On 25 January 2022, the Financial Conduct Authority (FCA) published Guidance Consultation 22/1 ‘FCA’s approach to compromises for regulated firms’ (GC22/1).
The FCA reports that it is seeing an increase in the number of regulated firms proposing compromises (arrangements that allow a firm to settle its liabilities with creditors and/or shareholders). The FCA sets out in GC22/1 proposed guidance covering how it considers compromises and the factors it considers when assessing them and its role when a firm proposes a compromise.
The proposed guidance focuses on three types of compromise: schemes of arrangement (Schemes), restructuring plans (RPs) and voluntary arrangements (VAs). Firms should review the proposed guidance before considering such compromises to ensure that any compromise proposed will not be unacceptable to the FCA. The proposed guidance only relates to compromises in relation to liabilities and does not apply to Schemes or restructuring arrangements in other circumstances such as with-profits restructuring.
In particular, with the guidance the FCA is seeking to help firms understand what information it needs and how it approaches compromises in line with its statutory objectives to protect consumers and the integrity of markets, with a view to reducing the number of proposed compromises that it does not consider to be appropriate. The FCA also reminds firms of their regulatory obligations, in line with Principle 11, to notify the regulator immediately and provide relevant information at an early stage if they are considering proposing a compromise.
The FCA proposes that the guidance will not apply retrospectively to any compromise where the firm has issued a practice statement letter (in respect of Schemes and RPs) or proposal (in respect of VAs) to its creditors before the date that the proposed guidance comes into effect. For compromises where the firm has issued a practice statement letter or proposal to creditors before the effective date of the proposed guidance, the FCA will review these on a case-by-case basis however the principles in the proposed guidance may be relevant.
The deadline for comments on GC22/1 is 1 March 2022.