Dealing with Financial Regulators Can Be Tricky – Take Professional Advice!

Regulators hold power of life and death over financial services providers and that is why it makes good sense for dealings with them to be based on sound professional advice. In a cautionary tale on point, a small company had its own argumentative and uncooperative approach to thank for effectively being put out of business.

The debt adjusting and counselling company had been operating for more than 10 years under the regulation of the Office of Fair Trading before the regulatory role shifted to the Financial Conduct Authority (FCA). The FCA subsequently refused the company’s application for permission to carry on regulated activities.

The basis of the FCA’s refusal was that it could not be confident that the company was a fit and proper person to carry out such activities. The company’s sole director had dealt with the FCA in person, without professional advice, and was said to have shown a reluctance to provide necessary information and to have generally adopted a hostile and uncooperative approach to the regulator.

In ruling on the company’s challenge to the refusal, the Upper Tribunal (UT) noted that the director had demonstrated a passion for treating the company’s customers fairly. He claimed that the FCA had used its superior strength and influence to intimidate the company and to force it to accept a level of interference that was not required of larger operators.

In dismissing the appeal, however, the UT found that the FCA’s extremely patient staff had acted entirely professionally throughout and had sufficient reason to conclude that the company was not ready, willing or sufficiently organised to comply with the requirements of the regulatory regime.

At the root of the company’s problems was the director’s failure to understand that it was primarily his responsibility to familiarise himself with regulatory requirements and to satisfy the FCA that the company could meet them. He complained that he could not afford compliance advice, but the UT noted that that was akin to someone seeking a commercial flying licence without having paid for flying lessons.

Although the company had ultimately complied with the FCA’s information requests, the process had been greatly protracted by the director’s confrontational approach. He had even made extremely unpleasant, and frankly ridiculous, accusations of criminal conduct against FCA employees. The UT recommended that, if he chose to continue working in the financial services sector, the director should have no further responsibility for dealing directly with the regulator.