The Financial Conduct Authority (FCA) has published draft guidance which would give the watchdog additional powers to remove regulatory permissions if they are no longer being used by financial services firms.
The focus seems to be on “incorrect or outdated” authorisations on the regulator’s register as they can “mislead consumers about the level of protection offered by a firm or give credibility to a firm’s unregulated activities”, the FCA said.
The watchdog added that the change would help in the fight against scams and ensure that the register shows a clearer picture of the permissions firms actually hold.
Companies are required to confirm such information on the register on an annual basis.
The power would be granted under the Financial Services Act 2021, and has the potential to streamline and shorten the process of removing permissions, the regulator said.
If the draft guidance was to be implemented, it would allow the FCA to start the cancellation process “as soon as it considers permissions are not being used, by serving a 14 days’ notice on a firm”.
Subsequently, the cancellation of, or change in, permission would take place after a month.
The FCA’s consultation will be open until 29 October 2021.
Misled
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “We want to use this power to take quicker action to prevent consumers being misled.
“It is part of our transformation and drive to be more assertive, drawing on an innovative approach and using new streamlined processes to make important regulatory interventions.
“Firms can and should apply to have their permissions cancelled if they no longer plan to use them but many fail to do so.
“We understand that business models may evolve over time and there may be valid reasons why regulatory permissions are not being used, but unless firms notify us and keep their permissions up to date, they will risk losing market access.”
Advisers affected?
International Adviser reached out to industry players to understand what impact this would have on advisory firms, such as those that hold permissions to advise on defined benefit (DB) pension transfers but cannot currently afford professional indemnity (PI) cover.
Tim Sargisson, chief executive of Sandringham Financial Partners, said he welcomes the regulator’s move, especially if it means being proactive in the fight against scams.
But Phil Billingham, director at perceptive Planning, doesn’t think advice businesses will be among those most affected if the move is to come into force.
He said: “Whilst I agree that the permissions a firm has should reflect its business activities, it seems a stretch to link the fact that a firm may not have transacted a certain type of business – term insurance, for example – with protection from scams.
“It also reflects the regulatory mindset that confuses transactions with advice. I suspect that this [announcement] is actually aimed at a specific type of firm or activity, rather than mainstream advice firms, who pose much lower risk to consumers than the unregulated activities alluded to [by the FCA].”
Balancing act
Tom Selby, head of retirement policy at AJ Bell, told IA he doesn’t think the DB transfer advice market will be affected by the move.
“The FCA has a difficult balance to strike between, on the one hand, protecting consumers from being misled, and on the other ensuring advisers who have permissions to give certain types of advice but only use them infrequently do not have them unnecessarily taken away.
“Provided these powers are only used to remove those with permissions who genuinely aren’t using them – and have no intention to use them – then it should not have a material impact on the DB transfer market or advisers operating in that space.”
But Steve Webb, partner at LCP, told IA that advice firms may use their permissions “occasionally” when the need arises, and having them removed may cause problems for their line of business, and that, if this was to happen, the FCA should introduce an appeal system alongside its additional powers.
He said: “Whilst it is understandable that the FCA wants to avoid a situation where firms show as having permissions but have not used them in years, it will be important not to be too heavy-handed.
“For example, for a small advice firm it may be that permission to offer in-house advice on DB transfers is something that is only needed occasionally, but is a useful service for existing clients.
“It would be unfortunate if an advice firm had its permissions unilaterally revoked simply because it had not used them recently. At the very least, there should be a proper process of challenge or appeal where firms could justify why retaining the permissions would remain in the best interest of clients”.
The watchdog has already intervened by blocking authorisation for 343 firms in January 2021, stressing that firms should “use or lose” their permissions. A similar consultation was also unveiled in June 2021.
