The FCA has now published proposed amendments to its FG21/4 Guidance for insolvency practitioners on how to approach regulated firms to help insolvency practitioners (IPs) (the IP guidance). Our previous article highlighted the significance of the Consumer Duty in the financial services industry and how firms will need to view customer outcomes and proactively address harm in the retail market. We also discussed how FG21/4 was published before the introduction of the Consumer Duty and outlined some of the ways in which the outdated guidance might present difficulties for IPs appointed over regulated in-scope firms when engaged in the balancing act between obligations under the Insolvency Act and those imposed under the Consumer Duty.

What is the FCA proposing?

The FCA's proposed amendments to FG21/4 now take into account the Consumer Duty (although FG21/4 continues to be applicable on the whole). The proposed amendments are presented as a series of mark-ups to the existing IP guidance. The FCA has made clear that:

• its rules, including those relevant to the Consumer Duty, continue to apply to firms in insolvency, up until their permissions are cancelled; 
• the way in which an IP will need to approach a firm will be driven, in part, by the specific characteristics of the firm and the market(s) in which it operates; and
• failure to do that could mean the FCA intervening with the insolvent firm using its supervisory and/or enforcement tools (noting that the FCA does not regulate IPs). 

The FCA references PRIN 12, the cross-cutting rules and the four outcomes (see our previous article for a summary of these) and refers back to the FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty. 

The FCA has made clear that IPs remain responsible for the accuracy, transparency, completeness and fairness of any draft versions of key client communications shared with it.

However, the FCA has also addressed other areas substantively that apply during insolvency in the following ways: 

• Vulnerable customers: IPs are expected to identify and devise potential hardship policies and assess whether there is anything that can be done, e.g. exploring whether it is possible to make an early interim distribution from client money. Under the Consumer Duty, firms must design and deliver support to retail customers that meets their needs and respond flexibly to the needs of customers with characteristics of vulnerability, which might require them to adapt their usual approach. 
• Selling clients' personal data (e.g. client book) as part of a transfer or sale of the business of the failed firm: Where retail customers are concerned, IPs are expected to conduct the affairs of the firm in a way that is compatible with the Consumer Duty, including:

i. Customer outcomes and fair treatment: Before transferring data, IPs must consider whether this is in the interests of clients and, for non-retail customers, treats them fairly (Principle 6) or, for retail customers, act to deliver good outcomes (Principle 12).¹

ii. Communication to clients: IPs must pay due regard to the information needs of customers and communicate with them in a way which is clear, fair and not misleading. For retail customers, IPs must also consider relevant Consumer Duty requirements for communications to be likely to be understood by customers and to equip them to make decisions that are effective, timely and properly informed. This includes clearly articulating the transaction with a suitable helpline being provided for support. IPs should encourage the buyer to inform clients of the sale and their rights.

Next steps

The FCA welcomes views from respondents on the proposed amendments by 30 April 2024. We consider that industry will likely have feedback given the number of regulatory developments introduced since 2021. In particular, we expect feedback to touch on areas such as how the Consumer Duty will interact with IPs' statutory duties. While the update includes reference to the Consumer Duty and a few ways it will apply, there is little guidance around how this plays out in practice where there is an overlap or tension with statutory duties. 

With thanks to Katja Obed for her assistance with this article.

1. As we've previously discussed, while there is an overlap between Principles 6 and 7 and Principle 12 and PRIN 2A, the latter impose a higher and more exacting standard of conduct in relation to a firm's activities relative to what Principles 6 or 7 would have required.↩