Capital deduction for redress: personal investment firms [pdf]

Concurrent to the launch of a new consultation on the establishment of capital requirements of personal investment firms (PIFs) for (possible) future redress claims (EventID 24156), the Financial Conduct Authority (FCA) has published an open Dear CEO letter addressed at PIFs. In this letter, the FCA reminds personal investment firms of their obligations in relation to customer complaints and potential redress claims, including the following:
– Firms are expected to deal with customer complaints in a fair and prompt manner.
– PIFs are also expected to refrain from activities aimed at circumventing potential redress claims or discouraging customers from seeking redress, for example via restructuring.
– Firms are also expected to hold capital commensurate with the risks they pose and encounter.
– Firms are expected to notify the FCA in case of insufficient capital, major business modifications (e.g. sale of business units), or redress payments below those customers are entitled to.
Furthermore, the FCA informs that – while beforementioned consultation is ongoing – the FCA will apply enhanced scrutiny of firms seeking to cancel their registrations as PIFs or applying for new authorization. This enhanced scrutiny will involve, among others,
– carefully examining the reasons behind authorization and cancellation requests;
– requesting proof that all potential redress liabilities have been resolved;
– carefully investigating any matters that may lead to potential redress;
– ensuring that firms fulfill their capital requirements and assess any potential future requirements to resolve redress cases; and
– checking firms‘ connections to other firms with outstanding redress liabilities.
To conclude, the FCA also notes that it will not refrain from taking (enforcement) action where it deems PIFs to not adequately deal with their customers, deems PIFs to handle redress claims in an inappropriate manner, or where new firms apply for authorization entering into a deed poll with the „old firm“ who is subject to potential redress claims.