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Law360, London (April 28, 2020, 12:12 PM BST ) Banks could face enforcement action by the Financial Conduct Authority if they are found to have unfairly treated corporate customers looking to secure debt financing during the coronavirus pandemic, the regulator said Tuesday.
The markets watchdog said it had heard "credible reports" of a small number of banks putting corporate clients under pressure when they negotiated new or existing debt.
There have been complaints that banks are using their lending relationship to push customers into giving them an unwarranted role on equity capital raising — and a portion of the fees — the FCA said. In some cases these roles may be "in name only," with few or no additional services being provided in exchange for a share of the fee pool.
"We will be looking into this further, but want any practice of this nature to cease immediately," the regulator added.
It has written to bank bosses, telling them that, if it finds further evidence to support these concerns, "we will not hesitate to take action, as this conduct has no place in well-functioning markets."
Tying clients to induce them to take additional services, or demanding fees for services not provided, is not in the best interests of those clients and distorts competition, the FCA told bank bosses. It also undermines confidence in the market and calls into question the integrity of companies and individuals.
"This conduct is also likely to increase overall transaction costs for corporates trying to raise money," the watchdog said.
Such conduct could be a breach of the regulator's rules and principles, which stipulate that lenders are required to act in the best interests of clients and ensure that conflicts of interest are managed correctly. Senior managers should also consider the requirements of conduct rules.
Banks should also review whether they are complying with the Market Abuse Regulation over identifying, handling and disclosing inside information received in connection with the renegotiation of a corporate client's existing facilities.
This includes details of a potential equity capital markets transaction. Disclosing such information within a lending bank could be inconsistent with its obligations under the regulation.
"If your firm is active in both equity and lending markets we ask that you review your current systems and controls to satisfy yourself that they are appropriate for ensuring the proper treatment of clients, the identification and mitigation of conflicts of interest, and the handling of inside information," the FCA wrote.
The regulator said it would write to the relevant senior managers at individual bank to ask how they are ensuring that corporate customers are treated fairly and that inside information is handled appropriately.
This is the second so-called Dear CEO letter the regulator has penned warning lenders about how to treat businesses that are trying to shore up their finances during the coronavirus pandemic.
--Editing by Ed Harris.
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