This chapter applies to all individuals, whether or not they are approved by the FSA. Some consequential guidance in this chapter will apply to firms.

The power to prohibit individuals who are not fit and proper from carrying out functions in relation to regulated activities helps the FSA to work towards its regulatory objectives of protecting consumers, promoting public awareness, maintaining confidence in the financial system and reducing financial crime. The FSA may exercise its power to make a prohibition order where it considers that , to achieve any of those objectives, it is necessary either to prevent an individual from carrying out any function in relation to regulated activities or from being employed by any firm, or to restrict the functions which he may carry out or the type of firm by which he may be employed.1

This chapter contains guidance on:

1. (1)

   the FSA's power to make a prohibition order under section 56 of the Act (Prohibition orders);

2. (2)

   the FSA's procedure for exercising this power;

3. (3)

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

4. (4)

   the FSA's policy in relation to applications by individuals for the variation or revocation of prohibition orders.

Under section 56(2) of the Act (Prohibition orders), the FSA may make a prohibition order if it appears that an individual is not fit and proper to carry out functions in relation to regulated activities carried on by firms. The FSA may make an order prohibiting the individual from carrying out a specified function in relation to regulated activities, any function within a specified description, or any function in relation to regulated activities.

A prohibition order may relate to:

1. (1)

   a specified regulated activity, any regulated activity falling within a specified description or all regulated activities;

2. (2)

   firms generally, or any firm within a specified class of firm.

Under section 56(4), an individual who carries out or agrees to carry out a function in breach of a prohibition order is guilty of an offence and liable, on summary conviction, to a fine not exceeding level 5 on the standard scale (section 37(1) of the Criminal Justice Act 1982 states that a level 5 fine shall not exceed £5000). In proceedings for an offence under section 56(4), it is a defence for the accused to show that he took all reasonable precautions and exercised all due diligence to avoid committing an offence.

Section 56(6) states that a firm must take reasonable care to ensure that no function which relates to the carrying on of a regulated activity is carried out by a person who is prohibited from carrying out that function by a prohibition order (see ENF 8.11.2 G).

Section 56(8) states that the FSA's power to make a prohibition order applies to the performance of functions in relation to regulated activities carried on by:

1. (1)

   a person who is an exempt person in relation to that activity; and

2. (2)

   a person to whom, as a result of Part XX of the Act (Provision of financial services by members of the professions), the general prohibition does not apply in relation to that activity (see ENF 8.7);

as it applies to the carrying out of functions in relation to a regulated activity carried on by a firm.

Under section 57(1) of the Act (Prohibition orders: procedure and right to refer to Tribunal), if the FSA proposes to make a prohibition order it must give the individual concerned a warning notice setting out the terms of the prohibition. The FSA's procedures for issuing warning notices in this area are the same as those set out in DEC 2.2 (Warning notice procedure).

Under section 57(3), if the FSA decides to make a prohibition order it must give the individual concerned a decision notice. The FSA's procedures in relation to decision notices in this area are the same as those set out in DEC 2.3 (Decision notice procedure).

An individual who receives a decision notice making a prohibition order may refer the matter to the Tribunal. Further information about referrals to the Tribunal is set out in DEC 5.1 (The Tribunal).

ENF 8.5 to ENF 8.6 set out how the FSA will decide whether approved persons and other individuals are fit and proper to perform functions in relation to regulated activities.

1. (1)

   The FSA will have the power to make a range of prohibition orders depending on the circumstances of each case and the range of regulated activities to which the individual's lack of fitness and propriety is relevant.

2. (2)

   Depending on the circumstances of each case, the FSA may seek to prohibit individuals from carrying out any class of relevantfunction in relation to any class of regulated activity, or it may limit the prohibition order to specific functions in relation to specific regulated activities. The FSA may also make an order prohibiting an individual from being employed by a particular firm, type of firm or any firm.

3. (3)

   The scope of a prohibition order will depend on the range of functions which the individual concerned carries out in relation to regulated activities, the reasons why he is not fit and proper and the severity of risk which he poses to consumers or the market generally.

