This chapter applies to incoming firms. An incoming firm is:

1. (1)

   an EEA firm; or

2. (2)

   a Treaty firm;

which is exercising, or has exercised, its right to carry on a regulated activity in the United Kingdom under Schedule 3 (EEA passport rights) or Schedule 4 (Treaty rights) to the Act.

The chapter contains a statement of the FSA's policy on how it will use its power to intervene against incoming firms under section 196 of the Act. It outlines:

1. (1)

   the FSA's power to intervene against incoming firms under section 196 of the Act (The power of intervention);

2. (2)

   the grounds for exercising that power (both generally and in support of overseas regulators); and

3. (3)

   the FSA's policy on the exercise of that power.

The FSA has related powers to impose limitations and requirements on firms that have Part IV permission, and ENF 3 (Variation of permission on the FSA's own initiative) contains a statement of the FSA's policy on how it will use those powers. This chapter refers where appropriate to the policy in ENF 3.

The FSA's power to intervene against incoming firms, and the grounds for exercising that power, are contained in sections 194 to 196 of the Act. Section 196 (The power of intervention) identifies the types of requirements the FSA may impose when it exercises its power of intervention against an incoming firm. Section 195 (Exercise of power in support of overseas regulator) gives the FSA power to intervene against an incoming firm in support of an overseas regulator and section 194 (General grounds on which power of intervention is exercisable) relates to all other circumstances.

Under section 196, where the FSA is entitled to exercise its power of intervention in respect of an incoming firm, it may impose any requirement on the firm which it could impose if:

1. (1)

   the firm's permission was a Part IV permission; and

2. (2)

   the FSA was entitled to exercise its power under that Part to vary that permission.

Paragraphs ENF 3.2.8 G to ENF 3.2.10 G explain and provide examples of the requirements the FSA may impose when it exercises its power to vary permission.

Section 194 of the Act (General grounds on which power of intervention is exercisable) sets out the general grounds on which the FSA may exercise its power of intervention. Section 195 (Exercise of power in support of overseas regulator) relates to the exercise of the power on behalf of an overseas regulator.

Under section 194(1) the FSA may exercise the power of intervention if it appears to it that:

1. (1)

   an incoming firm has contravened, or is likely to contravene, a requirement which is imposed on it by or under the Act (in a case where the FSA is responsible for enforcing compliance in the United Kingdom); or

2. (2)

   an incoming firm has, in purported compliance with any requirement imposed by or under the Act, knowingly or recklessly given the FSA information which is false or misleading in a material particular; or

3. (3)

   it is desirable to exercise the power in order to protect the interests of actual or potential customers in relation to a regulated activity carried on by the firm.

Under section 194(3) the FSA may exercise the power if it receives certain information from the Director General of Fair Trading. Section 194(3) applies to an incoming EEA firm that is either:

1. (1)

   an investment firm which is authorised in another Member State by its Home State regulator; or

2. (2)

   a credit institution which is authorised in another Member State by its Home State regulator;

exercising an EEA right to carry on Consumer Credit Act business in the United Kingdom (see section 194(2) and paragraph 5(a) and (b) of Schedule 3 to the Act (EEA Passport Rights)).

Section 194(3) permits the FSA to exercise its power of intervention in respect of the incoming firm if the Director General of Fair Trading has informed the FSA that:

1. (1)

   the firm concerned; or

2. (2)

   any of the firm's employees, agents or associates (whether past or present); or

3. (3)

   if the firm is a body corporate, a controller of the authorised person or an associate of such a controller; has done any of the things specified in paragraphs (a) to (d) of section 25(2) of the Consumer Credit Act 1974, that is has:

   1. (a)

      committed any offence involving fraud or other dishonesty, or violence; or

   2. (b)

      Contravened any provision made by or under that Act, or by or under any other enactment regulating the provision of credit to individuals or other transactions with individuals; or

   3. (c)

      practised discrimination on grounds of sex, colour, race or ethnic or national origins in, or in connection with, the carrying on of any business; or

   4. (d)

      engaged in business practices appearing to the Director to be deceitful or oppressive, or otherwise unfair or improper (whether lawful or not).

1. (1)

   Under section 195(1) of the Act (Exercise of power in support of overseas regulator), the FSA may exercise its power of intervention in respect of an incoming firm at the request of an overseas regulator.

2. (2)

   Paragraph (1) applies whether or not the FSA's power of intervention is also exercisable as a result of section 194 (see ENF 4.3.2 G to ENF 4.3.4 G).

3. (3)

   If:

   1. (a)

      a Home State regulator in pursuance of a Community obligation has made a request to the FSA for the exercise of the power; or

   2. (b)

      a Home State regulator has notified the FSA that it has withdrawn an EEA firm's EEA authorisation;

   then, when the FSA decides whether to exercise its power of intervention, it must consider whether it is necessary to exercise the power in order to comply with a Community obligation (See ENF 3.5.19 G for examples of relevant Community obligations).

4. (4)

   When the FSA decides in any case that the exercise of its power is not necessary to comply with a Community obligation, it may take into account, in particular, the factors that are set out in ENF 3.3.6 G.

