Finalised Guidance for Insolvency Practitioners on How to Approach Regulated Firms

Finalised Guidance
Guidance for insolvency practitioners on how to approach regulated firms FG21/4 May 2021 1 Introduction
1.1 Minimising the impact of a regulated firm failure is a key priority for us. While we cannot
stop firms failing, we aim to help minimise disorderly failures that cause serious harm to both consumers and markets. This involves working with insolvency practitioners (IPs) appointed over regulated firms to reduce such harm where possible. By ‘regulated firms’ we mean firms authorised under the Financial Services and Markets Act 2000 (FSMA) and firms authorised or registered under the Payment Services Regulations 2017 (PSRs) or Electronic Money Regulations 2011 (EMRs).
1.2 If an IP is appointed over a regulated firm, the IP takes control of the firm which
continues to have regulatory obligations. It is therefore important that the IP ensures compliance with our rules and guidance and relevant legislation which aim to achieve better outcomes for consumers and market participants following a firm failure.
1.3 This guidance provides our view of how an IP should ensure regulated firms meet their
ongoing financial services regulatory obligations following appointment. We supervise regulated firms, including those in insolvency proceedings, while they continue to be authorised or registered by us. We are not the regulatory authority for IPs and IPs generally act as officers of the court. We have therefore engaged with the recognised professional bodies and Insolvency Service on this guidance.
1.4 This guidance is aimed at IPs appointed over firms solely authorised or registered by
the FCA. It may also be relevant from the perspective of conduct regulation for IPs appointed over firms that are dual regulated by the FCA and PRA. The FCA is the Financial Conduct Authority Page 1 of 48

competent authority for solo-regulated firms. The PRA is the competent authority for dual-regulated firms. The Bank of England is designated as the resolution authority for dual regulated firms and certain investment firms (i.e. IFPRU 730k investment firms or solo-regulated firms that are part of a group subject to the Bank of England’s resolution power under the Banking Act 2009). 2 About this guidance What does this guidance cover?
2.1 The guidance is set out at Annex 1 (for firms authorised under FSMA) and Annex 2 (for
firms authorised or registered under the PSRs or EMRs).
2.2 The guidance is structured as follows:

• Chapter 1 (Introduction) explains the scope of the guidance and our role in
  regulated firm failures.
• Chapter 2 (Pre-insolvency) outlines considerations for IPs before a
  regulated firm’s entry into an insolvency procedure, such as obtaining consent for out of court administration appointments and sharing court documentation with us.
• Chapter 3 (Entering insolvency) explains our expectations on IPs at the
  point of a regulated firm’s entry into an insolvency procedure and shortly thereafter, such as communications with clients and creditors.
• Chapter 4 (During insolvency) explains our expectations on IPs during an
  insolvency procedure, such as treatment of client assets and treating customers fairly.
• Chapter 5 (Restructuring procedures) explains our expectations when a
  regulated firm enters into a company voluntary arrangement, scheme of arrangement or restructuring plan.
• Chapter 6 (Checklist) summarises the key steps from the guidance that an
  IP will need to consider when appointed over a regulated firm.
  Who does this guidance apply to?
  2.3 The guidance is primarily aimed at IPs appointed (or looking to be appointed) over
  regulated firms. It may also be of interest to the Official Receiver, professional advisers, trade associations, firms and consumers. Equality and diversity considerations
  2.4 We have considered equality and diversity issues that may arise from the guidance.
  Overall, we do not think that the guidance materially impacts any of the groups with protected characteristics under the Equality Act 2010. Financial Conduct Authority Page 2 of 48

– Guidance for insolvency practitioners on how to approach firms authorised under FSMA
Chapter 1: Introduction

1. This guidance is for IPs on how to approach firms authorised under FSMA.
2. This guidance is not exhaustive, neither is it a substitute for reading or complying
   with our Handbook and other applicable legislative requirements and guidance. The FCA’s role in firm failures
3. We have a role in every regulated firm failure and this role will vary depending on
   the circumstances of the firm. Our role may be consenting to an out of court appointment of an administrator or part of our ongoing supervision of the firm.
4. While we are not able to stop firms failing, we aim to minimise harm to
   consumers and markets that may arise from a disorderly firm failure. This involves working with IPs to reduce such harm where possible.
5. We have a range of powers provided by FSMA which enables us to intervene and
   act in insolvency proceedings in relation to a firm to protect consumers and market participants. We may also act prior to a firm entering into an insolvency process; this can include imposing requirements on the firm to take specific actions such as preserving the firm’s books and records, varying the firm’s regulatory permissions or taking steps to make an application to the court to place the firm into an insolvency procedure.
   Chapter 2: Pre-insolvency
   Sufficient experience for an appointment over a regulated firm
6. The Insolvency Code of Ethics requires that an IP should only accept an
   insolvency appointment where the IP has or can acquire sufficient expertise. If a firm is conducting regulated business, we expect the appointed IP to understand the business model and its regulated activities, or have a detailed plan to gain a full understanding of these shortly after their appointment. This could, for example, involve engaging relevant specialists.
7. We expect the IP to know what regulatory requirements apply to the firm and
   identify any issues with compliance. The regulatory requirements may include:

• Principles for Businesses (PRIN): these apply, in whole or in part, to all
  FSMA authorised firms and set out high-level but fundamental obligations with which firms must comply under the regulatory systems regarding Financial Conduct Authority Page 3 of 48

various aspects, such as treating customers fairly, conflicts of interest and how a firm should communicate with the regulator.

• Client Assets Sourcebook (CASS): these requirements apply to firms that
  hold or control client assets1. This includes distribution and transfer provisions in the event of a firm failure.
• Compensation Sourcebook (COMP) and Disputes Resolution
  Complaints Sourcebook (DISP): COMP contains the rules and guidance that set out the circumstances in which the Financial Services Compensation Scheme (FSCS) may pay claims for compensation where relevant and to whom. DISP sets out how complaints are to be dealt with by firms, the reporting of complaints to us and operation of the Financial Ombudsman Service (the Ombudsman Service).
• Supervision Manual (SUP): this sets out the relationship between the FCA
  and firms, key individuals within them, their appointed representatives and tied agents, and those who own or control the firm.
• Individual requirements, variation of permissions and limitations: we
  apply these to an individual firm to vary its regulatory permissions and/or restrict the firm’s activities2. We may ask a firm to apply for a variation of permission (VVOP) or the imposition of a requirement (VREQ) or impose it via our own-initiative powers (OIVOP/OIREQ). A firm must continue to comply with these variations, requirements and limitations after it enters into an insolvency procedure.

8. We expect an IP to consider if they have the capacity to take on an appointment,
   bearing in mind their existing appointments, and the size and complexity of the proposed appointment. If the IP does not have in-house resources to cover this, they should consider how appropriate resources will be engaged. Pre-insolvency checks
9. An IP may often be involved with a firm before it becomes insolvent and advise
   on whether the firm has the necessary arrangements in place. This includes:

• A wind-down plan: this details the steps that a firm will take in the event
  of insolvency, any risks associated with the wind-down and mitigating actions for these. An IP may wish to consult our Wind-down Planning Guide when advising on the robustness of a wind-down plan to help ensure an orderly wind-down of the firm.
• A CASS resolution pack for investment firms and debt management
  firms that hold client assets3: this contains documents and records relating to a firm’s client assets holdings, which will help the IP to return client assets more quickly following a firm failure. Early engagement with the FCA

10. We expect an IP to engage with us at an early stage, both prior to (with
    appropriate consent) and after appointment over a regulated firm. If an IP is advising a firm pre-appointment, we expect them to advise the firm to engage 1 References in this guidance to client assets refers to both client money and custody assets unless otherwise stated. 2 Sections 55J and 55L of FSMA 3 CASS 10 (investment firms) and CASS 11.12 (debt management firms) Financial Conduct Authority Page 4 of 48

with us as appropriate, including complying with any notification requirements (e.g. notifications required under Principle 11 and SUP 15).
11. Our Handbook will continue to apply to a firm in an insolvency procedure while it
remains authorised. We also have statutory powers to get involved and this differs depending on the insolvency procedure and type of regulated firm (that is, authorised or formerly authorised, appointed representative or a firm which is or has been carrying out regulated activities without permissions). A prospective IP can search the FCA Register to determine the regulatory status of a firm. They should also check for any previous or trading names that the firm may have had on the FCA Register in addition to the current registered name. Administration FCA consent to out of court administrator appointments 12.Should a firm (or its directors) seek to appoint an administrator through an out of court process, the administrator cannot be appointed without our written consent. This consent must accompany the filed notice of appointment (NOA) or be filed with the court along with notice of intention to appoint administrators document (NOIA), as applicable4. Consent should be requested by completing a template letter (see Appendix) and sending it to firm.queries@fca.org.uk or the firm’s supervisory contact at the FCA. 13.Consent requests should be submitted by the IP or their legal representatives in a timely manner to ensure that we have sufficient time to consider the request and, where applicable, grant consent before the appointment takes place.
14. When assessing the consent request, we will consider the IP’s ability to take on
the appointment. This assessment is likely to include (but not limited to) the following factors:

• the IP’s expertise in taking appointments as administrator
• whether the IP is satisfied that their strategy to achieve the proposed
  administration objective is reasonably practicable
• whether to our knowledge, anything calls into question the IP’s independence
  from the firm when taking on the appointment (an IP will need to conduct their own conflicts and independence checks before accepting an appointment), and
• the IP’s past conduct if they have taken previous appointments over
  regulated firms (e.g. wilful disregard of regulatory regimes or requirements).

15. Depending on the circumstances of the prospective appointment, we may ask
    additional questions, which must be answered to a satisfactory standard before consent can be issued.
16. Upon appointment, we expect the administrator to send their NOA to us at
    firm.queries@fca.org.uk. This will enable us to update our records on the firm, such as the FCA Register of regulated firms and individuals.
17. Where an administrator has been purportedly appointed and our consent has not
    been obtained, the administrator should contact us to request consent with an explanation of why consent was not sought earlier. This should be done as soon 4 Section 362A of FSMA Financial Conduct Authority Page 5 of 48

as the administrator becomes aware that consent should have been sought. If consent is provided, the FCA should not be taken to be opining on the validity of the administrator’s appointment, or ratifying, agreeing to or with, and/or endorsing any of the actions taken between the administrator’s appointment and the date on which the FCA’s consent is provided. The administrator should seek legal advice on the validity of their appointment in these circumstances. Sharing of court documentation with us
18. We are entitled to participate in court proceedings in relation to the regulated
firm, such as the hearing of an administration application5. A prospective administrator should therefore advise the firm to engage with us and share any court documentation, administration applications and other documents required to be sent to creditors of the firm with us. The administrator should advise this at the earliest opportunity, so that we have sufficient time to decide if our participation in the administration is appropriate. The FCA’s ability to apply for an administration order
19. If appropriate, we can apply to the court for an administration order in respect of
a regulated firm.
Special administration
20. The Investment Bank Special Administration Regime (IBSAR) is a bespoke
insolvency regime for investment firms that hold client assets. The IBSAR establishes three objectives for the special administrator: return client assets as soon as is reasonably practicable; timely engagement with market infrastructure bodies; and rescue the investment firm as a going concern or wind it up in the best interests of the creditors6.
21. The IBSAR interacts closely with our CASS rules to provide a mechanism under
which client assets can be returned to clients more efficiently in the event of an investment firm failure. The IBSAR is currently available for firms which meet the definition of ‘investment banks’, which includes a range of firms conducting investment business while holding client assets7.
22. We are entitled to be heard at a hearing of a special administration order and any
other court hearing in relation to the firm8. The prospective special administrator should therefore advise the firm to share court documentation with us at the earliest opportunity, so that we have sufficient time to decide if our attendance is appropriate. We are also able to direct the special administrator to prioritise one of the special administration objectives over the other objectives9.
23. If a firm is eligible to enter special administration but is considering entering a
different insolvency procedure, an IP cannot be appointed over the firm unless we are notified of preliminary steps taken in respect of that procedure. Following receipt of the notice, we have a period of two weeks to inform the person who gave notice whether we consent to the insolvency procedure to which the notice 5 Sections 362 of FSMA 6 IBSAR Regulation 10(1) 7 Section 232 of the Banking Act 2009 8 IBSAR Regulation 5(2) 9 IBSAR Regulation 16 Financial Conduct Authority Page 6 of 48

