The City watchdog will not pursue enforcement action against banks accused of unfairly muscling their way into pandemic rescue fundraisings despite receiving “credible reports” of improper behaviour.
Sky News can reveal that the Financial Conduct Authority (FCA) has concluded an investigation – lasting nearly two years – into banks’ so-called tying of lending arrangements to apparent demands that listed companies use them to supply other services.
City sources expressed surprise on Wednesday that the regulator had decided that no further action was necessary despite anecdotal evidence from companies and rival investment banks that the practice had been rife during the early part of the pandemic.
A number of large lending banks stood accused of agreeing to extend credit facilities to listed clients only if they were included in mandates to help them raise equity.
When COVID-19 hit in the spring of 2020, scores of quoted companies – including Compass Group, Foxtons, Informa, Restaurant Group and WH Smith – raced to shore up their balance sheets by increasing their borrowing limits and selling new shares to investors.
Billions of pounds were raised from emergency cash calls to prevent a deluge of insolvencies and tens of thousands of additional job losses.
In a statement, an FCA spokesperson said: “We have concluded the work that was set out in the [Dear CEO] letter including follow up with individual firms.
“If we receive any evidence of ongoing problems then we will not hesitate to take action.”
The letter referred to in the watchdog’s statement was issued in late April 2020 to the chief executives of major banks.
It said the FCA had “heard credible reports of a small number of banks failing to treat their corporate clients fairly when negotiating new or existing debt facilities, as clients navigate the current exceptional circumstances”.
“In particular, we have heard reports that banks may have used their lending relationship to exert pressure on corporate clients to secure roles on equity mandates that the issuer would not otherwise appoint them to.
“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 are concerned that tying clients to take additional services, or demanding fees for services not provided is not in the best interests of those clients, distorts competition, undermines market confidence and calls into question firms’ and individuals’ integrity.”
The FCA warned that such conduct was “likely to increase overall transaction costs for corporates trying to raise money”.
Sky News revealed at the time that Numis, the independent broker, had been among those which had alerted the FCA to suggestions of malpractice.
Among the investment banks which appeared on a number of equity-raising deals where board directors and rival bankers expressed incredulity were Barclays, BNP Paribas and Santander.
The tying of services – where banks make the provision of one product, such as a credit facility, dependent upon the acceptance of others through the signing of restrictive clauses – was banned by the FCA in 2017.
The FCA declined to say exactly when its work on the issue had been completed, but disputed the suggestion that it had “dropped” its investigation.
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