4. (4)

   The FSA may also make an order prohibiting an individual from performing functions in relation to the regulated activities carried out by exempt persons and persons covered by an exemption under Part XX of the Act (provision of financial services by members of the professions).

The FSA recognises that its decision to make a prohibition order will have a substantial impact on the individuals concerned and, where relevant, their employers. When it decides whether to make a prohibition order the FSA will consider all relevant circumstances including whether other enforcement action should be taken or has already been taken against the individual by the FSA. The FSA will also consider whether enforcement action has been taken against the individual by other enforcement agencies or designated professional bodies. Depending on the circumstances of the case, it may be appropriate to prohibit the individual from performing only certain functions in relation to regulated activities carried on by certain firms. Alternatively, the FSA may consider it necessary to prevent the individual concerned from performing any functions in relation to any regulated activities carried on by any firm.1

When the FSA has concerns about the fitness and propriety of an approved person, it may consider whether it should seek to withdraw his approval, prohibit him from conducting regulated activities, or both. ENF 7 (Withdrawal of approval) sets out the FSA's approach to the use of its power to withdraw approval in relation to individuals who are approved persons. The grounds on which the FSA may withdraw approval are similar to the grounds on which the FSA may consider exercising its power to make a prohibition order against individuals who are approved persons. 1

1The FSA will consider in each case whether its regulatory objectives of maintaining market confidence in the financial system, promoting public awareness, protecting consumers and reducing financial crime can adequately be achieved by withdrawing approval or disciplinary sanctions, for example, public censure or financial penalties, or by issuing a private warning. The FSA considers that a prohibition order generally has more serious consequences than the withdrawal of approval because a prohibition order will usually be wider in scope (see ENF 8.3.2 G). It is therefore likely that the FSA will consider making a prohibition order against approved persons only in the more serious cases of lack of fitness and propriety where it considers that the other powers available to it are not sufficient to achieve the FSA's regulatory objectives.

When it decides whether to exercise its power to make a prohibition order against an approved person, the FSA will consider the following factors:

1. (1)

   whether the individual is fit and proper to perform functions in relation to regulated activities. The criteria for assessing the fitness and propriety of approved persons are contained in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness). The criteria include:

   1. (a)

      honesty, integrity and reputation; this includes an individual's openness and honesty in dealing with consumers, market participants and regulators and ability and willingness to comply with requirements placed on him by or under the Act as well as with other legal and professional obligations and ethical standards;

   2. (b)

      competence and capability; this includes an assessment of the individual's skills to carry out the controlled function that he is performing; and

   3. (c)

      financial soundness; this includes whether the individual has been the subject of any judgment debts or awards in the United Kingdom or elsewhere that are continuing or were not satisfied within a reasonable period;

2. (2)

   whether and to what extent, the approved person has:

   1. (a)

      failed to comply with the Statements of Principle; or

   2. (b)

      been knowingly concerned in a contravention by the relevant firm of a requirement imposed on the firm by or under the Act (including the Principles and other rules);

3. (3)

   the relevance, materiality and length of time since the occurrence of any matters indicating unfitness;

4. (4)

   the particular controlled function the approved person is performing, the nature and activities of the firm concerned and the markets in which he operates;

5. (5)

   the severity of the risk which the individual poses to consumers and to confidence in the financial system;

6. (6)

   the previous disciplinary record and general compliance history of the individual including whether the FSA (or any previous regulator) has previously imposed a disciplinary sanction on the individual.

The FSA may have regard to the cumulative effect of a number of factors which, when considered on their own, may not be sufficient to show that the individual is fit and proper to continue to carry out the controlled function.

It is impossible to produce a definitive list of matters which the FSA might take into account when considering whether an individual is not a fit and proper person to carry out a particular, or any, controlled function in relation to a particular, or any, firm. This is because of the diverse nature of the activities and controlled functions which the FSA regulates. Therefore, certain matters that do not fit squarely, or at all, within the matters referred to above may fall to be considered, for example, if an individual has been convicted of, or dismissed or suspended from employment for abuse of drugs or other substances, or has convictions for serious assault. In these circumstances the FSA will consider whether the conduct or matter in question is relevant to the individual's fitness and propriety.