relates, whether we intend to apply for that (or an alternative) insolvency procedure or whether we intend to apply for a special administration order10. Statutory demands
24. The service of a statutory demand on a regulated firm should be notified to us.
We therefore expect an IP engaged by a firm in this situation to advise the firm to notify us if they have received a statutory demand11. Winding up petitions
25. We have the right to present a winding-up petition to the court in respect of a
regulated firm12. In addition, where a party (other than the FCA) presents a petition to wind up a regulated firm, including where there is an application to have a provisional liquidator appointed, the firm must notify us about this13. If an IP is subsequently appointed to the firm, we would expect the IP to engage with us and ensure that a copy of the winding up petition has been provided to us. Liquidation
26. The appointment of a liquidator must be notified to us14. We therefore expect a
liquidator to notify us of their appointment as soon as possible. The appointed liquidator should ensure to send any relevant appointment documents to support their notification. Copies of the resolution to wind up and the certificate of appointment should also be sent to firm.queries@fca.org.uk.
27. In cases where a winding-up petition is presented and a firm subsequently enters
into compulsory liquidation, the Official Receiver will be appointed over the firm as liquidator. We expect the Official Receiver to notify us in this case.
28. We have the right to participate in any court proceedings in relation to a
liquidation, attend creditors meetings and participate in the decision procedure15. We therefore expect a liquidator to ensure that court and creditor documentation is shared with us at the earliest opportunity, so that we have sufficient time to decide if our participation is appropriate. Notice if a firm is in the same group as a bank 29.An IP should be aware that, where a firm is in the same group as a bank (whether established in the UK or another EU member state), the firm is required to notify us, the PRA and the Bank of England seven days before entering an insolvency procedure16. An insolvency application cannot be determined until the Bank of England has informed the firm that they do not intend to exercise a stabilisation power over the firm under the Banking Act 2009 or, if the firm is a bank, the PRA and the Bank of England have confirmed that they do not intend to apply for bank insolvency under the Banking Act 2009. 10 IBSAR Regulation 8 11 As at the date of publishing this guidance, statutory demands and winding-up petitions are restricted until 30 June 2021 following the Corporate Insolvency and Governance Act 2020. 12 Section 367 of FSMA 13 SUP 15.3.21R 14 SUP 15.3.21R 15 Sections 374 of FSMA 16 Sections 120A of the Banking Act 2009 Financial Conduct Authority Page 7 of 48

Members’ voluntary liquidation and creditors’ voluntary liquidation
30. If a members’ voluntary liquidation (MVL) is being considered for a firm, the
prospective IP must consider all contingent liabilities, including complaints and other redress claims, and whether they are appropriately reflected in the directors’ declaration of solvency. This should involve assessing the firm’s solvency, including querying any prospective contingent liabilities and complaints made to the Ombudsman Service with the firm’s management. 31.An IP must take steps to convert the liquidation to a Creditors’ Voluntary Liquidation (CVL) if they are of the opinion that the firm will be unable to pays its debts in full. Accordingly, an IP should continue to monitor the situation regarding contingent liabilities throughout the MVL. This should take into account relevant factors such as the volume of complaints to the firm or the Ombudsman Service. If the IP is uncertain on this, they should discuss the matter with us and, if applicable, the FSCS before accepting the appointment.
32. Where an IP is required to convert an MVL to a CVL, we expect the IP to consider
whether there is a conflict for the same IP to act in both processes. Creditors’ committees 33.After a firm has been placed into administration or special administration, the administrator must, when seeking approval from the creditors on the administrator’s proposals, invite the creditors to decide whether a ‘creditors’ committee’ should be established. By ‘creditors’ committee’ we mean any creditors’ committee or, in the context of liquidation, liquidation committee established by an IP under Part 17 of the Insolvency (England and Wales) Rules 2016 (Part 10 of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 for Scotland).
34. The purpose of the creditors’ committee is to assist the IP in the discharge of
their functions. Creditors will include anyone who is owed a debt by the failed firm, including clients and customers, and their interests are significant to the IP in fulfilling their duties. Clients for whom the firm holds client assets should be represented on the creditors’ committee and the IP should take reasonable steps (in accordance with relevant legislation) to ensure appropriate representation from all types of clients and, where relevant, the FSCS on the committee. Insolvency costs
35. An IP’s fees and expenses are matters for creditors and the court to oversee and
approve. However, we would expect an IP to properly record insolvency fees and expenses throughout the insolvency process, and any fees and expenses charged to the client estate should be directly attributable to the distribution of client assets. We also expect the IP to be efficient in their work and take steps with the aim of reducing costs that would be borne by clients and creditors wherever possible.
36. Fees estimates and details of expenses that the IP considers will, or are likely to
be, incurred should be realistic and communicated to clients and creditors in a timely and clear manner. An IP should carefully consider when they are in a position, having fully assessed the firm’s business and understood the complexities of the insolvency, to seek approval for the basis of their Financial Conduct Authority Page 8 of 48

remuneration and, where relevant, to provide a fees estimate and details of expenses to creditors and clients. If a creditors’ committee is not formed, the IP’s fees can be approved by the general body of creditors or the court.
37. We expect an IP to properly consider expenses that may be incurred (e.g. legal
expenses). This should include factoring in any costs that may be incurred as part of ongoing engagement with regulatory bodies and authorities as relevant. It is important to note that if lawyers or other parties are working in conjunction with an IP, they will also need to be able to accurately account for their time, particularly for work directly attributable to the distribution of client assets.
38. We expect an IP to properly allocate costs to relevant estates and, where
relevant, consult with, and seek approval from, the creditors’ committees and/or seek directions from the court. We expect the IP to update us on the costs that they are charging to the relevant estates, and report this clearly to clients and creditors. An IP should discuss this fully with the creditors’ committee, if one is established, when gaining their approval to draw costs as set out in insolvency legislation. In some cases, the creditors’ committee may wish to consider the appointment of an independent cost assessor.
39. Given the role of the creditors’ committee in this process, if one is established, it
is important that it appropriately represents the client base of the firm. An IP should therefore take reasonable steps (in accordance with relevant legislation) to ensure appropriate representation across all types of creditors and clients on the committee throughout the insolvency process. Disclosures to the market in relation to firms that have listed or traded securities 40.Any firm with financial instruments that are traded on a UK or EU trading venue, such as the London Stock Exchange, needs to consider its disclosure (including inside information disclosure) obligations to the market on an ongoing basis. This would include any deterioration of its financial position and any decisions to appoint an IP. Any required announcements should be made without delay, although we would expect the firm or the IP to discuss the situation with our Primary Market Monitoring team at an early stage to ensure steps are taken to prevent a disorderly market.
Chapter 3: Entering insolvency
Interaction with the FCA
41. If a firm is considering entering or has entered into an insolvency process, we
would expect an IP to provide regular updates to us for a period agreed with us. We would expect updates on items including the following:

• client communications

• client contacts and questions

• progress in reconciling, distributing or transferring client money and custody
  assets in line with the CASS rules and relevant insolvency legislation Financial Conduct Authority Page 9 of 48

• client complaints and compensation claims (including interface with the
  Ombudsman Service and FSCS)

• quality of books and records

• possible sale of the client book or business (if contemplated) including the
  marketing process, the ability of any proposed purchaser to take on the book, and the implications of any requirements over the firm

• staffing and supplier issues

• adverse press or other commentary

• evidence of potential fraud or potential financial crime by the firm

• any intelligence or information arising from the insolvency or investigations
  into directors’ conduct that could give rise to harm, in particular risks of harm that relate to protection of consumers or market integrity

• insolvency costs, especially those relating to the client estate, and

• interaction with foreign regulators and/or other UK authorities involved in the
  firm’s insolvency process.
  Communicating with clients

42. If a firm is considering entering or has entered into an insolvency process, we
    expect an IP to have a communication strategy in place. This strategy should consider the key messages for clients, what their immediate concerns may be and the information they are going to need, the format of that information and how quickly it can be disseminated. Information about the practical effects of the appointment will be the most important initially and must be clear for clients.
43. In addition, the following practical issues should be considered:

• Use language that is clearly understood by the audience of the
  communication17, particularly if they are retail or vulnerable consumers. This includes adapting template communications to help ensure they are clear, fair and not misleading to the recipient and are easy to understand. An IP should also consider using headings and highlighting key actions that need to be taken by the recipient. Given the rise in scams, any client communications should have a standard ‘scam smart’ messaging and make clear that a consumer is not required to use the services of a claims management company to pursue a claim. Key messages should not be hidden (i.e. they should be at the top of the communication).
• Ensure sufficient resource is available for communications with the
  firm’s clients, particularly where there is a significant number of retail clients. This may require additional phone lines or a call centre, producing scripts for staff including frequently asked questions and, in some cases, providing communications in different languages. The communication should also highlight options for clients to communicate their questions and concerns to the IP (e.g. email address, online forms, telephone number(s) and/or postal address).
• Share draft versions of key client communications with us (and other
  relevant authorities) for comment before finalising, particularly 17 This is in accordance with the firm’s obligations under Principle 7 (communication with clients). Financial Conduct Authority Page 10 of 48

communications regarding high profile or complex regulated firm failures (e.g. firms that have significant client assets holdings or vulnerable clients). Sharing client communications with us would also help to ensure these are consistent with our press releases, where relevant, upon an IP’s appointment.
44. We are aware that there are statutory communications, including notices, letters
and reports, that an IP must issue before and during their appointment. If any communication contains references to the FCA, we expect these to be factual, necessary and, in the case of high profile and complex failures or if requested, communicated to us for comment in advance of publication and in good time so that the IP is able to meet any statutory deadlines for such communications. These communications should be sent to firm.queries@fca.org.uk. Interaction with FSCS
45. The FSCS is the UK’s compensation scheme when a protected regulated firm is
unable, or likely to be unable, to pay claims against it. Broadly speaking, the FSCS covers deposits, dormant accounts, insurance provision and distribution, investment business, home finance advice and debt management business.
46. The PRA makes the rules governing the compensation scheme relating to claims
for a deposit, under a contract or insurance or in respect of Lloyd’s managing agents. The PRA’s rules are in the Depositor Protection and Policyholder Protection parts of its Rulebook. The FCA makes the rules so far as other claims are concerned. The FCA’s rules are in the COMP section of the FCA Handbook.
47. If the conditions for FSCS payment are met, the FSCS can pay this amount –
generally up to £85,000 per eligible person per firm to customers that meet the FSCS’s eligibility criteria and who have a valid claim. For general insurance firms and intermediaries, there is a limit of 90% of the value of the insurance claim and in some cases 100% of the claim. The limits on the maximum compensation sums payable by the FSCS for protected claims are set out at COMP 10.2.3R.
48. Upon payment of compensation, the FSCS takes a full assignment of the
customer’s rights and would normally seek to recover the full amount of the customer’s claim (i.e. FSCS’s recoveries are not limited to the amount of compensation paid where the customer’s loss exceeds what FSCS can pay under its compensation limits). The FSCS will, where appropriate, pay any ‘distribution of surplus’ funds back to the customer.
49. The FSCS ranks as an unsecured, ordinary creditor for FCA-related FSCS claims,
subject to the following exceptions: in the case of deposits the FSCS’s claim has a ‘super-preferred’ status; in the case of direct insurance claims the FSCS has a priority status within the class of unsecured creditors.
50. If FSCS compensation is available for clients, an IP should engage with the FSCS
at the start of an insolvency process and, if possible, prior to appointment, to issue initial communications and to work with the FSCS so that they may declare the firm to be in ‘default’. An IP should also engage with the FSCS to agree what information the FSCS will need regarding the firms’ records and operations, and to agree how to provide this. A suitable approach to enable the FSCS to validate eligibility and process claims for compensation should be agreed. As the FSCS will likely continue to receive claims after the IP’s appointment ends, suitable Financial Conduct Authority Page 11 of 48

provision for the long term sharing or transfer of information/data should be made so that FSCS can continue to process claims.
51. Following appointment, an IP should liaise with the FSCS to communicate to
clients and creditors explaining FSCS eligibility rules and the levels of compensation that may be payable by the FSCS. This may be, for example, within the IP’s communications or a separate communication from the FSCS. The IP should agree with the FSCS whether and when it would be appropriate to tell clients of the firm to contact the FSCS to register claims for compensation. Interaction with the Ombudsman Service
52. The Ombudsman Service is an independent service for resolving disputes
between consumers and businesses, and with a minimum of formality on a fair and reasonable basis. The rules and guidance relating to the operation of the Ombudsman Service is set out in the DISP rules of our Handbook.
53. We would expect an IP to engage with the Ombudsman Service at the beginning
of an insolvency process to establish the number of complaints against the failed firm and to agree how those complaints will be dealt with going forward. An IP may also need to engage with the FSCS (if applicable) to enable them to deal with any of the complaints. Notifying customers that they may have a claim for redress
54. If a firm’s conduct has been such that customers may have a claim for redress
against the firm, we expect an IP to invite claims from the entire population of customers who may be eligible for redress. The IP should send all documents regarding the insolvency to all relevant customers. Appointed representatives 55.An appointed representative (AR) is a firm or person who undertakes regulated activities on behalf of a firm that is directly authorised by us. The authorised firm is known as the AR’s 'principal'. There must be a written contract between the principal and the AR documenting the arrangement. The principal takes full responsibility for ensuring that the AR complies with our rules.
56. Where an IP is appointed over a firm that is an AR, the IP should notify the
principal of the AR and consider the terms of the contract between the AR and its principal firm. The principal should be allowed access to the AR’s staff, premises and records where required to enable it to meet its regulatory obligations in respect of the AR. The AR may not be able to continue to undertake regulated activities following the insolvency and the IP should request that the principal take the required steps to remove the AR from the FCA Register. The IP should also consider our expectations when considering the sale of a client’s data (see paragraph 124).
57. Where an IP is appointed over an FCA authorised firm that is the principal firm in
respect of one or more ARs, the IP should be aware that the ARs undertake regulated activities on behalf of the authorised firm and the authorised firm is fully responsible for ensuring that the ARs comply with our rules. Where an AR is removed and/or its customers are transferred to another AR or authorised firm, the IP should ensure the AR continues to treat customers fairly until all regulatory Financial Conduct Authority Page 12 of 48

obligations have been met and should act to remove the AR from the FCA Register in a timely manner.
Chapter 4: During insolvency
Claims process
58. We expect an IP to have a suitable claims process in place for clients and
creditors. An IP should consider how this claims process is structured to ensure that it is easy to handle from both a client and the IP’s perspective. For example, an IP may want to explore handling the claims process via a web portal.
59. We expect an IP to consider the following when designing their claims process:

