Banks off the hook as city watchdog concludes COVID cash calls investigation | Economic news

The city watchdog will not pursue enforcement action against banks accused of unfairly forcing their way into pandemic rescue fundraisers despite receiving “credible reports” of inappropriate behavior.

Sky News can reveal that the Financial Conduct Authority (FCA) has concluded an investigation – lasting almost two years – into the alleged link of banks’ loan agreements to apparent demands that listed companies use them to provide other services.

City sources expressed surprise on Wednesday that the regulator ruled no further action was needed despite anecdotal evidence from rival firms and investment banks that the practice was widespread early in the pandemic.

A number of major lending banks have been 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, dozens of listed companies – including Compass Group, Foxtons, Informa, Restaurant Group and WH Smith – rushed to shore up their balance sheets by raising borrowing limits and selling new shares. to investors.

Billions of pounds have been raised through emergency fundraising appeals to avert a deluge of insolvencies and tens of thousands more job losses.

In a statement, an FCA spokesperson said: “We have concluded the work planned in the [Dear CEO] letter including follow-up with individual companies.

“If we receive evidence of continuing problems, we will not hesitate to take action. »

The letter mentioned in the watchdog’s statement was sent in late April 2020 to chief executives of major banks.

He said the FCA had “heard credible reports that a small number of banks were not treating their corporate customers fairly when negotiating new or existing credit facilities, as customers navigated the current exceptional circumstances”.

“In particular, we have heard reports that banks may have used their lending relationship to pressure corporate clients to obtain roles on equity warrants that the issuer would not otherwise have them. named.

“In some cases, these roles may be ‘in name only’, with little or no additional services provided in exchange for a share of the fee pool.

“We are concerned that forcing customers to take additional services or charging fees for services not provided is not in the best interest of those customers, distorts competition, undermines market confidence and undermines question the integrity of companies and individuals. »

The FCA warned that such conduct was “likely to increase overall transaction costs for companies trying to raise funds”.

Sky News revealed at the time that Numis, the independent broker, had been among those who alerted the FCA to suggestions of malpractice.

Among the investment banks that appeared on a number of fundraising deals where directors and rival bankers expressed disbelief were Barclays, BNP Paribas and Santander.

Tied selling of services – where banks make the provision of a product, such as a credit facility, conditional on the acceptance of others by signing restrictive covenants – was banned by the FCA in 2017.

The FCA declined to say exactly when its work on the matter was completed, but disputed the suggestion that it had “abandoned” its investigation.

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