The regulator said it has evidence of some banks using loan negotiations to jump on investor fundraisers, pocketing huge fees.
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Banks must immediately stop treating business clients unfairly by trying to squeeze extra fees out of them in return for helping them through the coronavirus lockdown, according to the banking regulator.
The Financial Conduct Authority (FCA) has written to banks warning them not to mistreat their customers as they risk breaching lending rules, after learning in some cases banks were demanding fees for no actual work.
In the letter, officials say they have “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”.
With businesses struggling to survive the lockdown, many have been forced to turn to shareholders to raise extra cash.
Several listed businesses have already announced they raised millions from investors and others are eyeing up their options.
But raising the cash requires banks’ Capital Markets divisions to liaise with investors and whip up interest – usually in return for large fees.
However, the FCA said: “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 will be looking into this further, but want any practice of this nature to cease immediately.
“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.
“This conduct is also likely to increase overall transaction costs for corporates trying to raise money.”
Officials also reminded banks that each worker registered with the FCA has personal responsibilities and rules to uphold.
Banks that offer both lending and services for fundraising from investors, must now conduct a review of their practices, the FCA added.
It said: “If we find further evidence to support these concerns, we will not hesitate to take action, as this conduct has no place in well-functioning markets.”