• how statements to clients are issued
• how clients and creditors validate their claims
• how an application to the FSCS can be built into this
• validation of KYC details
• how non-responders are treated
• the process should client address details be incorrect
• the need for clients and creditors to add bank account details
• communication to clients on access to the claim portal
• any translations required for non-English speakers and other accessibility
  needs for clients
• the process if clients choose to abandon small claims, and
• information to be collected regarding engagement with the claims process.
  60. An IP may need to consider demonstrating the claims process with the creditors’
  committee before making it available. They should also consider using the technology systems of the failed firm if suitable (avoiding unnecessary costs). In any case, an IP should consider the need to maintain IT contracts, the resilience and usability of the systems and data security considerations for migration, including backing up any data in accordance with relevant legislation. 61.An IP should manage clients’ expectations at the outset of the claims process by informing them of any FSCS coverage that may be available for distribution costs with the relevant eligibility criteria set out. An IP should also consider necessary steps throughout the insolvency procedure to mitigate any risks relating to money laundering. This may include a review of the firm’s KYC policy and procedures that were in place before the IP was appointed. FCA participation in court cases and creditors’ committees
  62. We have statutory powers to participate in court proceedings in relation to
  insolvency proceedings for a regulated entity. The IP should give us due notice of any intended court applications and, if requested, share draft documents with us Financial Conduct Authority Page 13 of 48

within an appropriate timeframe. We may request prior copies of any court papers or submissions made by the IP or the firm, to ensure references to the FCA are correct and appropriate, and consider whether we wish to make our own representations (e.g. if a precedent is being set).
63. We have rights to make representations at creditors’ committee meetings and are
required to receive any documents sent to creditors18. We may do this depending on the case and should be informed of the creation of creditors' committee and invited to meetings. Confidentiality
64. We will not discuss any confidential aspect of the firm’s regulatory history at
creditors’ committee meetings and if questions such as these are raised, they can be raised with us through firm.queries@fca.org.uk. We may also request copies of presentations and minutes taken at the meetings of the creditors’ committee.
65. An IP should ensure that the creditors’ committee members are aware of the
confidentiality of the meetings.
Client assets
66.CASS provides detailed rules for a firm to follow when it holds or controls client money and/or custody assets (collectively ‘client assets’) as part of their business. This is to allow client assets to be returned as quickly and as whole as possible to clients if a firm enters an insolvency process. CASS currently applies to the following types of firms: investment firms, general insurance intermediaries, debt management firms and claims management companies.
67. If a firm holding client assets enters an insolvency process, an IP should make
sure that such assets continue to be treated in line with CASS and, in particular, follow the post-failure rules for returning client assets19. If the firm enters special administration, the IP will also need to comply with the IBSAR regulations and related rules. Key steps to take immediately after appointment Take control of client assets
68. Following appointment, an IP will need to take control of client assets (physical
and electronic) and the books and records of the firm. The IP should also identify key individuals and systems required to manage client assets of the firm, including third party administrators, system suppliers and employees of the firms. This should be available in the firm’s CASS resolution pack if applicable20. 69.CASS sets out requirements on how and where a firm can hold client assets, including appropriate selection of third parties, diversification of client money holdings and when set-off arrangements with third parties over custody assets (e.g. under a lien) are permitted. An IP will therefore need to consider where client assets are held, who has access to them, diversification risks, operation of any set-off arrangements, and any other requirements over the client accounts. 18 Sections 362 and 371 of FSMA 19 CASS 5.6 (for general insurance intermediaries), CASS 6.7 and CASS 7A (for investment firms), CASS
11.13 (for debt management firms), CASS 13.11 (for claims management companies)
20 CASS 10 (for investment firms) and CASS 11.12 (for debt management firms) Financial Conduct Authority Page 14 of 48

70. Where a firm is holding client money, the appointment of an IP for certain
insolvency procedures21 constitutes a ‘primary pooling event’ (PPE)22. Broadly speaking, this means that all client money held by the firm in client bank accounts and client transaction accounts (if applicable) is notionally pooled, forming a client money pool (CMP). Any client money received after a PPE does not form part of the CMP and is required to be returned promptly to relevant clients (see below) or may be used to settle a pre-existing transaction to the extent such money relates to it23. Operate different estates
71. We expect an IP to operate at least two separate estates: the client estate
comprising client assets (against which only clients can claim) and the general estate comprising the firm’s assets (against which all creditors can prove). The client estate is split in various ways – custody assets should be treated separately from client money, and client money should be split between pre-and post-PPE client money as described above. 72.An IP should accurately allocate costs between the estates. An IP should also accurately record time spent on the different estates and, in respect of the client estate, distinguish time and expenses spent on client money and custody assets as well as pre-and post-PPE client money. Immediate reconciliation and final top-up/withdrawal (for firms in special administration)
73. If a firm has entered special administration and is holding client money, the IP is
required to conduct a post-administration client money reconciliation immediately after being appointed and to make a transfer to or from the firm’s client bank accounts following that reconciliation24. We expect IPs to conduct this reconciliation as soon as they can post appointment. This enables the IP to correct any shortfalls (or excesses) in the firm’s client bank accounts using the firm’s previous reconciliation method.
74. Where the reconciliation identifies a shortfall in client money, the IP must top-up
the client bank account with monies from the firm’s own bank account (where there are funds available). Where the reconciliation identifies an excess in client money, an IP must withdraw this from the client bank account and transfer it to the firm’s own bank account. Determine client entitlements Calculate client entitlements 75.After taking control of client assets, the IP must identify and calculate each client’s entitlement in accordance with the CASS rules. This will involve:

• carrying out client money and custody asset reconciliations (as relevant)25 to
  determine the client assets positions as at the time of the firm’s failure, and 21 The appointment of a liquidator, receiver, administrator, special administrator or trustee in bankruptcy, or any equivalent procedure in any relevant jurisdiction. 22 CASS 5.6.5R, CASS 7A.2.2R, CASS 11.13.4R and CASS 13.11.3R 23 CASS 7A.2.7-AR(5) 24 IBSAR Regulation 10H 25 CASS 6.6.46R, CASS 7.15.15R and CASS 7.15.26AR Financial Conduct Authority Page 15 of 48

• determining each client’s entitlement to client money and custody assets as
  at the point of failure with reference to the reconciliations above.

76. In respect of client money, each entitlement must be established at the point of
    failure, except in relation to cleared open margin transactions by investment firms26. In respect of custody assets, if an IP uses the book value for establishing entitlements, the IP should manage clients’ expectations that they may be less value when it comes to the actual return of the asset. Manage currency risks
77. We expect an IP to have regard to all relevant insolvency rules and contractual
    documentation, including terms and debts in foreign currency, on deciding:

• what currency they should calculate each client’s entitlement
• what currency they should continue to hold client money in, and
• what currency the IP should return client money in.
  Treatment of shortfalls
  78.A shortfall is the amount by which client assets held by the firm are not sufficient to meet all client entitlements. A shortfall may arise because the costs of distributing client assets may be deducted from client assets held by the firm and/or poor controls and record keeping by the firm before it failed. 79.A distribution cost is a cost directly attributable to the distribution of client assets. An IP should endeavour to minimise costs incurred in the distribution process and return client assets to the client as soon as reasonably practicable. Distribution costs should be recorded and recovered in accordance with insolvency legislation.

80. For shortfalls in client money, including distribution costs, an IP is required to
    allocate these to all clients of the firm on a pro rata basis27. For shortfalls in custody assets due to distribution costs, an IP should consider and agree the appropriate method for allocating these with the creditors’ committee. The IP can explore various options for this, such as applying a percentage of the asset value, applying a fixed fee per client or allocating such costs on a pro rata basis.
81. For other shortfalls in custody assets, if the firm has entered into special
    administration, the IBSAR requires shortfalls in custody assets of a particular description in an omnibus account to be borne pro rata by all clients for whom the firm holds assets of that particular description in that account in proportion to their beneficial interest in those assets28. 82.Clients should be considered contingent creditors in respect of any shortfall in client assets. To the extent that their claim is not satisfied by distributions from client assets held by the firm, clients may also have a claim against the general estate for any client assets that are not returned as part of the distribution and would usually be considered unsecured creditors in respect of such claims. 26 CASS 7A.2.R(-2). CASS requires investment firms to apply the value achieved on close out of all cleared open margin transactions. That is, hindsight should be applied (the ‘Hindsight Principle’). For all other open transactions at PPE, the rules require these to be valued using the notional closing or settlement prices prevailing at the PPE. 27CASS 7.17.2R(4), CASS 11.6.1R(3), CASS 13.1.3R(3) 28 IBSAR Regulation 12 Financial Conduct Authority Page 16 of 48

FSCS compensation for shortfalls
83.A client may be eligible to claim for compensation from the FSCS for any loss incurred because of a shortfall in client assets, if the criteria in COMP are met. An IP should therefore liaise with the FSCS to notify clients if they are able to claim from the FSCS in respect of client assets shortfalls. Where there is eligibility, we expect the IP to liaise with the FSCS to set up the most efficient way in which the FSCS claims can be managed. 84.An IP should consider and work with the FSCS on claims where the FSCS is able to “look-through” to compensate underlying beneficiaries who may not have a direct contractual relationship with the failed firm29. Examples of categories eligible for a “look-through” include a trustee of an occupational pension scheme, stakeholder pension or personal pension scheme (e.g. a SIPP); a bare trustee holding assets for the benefit of absolutely entitled beneficiaries; a nominee company; an agent acting for one or more principals; or a collective investment scheme (CIS) or an operator, depositary, manager or trustee of a CIS. Client money received by the firm after failure 85.A firm is likely to have unsettled or incomplete transactions at the point of entering an insolvency procedure, which may result in the firm receiving client money after it has failed. The IP is required to keep post-PPE client money separate from the CMP (e.g. in a separate bank account that does not contain money in the CMP) and promptly return these to relevant clients directly, or use such money to complete pre-existing transactions which the money relates to. 86.An IP should consider the costs of this process. CASS permits the IP to retain costs properly attributable to the distribution of post-PPE client money to each client from these monies. This is different to the treatment of distribution costs of the pre-PPE CMP, where costs are deducted from the CMP before distribution. 87.An IP should set up procedures to monitor and allocate receipts post failure. For example, the firm may continue to receive dividends for clients in respect of shares and these will need to be allocated promptly to the appropriate shareholders. Distributions to clients and transfers to a solvent firm Distributions of client money 88.After determining entitlements to the CMP, an IP must, as soon as reasonably practicable, distribute the client money to each client who is a beneficiary of the CMP rateable to their entitlement. In this process, an IP will need to consider the following issues:

• the statutory trust waterfall provisions of payments in CASS30

• how money is returned to the relevant client (e.g. whether it should go
  directly to the client, received by a receiving broker nominated by the client, or be part of a transfer of client assets to another firm)

• if being returned directly to the client, verifying a client’s bank details, and
  completing any required KYC, before returning client money 29 COMP 12 30 CASS 5.3.2R (for general insurance intermediaries) and CASS 7.17.2R (for investment firms) Financial Conduct Authority Page 17 of 48

