AUTH 3.7 Requirements

1. (1)

   Section 43 of the Act (Imposition of requirements) gives the FSA power to include any requirements in a Part IV permission that it considers appropriate. A requirement may be imposed on a firm to:

   1. (a)

      take a particular action; or

   2. (b)

      refrain from taking a particular action.

2. (2)

   The requirement may extend to activities which are not regulated activities (for example, see AUTH 3.7.6 G (3)) and the FSA may set a time at which the requirement expires.

3. (3)

   As part of its application for Part IV permission, an applicant may wish to apply for certain requirements (details of which are given in the application pack).

Generally speaking, a requirement will either be unrelated to the performance of regulated activities (for example, a requirement that relates to reporting) or will relate to all, or a number of, the regulated activities which an applicant wishes to carry on. This can be contrasted with a limitation, which is specific to one particular regulated activitiy (either to the specified activity, the specified investments or both), as in AUTH 3.6.

1. (1)

   Requirements can, among other things, be used by the FSA to control the performance of certain business activities which are not in themselves regulated activities; although in many cases a firm will require permission for a combination of regulated activities before the business activity can be carried on. The business activities controlled in this way are those which, in the interests of consumer protection, have certain minimum standards, for example in respect of the systems and controls required to meet regulatory or other obligations (for example, see the client money rules in CASS 4).

2. (2)

   As a result, applicants will be asked to specify as part of their application whether or not they wish to carry on business activities that include:

   1. (a)

      the holding or controlling of client money; or

   2. (b)

      ISA, PEP, or CTF management (including, in the case of CTF management, details of any third party administrator that it engages and with details of whether it intends to offer Revenue allocated CTF's and whether it intends to provide its own stakeholder CTF); or2

   3. (c)

      operating an investment trust savings scheme; or

   4. (d)

      management of a broker fund.

3. (3)

   As part of demonstrating that it can satisfy and continue to satisfy the threshold conditions in respect of the regulated activities it wishes to carry on, an applicant will be expected to demonstrate that it is ready, willing and organised to satisfy, and continue to satisfy, any relevant regulatory obligations that would apply to any business activities it wishes to carry on (for example, CASS 4 (Client money)). An applicant that does not wish to engage in these activities should apply for a requirement to exclude performance of these activities from the scope of its Part IV permission.

1. (1)

   A requirement can also be used by the FSA to define the scope of a number of regulated activities carried on by a firm so that a particular differentiated regulatory regime applies. Examples of such regimes include those for oil market participants, energy market participants, locals, venture capital firms, corporate finance advisory firms and service companies. Where this is relevant, an applicant may wish to apply for Part IV permission which includes a requirement defining the scope of each of its regulated activities. 1

2. (2)

   As an example, an applicant wishing to act as a corporate finance advisory firm may be given Part IV permission to carry on the activities of advising on investments and arranging (arranging (bringing about) deals in investments), subject to a requirement that the firm carries on these activities only within the definition of a corporate finance advisory firm.

3. (3)

   As part of the application pack, an applicant will be asked whether it wishes to apply for a requirement to define the scope of its Part IV permission. An applicant that applies for Part IV permission with a requirement to reduce the scope of that permission will only be required to demonstrate to the FSA that it is able to satisfy, and continue to satisfy, the threshold conditions in respect of the reduced scope.

As part of the application process, an applicant will need to determine which prudential category it falls into and, in some cases, which sub-category (see AUTH 3.8.5 G). In some cases, a requirement may form part of the description of such a category or sub-category, in which case the applicant may wish to apply for Part IV permission subject to appropriate requirements. The FSA may also impose a requirement on a firm to require it to comply with certain financial requirements (see SUP 7.4 (Individual requirements)).

Examples of requirements which may be applied by the FSA in particular circumstances, include:

1. (1)

   a requirement, imposed under section 48 of the Act (Prohibitions and restrictions), that a firm given Part IV permission obtain the approval of the FSA before payment of a dividend; or

2. (2)

   a requirement to submit financial returns more often than normal, for example during the firm's first months or years of business; or

3. (3)

   a requirement to submit audited financial accounts of a parent company; or

4. (4)

   a requirement, on the permission of an insurer, to carry on only reinsurance business; or

5. (5)

   a requirement to submit periodic independent compliance reviews, performed by an appropriate person, during the first months or years of business.

If, after reviewing an application, the FSA proposes to impose a requirement, the applicant will be advised formally (that is, the applicant will be sent a warning notice) and given an opportunity to make representations before the FSA reaches a final decision.

Following the giving of a Part IV permission, a firm can apply, at any time, to vary that Part IV permission, including any requirement or limitation, following the procedures in SUP 6.