FCA Publishes Proposals on its Approach to Schemes of Arrangement, Restructuring Plans and CVAs

On 25 January 2022 the FCA published its proposals on companies that seek to manage their liabilities through the use of schemes of arrangement and restructure plans available under company law and voluntary arrangements available in insolvency law.

The FCA are seeking views on these proposals which represent a clear flexing of the FCA’s muscles in the interest of protecting customers and will clearly be of interest to company directors, their accountants and lawyers and insolvency practitioners.

The proposals effectively act as a warning that the FCA will take proactive action if they consider that proposals received from regulated firms disproportionately benefit the firm at the expense of customers.

Such action could include the FCA objecting to proposals in court and taking enforcement action against firms or their senior management if they consider relevant breaches arise.

To mitigate such risk firms; regulated firms, their directors, and advisers are expected to advise the FCA as soon as it is considering entering a formal scheme to manage their liabilities and provide certain information to the FCA.  Regulated firms should also ensure that their proposals carefully balance competing interests and maximise the amount available for customer compensation claims.

These proposals follow an increasing number of regulated firms putting forward proposals to manage their liabilities and the FCA’s high-profile intervention in the Amigo loans Scheme of Arrangement which effectively led to the High Court refusing Amigo’s proposed scheme.  The FCA have seen a corresponding increase in receipt of requests from firms and their advisers for a ‘letter of non-objection’ to proposals, sought for the value this has in increasing the likelihood of proposals being approved.  The FCA are clear that they will consider each proposal received on an individual basis and expect to be provided with the necessary information to determine whether the proposals meet a firm’s regulatory obligations, in particular the requirement to treat customers fairly.

The Proposals address the FCA’s proposed approach to compromises, what is expected by regulated firms in terms of their engagement with the FCA, how the FCA propose to assess a proposal, and when the FCA propose to intervene at court.

These proposals are a clear indication of the FCA’s renewed focus on ensuring those it regulates act in the interest of customers.  Any firm entering into difficulties and considering schemes of arrangement are well advised to take these proposals into account, and to consider any final proposals once the consultation closes.

The FCA’s proposals and its consultation can be found here.