Where the FSA has withdrawn the approval of an individual who is an approved person and that individual has continued to carry out controlled functions in relation to regulated activities despite the withdrawal of his approval in relation to those functions, the FSA will consider whether it is appropriate to make a prohibition order against him.

Where the FSA considers making a prohibition order against an individual employed or formerly employed2 by a firm who is not an approved person, it may make an order only on the grounds that the individual is not fit and proper to carry out functions in relation to regulated activities carried on by an authorised person.

2Where the individual concerned is not an approved person, the FSA will not have the option of withdrawing approval, nor will it generally have the option1 of exercising its disciplinary powers in relation to the individual concerned and therefore a prohibition order may be the only appropriate action available. In these cases, the FSA will consider the severity of the risk posed by the individual. It may prohibit the individual where it considers it necessary to achieve the FSA's regulatory objectives of maintaining market confidence in the financial system, promoting public awareness, protecting consumers and preventing financial crime.

When considering whether to exercise its power to make a prohibition order against an individual employed or formerly employed2 by a firm who is not an approved person2, the FSA will consider those factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and, if relevant, ENF 8.5.2 G (2) (in relation to conduct when an individual was an approved person) and1ENF 8.5.2 G (6).

The FSA may exercise its power to make a prohibition order against any individual, including individuals who carry out regulated activities by virtue of their status as exempt persons or by virtue of an exemption from the general prohibition under Part XX of the Act (Provision of financial services by members of the professions) (see ENF 18 (Disapplication orders against members of the professions)).

1In cases where it is considering whether to exercise its power to make a prohibition order against an individual carrying on exempt regulated activities by virtue of an exemption from the general prohibition under Part XX of the Act, the FSA will consider whether the particular misconduct might be more appropriately dealt with by making an order disapplying the exemption using its power under section 329 of the Act. In most cases where the FSA is concerned about the fitness and propriety of a specific individual engaged in exempt regulated activities by virtue of an exemption under Part XX, it will be more appropriate to consider whether to make an order prohibiting the individual from performing functions in relation to exempt regulated activities than to make a disapplication order (see ENF 18.4.3 G ).

When considering whether to exercise its power to make a prohibition order against an exempt person, the FSA will consider those factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and ENF 8.5.2 G (6).

The guidance in ENF 8.8 applies to individuals, other than individuals referred to in ENF 8.5 to ENF 8.7. The FSA will consider exercising its power to make a prohibition order against such individuals where they have shown themselves to be unfit to carry out functions in relation to regulated activities.1

The FSA will consider the individual's fitness or propriety where, for example, it appears that:

1. (1)

   the individual has been involved in conducting regulated activities in breach of the general prohibition; or

2. (2)

   the individual has been involved in other misconduct or offences under the Act which call into question his honesty, integrity or competence; or

3. (3)

   he appears likely to pose a serious risk to consumers or confidence in the financial system in the future.

1In cases where it is considering whether to exercise its power to make a prohibition order against individuals not referred to in ENF 8.5 to ENF 8.7 , the FSA will not have the option of considering whether other enforcement action may adequately deal with the misconduct in question. In these cases, the FSA will consider the severity of the risk posed by the individual. It may prohibit the individual where it considers this is necessary to achieve the FSA's regulatory objectives of maintaining confidence in the financial system, promoting public awareness, protecting consumers and reducing financial crime.

When determining the fitness and propriety of an individual, who is not an individual referred to in ENF 8.5to ENF 8.71, the FSA will consider the criteria set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3) and ENF 8.5.2 G (5).

At any time after the FSA has made a prohibition order against an individual, the individual may apply to the FSA to have the order varied or revoked.