• costs of returning client money to each client, and

• if the client cannot be contacted or disclaims their entitlement.
  89. We recognise that an IP needs to close the client estate and cannot retain
  unclaimed client money indefinitely but are equally mindful that clients must be given sufficient opportunity to claim their assets. For investment firms, CASS permits an IP to use allocated but unclaimed (or declined) client money entitlements and unallocated client money towards a shortfall in the CMP, providing certain reasonable steps have been taken to trace clients concerned31. See below for further details on closing the client estate. Transfer of client assets 90.An IP should consider whether a transfer of client assets to a solvent firm is possible. A transfer is likely to incur lower costs of distribution than a direct return to clients. There are various ways that a transfer can be facilitated: for example, as a pre-pack administration or as part of distribution of client assets in accordance with the CASS rules post failure. Pre-pack administration 91.A pre-pack administration is a sale of all or part of a firm’s business and assets, which is negotiated prior to administration on the basis that the sale will be concluded immediately on or shortly after the firm enters administration. Once the plan is ready, the firm (or its directors or creditors) can appoint an administrator, who can then conclude the sale. Assets would be transferred to the purchaser, but generally not any liabilities, and consideration of the sale received by the failed firm may go towards any unpaid liabilities.
  92. This type of sale may be better for clients and markets generally if the business
  of a failed firm, together with relevant client assets, is transferred to a different firm to help ensure continuity of service. Clients may then continue to receive services uninterrupted, avoid opportunity costs from having their assets stuck in the failed firm’s insolvency and avoid loss of value arising from premature closure of positions or loss of tax wrappers. Transfer of client assets as part of the distribution of client assets
  93. The CASS rules permit an IP to transfer client assets to another entity providing
  certain conditions in CASS are met32.
  94.An IP would need to consider the following practical issues when conducting a transfer of client assets:

• whether the transfer will be a whole or a partial transfer

• whether client consent is provided or needed

• what client communications, including notifications, are necessary

• whether there are any requirements on the firm that may affect the transfer
  (e.g. an asset requirement preventing a transfer without conditions being met33) 31 CASS 7A.2.6AR, CASS 7A.2.6CE and CASS 7.17.2R 32 CASS 5.5.80R(2), CASS 6.7.8R, CASS 7A.2.4R(4), CASS 11.13.7R – CASS 11.3.9R, CASS 13.11.6R – CASS 13.11.10R 33 Section 55P of FSMA Financial Conduct Authority Page 18 of 48

• the type of firm which can take on the business and whether a firm has
  appropriate regulatory permissions

• the consideration for the transfer and how it will be structured

• warranties and indemnities (if applicable)

• whether the transferee has adequate resources and capabilities to manage
  the transferred accounts

• whether the transferee’s systems are compatible and if any other
  arrangements need to be put in place (e.g. where the firm has outsourced functions to a third-party administrator)

• the timetable of the transfer

• the need for any applications for waivers (see paragraph 103)

• any alternative arrangements for clients, including arrangements to transfer
  out of the transferee, and ensuring these are communicated to clients

• arrangements for assets which cannot be transferred

• transfer of staff in accordance with the Transfer of Undertakings (Protection
  of Employment) Regulations (TUPE) and whether there is a need for a transitional services agreement

• whether staff are needed to continue with the insolvency, and

• whether there are any phoenixing concerns (see paragraph 121).

95. Where an IP is transferring client assets as part of the distribution of client
    assets, the IP should use the creditors’ committee to discuss the proposed transfer and keep us updated with their plans. Bar dates
96. The bar date mechanism established in the IBSAR gives a special administrator
    the power to set deadlines for clients to submit claims for the return of their assets. A bar date gives certainty over the group of claimants for an upcoming distribution, ensuring that a distribution of client assets by the special administrator can progress smoothly without disruption from late claimants. In general, a late claimant may not challenge a distribution that was made after a bar date, provided the special administrator carried it out in good faith.
97. In setting a bar date, the special administrator would have to allow a reasonable
    time after the bar date notice has been published for clients to be able to calculate and submit their claims. The special administrator would then make a distribution of client assets in accordance with a distribution plan (if applicable) or according to clients’ entitlements established under the claims received.
98. The special administrator can set two types of bar dates:

• A ‘soft’ bar date whereby the special administrator can set a deadline for
  clients to submit claims without having to seek court approval and make interim distributions34. Late claimants would lose the right to challenge a distribution made prior to the receipt of their claims to meet claims made before the bar date. This allows the special administrator to make necessary 34 IBSAR Regulations 11 and 12A Financial Conduct Authority Page 19 of 48

distributions and proceed with the special administration process, as they would not be required to wait for clients who had failed to submit claims in good time. However, in respect of client money, when determining the amount to be distributed, the special administrator must make allowance for entitlements, by way of a subsequent distribution from the CMP, of persons who have neither made a client money claim nor received any payment under a previous distribution of client money. They would also have to make a distribution to late claimants if there are client assets available to do so.

• A ‘hard’ bar date whereby the special administrator can set a final cut-off
  date for clients to submit claims, with court approval, after which clients can no longer claim on the client estate, any remaining assets can be moved to the general estate and the client estate can be closed completely35. Given that a hard bar date would remove a client’s right to claim on the client estate, the CASS rules require the special administrator to take reasonable steps to notify all clients of the fact they may have a valid claim for client assets prior to the hard bar date taking effect (see below). Closure of client estate 99.At the appropriate point, the IP will need to close the client estate. If the firm is in special administration, the IBSAR’s hard bar date mechanism may be applied before this occurs.

100. For investment firms, the CASS rules require the IP to take reasonable steps
     to notify all clients of the fact that they may have a valid claim for client assets, prior to the closure of the client estate or a hard bar date taking effect. The CASS rules provide an evidential provision outlining the minimum client contact required36. Specifically, we believe it is reasonable for an IP to make at least two attempts to contact the client using different methods (e.g. an email and a phone call) for a professional client and three contact attempts for a retail client. The client must be notified that if no claim is made by the cut-off date, proprietary rights to the claim will be lost and any claims made will be as a general creditor.

101. Where client money is not claimed, we would expect this to go towards any
     shortfall in the CMP as outlined in paragraph 89 above.

102. We would expect an IP to share any court documents with us in good time
     prior to closing the client estate.
     Waivers process

103. Should an IP be unable to ensure a firm’s compliance with certain rules in our
     Handbook, the IP may need to consider applying for a waiver or modification of the rule37. For example, a waiver or modification may be needed where there is a requirement to obtain client consent to a transfer to a new party (e.g. if clients have not previously consented to a transfer through the terms of business). General law and the terms of any relevant contract will also need to be considered by the IP in addition to obtaining a waiver of a requirement in CASS. The IP should discuss any waiver or rule modification application with the firm’s supervisor at the FCA in the first instance. 35 IBSAR Regulations 12B to 12C 36 CASS 6.7.4E and CASS 7A.2.6C 37 The FCA would not be able to grant a waiver of rules deriving from EU requirements. Financial Conduct Authority Page 20 of 48

104. All waiver applications must be submitted through the FCA’s Connect portal.
     We will grant the waiver if satisfied the following statutory conditions are met:

• compliance with the rule would be unduly burdensome, or would not achieve
  the purpose for which the rules were made, and
• the waiver would not adversely affect the advancement of any of our
  operational objectives.

105. Further information about applying for a waiver is available on our website.
     Hardship policies

106. Until the IP is able to distribute client assets, these will not be returned or
     available to clients. In such situations, the IP should consider hardship cases to help ensure that they are identified and responded to in an appropriate and consistent manner, including liaising with the FSCS if applicable. An IP may be able to provide earlier distributions of client assets to clients who can demonstrate hardship (although this may not always be possible). We therefore expect an IP to identify potential hardship policies and assess whether there is anything that can be done to support these cases. However, we recognise the ability of the IP to support will depend on the circumstances of the case. IPs should also refer to our guidance on fair treatment of vulnerable customers. Corporate action policies

107. Where a firm holds client assets, clients will not be able to exercise their
     rights over the assets where there are corporate actions. This may include being unable to participate in a rights issue, exercise warrants or vote at a general meeting. In such situations, an IP should take reasonable steps to assess whether it is possible to offer clients the opportunity to participate in corporate actions prior to distribution, which assets and actions would be eligible and the relevant charge for doing this. We expect the IP to establish a corporate actions policy to ensure, so far as possible, that all clients with holdings of assets within the policy are aware of services offered in accordance with the policy. Continuity of supply

108. We expect an IP to consider how they will make sure that the failed firm
     continues to comply with our regulatory requirements while it remains authorised. If the firm loses a supplier, it is still required to comply with our rules.

109. The continuity of service provisions in the Insolvency Act (as amended by the
     Corporate Insolvency and Governance Act 2020)38 assist an IP by enabling them to limit the terms that suppliers can impose as a condition for the continued supply of their service and/or compel continued supply by restricting the effect of existing insolvency-related terms in a supply contract (subject to certain exclusions39). If the firm has entered special administration, the IBSAR further restricts suppliers of the failed firm from terminating supply after commencement of the administration40. Continuity of supply also helps to facilitate distribution of client assets (e.g. where third party suppliers have been used to maintain client records and IT systems). 38 Sections 233, 233A and 233B of the Insolvency Act 1986 39 Schedule 4ZZA of the Insolvency Act 1986 40 IBSAR Regulation 14 Financial Conduct Authority Page 21 of 48

110. Certain continuity of supply provisions are not available for liquidations. An IP
     must therefore consider on an ongoing basis how they ensure the insolvency is conducted in compliance with our rules. The IP should be aware of which continuity or protection can be relied on in accordance with the law. Equitable set-off

111. Equitable set-off occurs where a customer of the failed firm owes money to
     the firm and is owed money by the firm, and the mutual debts are related. It is up to each customer to exercise their right to equitable set-off if they wish, although an IP should honour legitimate requests for equitable set-off.

112. An IP may set off redress amounts owed by the firm against amounts owed to
     the firm. Equitable set-off should be considered quickly by an IP as customers to whom it might apply could continue paying debts that would otherwise be set off. Trading while in an insolvency process

113. An IP may decide that it is the best outcome for creditors if the failed firm
     continues to trade. We expect an IP to be aware that continuing to trade may mean using FCA permissions and, if this is the case, that the firm must remain authorised until the firm ceases to be carrying out regulated activities. When FCA permissions are no longer required, the IP should cancel the firm’s permissions by liaising with us (see below).

114. We would expect firms to tell us if they were continuing to trade while in an
     insolvency process and consider the impact on any client assets held (e.g. ensure that the CASS rules are complied with and pre- and post- PPE client monies held separately). IPs should be aware of our requirements on the firm (including any imposed on the firm’s permissions through a VREQ or OIREQ) and make sure that they maintain the firm’s organisational arrangements to comply with them (e.g. application of the Senior Managers and Certification Regime). Cancellation of permissions

115. When a firm goes into an insolvency process, the appointed IP should
     consider when it is appropriate to apply to cancel the firm’s permissions. We expect an IP to consider early on in the insolvency what information we would need to cancel the firm’s permissions so that this can be prepared at the relevant time (e.g. when the client estate is closed) rather than at the end of the process. It is only appropriate to apply to cancel the permissions of the firm if it has stopped carrying out all regulated activities and no longer holds any client assets.

