FCA Seeks New Power to Quickly Cancel or Vary Firm Permissions

The UK Financial Conduct Authority (FCA) has published the latest Quarterly Consultation last week, in which proposed changes were sketched out. The watchdog is leveraging the chance to seek new powers to act more quickly to vary or cancel permissions of authorized firms and the consultation is open to the public for one month.

According to the Consultation Paper, the new power will allow the FCA to act more quickly than currently to cancel or vary permissions where it considers that firms are no longer carrying on any activities it regulates. It is consulting on proposed associated amendments to its Decision Procedure and Penalties manual (DEPP) and Fees manual (FEES).

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The regulator proposes to amend the Handbook relating to its variation and cancellation of the permissions given by it to firms it has authorised under Part 4A of the Financial Services and Markets Act 2000 (FSMA) to carry on activities it regulates. This will include firms deemed to have Part 4A permission under the temporary permission and supervised run-off regimes.

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 Plc 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, the FCA 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. The regulator intends to use the new power, where the conditions described below are satisfied, in its ‘use it or lose it’ exercise.

The new power, provided by the Financial Services Act 2021, will allow the FCA to vary or cancel an FCA-authorised firm’s Part 4A permission where:

1. 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;

2. the FCA has served on the firm two notices and the firm has not responded or taken other steps as directed.

Where the FCA proposes to refuse to annul, it will give the firm a warning notice and where the FCA decides to refuse to annul, it 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 new 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.