The Financial Conduct Authority (FCA) has opened a consultation to amend its handbook relating to the variation and cancellation of a firm’s permissions to carry on activities it regulates.
The regulator is authorised to give permissions under Part 4A of the Financial Services and Markets Act 2000 (FSMA).
The consultation comes after the passing of the Financial Services Act 2021, which amended FSMA and gave the FCA an additional process to vary or cancel the permissions of firms it authorises under Part 4A.
The Treasury will specify the date from which the power will apply in a commencement order. It will not apply to PRA-authorised firms.
The latest power will allow the FCA to act more quickly than it is able to now to cancel or vary permissions where it considers that firms are no longer carrying on any activities it regulates.
The FCA is consulting on proposed associated amendments to its Decision Procedure and Penalties manual (Depp) and Fees manual (FEES).
The consultation period ends on 5 July 2021.
The cancellation and variation power
The newly established powers will allow the FCA to vary or cancel an FCA-authorised firm’s Part 4A permission where:
- The firm appears to us not to be carrying on any FCA-regulated activity, including, but not only, where the firm has failed to pay a periodic fee or levy, or to provide the FCA with information, such as an annual return, required under the handbook; and,
- The FCA has served on the firm two notices and the firm has not responded or taken other steps as directed.
The process will sit alongside the existing cancellation and variation process in FSMA.
Where the FCA uses the power to cancel or vary a firm’s permission, that firm can apply to have that decision annulled. The application for annulment must be made within 12 months of the cancellation or variation and will need to be made in the manner directed by the FCA. The FCA “may annul the cancellation or variation, subject to conditions, but may only annul the decision where it considers it just and reasonable to do so”.
Where the FCA proposes to refuse to annul, we will give the firm a warning notice and where the FCA decides to refuse to annul, “we will give the firm a decision notice”. Where a firm receives a warning notice, it will “be given the right to respond by making representations that will be considered by the FCA decision-maker before a decision whether to annul is made”.
If the FCA grants the firm’s application to annul, the effect of annulment is that the cancellation or variation under the power is treated as “never having occurred”. Where the FCA has relevant statutory functions and an annulment causes a person to become subject to a statutory obligation, the FCA will “have a power to exercise those functions as though that person has not become subject to the statutory obligation”.
Whatever the FCA’s decision on an annulment application, either or both of the firm and the FCA can refer the matter to the upper tribunal, which “will be able to direct and make such provision as it considers reasonable for placing the relevant firm and/or any other person in the same position as if there had been no variation or cancellation”.
“In any event, the FCA does not expect that the proposal will lead to any increase in costs, or the cost increase will be of minimal significance,” the regulator added.
Potential harms addressed by the powers
The FCA believes the newly established powers will help consumers “avoid financial harm such as scams”.
The watchdog said: “One of a number of actions the FCA is taking in response to the review undertaken by Dame Elizabeth Gloster into its regulation of London Capital & Finance is to undertake a ‘use it or lose it’ exercise”.
“Firms that have not used their regulatory permissions to earn any income for the last 12 months are at risk of having their authorisation cancelled, to reduce the risk of firms having a permission to carry out regulated financial services purely to add credibility to their unregulated activities.
“In January 2021, we reminded firms of their obligation to regularly review regulatory permissions to ensure they are up to date and removed where not needed, noting the government’s intention to introduce the new power now granted by the Financial Services Act 2021.
“We intend to use the new power, where the conditions described below are satisfied, in our ‘use it or lose it’ exercise.”