116. An application to cancel the authorisation of a FCA regulated firm can be
     made using our online system Connect. For further information, see our guide for completing an application to cancel. Suspension or cancellation of listing

117. Where a firm with securities admitted to the Official List has made a decision
     to appoint an IP, it gives rise to grounds for a suspension of listing in order to protect investors. To ensure an orderly market, consideration should be made at an early stage and a conditional suspension can be requested from our Primary Market Monitoring team in advance of any such decision being made, which can then smoothly be implemented should the event crystallise. Once control has Financial Conduct Authority Page 22 of 48

passed from the firm to the IP, we can only deal with requests for suspension or cancellation of listing from the IP and expect due co-operation on such matters.
118. For urgent live market situations, our Primary Market Monitoring team can be
contacted via the Emergency Line on 020 7066 8354 and suspension requests should be sent to PMOsuspensions@fca.org.uk. Reporting of unauthorised businesses
119. An IP should report to us if they come across any unauthorised firms or
individuals that they believe are carrying out FCA regulated activities without the appropriate permissions to do so and any scams relating to financial services. Please note, however, that we are only able to look into scams and unauthorised conduct involving financial services firms regulated by us.
120. An IP may also find that the firm over which they are appointed is being
scammed or cloned. An IP should be vigilant to this and other scams and ensure to communicate to clients appropriately and report it to us at firm.queries@fca.org.uk. Phoenixing
121. Phoenixing is a common term used to describe the practice of closing a firm
and that firm re-appearing under a new guise to avoid liabilities arising from the old firm. Each time this happens, the insolvent company’s assets, but not its liabilities, are transferred to a new, similar ‘phoenix’ company. The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.
122. UK law does not prevent the director of a company that has failed from
forming a new company, unless they are personally bankrupt or disqualified from acting in the management of a limited company. However, there is a risk that a company owing significant sums, often in the form of consumer redress awarded by the Ombudsman Service, will be placed into formal insolvency, leaving liabilities owed to the consumer unpaid. Directors, shareholders and senior staff who have engaged in financial misconduct may reappear, connected with a new firm of strikingly similar business. We consider this to be unacceptable practice. Where we find such individuals have deliberately avoided their responsibilities and not complied with previous redress awards made against their firms, we will question the fitness and propriety of these individuals and take necessary steps against them so that they do not cause further harm to consumers.
123. If an IP becomes suspicious of phoenixing in respect of a failed firm, they
should report these suspicions to firm.queries@fca.org.uk immediately. IPs should carefully consider the parties buying the business and, if there has been a sale prior to the entry into an insolvency, to investigate the propriety of the transaction. Sale of client data
124. An IP may consider selling a client book or part of a client book (i.e. clients’
personal data) as part of a transfer or sale of the business of the failed firm. We expect the IP to consider the following matters in this scenario:
Financial Conduct Authority Page 23 of 48

• Notice to the FCA: an IP should notify the FCA in good time, including
  sufficient details, if they are planning to sell a client book.
• Fair treatment of clients: before transferring clients’ personal data, an IP
  must consider whether this is in the interests of the clients and treats them fairly41.
• Selling to a claims management company (CMC): if an IP proposes to
  sell the client book to a CMC, the IP should consider our joint statement with the ICO on dealing with personal data.
• Obtain legal advice on the application of data protection legislation:
  data protection legislation applies to data controllers including IPs. Relevant legislation includes the Data Protection Act 2018, General Data Protection Regulation (EU) 2016/679 (GDPR) and Privacy and Electronic Communications Regulations (EC Directive) 2003. An IP should obtain legal advice on their obligations under such legislation to ensure that they handle client data appropriately.
• Communication to clients: an IP must pay due regard to the information
  needs of their clients and communicate with them in a way which is clear, fair and not misleading. This includes clearly articulating the transaction with a suitable helpline/contact(s) being provided to support and respond to client queries. The IP should also encourage the buyer to inform clients on the sale and their rights, so that they can manage their rights appropriately.
• The sale is not facilitating the practice of phoenixing of the failed
  firm described in paragraph 121.

125. For further details on our expectations of handling client data more generally,
     please see our communication on this.
     Liaising with overseas regulators
126. Where an IP receives or issues correspondence to an overseas regulator in
     relation to the insolvency process, this information should be shared with the FCA at firm.queries@fca.org.uk. This would help us to keep abreast of the situation and inform any discussions that we may have or be required to have with the overseas regulator.
     Chapter 5: Restructuring procedures
127. Firms may consider using other procedures to enable them to restructure and
     continue trading. These can include:

• Scheme of arrangement
• Company voluntary arrangement (CVA)
• Restructuring plan
  41 Principle 6 (Customers’ interests)
  Financial Conduct Authority Page 24 of 48

128. If an IP is advising a firm on their options or take forward a scheme of
arrangement, CVA or restructuring plan in respect of a regulated firm, or which impacts on a regulated firm, the firm should notify us of their plans in good time.
129. We have rights to make representations at court and creditor meetings for all
restructuring procedures. We therefore expect appropriate notice. We also expect the firm or an IP (in their capacity as supervisor of a CVA) to send reports on a regular basis regarding the progress of these procedures to us so that we can review as appropriate. Reports should be sent to firm.queries@fca.org.uk.
130. If a firm is likely to be placed into administration or liquidation while subject
to one of these procedures, the firm is required to promptly notify us42 .
Chapter 6: Checklist
131. The checklist below summarises the key steps from this guidance that an IP
will need to consider when appointed over a regulated firm.
Key step Tick
1. Understand the firm’s business model and how FCA requirements
apply to the firm before appointment.
2. Engage with the FCA and FSCS (if applicable) as early as possible,
including sharing court documentation and consent requests, and throughout the insolvency process as appropriate.
3. Communicate appropriately with clients.
4. Treat client money and custody assets in accordance with the
CASS rules.
5. Ensure costs are properly recorded and communicated to clients
and creditors in an appropriate manner.
6. Do not facilitate phoenixing and notify the FCA promptly of any
concerns.
7. Cancel the firm’s permissions when the firm is no longer
conducting regulated activities and all client assets have been returned or transferred. 42 SUP 15 (General notification requirements) and Principle 11 (Relations with regulators) Financial Conduct Authority Page 25 of 48

Appendix: Template letter for section 362A FSMA consent
requests
Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
For the attention of [ ]
[date]
STRICTLY PRIVATE & CONFIDENTIAL
Dear Sirs,
[ ] (‘the Company’)
[I/ We] refer to the proposal that the directors of the Company are currently considering to place the Company into administration under paragraph [ ] of Schedule B1 of the Insolvency Act 1986. [I/ We] have been advising the directors of the possible administration and understand that if they seek to place the Company into administration, they will ask me [and [ ]] to accept the appointment as [joint] administrators. In connection with such a proposed appointment, [I confirm on behalf of myself and [ ]] [We confirm] that -

1. [I am a/ We are] licensed under the Insolvency Act 1986 as insolvency
   practitioner[s];
2. [I am / We are] satisfied that [I/ we] have the required professional qualification
   and experience to accept the appointment. [I/We] have experience and expertise of taking appointments as administrators, and indeed provisional liquidators, of companies, [including companies regulated by the Financial Conduct Authority]. [Given that the Company is authorised by the Financial Conduct Authority for the carrying on of regulated activities, [I/ we] confirm that persons with the relevant financial services experience will provide the necessary assistance]; and
3. [I am/ We are] [satisfied that it is reasonably likely that administration will achieve
   a better result for the Company’s creditors as a whole than would be likely if the Company were wound-up.] (if the purpose of the administration is the realisation of the company’s assets) [[I/ We] believe that the distribution of the Company’s assets to those entitled is not likely to be slower than would be the case if the Company were to be placed into liquidation.] If you have any questions on the above, please do not hesitate to contact [me/ us]. Financial Conduct Authority Page 26 of 48

Annex 2 – Guidance for insolvency
practitioners on how to approach payments and e-money institutions
Chapter 1: Introduction
1. This guidance is for IPs on how to approach payments and e-money institutions
(PIs and EMIs) authorised or registered under the PSRs or EMRs.
2. This guidance is not exhaustive, neither is it a substitute for reading or complying
with our Handbook and other applicable legislative requirements and guidance.
3. This guidance reflects changes to the insolvency framework for PIs and EMIs that
will be made by the Payment and Electronic Money Institution Insolvency Regulations 2021 (PEMIIR) which were laid in draft before Parliament on 26 April
2021. The PEMIIR introduces a bespoke special administration regime and applies
the full suite of FCA insolvency powers under Part 24 of FSMA to PIs and EMIs. These changes were consulted on by HM Treasury on 3 December 2020 and are expected to come into effect in Summer 2021. The FCA’s role in firm failures
4. We have a role in every regulated firm failure and the role will vary depending on
the individual circumstances of the firm.
5. While we are not able to stop firms failing, we aim to minimise harm to
consumers and markets that may arise from a disorderly firm failure. This involves working with IPs to reduce such harm where possible.
6. PIs and EMIs are regulated by the PSRs and the EMRs respectively. We have
certain powers provided under the PSRs and EMRs, which enable us to take certain actions prior to a firm entering an insolvency process. This can include, for example, imposing requirements on the firm to take specific actions such as the preservation of the firm’s books and records, varying the firm’s regulatory permissions, or taking steps to make an application to the court to place the firm into an insolvency procedure. Safeguarding customers’ funds
7. Authorised PIs and EMIs are required to safeguard funds belonging to
customers43 on receipt (‘relevant funds’). The PSRs and EMRs set out how these funds must be safeguarded and distributed on the occurrence of an insolvency event44. See paragraph 56 on how relevant funds are defined and our expectations on how these funds should be treated following an insolvency event. 43 References in this guidance to customers are to payment service users and e-money holders (as relevant) unless otherwise stated. 44 Insolvency event is defined in regulation 23(18) of the PSRs and regulation 24 of the EMRs. Financial Conduct Authority Page 27 of 48

Chapter 2: Pre-insolvency
Sufficient experience for an appointment over a regulated firm
8. The Insolvency Code of Ethics requires that an IP should only accept an
insolvency appointment where the IP has or can acquire sufficient expertise. If a firm is conducting regulated business, we expect the appointed IP to understand the business model and its regulated activities, or have a detailed plan to gain a full understanding of these shortly after their appointment. This could, for example, involve engaging relevant specialists.
9. We also expect the IP to know what regulatory requirements and guidance that
apply to the firm and identify any issues with compliance. The regulatory requirements and guidance may include:

• Principles for Businesses (PRIN): these apply, in whole or in part, to all
  firms and set out high-level but fundamental obligations with which firms must comply under the regulatory system itself regarding various aspects, such as treating customers fairly, conflicts of interest and how a firm should communicate with the regulator.
• The Payment Services Regulations 2017 (PSRs): these apply to all
  payment service providers (PSPs), including PIs and EMIs. They set out the authorisation, prudential and safeguarding requirements for PIs, as well as conduct requirements for all PSPs.
• The Electronic Money Regulations 2011 (EMRs): these apply to all
  electronic money issuers. They set out the authorisation, prudential and safeguarding requirements for EMIs and conduct requirements for all electronic money issuers.
• FCA approach to payment services and electronic money: this sets out
  our approach to implementing the PSRs and EMRs. This provides guidance on the requirements of the PSRs and EMRs and our regulatory approach.
• Disputes Resolution Complaints Sourcebook (DISP): DISP sets out how
  complaints are to be dealt with by firms, the reporting of complaints to us and the operation of the Financial Ombudsman Service (the Ombudsman Service).
• Individual requirements and variation of permission: we apply these to
  an individual firm to vary its authorisation or registration and/or restrict the firm’s activities45 . We may ask a firm to voluntarily accept a variation of permission (VVOP) or the imposition of a requirement (VREQ) on is permission or impose it using our own-initiative powers (OIVOP/OIREQ). A firm must continue to comply with these variations and requirements after it enters into an insolvency procedure.

10. We expect an IP to consider if they have the capacity to take on an appointment,
    bearing in mind their existing appointments, and the size and complexity of the proposed appointment. If the IP does not have in-house resources to cover this, they should consider how appropriate resources will be engaged. 45 Regulation 7, 8 and 12 of the PSRs and Regulations 7, 8 and 11 of the EMRs Financial Conduct Authority Page 28 of 48

Pre-insolvency checks
11.An IP may often be involved with a firm before it becomes insolvent and advise on whether the firm has the necessary arrangements in place. This includes the firm having a wind-down plan. A wind-down plan details the steps that the firm will take in the event of insolvency, any risks associated with the wind-down and mitigating actions for these. An IP may wish to consult our Wind-down Planning Guide when advising on the robustness of a wind-down plan to help ensure an orderly wind-down of the firm. Early engagement with the FCA
12. We expect an IP to engage with us at an early stage, both prior to and after
appointment to a regulated firm. In addition, if an IP is advising a firm pre￾appointment, we expect them to advise the firm to engage with us, including complying with any notification requirements46.
13. The PSRs and EMRs, as well as our rules and guidance, will continue to apply to a
firm in an insolvency procedure while it remains authorised or registered. We also have statutory powers to get involved and this differs depending on the insolvency procedure and the type of regulated firm (that is, currently or formerly authorised or registered or a firm which is or has been carrying out regulated activities without permissions). A prospective IP can search the FCA Register to determine the regulatory status of a firm. They should also check for any previous or trading names that the firm may have had on the FCA Register in addition to the current registered name. Administration FCA consent to out of court administrator appointments 14.Should a firm (or its directors) seek to appoint an administrator through an out of court process, the administrator cannot be appointed without our consent. This consent must accompany the filed notice of appointment (NOA), or be filed with the court along with the notice of intention to appoint administrators document (NOIA) as applicable47. Consent should be requested by completing a template letter (see Appendix) and sending it to firm.queries@fca.org.uk or the firm’s supervisory contact at the FCA. 15.Consent requests should be submitted by the IP or their legal representatives in a timely manner to ensure that we have sufficient time to consider the request and, where applicable, grant consent before the appointment takes place.
16. When assessing the consent request, we will consider the IP’s ability to take on
the appointment. This assessment is likely to include (but not be limited to) the following factors:

• the IP’s expertise in taking appointments as administrators
• whether the IP is satisfied that their strategy to achieve the proposed
  administration objective is reasonably practicable
• whether to our knowledge, anything calls into question the IP’s independence
  from the firm when taking on the appointment (an IP will need to conduct 46 Regulation 37 of the PSRs and EMRs 47 Section 362A of FSMA as applied by PEMIIR Financial Conduct Authority Page 29 of 48

their own conflicts and independence checks before accepting an appointment), and

• the IP’s past conduct if they have taken previous appointments over
  regulated firms (e.g. wilful disregard of regulatory regimes or requirements).

