Expectations of firms selling client banks

A client bank is a name for a list of clients or accounts maintained by someone who provides financial services. It may include all clients the firm has worked with in the past and may include a right to income streams.  

Client banks are an important part of a firm’s business. Firms may seek to sell or transfer client banks. A client bank forms part of a firm's assets. We accept that they may be sold for legitimate reasons – for example, to merge with another firm or so that an adviser can retire.  

However, evidence has shown that in a small number of cases, firms have sold a client bank when they either knew they had redress liabilities or had failed to detect them. We call this 'polluting behaviour[1]'.

Existing FCA guidance and portfolio strategy 

A firm selling a client bank must comply with FCA principles[2] and rules and take account of relevant guidance. Under the Consumer Duty[3], firms must act to deliver good outcomes for their retail customers.  

If considering selling or transferring a client bank, under the Duty firms must be open and honest, act in good faith, and avoid causing foreseeable harm.  

As set out in our framework (FG20/1)[4] for assessing adequate financial resources, we expect firms to assess and set aside adequate financial resources to meet any potential redress liabilities.  

In November 2022, we also reminded firms[5] that firm failure and phoenixing remain key areas of focus in the financial advice sector. This is why we recently published a consultation paper (CP23/24)[6] on changes to the prudential regime for Personal Investment Firms (PIFs) who are subject to IPRU-INV, and Dear CEO letter[7] with immediate actions for firms.

In January 2025, we published an update for firms[8] on the polluter pays principle and what they should do to adequately provision for and meet their potential or actual redress liabilities. 

Our approach  

We will make clear, through our supervisory work, that in our view the client bank is the firm’s asset. Where a firm claims that someone else owns some or all the client bank, firms should expect that supervisors will want proof. Our approach is that: 

• We expect a firm intending to sell its client bank to notify us via a SUP 15 notification[9] where the sale could affect the firm’s risk profile, value or resources.  
• We encourage a selling firm to carry out due diligence to ensure the firm buying the client bank can provide the same level of service - e.g. regarding ongoing servicing. 
• We will investigate either firms and/or individuals closely associated with firms we suspect are structuring their business in a way that avoids their liabilities.  
• We will carefully scrutinise arrangements that a firm has with its employees or third parties to ensure that: (i) they do not present a risk to effective supervision or; (ii) otherwise undermine a firm's ability to meet regulatory requirements or threaten our objectives[10].  
• We expect that when 2 firms agree a transfer of investment business, the receiving firm must provide its newly acquired customers with its written basic agreement. 
• We will encourage firms to address and/or amend any arrangements to reduce the risks they pose to our objectives – including the risk they could be used to assist phoenixing[11]. 

We may invite a firm selling its client bank to agree to some of the following measures: 

• A voluntary asset retention requirement to ensure that the firm retains its client bank and other financial resources for potential redress. For example, where the firm has a large defined benefit transfer back book and a history of complaints. 
• Where a selling firm wishes to leave the market, an undertaking or attestation to maintain an increased level of capital until the firm has applied for cancellation of their permissions, and this has been approved by us. 

We may invite a firm purchasing a client bank to agree to some of the following measures: 

• A voluntary requirement to restrict those closely associated with the selling firm from receiving a benefit from the sale of the client bank or the use of the client bank at the purchasing firm. 
• A deed poll[12] to assume some or all liabilities where we have particular concerns.

Behaviours that could lead to regulatory action being taken 

We may act in the following circumstances:

• Where a firm is trying to sell its client bank in a deliberate move to avoid any redress liabilities which have arisen or may arise. 
• Where a firm attempts to compromise with its customers by offering less than the full redress value owed. 
• Where a client bank is transferred to a holding company or where an adviser/Appointed Representative agreement is altered to state clients are not owned by the firm. 
• Where a firm might be seeking to ‘lifeboat[11]’ and sell its client bank below market value to another firm, or where no consideration has been given to requesting an independent valuation of the client bank – and subsequently the selling firm's staff and directors move to the purchasing firm. 

Read more about what firms should and should not do to tackle polluting behaviour and meet their redress liabilities in our update for firms[8].