The UK government wants to give the Financial Conduct Authority (FCA) additional powers to cancel the authorisations of firms no longer carrying out regulated activities.
The policy was published in the HM Treasury statement on 20 April called ‘Changes to the FCA’s cancellation of authorisation process’, and it will allow the financial watchdog to cancel permissions it has granted.
The change will only apply firms both authorised by the FCA, often described as solo-regulated firms.
Firms that also fall under the eye of the Prudential Regulation Authority (PRA) and the FCA, often described as dual regulated will not be affected.
No longer sufficient
The current grounds for the FCA to cancel a firm’s authorisation were set ou in the Financial Services and Markets Act 2000 (Fsma).
HM Treasury said: “Since that time, the FCA’s regulatory population has significantly expanded.
“The current process is therefore no longer sufficient to allow the FCA to quickly remove a firm’s authorisation where they suspect they are no longer carrying out authorised activity and reflect that in the Financial Services Register.
“This poses significant risks to consumers.”
Proposal
The UK government’s proposed process will sit alongside the existing cancellation procedure.
This will mean that, in certain situations, where the FCA suspects that an authorised firm may no longer be carrying out any regulated activity to which its permissions apply, the regulator can streamline the firm’s cancellation through the newly established process rather than meet the conditions in Fsma 2000.
HM Treasury said the following situations should, non-exclusively, allow the FCA to commence the new process:
- An FCA-authorised firm’s failure to: pay fees that it is required to pay, file a return that it is required to submit, or keep up to date its core information requirements;
- Repeated failure to respond to FCA correspondence sent to the last known physical or electronic address of the person provided to the regulator; or
- Correspondence that the FCA has sent to the firm using the last known physical or electronic address has been returned undelivered.
If any of these situations are met, the FCA would be able to serve a first notice by letter (or by electronic means where agreed with a firm), and then if no response is made within 28 days, a second notice is sent and published on the FCA website, as well as the financial services register.
One month after the publication of the second public notice, the FCA will cancel the firm’s authorisation.
Up until the point of cancellation, the firm in question can notify the FCA in writing that it is carrying on a regulated activity. The FCA will then end the process and can remove any public notice it has placed.
Rationale for this change
HM Treasury said, since Fsma 2000, was introduced the FCA-regulated population has significantly expanded to around 59,000 firms.
“Given this increase, the FCA must handle a considerably higher number of cases that may meet the above grounds for cancellation,” HM Treasury said. “The government agrees that it is important that the FCA can cancel the authorisation of a firm that is no longer carrying on regulated activities and remove them from the register as quickly as possible.
“It will also allow the FCA to use resources more efficiently to better deliver in the public interest.
“The government believes that not only consumers, but the wider FCA-regulated population of compliant firms, will benefit from the resulting greater consumer confidence in the register and their services.”
The existing Fsma process
In the current process, authorised firms are required to give the FCA prompt notice if they intend to cease carrying on one or more regulated activities, permanently.
In order to cancel a firm’s authorisation in these circumstances, the FCA must follow the procedure currently set out in Fsma.
Where a firm has not notified the FCA that it is no longer carrying on any regulated activity, but the FCA believes that is the case, the regulator must demonstrate that one of the grounds in the act is met in order to cancel the firm’s authorisation.
If the FCA suspects a firm has ceased any authorised activity, the regulator must gathers evidence from the firm to demonstrate that one of the grounds has been triggered.
If it plans to cancel a firm’s authorisation, the UK watchdog must give that firm a warning notice and allow at least 14 days to respond.
Following this, the FCA must give the firm a decision notice and the firm can, within 28 days, appeal to the Upper Tribunal.
The FCA can only cancel the firm’s authorisation once that 28-day period has ended and the firm has not appealed, or it has been unsucessful .
Restoration
HM Treasury said that restoration of permissions would then be conditional on the following facts:
- Immediately before the cancellation the firm was carrying out a regulated activity covered by its former authorisation;
- It appears to the FCA that the firm had a reasonable excuse for its failure to respond to warnings given by the regulator under the new process;
- The firm complying with the requirement which was the ground for the use of the process by a specified date; and
- The firm attests that there is no other reason to the best of its knowledge to suggest that it fails to meet threshold conditions.
Next steps
The UK government will take the policy to parliament and, following royal assent, the FCA will set out its proposals for how it will implement these changes.
HM Treasury added: “We anticipate that this will provide further detail on the process, including, as necessary, the effect of restoration for consumers, what types of situations may satisfy the conditions for restoration and the individuals at the firm who can make an application for restoration.”
