1. (1)

   This chapter applies to any person who is, in relation to a profession, entitled to practise that profession and, in practising it, is subject to the rules of the relevant designated professional body, whether or not it is a member of that body ('members').

2. (2)

   A member is exempt from the general prohibition, under section 327 of the Act (Exemption from the general prohibition), so long as the conditions set out in sections 327(2) to (7) are satisfied and so long as there is not in force:

   1. (a)

      a direction under section 328 of the Act ( Directions in relation to the general prohibition) disapplying the prohibition in whole or in part; or

   2. (b)

      an order under section 329 of the Act (Orders in relation to the general prohibition).

This chapter describes the FSA's general approach to the use of its power under section 329 of the Act (Orders in relation to the general prohibition) to make an order disapplying an exemption from the general prohibition in relation to a person who is member.

The chapter outlines:

1. (1)

   the FSA's power to make an order disapplying an exemption ('a disapplication order'), under section 329;

2. (2)

   the FSA's general approach to the exercise of that power;

3. (3)

   the FSA's procedure for exercising its power to make a disapplication order;

4. (4)

   the effect of the FSA's decision to make a disapplication order; and

5. (5)

   the FSA's approach to an application by a member of a profession to have a disapplication order varied or revoked.

The FSA's powers to make a disapplication order on the grounds that a member is not a fit and proper person to conduct exempt regulated activities, and to maintain a public record of disapplication orders, will assist the FSA in pursuing its regulatory objectives of protecting consumers, promoting public awareness and reducing financial crime.

Under section 329(1) of the Act (Orders in relation to the general prohibition) if it appears to the FSA that a person to whom (as a result of section 327(1) of the Act (Exemption from the general prohibition)) an exemption from the general prohibition applies, is not a fit and proper person to carry on exempt regulated activities, it may make an order under section 329(2) disapplying the exemption to the extent set out in the order.

Sections 329(5) and 329(6) are concerned with the effect of disapplication orders on partnerships (including limited liability partnerships). Section 329(5) provides that if a partnership (or limited liability partnership) is named in a disapplication order, the order is not affected by any change in its membership.

Under section 329(6) a partnership (or limited liability partnership) named in a disapplication order is dissolved, the order continues to have effect in relation to any partnership (or limited liability partnership) that succeeds to the business of the dissolved partnership (or limited liability partnership). Section 329(7) provides that a partnership will succeed to the business if:

1. (1)

   the members of the resulting partnership are substantially the same as those of the former partnership; and

2. (2)

   succession is to the whole or substantially the whole of the business of the former partnership.

Section 331(1) (Procedure on making or varying orders under section 329) provides that if the FSA proposes to make a disapplication order, it must give the person concerned a warning notice setting out the terms of the proposed order. The FSA's procedures in DEC 2.2 (Warning notice procedure) will apply.

Section 331(3) provides that if the FSA then decides to make a disapplication order it must give the person concerned a decision notice. The FSA's procedures in DEC 2.3 (Decision notice procedure) will apply.

Under section 331(9), a person against whom the FSA has decided to make a disapplication order may refer the matter to the Tribunal (see DEC 5.1 (The Tribunal)).

ENF 18.4 sets out how the FSA will determine whether a member is not a fit and proper to carry out exemptregulated activities in accordance with section 327 of the Act (Exemption from the general prohibition).

The FSA may make a range of disapplication orders depending on the particular circumstances of each case, including the range of exempt regulated activities undertaken and the particular exempt regulated activities to which the person's lack of fitness and propriety in that context is relevant.

The FSA recognises that a decision to make a disapplication order may have serious consequences for a member in relation not only to the conduct by the member of exempt regulated activities, but also in relation to the other business carried on by the member. When it decides whether to exercise its power to make a disapplication order, the FSA will consider all relevant circumstances including whether other action, in particular the making of a prohibition order (see ENF 8 (Prohibition of individuals)), would be more appropriate. In general, the FSA is likely to exercise its powers to make an order disapplying an exemption where it considers that a member of a profession presents such a risk to the FSA's regulatory objectives that it is necessary to prevent the member from carrying out the exempt regulated activities. The FSA will also have regard to any disciplinary action taken, or to be taken, against the person by the relevant designated professional body.

