Navigating FCA Regulated Insolvency with FG25/2: A Technical Guide for Insolvency Practitioners

The Financial Conduct Authority (FCA) has recently issued FG25/2, a comprehensive guidance document aimed at insolvency practitioners (IPs) dealing with the insolvencies of regulated firms.

This guidance replaces the previous FG21/4 and incorporates feedback from industry stakeholders to provide clearer and more practical advice. Understanding the intricacies of FG25/2 is essential for IPs to ensure compliance with FCA rules and to achieve better outcomes for consumers and market participants.

Pre-Insolvency Considerations

One of the key aspects of FG25/2 is the emphasis on early engagement with the FCA before a regulated firm enters insolvency. IPs are required to notify the FCA as soon as they become aware of a potential insolvency situation. This early engagement allows the FCA to provide guidance and support, ensuring that regulatory requirements are met from the outset. Additionally, IPs must obtain the FCA’s consent for out-of-court administration appointments and share court documentation with the FCA.

Entering Insolvency

At the point of a firm’s entry into insolvency, FG25/2 outlines the FCA’s expectations regarding communications with clients and creditors. IPs are required to provide clear and timely information to all stakeholders, ensuring transparency and maintaining trust throughout the process. This includes notifying clients about the insolvency, explaining the impact on their assets, and providing information on how their claims will be handled.

During Insolvency

The guidance provides detailed instructions on how IPs should manage client assets and treat customers fairly during the insolvency procedure. IPs must ensure that client funds are safeguarded, and that customers’ interests are prioritised. This involves segregating client assets from the firm’s assets, maintaining accurate records, and ensuring that clients have access to their funds as quickly as possible.

FG25/2 also emphasises the importance of treating customers fairly. IPs are required to assess the impact of the insolvency on different groups of customers and take appropriate measures to mitigate any adverse effects. This includes providing clear and accurate information to customers, addressing their concerns promptly, and ensuring that their claims are processed efficiently.

Restructuring Procedures

The guidance also covers the FCA’s expectations when a regulated firm enters into restructuring procedures such as company voluntary arrangements, schemes of arrangement, or restructuring plans. IPs must ensure that these procedures are conducted in a manner that complies with regulatory requirements and protects the interests of all stakeholders. This involves engaging with the FCA throughout the restructuring process, providing regular updates, and ensuring that the proposed restructuring plan is fair and transparent.

Post-Insolvency Reporting

FG25/2 requires IPs to provide regular reports to the FCA on the progress of the insolvency. These reports should include information on the status of client assets, the progress of claims processing, and any issues that have arisen during the insolvency process. This ongoing reporting ensures that the FCA can monitor the insolvency and provide guidance as needed.

Conclusion

The FG25/2 guidance represents a significant update in the regulatory framework for insolvency practitioners dealing with regulated firms. By adhering to the principles and requirements outlined in FG25/2, IPs can ensure that they are meeting their regulatory obligations and achieving the best possible outcomes for consumers and market participants.

Farleys’ insolvency and restructuring team have handled several FCA related insolvencies recently and we expect the number of future instructions to increase too. If we can assist an IP, a customer of an FCA regulated entity or the entity itself, please feel free to contact a member of the team on 0845 287 0939 or complete our online contact form.