17. Depending on the circumstances of the prospective appointment, we may ask
    additional questions, which must be answered to a satisfactory standard before consent can be issued.
18. Upon appointment, we expect the administrator to send their NOA to us at
    firm.queries@fca.org.uk. This will enable us to update our records on the firm, such as the FCA Register of regulated firms and individuals.
19. Where an administrator has been purportedly appointed and our consent has not
    been obtained, the administrator should contact us to request consent with an explanation of why consent was not sought earlier. This should be done as soon as the administrator becomes aware that consent should have been sought. If consent is provided, the FCA should not be taken to be opining on the validity of the administrator’s appointment, or ratifying, agreeing to or with, and/or endorsing any of the actions taken between the administrator’s appointment and the date on which the FCA’s consent is provided. The administrator should seek legal advice on the validity of their appointment in these circumstances. Sharing of court documentation with the FCA
20. We are entitled to participate in court proceedings in relation to the regulated
    firm, such as the hearing of an administration application48. A prospective administrator should therefore advise the firm to engage with us and share any court documentation, administration applications and other documents required to be sent to creditors of the firm with us. The administrator should advise this at the earliest opportunity, so that we have sufficient time to decide if our participation in the administration is appropriate. The FCA’s ability to apply for an administration order
21. If appropriate, we can apply to the court for an administration order in respect of
    a regulated firm.
    Special administration
22. The PEMIIR provides a special administration regime for PIs and EMIs. The
    PEMIIR establishes three objectives for the special administrator: return customer funds as soon as is reasonably practicable; timely engagement with payment systems and authorities; and rescue the institution as a going concern or wind it up in the best interests of the creditors.
23. We are entitled to be heard at a hearing of a special administration order and any
    other court hearing in relation to the firm. The prospective special administrator should therefore advise the firm to share court documentation with us at the earliest opportunity, so that we have sufficient time to decide if our attendance is appropriate. We are also able to direct the special administrator to prioritise one of the special administration objectives over the other objectives.
24. If a firm is eligible to enter special administration but is considering entering a
    different insolvency procedure, an IP cannot be appointed over the firm unless we 48 Section 362 of FSMA as applied by PEMIIR Financial Conduct Authority Page 30 of 48

are notified of preliminary steps taken in respect of that procedure. Following receipt of the notice, we have a period of two weeks to inform the person who gave notice whether we consent to the insolvency procedure to which the notice relates, whether we intend to apply for that (or an alternative) insolvency procedure or whether we intend to apply for a special administration order. Statutory demands
25. The service of a statutory demand on a regulated firm should be notified to us.
We therefore expect an IP engaged by a firm in this situation to advise the firm to notify us if they have received a statutory demand49. Winding up petitions
26. We have the right to present a winding-up petition to the court in respect of a PI
or EMI. In addition, where a party (other than the FCA) presents a petition to wind up a regulated firm, including where there is an application to have a provisional liquidator appointed, the firm should notify us about this. If an IP is subsequently appointed to the firm, we would expect the IP to engage with us and ensure that a copy of the winding up petition has been provided to us. Liquidation
27. The appointment of a liquidator should be notified to us. We therefore expect a
liquidator to notify us of their appointment as soon as possible. The liquidator should send any relevant appointment documents to support their notification. Copies of the resolution to wind up and the certificate of appointment should also be sent to firm.queries@fca.org.uk.
28. In cases where a winding-up petition is presented and a firm subsequently enters
into compulsory liquidation, the Official Receiver will be appointed over the firm as liquidator. We expect the Official Receiver to notify us in this case.
29. We have the right to participate in any court proceedings in relation to a
liquidation, attend creditors meetings and participate in the decision procedure50. We therefore expect a liquidator to ensure that court and creditor documentation is shared with us at the earliest opportunity, so that we have sufficient time to decide if our participation is appropriate. Notice if a firm is in the same group as a bank 30.An IP should be aware that, where a firm is in the same group as a bank (whether established in the UK or another EU member state), the firm is required to notify us, the PRA and the Bank of England seven days before entering an insolvency procedure51. An insolvency application cannot be determined until the Bank of England has informed the firm that they do not intend to exercise a stabilisation power under the Banking Act 2009. Members’ voluntary liquidation and creditors’ voluntary liquidation
31. If a members’ voluntary liquidation (MVL) is being considered for a firm, the
prospective IP must consider all contingent liabilities, including complaints and other redress claims, and whether they are appropriately reflected in the 49 As at the date of publishing this guidance, statutory demands and winding-up petitions are restricted until 30 June 2021 following the Corporate Insolvency and Governance Act 2020. 50 Sections 374 of FSMA as applied by PEMIIR 51 Sections 120A of the Banking Act 2009 Financial Conduct Authority Page 31 of 48

directors’ declaration of solvency. This should involve assessing the firm’s solvency, including querying any prospective contingent liabilities and complaints made to the Ombudsman Service with the firm’s management.
32. An IP must take steps to convert the liquidation to a Creditors’ Voluntary
Liquidation (CVL) if they are of the opinion that the firm will be unable to pays its debts in full. Accordingly, an IP should continue to monitor the situation regarding contingent liabilities throughout the MVL. This should take into account relevant factors such as the volume of complaints to the firm or the Ombudsman Service. If the IP is uncertain on this, they should discuss the matter with us.
33. Where an IP is required to convert an MVL to a CVL, we expect the IP to consider
whether there is a conflict for the same IP to act in both processes. Creditors’ committees 34.After a firm has been placed into administration or special administration, the administrator must, when seeking approval from the creditors for the administrator’s proposals, invite the creditors to decide whether a ‘creditors’ committee’ should be established. By ‘creditors’ committee’ we mean any creditors’ committee or, in the context of liquidation, liquidation committee established by an IP under Part 17 of the Insolvency (England and Wales) Rules 2016 (Part 10 of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 for Scotland).
35. The purpose of the creditors’ committee is to assist the IP in the discharge of
their functions. Creditors will include anyone who is owed a debt by the failed firm, including customers, and their interests are significant to the IP in fulfilling their duties. Customers for whom the firm holds relevant funds should be represented on a creditors’ committee and the IP should take reasonable steps (in accordance with relevant legislation) to ensure appropriate representation from across all types of customers for whom the firm is holding relevant funds. Insolvency costs
36. An IP’s fees and expenses are matters for creditors and the court to oversee and
approve. However, we would expect an IP to properly record insolvency fees and expenses throughout the insolvency process, and any fees and expenses charged to the client estate should be directly attributable to the distribution of relevant funds. We also expect the IP to be efficient in their work and take steps with the aim of reducing costs that would be borne by customers and creditors wherever possible.
37. Fees estimates and details of expenses that the IP considers will, or are likely to
be, incurred should be realistic and communicated to customers and creditors in a timely and clear manner. An IP should carefully consider when they are in a position, having fully assessed the firm’s business and understood the complexities of the insolvency, to seek approval for the basis of their remuneration and, where relevant, to provide a fees estimate and details of expenses to creditors and customers. If a creditors’ committee is not formed, fees can be approved by the general body of creditors or the court.
38. We expect an IP to properly consider expenses that may be incurred (e.g. legal
expenses). This should include factoring in any costs that may be incurred as part Financial Conduct Authority Page 32 of 48

of ongoing engagement with regulatory bodies and authorities as relevant. It is important to note that if lawyers or other parties are working in conjunction with an IP, they will also need to be able to accurately account for their time, particularly for work directly attributable to the distribution of relevant funds.
39. We expect an IP to properly allocate costs to relevant estates and, where
relevant, consult with, and seek approval from, the creditors’ committees and/or seek directions from the court, as relevant. We expect the IP to update us on the costs that they are charging to the relevant estates, and report this clearly to customers and creditors. An IP should discuss this fully with the creditors’ committee, if one is established, when gaining their approval to draw costs as set out in insolvency legislation. In some cases, the creditors’ committee may wish to consider the appointment of an independent cost assessor.
40. Given the role of the creditors’ committee in this process, if one is established, it
is important that it appropriately represents the customer base of the firm. An IP should therefore take reasonable steps (in accordance with relevant legislation) to ensure appropriate representation across all types of creditors and customers on the committee throughout the insolvency process.
Chapter 3: Entering insolvency
Interaction with the FCA
41. If a firm is considering entering or has entered into an insolvency procedure, we
would expect an IP to provide regular updates to us for a period agreed with us. We would expect updates on items including the following:

• communications to customers

• customer contacts and questions

• progress in collecting in, reconciling or distributing relevant funds in line with
  the PSRs/EMRs and relevant insolvency legislation

• customer complaints including interface with the Ombudsman Service

• quality of books and records

• possible sale of the customer book (if contemplated) including the marketing
  process, the ability of any proposed purchaser to take on the book, and the implications of any requirements over the firm

• staffing and supplier issues

• adverse press or other commentary

• evidence of potential fraud or potential financial crime by the firm

• any intelligence or information arising from the insolvency or investigations
  into directors’ conduct that could give rise to harm, in particular risks of harm that relate to protection of consumers or market integrity

• insolvency costs, especially those relating to the client estate, and
  Financial Conduct Authority Page 33 of 48

• interaction with foreign regulators and/or other UK authorities involved in the
  firm’s insolvency process.
  Communicating with customers

42. If a firm is considering entering or has entered into an insolvency process, we
    expect an IP to have a communication strategy in place. This strategy should consider the key messages for customers, what their immediate concerns may be and the information they are going to need, the format of that information and how quickly it can be disseminated. Information about the practical effects of the IP’s appointment will be the most important initially and must be clear for customers. This should include implications for inflight payments and whether e￾money cards will continue to work.
43. In addition, the following practical issues should be considered factors:

• Use language that is clearly understood by the audience of the
  communication52, particularly if they are retail or vulnerable consumers. This includes adapting template communications to help ensure they are clear, fair and not misleading to the recipient and are easy to understand. An IP should also consider using headings and highlighting key actions that need to be taken by the recipient. Given the rise in scams, any customer communications should have a standard ‘scam smart’ messaging and make clear that a consumer is not required to use the services of a claims management company to pursue a claim. Key messages should not be hidden (i.e. they should be at the top of the communication).
• Ensure sufficient resource is available for communications with the
  firm’s customers, particularly where there is a significant number of retail customers. This may require additional phone lines or a call centre, producing scripts for staff including frequently asked questions and, in some cases, providing communications in different languages. The communication should also highlight the options for customers to communicate their questions and concerns to the IP (such as email address, online forms, telephone number(s) and/or postal address).
• Information on treatment of relevant funds. An IP should avoid giving
  customers misleading impressions on the protection they receive from safeguarding requirements. An IP should also avoid suggesting to customers that any of the relevant funds held by the insolvent firm are protected by the Financial Services Compensation Scheme (FSCS) given FSCS is not currently available for customers of PIs and EMIs.
• Share draft versions of key customer communications with us (and
  other relevant authorities) for comment before finalising, particularly communications regarding high profile or complex firm failures (e.g. firms that hold significant sums of safeguarded funds or vulnerable customers). This would also help to ensure that customer communications are consistent with our press releases upon an IP’s appointment.

