See how we want to make it clear to financial advisers that it is unacceptable for directors to deliberately avoid their liabilities to customers, in particular those resulting from awards made against them by FOS, by closing companies down and starting new ones.
All directors are expected to act in a fit and proper manner and to avoid putting consumers at harm. Deliberately walking away from liabilities is not in line with being fit and proper.
The avoidance of any type of liabilities to consumers is unacceptable and we have a range of tools to help us identify, and act against, firms or individuals who try to avoid their responsibility to their customers.
The law in relation to phoenixing
Most UK companies that fail don’t do so because of any wrongdoing on the part of the directors, and companies can be dissolved or face financial difficulties for a range of reasons.
In UK law companies are entitled to dissolve and set up as new companies to carry on a similar business if the individuals involved aren’t personally bankrupt or disqualified from acting in the management of a limited company. More information about who can act and the restrictions on re-using a company name after insolvent liquidation are available on the Insolvency Service website[1]. However, the FCA is against the act of phoenixing when it is undertaken by firms or individuals to avoid its liabilities to consumers.
What phoenixing is
Phoenixing is a common term used to describe the practice of closing a firm and that firm re-appearing under a new guise to avoid liabilities arising from the old firm. Each time this happens, the insolvent company’s assets, but not its debts, are transferred to a new, similar ‘phoenix’ company.
The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.
What the FCA is doing to prevent financial adviser phoenixing
We have a broad programme of work under way to tackle the harm caused to consumers when regulated financial advice firms and individuals seek to avoid liabilities to consumers that have arisen because of the poor advice they have given. As part of our ongoing supervision of firms and of individuals controlling firms, we actively look out for and act on, situations where a FCA regulated firm or individual is seeking to avoid their liabilities arising from awards made by the Financial Ombudsman Service or are deliberately seeking to avoid paying in the future because of their poor advice or practices.
We expect all firms to comply promptly with any awards made against them by the Financial Ombudsman Service (FOS). Our expectations are clearly set out in our rules. Failure to do so would be a breach of our rules. We take it very seriously when firms fail to comply with FOS awards; we have taken, and will continue to take, Enforcement action against those that don’t comply.
Where we find individuals have deliberately avoided their responsibilities and not complied with previous awards made against their firms, we will question the fitness and propriety of these individuals and take necessary steps against them so that they don’t cause further harm to consumers.
What actions regulated financial advice firms and advisers can take to reduce the risk of poor advice
We encourage regulated firms, financial advisers and other financial advice organisations to:
- speak out and report to us any firm or individual suspected of providing poor advice 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 compliant checks on all advisers you recruit to ensure no bad advice has been given previously. This will become even more important with the launch of the Senior Manager and Certification Regime.
- ensure all advice is compliant and ensure you make consumers fully aware of the type of investment they are entering. Further information about the advice process and what suitability means in practice can be found on our website[2].
What you can do to protect yourself from poor financial advice
We have highlighted below some of the actions which consumers can take to minimise the risk of harm from firms who are attempting to avoid their liabilities to consumers or providing poor advice.
Research the financial advice firm/financial adviser
- Check on the Financial Services register[3] whether the firm or individual you are dealing with is regulated by the FCA. If you deal with a firm (or individual) that is not regulated you may not be covered by the Financial Ombudsman Service or the FSCS.
- Consult the FCA Warning List[4] to check if the firm is known to be operating without FCA authorisation and for any FCA Enforcement decisions/actions [5]against the firm or adviser.
- Check the Financial Ombudsman Service[6] website for the firm’s record of complaints to help inform your decision on whether you wish to receive investment advice from the firm.
Questions to ask your financial adviser
- Have you been a director of a firm which has gone into liquidation?
- Is the advice you are giving me covered by your Professional Indemnity Insurance?
- Is your recommended product covered by the Financial Services Compensation Scheme (FSCS)[7]?
Understand what you are investing in and the costs and charges
- Ensure you understand the risks you are taking when investing and the adviser explains to you what loss you may suffer, and how any losses may impact your livelihood.
- Ask your adviser to explain the costs and charges associated with investing, and their impact on the return on your investment.
- You should get a suitability letter from your adviser which reflects your needs and objectives and explains the adviser’s recommendation.
- Check our Scam Smart[8] page for further information on scams, before agreeing to proceed.
What you should do if you want to make a complaint about poor advice or suspect you are a victim of poor advice
- Contact the firm directly (preferably in writing) if you have a complaint about the conduct of the financial adviser or the financial advice you have received as soon as possible.
- Contact the Financial Ombudsman Service once you are in receipt of outcome of your complaint and if you remain dissatisfied with the outcome. Further information on how to complain can be found on the Financial Ombudsman Service[6] website.
- Inform the FCA if you have been awarded redress and/or compensation by the Financial Ombudsman Service after making a complaint by calling our Contact Centre[9].
