Britain’s markets watchdog said on Tuesday it might take enforcement action against banks that are putting pressure on their corporate borrowers during the pandemic to buy other services as well.
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The Financial Conduct Authority (FCA) said it had heard “credible reports” of a small number of banks failing to treat their corporate clients fairly when negotiating new or existing debt.
“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,” the FCA said in a “Dear CEO” letter to heads of banks.
In some cases the 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.
“We will be looking into this further, but want any practice of this nature to cease immediately,” it advised.
Tying clients to take additional services, or demanding fees for services not provided, is not in the best interests of those clients, the FCA said.
With Britain facing a deep recession, many companies are expected to tap equity markets to raise cash to stay afloat.
Banks involved in equity and lending markets should review their controls to ensure that conflicts of interest are being handled properly, the watchdog said.
“You should undertake this review having regard both to the increased volumes we expect to see in equity capital markets, and the concerns that have been raised with us to date,” the FCA said.
“We want to understand how you ensured your clients were treated fairly, and inside information was handled appropriately.”