FSA/PN/064/2005
10 June 2005

The Financial Services Authority (FSA) told financial advisers today that it would not tolerate firms attempting to sidestep their liabilities to customers by moving assets between companies.

Michael Lord, Head of Investments Department at the FSA, said:

"Phoenix firms are not only failing to treat their customers fairly but are also being very unfair on their fellow advisers, who are left to foot the bill."

Phoenix firms occur when the assets of one Limited company are moved to another legal entity, sometimes at a price below their true market value, and without moving the liabilities or meeting liabilities to consumers. In these situations some or all of the directors are the same in both entities.*

The FSA has recently investigated 18 potential phoenix firms and has already referred one firm to Enforcement. Although it cannot prevent firms becoming insolvent, it can take steps to minimise the impact. These include:

  • asking directors to sign undertakings to honour the liabilities in relation to customer claims on their previous business
  • encouraging firms to 'ring fence' funds to be held by the departing firm to meet any further potential liabilities thus avoiding future claims
  • refusing the application for authorisation of the new business where the directors of the departing firm will not make reasonable arrangements for claims arising out of their previous business
  • referring individuals to Enforcement where their actions have actively disadvantaged customers.

The FSA plans in future to work more closely with liquidators to investigate the conduct of directors. This could lead to action by the FSA or the liquidator making an adverse report to the Department of Trade and Industry (DTI), which has powers to ban directors.

Notes to editors

  1. *Phoenixing is only an issue for incorporated entities (including Limited Liability Partnerships).
  2. Michael Lord gave a speech at the PIMS Conference today entitled Regulatory action against Phoenix Firms.
  3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  4. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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