When considering whether to grant or refuse an application to revoke or vary a prohibition order the FSA will consider all the relevant circumstances of a case. These may include, but are not limited to:

1. (1)

   the seriousness of the misconduct that resulted in the order;

2. (2)

   the amount of time since the original order was made;

3. (3)

   any steps taken subsequently by the individual to remedy the misconduct;

4. (4)

   any evidence which, had it been known to the FSA at the time, would have been relevant to the FSA's decision to make the prohibition order;

5. (5)

   all available information relating to the individual's honesty, integrity or competence since the order was made, including any repetition of the misconduct which resulted in the prohibition order being made;

6. (6)

   where the FSA's finding of unfitness arose from incompetence rather than from dishonesty or lack of integrity, evidence that this unfitness has been or will be remedied; for example, this may be achieved by the satisfactory completion of relevant training and obtaining relevant qualifications, or by supervision of the individual by his employer;

7. (7)

   the financial soundness of the individual concerned; and

8. (8)

   whether the individual will continue to pose the level of risk to consumers or confidence in the financial system which resulted in the original prohibition if it is lifted.

If the individual applying for a revocation or variation of a prohibition order proposes to take up an offer of employment to carry out controlled functions, the approved persons regime will also apply to him. In these cases, the firm concerned will be required to apply to the FSA for approval of that individual's employment in that capacity. The FSA will assess the individual's fitness and propriety to undertake controlled functions on the basis of the criteria set out in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness).

The FSA will not generally grant an application to vary or revoke a prohibition order unless it is satisfied that the proposed variation will not result in a reoccurrence of the risk to consumers or confidence in the financial system that resulted in the order being made. Equally, the FSA will not revoke a prohibition order unless it is satisfied that the individual is fit to carry out functions in relation to regulated activities generally, or to those specific regulated activities in relation to which the individual has been prohibited.

If the FSA decides to grant an application to vary or revoke a prohibition order it must give the applicant written notice of its decision.

Where the FSA proposes to refuse an application for revocation or variation, the FSA must give the applicant a warning notice setting out the reasons for its proposed refusal (see DEC 2.2 (Warning notice procedure)). If the FSA decides to refuse an application for revocation or variation of an order it must give the applicant a decision notice (see DEC 2.3 (Decision notice procedure)). If the FSA refuses an application, the applicant 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 considers whether to exercise its power to make a prohibition order.

The FSA's powers to appoint investigators are set out in ENF 2 (Information gathering and investigation powers). In particular, the FSA may appoint investigators if there appear to be circumstances suggesting that:

1. (1)

   an individual is not fit and proper to be involved in the carrying out of any function in relation to a regulated activity carried on by an authorised or exempt person (section 168(4)(d) of the Act (Appointment of persons to carry out investigations in particular cases); or

2. (2)

   a person in relation to whom the FSA has given its approval under section 59 of the Act (Approval) may not be fit and proper to carry out the function to which that approval relates (section 168(4)(h) of the Act);

3. (3)

   a person may be guilty of misconduct for the purposes of section 66 of the Act (Disciplinary powers) (see section 168(4)(I) of the Act).

Section 168(2) of the Act also permits the FSA to appoint investigators to investigate unauthorised persons if it appears that:

1. (1)

   an offence has been committed under section 24(1) (False claims to be authorised or exempt) or section 397 (Misleading statements and practices) of the Act or under Part V of the Criminal Justice Act 1993 (section 168(2)(a) of the Act);

2. (2)

   there may have been a breach of the general prohibition (section 168(2)(b) of the Act);

3. (3)

   there may have been a contravention of section 21 in relation to financial promotion generally or section 238 in relation to promotion of collective investment schemes (section 168(2)(c) of the Act);

4. (4)

   market abuse may have taken place (section 168(2)(d) of the Act).

1. (1)

   Where it appears to the FSA that an approved person has been guilty of misconduct, it may consider taking disciplinary action against him under section 66 of the Act (Disciplinary powers), as well as making a prohibition order. Misconduct is defined in section 66 as a failure to comply with a Statement of Principle or being knowingly concerned in a contravention by a firm of a requirement imposed on that firm by or under the Act.

2. (2)

   When deciding whether to take disciplinary action as well as making a prohibition order, the FSA will be guided by the criteria set out in ENF 11.4 (Criteria for determining whether to take disciplinary action) and ENF 11.5 (Action against approved persons). The FSA's approach to the discipline of approved persons is set out in ENF 11 (Discipline of authorised firms and approved persons: the FSA's general approach), ENF 12 (Discipline of firms and approved persons: public censures and public statements) and ENF 13 (Discipline of firms And approved persons: financial penalties).

