On 5 July 2022, the FCA published Finalised Guidance 22/4 ‘FCA’s approach to compromises for regulated firms’ (FG22/4).

In FG22/4, the FCA clarifies how it approaches compromises in line with its statutory objectives to protect consumers and the integrity of markets. The FCA has issued FG22/4 as it is seeing an increase in the number of regulated firms proposing compromises to deal with significant liabilities to consumers, in particular redress liabilities.

The aim of FG22/4 is to help regulated firms understand what information the FCA needs and the factors it will consider when deciding if and what actions it will take. Ultimately, it will help firms to avoid proposing compromises that are unacceptable to the FCA because they threaten or adversely affect the regulator’s statutory objectives. The guidance also reminds firms of their regulatory obligations, in line with Principle 11, to notify the FCA immediately and provide relevant information at an early stage if they are considering proposing a compromise.

Where firms determine there is no better alternative outcome for consumers than to propose a compromise, the guidance will help firms propose a compromise that is compatible with the FCA’s rules. In particular, if firms do propose a compromise in respect of redress liabilities, they should ensure it is the best proposal that the firm can make, which includes the firm providing the maximum amount of funding for the compromise so that consumers receive the greatest proportion of what is owed to them.

The guidance focusses on three types of compromise: schemes of arrangement, restructuring plans and voluntary arrangements. The 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.

FG22/4 is structured as follows:

  • Chapter 1 – Introduction explains the scope of the guidance and the FCA’s role in assessing compromises.
  • Chapter 2 – Engagement with the FCA reminds firms that they are required to notify the regulator if they propose a compromise and engage with it at an early stage. This chapter also outlines the minimum information that the FCA expects to be provided by a firm, as part of their initial notification or at an early stage thereafter.
  • Chapter 3 – FCA’s assessment of compromises explains its approach to assessing a compromise proposed by a firm and the factors it will consider when deciding what action(s) to take.
  • Chapter 4 – FCA’s participation in court process explains the factors it will consider when deciding whether to participate in the court process.
  • Chapter 5 – Use of supervisory tools/regulatory action explains when and how the FCA may use its powers in relation to the conduct of a firm proposing a compromise.