In a consultation paper published yesterday (September 23), the City watchdog said it was concerned about the “risk of harm” from international companies avoiding paying the compensation typically applicable under UK rules.
This was because although UK branches of international firms would generally be subject to the same regulatory redress requirement as UK firms and the same compensation scheme cover, a consumer in the UK seeking redress from a branch of an international firm may face difficulties.
The FCA said: “[The consumer] may be more dependent upon the cooperation of the international firm’s head office or, in the case of the firm’s insolvency, the position of UK consumers under the home state’s insolvency rules.”
Consumers at risk included complainants to whom the Financial Ombudsman Service had made awards and claimants who could rely on the Financial Services Compensation Scheme when firms defaulted.
For instance, the FSCS would be unable to pay compensation where an international firm was solvent, but refused to make payments of redress.
If the consumer were to seek enforcement action in the firm’s home state, the action could be complex, expensive and time-consuming while regulators may find it difficult to enforce a fine.
Claims against insolvent international firms, who are therefore unable to make full payment of compensation, may not be FSCS-eligible, the FCA said.
It said: “The [FSCS] is not possible for certain claims that are not FSCS-eligible, such as – in general – those relating to consumer credit or loan-based crowdfunding or where customers pursue their claim themselves where their claim exceeds FSCS limits.
“Consumers whose claims are not FSCS-eligible or who pursue their claim themselves where their claim exceeds FSCS limits may have to prove their debts under the foreign court’s insolvency procedures and the laws of the home state.
“This may add significant complexity, expense, and delay to the enforcement action.”
The FCA added it would pay “more attention” to the factors which often lead to consumer harm in international firms.
The regulator’s comments come as part of a wider discussion on the FCA’s approach to international firms in a post-Brexit world.
More than 1,500 firms have notified their intention to enter the UK’s temporary permissions regime, which will allow them to continue their UK business for a limited period while they wait to submit their applications for full UK authorisation.
The FCA said it expected this number to increase further when the notification window for entering the temporary permission regime reopened next week (September 30).
imogen.tew@ft.com