3. (3)

   If it appears to the FSA that the misconduct is likely to continue or that client assets are at risk as a result of the misconduct, it may consider applying for an injunction to prevent dissipation of those assets and/or to stop the misconduct continuing. The FSA's approach to the exercise of its power to apply for injunctions is set out in ENF 6.

Where the FSA has information that suggests an individual has committed an offence under the Act, or under relevant subordinate legislation, it may consider starting criminal proceedings as well as making a prohibition order against him. The FSA's policy and procedures in relation to criminal prosecutions are set out in ENF 15 (Prosecution of criminal offences).

When the FSA's decision to make a prohibition order has become effective, the individual concerned may not carry out or agree to carry out any function in breach of the prohibition order. Under section 168(4)(e) of the Act (Appointment of persons to carry out investigations in particularcircumstances), the FSA may appoint investigators if it appears there are circumstances that suggest that an individual may have carried out or agreed to carry out a function in breach of a prohibition order. An individual who performs or agrees to perform a function in breach of a prohibition order is guilty of an offence under section 56(4) of the Act (Prohibition orders)(see ENF 15 (Prosecution of criminal offences)).

The FSA may consider taking disciplinary action against a firm that has breached the provision in section 56(6) (see ENF 8.3.4 G). The FSA considers that a search by a firm of the FSA Register (see ENF 8.12.2 G) is an essential part of the statutory duty to take reasonable care to ensure that firms do not employ prohibited individuals to perform functions in relation to regulated activities. In addition, the FSA expects firms to check the FSARegister, when making applications for approval under section 59 of the Act (Approval for particular arrangements).

More generally, if a firm's search of the FSARegister reveals no record of a prohibition order, the FSA will consider taking action for breach of section 56(6) only where the firm had access to other information indicating that a prohibition order had been made.

Section 71 of the Act (Actions for damages) gives a private person (and in prescribed cases, a person who is not a private person) a right of action against firms for losses resulting from a breach by the firm of the statutory duty in section 56(6).

DEC 5.2 (Publication) sets out certain requirements of the Act in relation to publication by the FSA of its decisions. Once a final notice relating to a prohibition order has been issued, the FSA will generally publicise the decision.

Under section 347(1)(g) of the Act (The record of authorised persons etc) the FSA must keep a public record of individuals against whom it has made a prohibition order. Section 347(2)(f) states the record must include the name of the individual and details of the effect of the prohibition order. The record of prohibition orders will be maintained on the FSA Register. The FSA will not enter details of a prohibition order on to the FSA Register until a final notice has been issued.

Once the decision to make a prohibition order is no longer open to review, the FSA will consider what additional information about the circumstances of the prohibition order to include on the FSA Register. The FSA will balance any possible prejudice to the individual concerned against the interests of consumer protection.

Under section 347(3) of the Act, if it appears to the FSA that an entry on the FSA Register ceases to apply to a person (in the case of a prohibition order, where that prohibition order is varied or revoked) it may remove the relevant entry from the FSA Register. Section 347(4) provides that, if the FSA decides not to remove the entry from the FSA Register, it must make a note of this in the FSA Register and state why it believes the entry on the FSA Register no longer applies to the person.

1. (1)

   The FSA will maintain an entry on the FSA Register while a prohibition order is in effect. If the FSA grants an application to vary the order a note of the variation will be made on the FSA Register.

2. (2)

   The FSA's policy in relation to section 347(4) of the Act is that where an application to revoke a prohibition order is granted, a note will be made on the FSA Register that the order has been revoked giving reasons for the revocation. The availability to firms and consumers of a full record of FSA action taken in relation to an individual's fitness and propriety will assist it in furthering its regulatory objectives, in particular, the protection of consumers and the maintenance of confidence in the financial system.

3. (3)

   The FSA will maintain an annotated record of revoked prohibition orders for six years from the date of the revocation after which time the record will be removed from the FSA Register.