The FSA's power of intervention and its own-initiative power to vary permission are similar in that:

1. (1)

   in both cases the FSA may impose requirements on firms (see ENF 3.2.8 G to ENF 3.2.10 G and ENF 4.2.2 G);

2. (2)

   in both cases the power may be exercised on similar grounds (see ENF 3.3.2 G (3) and ENF 4.3.2 G (3));

3. (3)

   the statutory procedure and the FSA's decision making processes are similar (although there are additional procedures for the FSA to follow in certain cases where the FSA intervenes against EEA firms) (see ENF 3.6 and ENF 4.5);

4. (4)

   In both cases, the FSA may exercise its power so that the action takes effect immediately, or on a specified date, or when the matter is no longer open to review (see section 197(1) of the Act (Procedure on exercise of power of intervention) in relation to the FSA's power of intervention); and

5. (5)

   In both cases, the FSA may only state that the action will have effect immediately, or on a specified date, if the FSA reasonably considers that it is necessary for the action to take effect immediately or on that specified date, having regard to the ground on which it is exercising its power (see section 197(2) of the Act in relation to requirements imposed by power of intervention).

The FSA will adopt a similar approach to the exercise of its power of intervention as it does to its own-initiative powers to vary permission, but with suitable modification for the differences in the statutory grounds for exercising the powers (for example, see ENF 4.3.4 G). Consequently the factors and considerations set out in ENF 3.5.2 G to ENF 3.5.28 G are also likely to be relevant when the FSA is considering regulatory concerns about incoming firms.

The FSA will seek, and take account of, the views of the firm's Home State regulator when it is considering action against an incoming firm.

When the FSA uses, or proposes to use, its power of intervention to impose a requirement on an incoming firm, it is required to follow the supervisory notice procedure contained in section 197 of the Act (Procedure on exercise of power of intervention). DEC 3 (Statutory notice procedure: Supervisory notice procedure) sets out this procedure in detail and describes the content of the notices that the FSA is required to give to the firm concerned. DEC 4 (The decision maker) also deals with decision making by the RDC (by full or modified procedure) in cases where the requirement on the incoming firm would have an effect equivalent to a fundamental change to the nature of a firm's Part IV permission; and with decision making by executive procedures in other intervention cases against incoming firms.

In addition, in certain cases relating to EEA firms, the FSA is required to follow the additional procedure contained in section 199 of the Act (Additional procedure for EEA firms in certain cases). Details of this procedure are set out in ENF 4.5.4 G to ENF 4.5.7 G.

Section 200 of the Act (Rescission and variation of requirements) contains supplemental procedure that the FSA must follow when it is considering rescinding or varying those requirements that it has imposed on an incoming firm by exercise of the power of intervention. Details of this procedure are set out in ENF 4.5.8 G to ENF 4.5.10 G.

The additional procedure in section 199 applies where it appears to the FSA that its power of intervention is exercisable:

1. (1)

   in relation to an incoming EEA firm; and

2. (2)

   in respect of the contravention of a relevant requirement.

A requirement is relevant if:

1. (1)

   it is imposed by the FSA under the Act; and

2. (2)

   With respect to its contravention, any of the Single Market Directives provides that a procedure of the following kind applies:

   1. (a)

      the FSA must, in writing, require the firm to remedy the situation;

   2. (b)

      if the firm fails to comply with that requirement within a reasonable time, the FSA must inform the firm's Home State regulator of this and request it to:

      1. (i)

         take all appropriate measures to remedy the situation; and

      2. (ii)

         inform the FSA of the measures it proposes to take, or has taken, or the reasons why it has not taken or will not take such measures.

Examples of relevant requirements are the requirements contained in COB. All of the chapters of COB apply to incoming EEA firms.1

The additional procedure also differs between urgent and other cases, as follows.

1. (1)

   Except as mentioned in (2) the FSA may not exercise its power of intervention in these cases, unless it is satisfied that:

   1. (a)

      the firm's Home State regulator has failed or refused to take appropriate measures to remedy the situation; or

   2. (b)

      the measures taken by the Home State regulator have proved inadequate for that purpose.

2. (2)

   If the FSA decides it should, as a matter of urgency, exercise its power of intervention to protect the interests of consumers, it may exercise the power:

   1. (a)

      before complying with the procedure described in ENF 4.5.5 G (2); or

   2. (b)

      Where it has complied with that procedure, before it is satisfied as mentioned in (1).

3. (3)

   If it exercises its power of intervention in this way, as a matter of urgency the FSA must, at the earliest opportunity, inform the firm's Home State regulator and the European Commission. If the Commission decides, under any of the Single Market Directives, that the FSA must rescind or vary any requirement imposed by it in this way, the FSA must do so.

Under section 200 of the Act (Rescission and variation of requirements), the FSA may rescind or vary a requirement it imposed when exercising its power of intervention, either on its own initiative or on the application of the person subject to the requirement.

The following procedure applies where the FSA on its own initiative rescinds or varies an existing requirement.

1. (1)

   The FSA may rescind a requirement on its own initiative by giving written notice to the person concerned. The rescission or variation takes effect on the date specified in the notice.

2. (2)

   The FSA may vary a requirement on its own initiative by giving a supervisory notice to the person concerned and following the procedure in section 197 of the Act (see ENF 4.5.1 G and DEC 3 (Statutory notice procedure: Supervisory notice procedure)).

The following procedure applies where the FSA proposes to refuse an application to rescind or vary an existing requirement.

1. (1)

   If the FSA proposes to refuse the application, it must give the applicant a warning notice.

2. (2)

   If the FSA decides to refuse the application:

   1. (a)

      it must give the applicant a decision notice;

   2. (b)

      the firm may refer the matter to the Tribunal.

DEC 2 (Statutory notice procedure: warning notice and decision notice procedure) contains a detailed statement of the FSA's procedure for deciding whether to give warning notices and decision notices.