The polluter pays framework is designed to ensure that regulated firms address liabilities caused by their actions. It was updated on 14^th January 2025 where the FCA has provided further information on the framework which could lead to firms having to provide compensation or redress to their clients due to poor service or advice.  

As a reminder, the FCA identifies 6 main types of polluting behaviour…

1. Phoenixing. This is leaving liabilities in an existing firm, then reopening. This is often in the same building, with the same people and a similar brand (sometimes a little ‘ltd’ on the end to show it’s a completely different firm and so naturally, you can trust them).  

2. Lifeboating. This is when a firm is connected in some way to an existing authorised firm, and they use that connection to preserve assets.  

3. Fronting. The process where one or more individuals with a clean regulatory history are put forward as the controllers or managers of a firm in their authorisation application, when in reality, they are just a ‘front’ for the real puppet masters who sit in the background.  

4. Sale at an undervalue. This includes the sale of assets but is usually the client bank, at a below-market value.  

5. Restructuring. This refers to the change of a group corporate structure in order to isolate liabilities and protect assets. Commonly this may be the overpaying of dividends, transferring (or selling) the client bank and insertion of a holding company.  

6. Proceeds of sale not applied to redress. Which mostly speaks for itself but covers the scenario where a sale has happened, and the money is available to pay redress but is used elsewhere.  

Despite the somewhat frivolous names some of these practices have, the FCA take this type of behaviour very seriously.  

As a reminder the regulator will expect you to notify them when:

• You don’t have enough resources to pay redress

And/or

• A firm intends to sell or transfer their client bank. A reminder of the expectations can be found at https://www.fca.org.uk/firms/expectations-firms-selling-client-banks

As predicted, this is another ripple effect from both the Consumer Duty and the FCAs drive to ensure clients get good customer outcomes, and we will continue to see more initiatives in this area. In the meantime, it is a safe assumption to say that the FCA will be increasing their scrutiny on your redress processes and how you are approaching this in the shadow of the Duty, so it’s definitely worth a review.  

If you’d like to discuss any compliance matters – drop us a line! We love to talk.   

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Source: https://www.fca.org.uk/firms/redress-liabilities-polluter-pays#section-our-expectations-for-firms