The U.K.’s Financial Services Authority (FCA) is warning industry firms against exploiting companies that need financing due to the economic damage inflicted by the Covid-19 outbreak.
In a letter to industry firms, the FCA said that it has received reports of financial firms pressuring lending clients to also hire them to raise equity.
“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,” the FCA said.
The FCA said that it plans to investigate these incidents and will take enforcement action if warranted, “as this conduct has no place in well-functioning markets.”
In the meantime, the FCA demanded that firms immediately stop these kinds of practices, which are “not in the best interests of those clients, distorts competition, undermines market confidence and calls into question firms’ and individuals’ integrity.”
The regulator said that these practices also increase overall transaction costs for companies that need to raise money during a global pandemic that has hit the economy and corporate finances very hard.
“Capital markets have a vital role in providing finance to businesses that will aid the economic recovery. We expect financial firms to continue to provide strong support and services to customers during this period of disruption,” the FCA said.
For firms that have both lending and equity relationships with companies that have recently raised significant equity, the FCA said that it plans to examine how firms ensured that “clients were treated fairly, and inside information was handled appropriately.”