ENF 2.5 The FSA's policy on exercising its powers: firms, approvedpersons, and others

ENF 2.5.2 G to ENF 2.5.11 G refer to the FSA's policies on using its powers to require information and reports from firms and others(which are explained in SUP 2 (Information gathering by the FSAon its own initiative) and SUP 5 (Reports by skilled persons)). They also set out the FSA's policy on using its powers to carry out investigations into the affairs of firms, approved persons, individuals involved in firms, appointed representatives, small e-money issuers 1and unauthorised incoming ECA providers.2 The powers available to the FSA are summarised in ENF 2 Annex 3 G.

Section 165 of the Act (FSA's power to require information) gives the FSA powers to require the provision of information and documents from firms. Under the ECD Regulations, the FSA may exercise the power under section 165 (and section 166) in relation to an incoming ECA provider, whether the provider is a firm or not.2

The FSA may require the provision of information and documents under section 165 of the Act if it reasonably requires them, in connection with the exercise of the functions conferred on it by or under the Act (section 165(4)). This power may be used in a range of circumstances and for different purposes, such as supervision, including routine supervisory activities, and consumer education (see SUP 2).

If the information available to the FSA raises a regulatory concern about a firm, an approved person's conduct or fitness and propriety, a small e-money issuer or an unauthorised incoming ECA provider, the FSA may need to make further enquiries by using its powers to require reports by skilled persons or to appoint investigators. The nature of the FSA's enquiries will depend on the nature and seriousness of its concerns and on the attitude of the firm, small e-money issuer or unauthorised incoming ECA provider concerned.21

The types of concern that may prompt the FSA to make further enquiries into a firm cannot be listed exhaustively. They will extend to any matter which relates to a firm's business and to the FSA's performance of its statutory functions, having regard to its regulatory objectives. Broadly speaking, they will include circumstances which suggest that:

1. (1)

   a firm, or an approved person within a firm, may have acted in a way which prejudiced the interests of consumers;

2. (2)

   a firm, or an approved person within a firm, may have acted in breach of the requirements of the legislation or the rules;

3. (3)

   a firm may no longer meet the threshold conditions or an approved person within a firm may not be a fit and proper person to perform a controlled function;

4. (4)

   a firm may have been used or may be being used for the purposes of financial crime including money laundering;

5. (5)

   the FSA should be concerned about the ownership or control of a firm, including whether a person who has acquired influence over the firm meets the requirements for FSA approval;

6. (6)

   the conduct of certain types of regulated activities in which a firm is involved are a cause of serious public concern.

If the FSA decides that it should use its statutory powers to make further enquiries, it will have regard to the objectives of those enquiries, and the relative effectiveness of its available powers to achieve those objectives. For example:

1. (1)

   if the FSA's objectives are limited to gathering historic information or evidence for determining whether enforcement action may be appropriate, the FSA's information gathering and investigation powers under sections 165, 167 and 168 of the Act are likely to be more effective and more appropriate than the power under section 166 (Reports by skilled persons) (see ENF 2.3.2 G to ENF 2.3.15 G); and

2. (2)

   if the FSA's objectives include obtaining expert analysis or recommendations (or both) for remedial action, the power under section 166 may be an appropriate power to use, instead of, or in conjunction with, the FSA's other available powers.

SUP 5 contains guidance on the FSA's use of the section 166 power, including guidance on the appointment and reporting process. It also contains rules and guidance on the duties of firms which are subject to section 166 requirements, and guidance on the contractual duties of skilled persons appointed as a result of section 166 requirements. The rules and guidance in SUP 5 apply whenever the FSA uses the section 166 power.

1. (1)

   In some circumstances, the provision of a report by a skilled person under section 166 may not be appropriate, or may be insufficient (because of the limited nature of the power) to address the seriousness of the FSA's concerns. This will include cases where an effective and thorough investigation by the FSA is likely to call for the exercise of powers to require the firm, connected persons, small e-money issuer, or unauthorised incoming ECA provider to answer questions and/or produce documents. In those cases, the FSA will appoint an investigator under section 167 or 168 of the Act, if appropriate the FSA may also require the firm, small e-money issuer or unauthorised incoming ECA provider to provide a skilled person's report under section 166. In other cases, the FSA may appoint an investigator, under section 167 or 168, as a result of information in a report under section 166.1

2. (2)

   Investigators will usually be members of the FSA's staff.2

Where the FSA has general concerns about a firm, an appointed representative or an unauthorised incoming ECA provider, but the circumstances do not at that stage suggest any specific breach or contravention, it will rely on its power under section 167 of the Act and, if it appears that there are good reasons for doing so, the FSA will appoint investigators to investigate the business of a firm, an appointed representative or an unauthorised incoming ECA provider.2

Where it appears to the FSA that circumstances suggest the contraventions or offences set out in section 168 of the Act (listed in ENF 2.3.14 G) may have happened, the FSA will appoint investigators under section 168. These powers are wider than those available to investigators under section 167 (see ENF 2.4.2 G to ENF 2.4.8 G). An investigator appointed under section 168 may also require persons who are neither the subject of the investigation, nor connected with the person under investigation, to attend before him, and to answer questions and provide information. In addition, where the investigator is appointed as a result of section 168(2), those persons may also be required to provide all assistance to the investigator that they are reasonably able to give.

In some cases, where the FSA has appointed investigators into a firm or an unauthorised incoming ECA provider2 under section 167 of the Act, it may decide that it is appropriate to extend the appointment to cover matters under section 168 of the Act as well, if circumstances suggest that one of the specific contraventions, breaches or offences listed in ENF 2.3.14 G may have occurred. Where it does so, it will normally notify the person under investigation that it has appointed the investigators to investigate under section 168 as well (see ENF 2.12).

Unless it is not practicable to do so (such as in cases of urgency), FSA staff (or the investigator appointed by the FSA) will generally send a preliminary findings letter to a firm, approved person, individual involved in a firm, appointed representative or a small e-money issuer1 under investigation (as the case may be) before considering whether to recommend that enforcement action be initiated.

The letter will set out the facts which the FSA staff (or the investigator appointed by the FSA) consider relevant to the matters under investigation, and will invite the person concerned to confirm that those facts are complete and accurate. FSA staff (or the investigator appointed by the FSA) will allow a reasonable period (normally 28 days) for a response to this letter.

FSA staff will take into account any response they receive within the period stated in the preliminary findings letter. They are not obliged to take into account any response received outside that period.

Where the FSA (or the investigator appointed by the FSA) has sent a preliminary findings letter and the FSA then decides not to take any further action, the FSA will communicate this decision promptly to the person concerned.