Rule 6.3.2 "... the FSCS... may determine a relevant person to be in default when it is, in the opinion of the FSCS... unable to satisfy protected claims against it or likely to be unable to satisfy protected claims against it."
Rule 6.3.4. "For claims arising in connection with protected investment business, the FSCS has the additional power to determine that a relevant person is in default if it is satisfied that a protected claim exists, and;
(1) the FSCS is satisfied that the relevant person cannot be contacted at its last place of business and that reasonable steps have been taken to establish a forwarding or current address, but without success; and
(2) there appears to the FSCS to be no evidence that the relevant person will be able to meet claims against it."
This policy does not apply to a determination of default that arises following formal insolvency procedures or other automatic triggers set down in Rule 6.3.3. This is because the relevant person has had an opportunity to challenge an order or process of the court or a determination by their home state regulator. The objective of this policy is to give a similar opportunity to relevant persons who have not yet been the subject of insolvency or similar proceedings. This includes firms that are still trading and sole traders or partnerships who have ceased trading but continue to be personally liable to meet claims arising from their regulated activities.
Policy: Contact with the relevant person
Although the detailed procedures may vary or be modified from time to time, FSCS will take the following steps:
- On receiving a claim which merits investigation, we will write to the relevant person at its last known address to notify them of the investigation and to request information from them as to their ability to satisfy protected claims against them (for example, requesting completion of a statement of assets and liabilities). The last known address will be verified (if possible) from the regulator's records.
- If we do not get any response to this letter from, or on behalf, of the relevant person, we will send a follow-up letter by special-delivery post or recorded delivery 14 days after the first letter.
- If we do not get any response within 7 days of the follow-up letter, then where possible we will reissue the first letter and redirect it to an alternative contact address, if known. This may be a current working address or home address of a former director/principal, or an earlier business address.
- If we do not get any response from (or on behalf of) the relevant person within 14 days of the date of the follow-up letter sent under paragraph 2 (where no alternative contact address is available), or within 14 days of the letter sent under paragraph 3, then we will assess the ability of the relevant person to satisfy potential claims against it after making reasonable enquiries (for example getting filed accounts from Companies House for a company, or making bankruptcy and property searches for sole traders and partners).
- If in our opinion, following the assessment of all the information obtained (whether from the relevant person or its representatives or from other sources), the relevant person is unable or likely to be unable to satisfy protected claims against it, we will write to the relevant person's contact address (or, in the absence of any response from the relevant person, to the last known address) to notify them of our intention to determine the relevant person in default. This letter will allow the relevant person a period of 14 days in which to raise any objection or make any comment.
Policy: Review of decision
- On receiving any objection or comment from or on behalf of the relevant person, we will review the objection or comment. Then, (unless we need more information at this stage) we will notify the relevant person in writing whether:
we still intend to declare the relevant person in default (if so, we will provide brief written reasons); or
we have concluded that they will not be declared in default.
If we intend to declare them in default, we will give them a further period of 14 days in which to respond.
- If we intend to declare the relevant person in default and their response is still to object to this on grounds relating to a material fact relevant to the assessment of their ability to satisfy protected claims against them, then we will offer them the opportunity to exercise their right to make spoken comments (also called "oral representations") by attending an interview, meeting or oral hearing with us, which our Chief Executive and at least one non-executive director will attend.
- If the relevant person chooses to exercise their right to make spoken comments and we offer them a meeting, interview or oral hearing to do so, we may establish the exact procedure for that process at that time, if possible with their agreement. The relevant person will be entitled (but not required) to have legal (or other) representation. The process should be flexible and informal. The issues to be decided at an oral hearing will be limited to those identified by the relevant person in written submissions and which relate to facts that are material to the decision. After the meeting, interview or oral hearing, we will confirm our decision and provide written reasons.
- If we follow the procedure at paragraphs 1-5 above, do not receive any response from the relevant person and decide that relevant person to be in default, it is possible that the relevant person will contact us before we publicise the default. If so, they will be entitled to raise any objection or make any comment within 14 days of contacting us. After receiving this comment or objection, the procedure at paragraphs 6 to 8 will apply.
- If following the meeting or interview or oral hearing, the relevant person persists with its objection, it may seek a judicial review of the decision determining it to be in default.
The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).