Shutting up shop and disappearing into the ether is common practice from some of the more unsavoury players in the UK’s financial services industry.
Compounding their scurrilous behaviour, the directors and owners of these firms pop-up elsewhere and continue their operations under another name – a practice known as phoenixing.
It means investors and clients are often left with nowhere to turn for answers or compensation – and the “new” firm is free to start the whole process over again with another set of people.
Regulatory action
The Financial Conduct Authority (FCA) and its regulatory partners announced on 3 May that they have launched a working group to tackle the issue.
Representatives of the Financial Services Compensation Scheme (FSCS), the Financial Ombudsman Service (FOS), Insolvency Service and Scotland’s Accountant in Bankruptcy joined the FCA to discuss approaches to tackle phoenixing.
While information has been shared between the parties in the past, it marked the first time they came together in a formal way to discuss and agree to work together on the issue.
Sharing data on issues such as FSCS claims, complaints, unpaid ombudsman awards and director disqualifications has been “highly effective in preventing and detecting instances of phoenixing”, the FCA said.
It also helps the financial watchdog build cases to refuse applications for authorisation.
The aim of the formal partnership is to expand on the types of data and information shared to make even bigger strides towards tackling the scourge of firms and individuals rising from their self-inflicted ashes.
Teamwork
The assistant director of investigation and enforcement services at the Insolvency Service, Gareth Allen, said: “Deliberate abuse of the insolvency process by directors to prejudice creditors through phoenixism strikes at the heart of economic confidence.”
“We have a shared responsibility to protect consumers and, by working closely together, we can prevent firms and individuals from deliberately avoiding their liabilities,” said Sarah Rapson, director of authorisations at the FCA.
Alex Kuczynski, chief corporate affairs officer at the FSCS, added: “The working group will support better outcomes for both consumers and levy payers who have to step in to fund FSCS’ compensation.”
