FCA issues CEO letter regarding equity finance raising

The FCA has published a Dear CEO Letter setting out its expectation that financial firms ensure fair treatment of corporate customers preparing to raise equity finance

30 April 2020

This article was written by Ciara Davies.

The FCA’s letter notes that the events surrounding COVID-19 are unprecedented and that they will have profound effects on the finances and cash-flow of many corporate issuers and the wider economy. Capital markets therefore have a vital role in providing finance to businesses that will aid the economic recovery.

However the FCA has heard credible reports of a small number of banks failing to treat their corporate clients fairly when negotiating new and existing debt facilities. In particular, the FCA has heard reports that banks are using their lending relationship to exert pressure on corporate clients to secure roles on equity mandates they would not otherwise be appointed to. The FCA will be looking into this further but wants any practice of this nature cease immediately.

The FCA highlights that such conduct could be in breach of the FCA rules and principles and the Market Abuse Regulation, distorts competition, undermines market confidence and calls into question firms’ and individuals’ integrity.

The FCA asks that firms who are active in both equity and lending markets review their systems and controls to satisfy themselves that they are appropriate for ensuring proper treatment of clients, the identification and mitigation of conflicts of interest and the handling of inside information.

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