REC 2A.4 Power and procedure for RAP penalties and censures

1Under regulation 5A (Power to impose civil penalties) of the RAP Regulations, where the FSA considers that an RAP has contravened any requirement in articles 19, 20(7), 21(1) or (2), or 54 of the auction regulation, the FSA has the power to impose a civil penalty on that RAP.

Where the FSA is entitled to impose a penalty on an RAP, it may instead publish a statement censuring it.

The provisions of the auction regulation referred to in REC 2A.4.1 G are directly applicable to an RAP and require it to, in summary:

1. (1)

   only grant admission to bid to applicants that comply with the conditions set out in article 19 of the auction regulation, including the prerequisite that the applicants are eligible to bid in accordance with article 18 of the auction regulation;

2. (2)

   require an applicant for admission to bid to ensure that its clients, and the clients of its clients, are able to comply with information requirements, interviews, investigations and verifications carried out or required by the RAP;

3. (3)

   refuse to grant admission to bid, or revoke or suspend that admission, to any person:

   1. (a)

      that is not, or is no longer, eligible to bid (under article 18 of the auction regulation); does not meet, or no longer meets, the requirements of articles 18, 19 or 20 of the auction regulation; or is wilfully or repeatedly in breach of the auction regulation, the terms and conditions of its admission to bid or other related instructions or agreements; or

   2. (b)

      where the RAP suspects the person is involved with money laundering, terrorist financing, criminal activity or market abuse, provided that such refusal, revocation or suspension is unlikely to frustrate efforts by the competent national authorities under the auction regulation to pursue or apprehend the perpetrators of those activities; and

4. (4)

   monitor the relationship with bidders admitted to bid in its auctions.

The power in regulation 5A of the RAP Regulations to impose a civil penalty or publish a statement adds to the FSA's other supervisory powers in relation to RAPs (see REC 4) and its power to impose penalties on an RAP under the Money Laundering Regulations. The FSA will use this power under the RAP Regulations where it is appropriate to do so and with regard to the relevant factors listed in DEPP 6.2.1 G. In deciding between a civil penalty or a public statement, the FSA will also have regard to the relevant factors listed in DEPP 6.4.

The FSA will notify the subject of the investigation that it has appointed officers to carry out an investigation under either or both the RAP Regulations or the Money Laundering Regulations and the reasons for the appointment, unless notification is likely to prejudice the investigation or otherwise result in it being frustrated. The FSA expects to carry out a scoping visit early on in the enforcement process in most cases.

Where the FSA uses the power to impose a penalty, it will be for an amount that is effective, proportionate and dissuasive and with regard to relevant factors listed in DEPP 6.5 to DEPP 6.5D in determining the appropriate level of financial penalty.

The FSA will also have regard to whether the person followed any of the FSA's guidance and will not take action under regulation 5A where there are reasonable grounds for it to be satisfied that the person took all reasonable steps and exercised all due diligence to ensure that the requirement was complied with.

When the FSA proposes or decides to take action against an RAP in exercise of its power in regulation 5A of the RAP Regulations, it must give the RAP a warning notice or a decision notice respectively. Those notices must state the amount of the penalty or set out the terms of the statement, as applicable. On receiving a warning notice, the RAP has a right to make representations on the FSA's proposed decision.

Where the FSA is proposing or deciding to publish a statement censuring an RAP or impose a penalty on the RAP under regulation 5A of the RAP Regulations, the FSA's decision maker will be the RDC. This is to ensure that the FSA's power to censure or impose a penalty on an RAP has the same layer of separation in the decision making process, and is exercised consistently with, similar penalty and censure powers of the FSA under other legislation. The RDC will make its decisions following the procedure set out in DEPP 3.2 or, where appropriate, DEPP 3.3. An RAP that receives a decision notice under regulation 5A of the RAP Regulations may refer the matter to the Tribunal.

Sections 393 and 394 of the Act apply to notices referred to in this section. See DEPP 2.4 (Third party rights and access to FSA material).

As with cases under the Act, the FSA may settle or mediate appropriate cases to assist it to exercise its functions in the most efficient and economic way. The settlement discount scheme set out in DEPP 6.7 applies to penalties imposed under the RAP Regulations.

The FSA will apply the approach to publicity that it has outlined in EG 6.