44. We are aware that there are statutory communications, including notices, letters
    and reports, that an IP must issue before and during their appointment. If any communication contains references to us, we expect these to be factual, necessary and, in the case of high profile and complex failures or if requested, communicated to us for comment in advance of publication and in good time so 52 This is in accordance with the firm’s obligations under Principle 7 (communication with clients). Financial Conduct Authority Page 34 of 48

that the IP is able to meet any statutory deadlines for such communications. These communications should be sent to firm.queries@fca.org.uk. Interaction with the Ombudsman Service
45. The Ombudsman Service is an independent service for resolving disputes
between consumers and businesses, and with a minimum of formality on a fair and reasonable basis. The rules and guidance relating to the operation of the Ombudsman Service is set out in DISP rules of our Handbook.
46. We would expect an IP to engage with the Ombudsman Service at the beginning
of an insolvency process to establish the number of complaints against the failed firm and to agree how those complaints will be dealt with going forward. Agents and distributors
47. Many PIs and EMIs provide payment services through agents. An agent is any
person who acts on behalf of a PI or an EMI (i.e. a principal) in the provision of payment services53. These entities are required to be registered with us. An EMI may also engage distributors to distribute and redeem e-money. An EMI cannot provide payment systems through a distributor and distributors do not have to be registered by us. We expect an IP to be mindful of any agent and distributor arrangements as part of the insolvency process.
Chapter 4: During insolvency
Claims process
48. We expect an IP to have a suitable claims process in place for customers and
creditors. An IP should consider how this claims process is structured to ensure that it is easy to handle from both a customer and the IP’s perspective. For example, an IP may want to explore handling the claims process via web portal.
49. We expect an IP to consider the following when designing their claims process:

• how statements to customers are issued, including how to notify those
  customers that are recipients of e-money gift tokens

• how customers and creditors validate their claims

• validation of KYC details

• how non-responders are treated

• the process should customer address details be incorrect

• the need for customers and creditors to add bank account details, including
  where relevant funds are held in joint names and the bank account details are in only one name

• communication to customers on access to the claim portal if available

• any translations required for non-English speakers and other accessibility
  needs for customers

• the process if customers choose to abandon small claims, and
  53 Regulation 2 of the PSRs and regulation 2 of the EMRs Financial Conduct Authority Page 35 of 48

• information to be collected regarding engagement with the claims process.
  50.An IP may need to consider demonstrating the claims process with the creditors’ committee before making it available. They should also consider using the technology systems of the failed firm if suitable (avoiding unnecessary costs). In any case, an IP should consider the need to maintain IT contracts, the resilience and usability of the systems and data security considerations for migration, including backing up any data in accordance with relevant legislation. 51.An IP should also consider necessary steps throughout the insolvency procedure to mitigate any risks relating to money laundering. This may include a review of the firm’s KYC policy and procedures that were in place before the IP was appointed. FCA participation in court cases and creditors’ committees

52. We have statutory powers to participate in court proceedings in relation to
    insolvency proceedings for a regulated entity. The IP should give us due notice of any intended court applications and, if requested, share draft documents with us within an appropriate timeframe. We may request prior copies of any court papers or submissions made by the IP or the firm, to ensure references to the FCA are correct and appropriate, and consider whether we wish to make our own representations (e.g. if a precedent is being set).
53. We have rights to make representations at meetings of the creditors’ committee
    and are required to receive any documents sent to creditors54. We may do this depending on the case and so should be informed of the creation of creditors' committee and sent invitations to meetings. Confidentiality
54. We will not discuss any confidential aspect of the firm’s regulatory history at
    creditors’ committee meetings and if questions such as these are raised, they can be raised with us through firm.queries@fca.org.uk. We may also request copies of presentations and minutes taken at the meetings of the creditors’ committee.
55. An IP should ensure that the creditors’ committee members are aware of the
    confidentiality of the meetings.
    Treatment of customers’ funds
56. PIs and EMIs are required to safeguard ‘relevant funds’. Under the EMRs, these
    are funds that have been received in exchange for issued e-money55. Under the PSRs, relevant funds are sums received from, or for the benefit of, a payment service user for the execution of a payment transaction, or sums received from a payment transaction on behalf of a payment service user.
57. The safeguarding requirements apply to all authorised PIs, authorised EMIs and
    small EMIs56. Small PIs and small EMIs undertaking payment services unrelated to the issuance of e-money must comply with the safeguarding requirements if they choose to safeguard funds. 54 Sections 362 and 371 of FSMA as applied by PEMIIR 55 Regulation 20(1) of EMRs 56 The safeguarding requirements are set out in regulations 23 of the PSRs and regulations 20 to 27 of the EMRs. Our expectations on how firms should comply with these requirements are explained in Chapter 10 of the FCA’s Payment Services and Electronic Money – Our Approach and the FCA’s Coronavirus and safeguarding customers’ funds: additional guidance for payment and e-money firms. Financial Conduct Authority Page 36 of 48

58. If a PI or an EMI that is holding relevant funds enters an insolvency process, an
IP should make sure that such funds continue to be treated in line with the PSRs and EMRs (as applicable). If the firm enters a special administration, the IP will also need to comply with the PEMIIR and related rules. How are relevant funds safeguarded? 59.An IP should note that there are two ways in which a firm may have safeguarded relevant funds prior to entering into an insolvency process:

• Segregation method: this requires the firm to keep relevant funds separate
  from all other funds it holds and, if the funds are still held at the end of the business day following the day on which they were received, deposit the funds in a separate account with an authorised credit institution or the Bank of England or to invest the relevant funds in secure, liquid assets and place those assets in a separate account with an authorised custodian57.
• Insurance or guarantee method: this requires the firm to arrange for the
  relevant funds to be covered by an insurance policy with an authorised insurer, or a comparable guarantee58. 60.As set out in a recent court judgment, PIs that safeguard using the segregation method hold safeguarded funds on trust59. We also consider that this is true for EMIs. Key steps to take immediately after appointment Take control of relevant funds
  61. Following appointment, an IP will need to take control of relevant funds and
  assets, and the books and records of the firm. The IP should also identify key individuals and systems required to manage relevant funds of the firm, including third party administrators, system suppliers and employees of the firms. Furthermore, the IP should cooperate with any payment systems to facilitate settlement or completion of inflight payments.
  62. On the occurrence of an insolvency event (as defined in the PSRs and EMRs), an
  ‘asset pool’ is formed of the relevant funds held by the firm60 and the proceeds of any insurance policy/comparable guarantee. To constitute the asset pool, the IP will need to collect all relevant funds safeguarded by the firm. This includes checking the terms of any safeguarding insurance or guarantee policy and, if a claim should be triggered, exercising the relevant provisions that enable the pay￾out of proceeds for the asset pool. The IP should also take reasonable measures to include all identifiable relevant funds in any other account held by the firm (e.g. unsegregated funds).
  63. For relevant funds which have been segregated by investing in liquid assets, the
  IP may consider there being benefit in holding the relevant funds in those liquid assets until it is necessary to distribute the funds to customers.
  64. EMIs may undertake both e-money issuance and unrelated payment services – in
  this scenario, there would be two types of customers (e-money holders and 57 Regulation 21 of the EMRs 2011 58 As defined in regulation 24 of the EMRs 2011 and regulation 23 of the PSRs 2017. 59 Supercapital (in administration) [2020] EWHC 1685 (Ch) 60 Where the PI or EMI is a participant in a designated payment system, this may include funds received into a settlement account in the circumstances described in regulation 23(9) of the PSRs. Financial Conduct Authority Page 37 of 48

payment service users) and two asset pools (one for e-money issuance and one for unrelated payment services). Operate different estates
65. We expect an IP to operate at least two separate estates: the client estate
comprising the asset pool (against which claims of customers are paid in priority to all other creditors) and the general estate comprising the firm’s assets (against which all creditors can prove). The estates may be further split if the firm is operating two asset pools (as described above). 66.An IP should accurately allocate costs between the two estates. An IP should also accurately record time spent on the different estates and, in respect of the client estate, distinguish time and expenses spent on each asset pool.
67. It is possible that a firm holds both client money under the FCA’s Client Assets
Sourcebook (CASS) and relevant funds under the PSRs/EMRs. CASS client money must be segregated from relevant funds and separate pools following insolvency. Immediate reconciliation and final top-up/withdrawal (for firms in special administration)
68. If a firm has entered special administration and is holding relevant funds, the IP
is required to conduct a post-administration reconciliation (based on the reconciliation method previously adopted by the institution) immediately after being appointed and to make a transfer to or from the firm’s safeguarding accounts following that reconciliation. We expect IPs to conduct this reconciliation as soon as they can post appointment. This enables the IP to correct any shortfalls (or excesses) in the firm’s safeguarding accounts using the firm’s previous reconciliation method.
69. Where the reconciliation identifies a shortfall in relevant funds, the IP must top￾up the safeguarding account with monies from the firm’s own bank account
(where there are funds available). Where the reconciliation identifies an excess in relevant funds, an IP must withdraw this from the safeguarding account and transfer it to the firm’s own bank account. Determine entitlements 70.After forming the asset pool, an IP should identify customers with an entitlement to relevant funds owed by the firm at the time of failure. This could involve looking at records of the firm’s previous reconciliation, customer database and transaction history. Manage currency risks
71. We expect an IP to have regard to all relevant insolvency rules and contractual
documentation, including terms and debts in foreign currency, in deciding:

• what currency they should calculate each entitlement
• what currency they should continue to hold the relevant funds in the asset
  pool in, and
• what currency the IP should return relevant funds in the asset pool in.
  Financial Conduct Authority Page 38 of 48

Treatment of shortfalls
72.A shortfall is the amount by which relevant funds and assets held by the firm are not sufficient to meet all customer entitlements. A shortfall may arise for various reasons including deductions from the asset pool because of distribution costs and/or poor controls and record keeping by the firm before it failed.
73. It is our view that a distribution cost is a cost directly attributable to the
distribution of the asset pool. For example, this may include gathering in, reconciling, calculating entitlements and transaction costs of sending the money. An IP should endeavour to minimise costs incurred in the distribution process and return relevant funds and assets to the customer as soon as reasonably practicable. Distribution costs should be recorded and charged appropriately following authority from the creditors’ committee or court as appropriate.
74. For shortfalls in the asset pool, an IP should consider and agree with the
creditors’ committee on the appropriate method for allocating these or obtain directions from the court. The IP should explore various options, such as applying a fixed fee per customer or allocating such costs on a pro rata basis. If the firm has entered into special administration, the PEMIIR requires shortfalls to be borne pro rata by all customers within the asset pool. 75.Customers should be considered contingent creditors in respect of any shortfall. To the extent that their claim is not satisfied by distributions from relevant funds, customers may also have a claim against the general estate for any relevant funds that are not returned as part of the distribution of the asset pool and would usually be considered unsecured creditors in respect of such claims. Relevant funds received by the firm after insolvency 76.A firm is likely to have unsettled or incomplete transactions at the point of entering an insolvency procedure, which may result in the firm receiving relevant funds after it has failed. This may include transfers of funds from payment systems. An IP should consider setting up procedures to monitor and allocate receipts post failure and return these promptly to customers. An IP should also engage and cooperate with the relevant payment system operators to facilitate appropriate treatment of inflight transactions in a timely manner. Distributions of the asset pool and transfers to a solvent firm
77. The IP is required to pay claims of customers from the asset pool in priority to all
other creditors61. In this process, an IP may need to consider the following issues:

• how relevant funds are returned to the relevant customer (e.g. whether it
  should go directly to the customer or as per the customers’ instructions, or be part of a transfer of relevant funds to another firm)
• if being returned directly to a customer, verifying a customer’s bank details
  and completing any required KYC before returning relevant funds
• costs of returning relevant funds to each customer, and
• if the customer cannot be contacted or disclaims their entitlement.
  61 The exception is expenses of the insolvency proceedings which take priority so far as they are in respect of the costs of distributing the asset pool. Financial Conduct Authority Page 39 of 48

Transfer of relevant funds as part of the distribution of relevant funds 78.An IP may decide to transfer relevant funds to another entity. If a firm has entered into special administration, the PEMIIR enables the special administrator to do a swift whole or partial business transfer by removing some of the restrictions that usually occur when transferring relevant funds and contracts. 79.An IP would need to consider the following practical issues when conducting a transfer of relevant funds:

• whether the transfer will be a whole or a partial transfer
• whether customer consent is provided or needed
• what customer communications, including notifications, are necessary
• whether there any requirements on the firm that may affect the transfer (in
  particular, a requirement preventing a transfer without conditions being met62)
• the type of firm which can take on the business and whether a firm has
  appropriate regulatory permissions
• the consideration for the transfer and how it will be structured
• agency arrangements and whether these need to be re-registered to
  facilitate the transfer
• warranties and indemnities (if applicable)
• whether the transferee’s systems are compatible and if any other
  arrangements need to be put in place (e.g. where the firm has outsourced functions to a third-party administrator)
• the timetable of the transfer
• any alternative arrangements for customers, including arrangements to
  transfer out of the transferee, and ensuring these are communicated to customers
• arrangements for funds which cannot be transferred
• transfer of staff in accordance with the Transfer of Undertakings (Protection
  of Employment) Regulations (TUPE) and whether there is a need for a transitional services agreement
• whether staff are needed to continue with the insolvency, and
• whether there are any phoenixing concerns (see paragraph 97).

