FCA exercises concurrent enforcement and redress powers

In a Final Notice issued by the FCA on 9 June 2022, it took the unusual step of imposing a financial penalty (of over £800,000) but simultaneously exercised its powers to impose a requirement on TFS loans Ltd in respect of its guarantor loan business. Although the Final Notice refers to TFS having volunteered to provide redress, it also refers to section 55L of FSMA which is the power of the FCA to require firms to act. TFS failed to carry out effective creditworthiness assessments of individuals acting as guarantors of loans and overcharged customers in arrears. Although the FCA acknowledged that a relatively low number of the c. 3000 guarantors were directly impacted, TFS failings had the potential to cause serious harm to all guarantors who were pursued for payment.  TFS agreed to conduct an appropriate redress programme to ensure that customers affected by the failure to carry out effective creditworthiness assessments of guarantors were not disadvantaged. Customers had already been provided with redress where they had been overcharged and arrears management fee. TFS received a discount in respect of its financial penalty of 10% which took account of, amongst other matters, TFS voluntary undertaking to provide financial redress. The Final Notice is here.

It has been rare for the FCA to impose both a financial penalty and mandatory redress in a Final Notice, principally as a result of many firms preferring to implement voluntary compensation schemes to ensure that funds can be paid quickly to those who have suffered loss.  This case serves as a useful reminder of the scope of the FCA’s s55L FSMA powers and it may also embolden the regulator in pushing firms to implement more generous compensation schemes in the future  

Authors: David Capps and Nathan Willmott