The FCA has published finalised guidance for insolvency practitioners (IPs) appointed (or looking to be appointed) over regulated firms.

This sets out the FCA’s expectations as to how IPs can ensure firms continue to meet their regulatory obligations both before an appointment and during the course of an insolvency process. It confirms the FCA’s view of what would constitute good practice, as well as linking in to some of the existing statutory obligations on regulated firms and/or IPs.   

We have summarised some of the key issues for IPs to be aware of below. This is not intended to be exhaustive and, where an IP is looking to be appointed over a regulated firm, they should familiarise themselves with the guidance in full.

Background

The FCA consulted with the industry during December 2020 and January 2021 on its draft guidance on how IPs should approach regulated firms.

The full guidance can be found here: FG21/4: Guidance for insolvency practitioners on how to approach regulated firms | FCA

While the remainder of this insight focuses on guidance for firms regulated under the Financial Services and Markets Act 2000, the underlying principles are similar for payment and e-money institutions.

Pre-appointment

Before accepting an appointment the FCA expects an IP to:

  • carry out a search of the FCA register to confirm the regulatory status of the firm;
  • understand the business model and regulatory framework within which the firm operates;
  • engage with the FCA, the Financial Services Compensation Scheme (where applicable) and the Ombudsman Service at an early stage (and advise the firm to do the same);
  • seek the written consent of the FCA to any proposed out of court appointment as administrator (this is an existing legislative requirement);
  • notify the FCA if a statutory demand is received by the firm, a winding up petition is presented to the court and/or a liquidator is appointed;
  • comply with additional requirements where:
  • the firm is in the same group as a bank;
  • the firm has trading instruments; and/or
  • the Investment Bank Special Administration Regime applies.

The FCA still expects notification and engagement where a firm is considering a restructuring process rather than administration or liquidation.

Post-appointment

Communication with the FCA

The FCA expects regular updates from the IP. In some cases the FCA expects to receive advance notification of all communications with clients and creditors, including any communication the IP needs to send out to comply with the Insolvency Act 1986 and other regulatory obligations. IPs will need to factor the additional time needed to get the FCA’s comments on these notices to ensure that statutory deadlines are not missed.

If a creditors’ committee is formed the FCA expects to be informed and invited.

Communication with clients

The IP should have a plan in place for communicating with the firm’s clients. Guidance is given on the format of this communication.  IPs will need to ensure they have sufficient resources available to be able to properly respond to complaints and queries.

Client assets

The importance of IPs taking control of client assets and the books and records as soon as possible on appointment is emphasised in the guidance.

Key information should be located in the firm’s CASS resolution pack and IPs should ensure they are familiar with the FCA’s rules and guidance relating to treatment of client money/assets.

Trading

If a regulated firm continues to trade in an insolvency process it must remain authorised. The FCA expects to be informed where this is proposed.

Once all regulated activities have ceased and all client assets have been returned or transferred the IP may seek to cancel the firm’s permissions.

Business sales

The FCA is cracking down on phoenixing. This practice of closing a firm and that firm re-appearing under a new guise to avoid liabilities arising from the old firm is not prohibited under UK law.  Nevertheless, the FCA expects IPs to report any suspicions where there is an intended business or asset sale.

Practical steps

IPs who are looking to be appointed over a regulated firm should familiarise themselves with this guidance. If you are at all uncertain about what information you can share with the FCA, you should take legal advice on this point before doing anything further.

The need to communicate with, and in some situations obtain consent from, the FCA has the potential to lead to delays. This should be factored in as part of the management of the insolvency process to ensure it does not result in a failure to comply with other statutory deadlines. If you would like to discuss any aspect of the issues raised in this article, please contact a member of our Restructuring & Insolvency team. 

Contributors: Tessa Durham, Robin Penfold and Harriet Talbot-Potts

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions

Date published

21 June 2021

RELATED INSIGHTS AND EVENTS

View all