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Update

The FCA, in this article, has taken the opportunity to express its expectations around the sale of client banks and the measures the FCA would be looking to take going forwards.

The FCA states the client bank is an asset of a firm and understands this can be sold for legitimate reasons such as where an advisor is looking to retire. However, the FCA is concerned that some firms have sold their client bank when they were aware they had redress liabilities, or where they had failed to detect their redress liabilities correctly.

The introduction of the Consumer Duty has added further protection to consumers. A firm looking to sell its client bank will need to act to deliver good outcomes for its retail customers, whilst complying with the FCA Principles and Rules. The Consumer Duty confirms a firm considering selling or transferring its client bank would need to be open and honest, act in good faith, and avoid causing foreseeable harm.

Where the FCA has concerns, it has stated that it may look to invite a selling firm to include a voluntary asset retention requirement ensuring the firm retains its client bank and liabilities. Or, where a firm is looking to leave the market, the FCA may invite the firm to agree to an undertaking or attestation to maintain an increase level of capital until the cancellation of permissions is approved.

For firms looking to purchase a client bank, the FCA could invite the firm to include a voluntary requirement restricting those associated with the selling firm from receiving a benefit from the sale of the client bank or using the client bank in the future, or to impose a deed poll for the buying firm to assume some or all of the liabilities.

The FCA have confirmed it could look to take regulatory action where:

• a firm is selling its client bank deliberately to avoid redress liabilities which have arisen or may arise.
• a firm is offering less than the full redress value owed to its customers.
• a client bank has been transferred to a holding company or where an advisor or appointed representative agreement is changed to state clients are not owned by a firm.
• a firm is looking to sell its client bank to another firm below market value, or where no consideration has been given to requesting an independent valuation of a client bank.

Links: https://www.fca.org.uk/firms/expectations-firms-selling-client-banks