The FSA may be alerted to concerns in relation to the carrying out of exempt regulated activities by a member, by the relevant designated professional body or by complaints from others such as employees or clients of the member.

When the FSA has concerns about the fitness and propriety of a member to carry out exempt regulated activities, it will consider all the relevant circumstances of the case, including whether those concerns arise from the fitness and propriety of specific individuals engaged to perform the exempt regulated activities carried out by the member or whether its concerns arise from wider concerns about the member itself.

In most cases, where the FSA is concerned about the fitness and propriety of a specific individual, it may be more appropriate for the FSA to consider whether to make an order prohibiting the individual from performing functions in relation to exemptregulated activities rather than a disapplication order in relation to the member concerned. The criteria which the FSA will apply when determining whether to make a prohibition order against an individual who is not regulated by the FSA are set out in ENF 8.8 (Prohibition orders against other individuals). In addition to the factors referred to in ENF 8.8, the FSA may also take into consideration any disciplinary action that has been, or will be taken against the individual concerned by the relevant designated professional body, where that disciplinary action reflects on the fitness and propriety of the individual concerned to perform exempt regulated activities.

The FSA will also take into account the potentially more serious consequences that a disapplication of an exemption will have for the member concerned compared with the consequences of a prohibition of a particular individual engaged in exempt regulated activities. However, the FSA may consider it appropriate in some cases to disapply an exemption where it decides that the member concerned is not fit and proper to carry out exempt regulated activities in accordance with section 327 of the Act (Exemption from the general prohibition).

As an alternative to making an order to disapply an exemption, the FSA may consider issuing a private warning. A private warning may be appropriate where the FSA has concerns in relation to a member's fitness and propriety but feels that its concerns in relation to the conduct of exempt regulated activities can be more appropriately addressed by a private warning than by a disapplication of the member's exemption.

When it decides whether to exercise its power to disapply an exemption from the general prohibition in relation to a member, the FSA will take into account all relevant circumstances which may include, but are not limited to, the following factors:

1. (1)

   disciplinary or other action taken by the relevant designated professional body, where that action relates to the fitness and propriety of the member concerned: where the FSA considers that its concerns in relation to the fitness and propriety of the member concerned may be, or have been adequately addressed by disciplinary or other action taken by the relevant designated professional body it may consider not making a disapplication order in addition to such action; however, where the FSA considers that its concerns, and in particular, any risks presented to the member's clients in respect of its exemptregulated activities, are not adequately addressed by that action, the FSA will consider making a disapplication order;

2. (2)

   the significance of the risk which the member presents to its clients: if the FSA is satisfied that there is a significant risk to clients and consumers it may consider making a disapplication order;

3. (3)

   the extent of the member's compliance with rules made by the FSA under section 332(1) of the Act (Rules in relation to whom the general prohibition does not apply) or by the relevant designated professional body under section 332(3) of the Act;

Where the FSA is considering whether to exercise its power to make a disapplication order in relation to a member, it will liaise closely with the relevant designated professional body.

Where the FSA is considering making a disapplication order against a member as a result of a breach of rules made by the FSA under section 323(1) of the Act, it will take into account any proposed application by the member concerned for authorisation under the Act. The FSA may refrain from making a disapplication order pending its consideration of the application for authorisation.

Under section 329(3) of the Act (Orders in relation to the general prohibition), the FSA may, on the application of the person against whom an order has been made, vary or revoke a disapplication order.

When considering whether to grant or refuse an application to vary or revoke a disapplication order, the FSA will take into account all the relevant circumstances. These may include, but are not limited to:

1. (1)

   any steps taken by the person to rectify the circumstances which gave rise to the original order;

2. (2)

   whether the person has ceased to present the risk to clients and consumers or to the FSA's regulatory objectives which gave rise to the original order;

3. (3)

   the circumstances giving rise to the original order and any additional information which, had it been known by the FSA, would have been relevant to the decision to make the order;

4. (4)

   the amount of time which has elapsed since the order was made.