80. Where an IP is transferring relevant funds as part of the distribution of relevant
    funds, the IP should use the creditors’ committee to discuss the proposed transfer and keep the FCA updated with their plans. Bar dates
81. The bar date mechanism established in the PEMIIR gives a special administrator
    the power to set deadlines for customers to submit claims for the return of their funds. A bar date gives certainty over the group of claimants for an upcoming 62 Regulation 7 of the PSRs and EMRs Financial Conduct Authority Page 40 of 48

distribution, ensuring that a distribution of relevant funds by the special administrator can progress smoothly without disruption from late claimants. In general, a late claimant may not challenge a distribution that was made after a bar date, provided the special administrator carried it out in good faith.
82. In setting a bar date, the special administrator would have to allow a reasonable
time after the bar date notice has been published for customers to be able to calculate and submit their claims. The special administrator would then make a distribution of relevant funds in accordance with a distribution plan or according to clients’ entitlements established under the claims received.
83. The special administrator can set two types of bar dates:

• A ‘soft’ bar date whereby the special administrator can set a deadline for
  customers to submit claims without having to seek court approval and make interim distributions. Late claimants would lose the right to challenge a distribution made prior to the receipt of their claims to meet claims made before the bar date. This allows the special administrator to make any necessary distributions and proceed with the special administration process, as they would not be required to wait for customers who had failed to submit claims in good time. However, when determining the amount to be distributed, the special administrator must make allowance for entitlements, by way of a subsequent distribution from the asset pool, of persons who have neither made a relevant funds claim nor received any payment under a previous distribution of relevant funds. They would also have to make a distribution to late claimants if there are relevant funds available to do so.
• A ‘hard’ bar date whereby the special administrator can set a final cut-off
  date for customers to submit claims, with court approval, after which customers can no longer claim on the client estate, any remaining assets can be moved to the general estate and the client estate can be closed completely. Closure of client estate 84.At the appropriate point, the IP will need to close the client estate. If the firm is in special administration, the PEMIIR’s hard bar date mechanism may be applied before this occurs. 85.An IP is required to take reasonable steps under general trust law and their obligations as an IP to notify all customers of the fact that they may have a valid claim for relevant funds, prior to the closure of the client estate. An IP should consider making at least three attempts to contact the customer using two different methods (e.g. an email and a phone call) regarding their opportunity to claim their relevant funds. The IP will also need to determine what to do with any unclaimed relevant funds.

86. We would expect an IP to share any court documents with us in good time prior
    to closing the client estate.
    Hardship policies
87. Until the IP is in a position to distribute the asset pool, funds will not be returned
    or available to customers. In such situations, the IP should consider hardship cases to help ensure that they are identified and responded to in an appropriate Financial Conduct Authority Page 41 of 48

and consistent manner. An IP may be able to provide earlier distributions of their funds to customers who can demonstrate hardship (although this may not always be possible). We therefore expect an IP to identify potential hardship policies and assess whether there is anything that can be done to support these cases. However, we recognise the ability of the IP to support will depend on the circumstances of the case. IPs should also refer to our guidance on fair treatment of vulnerable customers. Continuity of supply
88. We expect an IP to consider how they will make sure that the failed firm
continues to comply with our regulatory requirements whilst it remains authorised. If the firm loses a supplier, it is still required to comply with our rules.
89. The continuity of service provisions in the Insolvency Act63 assist an IP by
enabling them to limit the terms that essential suppliers can impose as a condition for the continued supply of their service and compel continued supply by restricting the effect of existing insolvency-related terms in an essential supply contract. Continuity of supply also helps to facilitate distribution of relevant funds (e.g. where third party suppliers have been used to maintain customer records and IT systems). 90.Certain continuity of supply provisions are not available for liquidations. An IP must therefore consider on an ongoing basis how they ensure the insolvency is conducted in compliance with our rules. The IP should be aware of which continuity or protection can be relied on in accordance with the law. Trading while in an insolvency process 91.An IP may decide that it is the best outcome for creditors if the failed firm continues to trade. We expect an IP to be aware that continuing to trade may mean using FCA authorisation and registration, and, if this is the case, that the firm must remain authorised or registered until the firm ceases to be carrying out regulated activities. When FCA authorisation or registration is no longer required, the IP should cancel the firm’s authorisation or registration by liaising with us (see below).
92. We would expect firms to tell us if they were continuing to trade while in an
insolvency process and consider the impact on relevant funds. They should consider how any continued trading impacts on the asset pool and ensure that any relevant funds received post failure are held separately. IPs should be aware of any requirements and make sure that they maintain the firm’s organisational arrangements to comply with them. Cancellation of authorisation or registration
93. When a firm goes into an insolvency process, the appointed IP should consider
whether and when it is appropriate to apply to cancel the firm’s authorisation or registration. We expect an IP to consider at an early stage in the insolvency what information we would need to cancel the firm’s permissions as this can then be prepared at a relevant time (e.g. when the client estate is closed) rather than at the end of the process. It is only appropriate to apply to cancel the authorisation of the firm if it has stopped carrying out all regulated activities in the future and no longer holding any relevant funds. 63 Sections 233, 233A and 233B of the Insolvency Act 1986 Financial Conduct Authority Page 42 of 48

94. An IP can request to cancel a firm’s authorisation or registration by using our
online system Connect.
Reporting of unauthorised businesses
95.An IP should report to us if they come across any unauthorised firms or individuals that they believe are carrying out FCA regulated activities without the appropriate permissions to do so and any scams relating to financial services. For example, non-FCA authorised firms conducting payment services through online marketplaces. Please note, however, that we are only able to look into scams and unauthorised conduct involving financial services firms regulated by us. 96.An IP may also find that the firm over which they are appointed is being scammed or cloned. An IP should be vigilant to this and other scams and ensure to communicate to customers appropriately and report it to us at firm.queries@fca.org.uk. Phoenixing
97. Phoenixing is a common term used to describe the practice of closing a firm and
that firm re-appearing under a new guise to avoid liabilities arising from the old firm. Each time this happens, the insolvent company’s assets, but not its liabilities, are transferred to a new, similar ‘phoenix’ company. The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.
98. UK law does not prevent the director of a company that has failed from forming a
new company, unless they are personally bankrupt or disqualified from acting in the management of a limited company. However, there is a risk that a company owing significant sums, often in the form of consumer redress awarded by the Ombudsman Service, will be placed into formal insolvency, leaving liabilities owed to the consumer unpaid. Directors, shareholders and senior staff who have engaged in financial misconduct may reappear, connected with a new firm of strikingly similar business. We consider this to be unacceptable practice. Where we find such individuals have deliberately avoided their responsibilities and not complied with previous redress awards made against their firms, we will question the fitness and propriety of these individuals and take necessary steps against them so that they do not cause further harm to consumers.
99. If an IP becomes suspicious of phoenixing in respect of a failed firm, they should
report these suspicions to firm.queries@fca.org.uk immediately. We are asking IPs to carefully consider the parties buying the business and, if there has been a sale prior to the entry into an insolvency, to investigate the propriety of the transaction. Sale of customer data
100. An IP may consider selling customers’ data as part of a transfer or sale of the
business of the failed firm. We expect the IP to consider the following matters in this scenario:

• Notice to the FCA: an IP should notify us if they are planning to sell
  customer data in good time, including sufficient details.
  Financial Conduct Authority Page 43 of 48

• Fair treatment of customers: before transferring customers’ personal
  data, an IP must consider whether this is in the interests of the firm’s customers and treat them fairly64.

• Selling to a claims management company (CMC): if an IP proposes to
  sell the customer data to a CMC, the IP should consider our joint statement with the ICO on dealing with personal data.

• Obtain legal advice on the application of data protection legislation:
  data protection legislation applies to data controllers including IPs. Relevant legislation includes the Data Protection Act 2018, General Data Protection Regulation (EU) 2016/679 (GDPR), Privacy and Electronic Communications Regulations (EC Directive) 2003, the PSRs and EMRs. An IP should obtain legal advice on their obligations under such legislation to ensure that they handle customer data appropriately.

• Communication to customers: An IP must pay due regard to the
  information needs of their customers and communicate with them in a way which is clear, fair and not misleading. This includes clearly articulate the transaction with a suitable helpline/contact(s) being provided to support and respond to customer queries. The IP should also encourage the buyer to inform customers on the sale and their rights, so that they can manage their rights appropriately.

• The sale is not facilitating the practice of phoenixing of the failed
  firm described in paragraph 97.

101. For further details on our expectations of handling customer data more
     generally, please see our communication on this.
     Liaising with overseas regulators
102. Where an IP receives or issues correspondence to an overseas regulator in
     relation to the insolvency process, this information should be shared with us at firm.queries@fca.org.uk. This would help us to keep us abreast of the situation and to inform any discussions that we may have or be required to have with the overseas regulator.
     Chapter 5: Restructuring procedures
103. Firms may consider using other procedures to enable them to restructure and
     continue trading. These can include:

• Scheme of arrangement
• Company voluntary arrangement (CVA)
• Restructuring plan

104. If an IP is advising a firm on their options or take forward a scheme of
     arrangement, CVA or restructuring plan in respect of a regulated firm, or which impacts on a regulated firm, the firm should notify us of their plans in good time.
105. We have rights to make representations at court and creditor meetings for all
     restructuring procedures. We therefore expect appropriate notice. We also expect 64 Principle 6 (Customers’ interests) Financial Conduct Authority Page 44 of 48

the firm or an IP (in their capacity as supervisor of a CVA) to send reports on a regular basis regarding the progress of these procedures to us so that we can review as appropriate. Reports should be sent to firm.queries@fca.org.uk.
106. If a firm is likely to be placed into administration or liquidation while subject
to one of these procedures, the firm is required to promptly notify us65.
Chapter 6: Checklist
107. The checklist below summarises the key steps from the guidance that an IP
will need to consider when appointed over a regulated firm.
Key step Tick

1. Understand the firm’s business model and how FCA requirements
   apply to the firm before appointment.
2. Engage with the FCA as early as possible, including sharing court
   documentation and consent requests, and throughout the insolvency process as appropriate.
3. Communicate appropriately with customers.
4. Treat relevant funds in accordance with the PSRs, EMRs and FCA
   guidance.
5. Ensure costs are properly recorded and communicated to
   customers and creditors in an appropriate manner.
6. Do not facilitate phoenixing and notify the FCA promptly of any
   phoenixing concerns.
7. Cancel the firm’s authorisation or registration when the firm is no
   longer conducting regulated activities and relevant funds have been returned or transferred. 65 Principle 11 (Relations with regulators) Financial Conduct Authority Page 45 of 48

Appendix: Template letter for section 362A FSMA consent
requests
Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
For the attention of [ ]
[date]
STRICTLY PRIVATE & CONFIDENTIAL
Dear Sirs,
[ ] (‘the Company’)
[I/ We] refer to the proposal that the directors of the Company are currently considering to place the Company into administration under paragraph [ ] of Schedule B1 of the Insolvency Act 1986. [I/ We] have been advising the directors of the possible administration and understand that if they seek to place the Company into administration, they will ask me [and [ ]] to accept the appointment as [joint] administrators. In connection with such a proposed appointment, [I confirm on behalf of myself and [ ]] [We confirm] that -

1. [I am a/ We are] licensed under the Insolvency Act 1986 as insolvency
   practitioner[s];
2. [I am / We are] satisfied that [I/ we] have the required professional qualification
   and experience to accept the appointment. [I/We] have experience and expertise of taking appointments as administrators, and indeed provisional liquidators, of companies, [including companies regulated by the Financial Conduct Authority]. [Given that the Company is authorised by the Financial Conduct Authority for the carrying on of regulated activities, [I/ we] confirm that persons with the relevant financial services experience will provide the necessary assistance]; and
3. [I am/ We are] [satisfied that it is reasonably likely that administration will achieve
   a better result for the Company’s creditors as a whole than would be likely if the Company were wound-up.] (if the purpose of the administration is the realisation of the company’s assets) [[I/ We] believe that the distribution of the Company’s assets to those entitled is not likely to be slower than would be the case if the Company were to be placed into liquidation.] If you have any questions on the above, please do not hesitate to contact [me/ us]. Financial Conduct Authority Page 46 of 48

Annex 3 – Abbreviations used in this
paper
AR Appointed representative
CASS Client Assets Sourcebook
CBA Cost benefit analysis
CIS Collective investment scheme
CMC Claims management company
CMP Client money pool
CVA Company voluntary arrangement
COMP Compensation Sourcebook
DISP Disputes Resolution Complaints Sourcebook EMI Electronic money institutions EMR Electronic Money Regulations 2011 FCA Financial Conduct Authority FSCS Financial Services Compensation Scheme FSMA Financial Services and Markets Act 2000 GDPR General Data Protection Regulation IBSAR Investment Bank Special Administration Regime ICO Information Commissioner’s Office IP Insolvency practitioner KYC Know Your Client LRRA Legislative and Regulatory Reform Act 2006 Financial Conduct Authority Page 47 of 48

MVL Members’ voluntary liquidation
OIREQ Own-initiative imposition of requirement OIVOP Own-initiative variation of permission PEMIIR Payment and Electronic Money Institution Insolvency Regulations 2021 PI Payment institutions PPE Primary pooling event PRA Prudential Regulation Authority PRIN Principles for Businesses PSP Payment service provider PSR Payment Services Regulations 2017 SIPP Self-invested personal pension SUP Supervision Manual VREQ Voluntarily requirement VVOP Voluntary variation of permission Financial Conduct Authority Page 48 of 48