.
Polluting behaviours
We see a broad range of polluting behaviours in the market. We have identified 6 main examples.
A firm which causes the market to pay for its mistakes through the Financial Services Compensation Scheme (FSCS) levy or shifts that loss onto the customers isn't playing fair and damages the reputation of the market.
We want polluters to pay for the liabilities that they create so customers and market participants can feel confident about doing business with authorised firms. And we want firms to compete for business on a level playing field, so those firms that do put good consumer outcomes and market integrity at the heart of their business do not lose out.
This supports our Consumer Duty[1] commitment to put consumer needs first.
Our expectations for firms
Firms must not seek to avoid potential or actual redress liabilities.
We expect firms to ensure they and the appointed representatives they oversee adequately plan and provision for potential and actual redress liabilities, including holding adequate financial resources to meet them.
We expect firms to notify us immediately when they become aware or have information that reasonably suggests any of the following may have happened (or could happen in the future):
- A firm does not have adequate resources to provide potential redress.
- A firm intends to sell or transfer its client bank, and the sale could have an impact on the firm’s risk profile, value or resources.
- A firm has potential redress liabilities and wants to offer consumers less redress than they might be due.
Firms considering selling their business or client bank must act to deliver good outcomes. Read more about our expectations of firms selling client banks[2].
We also provide information for firms before they apply to cancel their authorisation[3]. We expect firms to identify and meet any potential liabilities before we will cancel their authorisation. Actions we may take include use of past business reviews and deed polls to ensure liabilities to consumers are identified and met.
Where firms are unable to meet their liabilities and accountable individuals seek to restructure or move to another firm leaving the liabilities behind, we will seriously question their fitness and propriety to hold a role that requires FCA approval.
To better understand the type of polluting behaviours we come across, the good and poor practices we see and what to expect from the FCA if you are in this situation, read our update for firms[4].
How you can help
We encourage regulated firms, financial advisers, compliance firms and other financial advice organisations to:
- Speak out and report to us[5] any firm or individual suspected of providing poor advice, products or services, or attempting to phoenix to avoid their liabilities to consumers.
- Be open and transparent with us when we request regulatory references.
- Contact us immediately if you have had an award made against you by the Financial Ombudsman Service and are worried you will not be able to provide the redress, so that we can look at ways to support you.
- Ensure you are carrying out thorough due diligence and compliance checks on all advisers you recruit to ensure no poor advice has been given previously.
- Ensure all advice is compliant and ensure you make consumers fully aware of the type of investment they are making. Read more about assessing suitability and the advice process[6].