The FSA will not generally grant an application to vary a disapplication order unless it is satisfied that the proposed variation will not result in the person presenting the same degree of risk to clients or consumers that originally gave rise to the order to disapply the exemption. Similarly, the FSA will not revoke a disapplication order unless and until it is satisfied that the person concerned is fit and proper to carry out exempt regulated activities generally or those specific exempt regulated activities in relation to which the exemption has been disapplied.

Section 331(6) of the Act (procedure on making or varying orders under section 329) provides that if the FSA proposes to refuse an application for the variation or revocation of a disapplication order, it must give the applicant a warning notice. Section 331(7) provides that if the FSA then decides to refuse the application, it must give the applicant a decision notice. The FSA's approach to the issue of warning notices and of decision notices is described in DEC 2.2 (Warning notice procedure) and DEC 2.3 (Decision making procedure). A person whose application for variation or revocation of a disapplication order has been refused, may refer the matter to the Tribunal (see DEC 5.1 (The Tribunal)).

This section sets out the other powers that may be relevant when the FSA is considering whether to make a disapplication order in relation to a member.

The FSA's powers to appoint investigators are set out in ENF 2. In particular, under section 168(4)(d) of the Act (Appointment of persons to carry out investigations in particular cases) the FSA may appoint investigators if there appear to be circumstances suggesting that an individual is not a fit and proper person to be involved in the discharge of any function in relation to exempt regulated activities.

Where the FSA considers that it may be more appropriate to take action against particular individuals engaged in the carrying out of exempt regulated activities within the member of a profession concerned (see ENF 18.4.3 G), it may consider using its power to make prohibition orders against the relevant individuals (see ENF 8 (Prohibition of individuals)).

When the FSA has made a disapplication order, the member against which it has been made may not perform the exempt regulated activities to which the order relates. If the member contravenes the order, there will be a breach of the general prohibition that may be prosecuted under section 23 of the Act (see ENF 15).

A disapplication order in relation to exempt regulated activities made against a member will be relevant should that member subsequently apply for authorisation under the Act. Whether or not such an application for authorisation is successful will depend on many factors, including the FSA's grounds for making the disapplication order. For example, if the order for disapplication of the exemption was made on the grounds of a breach of rules made under 332(1) the FSA may accept an application for authorisation notwithstanding the disapplication order. If, however, the order was made on grounds of a breach of the rules of a designated professional body resulting in a significant risk to clients in relation to the provision of exempt regulated activities, it is unlikely that an application for approval made by the member would be accepted by the FSA before the revocation of the disapplication order.

DEC 5.2 (Publication) set out certain requirements of the Act in relation to the publication by the FSA of its decisions.

Under section 347(1)(i) of the Act (Record of authorised persons), the FSA is required to maintain a record of every person falling within such class as the FSA may determine. To help it fulfil its regulatory objectives of protecting consumers and promoting public awareness, the FSA will maintain a record of persons who have been the subject of disapplication orders on the FSA's Register.

The FSA will consider what additional information about the circumstances of the order to include on the record maintained on the FSA Register and will take into account any possible prejudice to the person concerned as compared to the interests of consumer protection. In general, the FSA considers that publication of relevantinformation about orders to disapply an exemption will be in the interests of clients and consumers.

Under section 347(3) of the Act, if it appears to the FSA that an entry in the FSA Register ceases to apply to a person, it may remove the relevant entry from the record. Section 347(4) provides that, if the FSA decides not to remove the entry in the record, it must make a note in the record to that effect and state why it believes the entry in the record no longer applies to the person.

While a disapplication order is effective, the FSA will maintain a record of the order on the FSA Register. If the FSA grants an application to vary the order, a note of the variation will be made against the relevant entry on the FSA's Register. The FSA's policy in relation to section 347(4) of the Act is that where an application to revoke an order is granted, a note will be made on the FSA Register to the effect that the order has been revoked giving reasons for its revocation. The availability of a full record of action taken by the FSA against persons granted an exemption under section 327 of the Act will help the FSA to fulfil its regulatory objectives of protecting consumers and maintaining confidence in the financial system. For this reason, the FSA will maintain the annotated record of the disapplication order for a period of six years from the date of the revocation of the order after which period the record will be removed from the record on the FSA Register.