SUP 6.3 Applications for variation of permission

Under section 44 of the Act, a firm may apply to the FSA to vary its Part IV permission to:

1. (1)

   allow it to carry on further regulated activities; or

2. (2)

   reduce the number of regulated activities it is permitted to carry on; or

3. (3)

   vary the FSA's description of its regulated activities (including by the removal or variation of any limitations); or

4. (4)

   cancel any requirement applied for by the firm or imposed by the FSA under section 43 of the Act (Imposition of requirements); or

5. (5)

   vary any such requirement.

An application for variation of Part IV permission may include one or more of SUP 6.3.1 G(1)-(5). For example, a firm may apply to vary its Part IV permission to add a new regulated activity and at the same time remove a regulated activity for which it currently has permission.

In applying for a variation of Part IV permission, a branch of a firm from outside the EEA should be mindful of any continuing requirements referred to in the rest of the Handbook.10

In determining the activities and specified investments for which a Part IV permission is required, and whether to apply for a variation of that permission, a firm may need to take professional advice and may also wish to discuss this with its usual supervisory contact at the FSA.

Before applying to vary its permission, a firm should determine whether there are any statutory restrictions that do not allow combinations of certain types of regulated activity, particularly for insurance business or UCITS managers. For example, the FSA will not grant a variation of Part IV permission to allow a friendly society to carry on reinsurance business as this is not permitted under the Friendly Societies Acts 1974 and 1992.10 A firm should discuss its plans with its usual supervisory contact at the FSA.

If a firm is seeking a variation of Part IV permission to add categories of regulated activities, it should be mindful of the directive requirements referred to at SUP 6.3.42 G relating to the need to commence new activities within 12 months.

If a firm wishes to cease carrying on an activity for which it has Part IV permission, it will usually apply to vary its Part IV permission to remove that activity. If a firm wishes to cease carrying on an activity in relation to any specified investment, it will usually apply to vary its Part IV permission to remove that specified investment from the relevant activity.

1. (1)

   Where a firm is submitting an application for variation of Part IV permission which would lead to a change in the controlled functions of its approved persons, it should, at the same time and as appropriate:

   1. (a)

      make an application to the FSA for an internal transfer of an approved person, Form E (Internal transfer), or make an application to the FSA for an individual to perform additional controlled functions, the relevant11 Form A (Application); see

      SUP 10.13.3 D to SUP 10.13.5 G;

   2. (b)

      notify the FSA of any approved person who has ceased to perform a controlled function, Form C (Ceasing to perform controlled functions);

      see SUP 10.13.6 R to SUP 10.13.13 G.

2. (2)

   If the firm intends to recruit new individuals to perform controlled functions, it should apply to the FSA for approval of the individuals as approved persons as soon as possible using Form A (Application); see

   SUP 10.12.

A variation of Part IV permission may, in some cases, lead to a change in a firm's prudential category or sub-category (see SUP App 1). For example, an investment management firm which varies its Part IV permission to include accepting deposits and as a result meets the definition of a bank, would move to the prudential category for a bank (see SUP App 1.3.1 G).

Even if a variation of permission does not itself lead to a change in a firm's prudential category or sub-category, the FSA may use its own-initiative powers to require a firm to comply with a different category or sub-category of prudential rules where it considers this to be appropriate. For details of when and how the FSA may use its own-initiative powers in this context, see SUP 7.

A firm with Part IV permission to carry on insurance business, which is applying for a variation of its Part IV permission to add further insurance activities or specified investments, will be required to submit particular information on its existing activities as part of its application. This includes the scheme of operations which is required to be submitted as part of the application pack (for further details on the scheme of operations, see SUP App 2 (Insurers: scheme of operations)).

In applying to vary its Part IV permission to add categories of specified investments, in relation to insurance business, a firm carrying on insurance business will need to determine the classes of specified investments relating to effecting and carrying out contracts of insurance for which variation of Part IV permission will be necessary, having regard to whether certain classes of contract may qualify to be effected or carried out on an ancillary or supplementary basis (see SUP 3.12.6G to SUP 3.12.12G).

The application for variation of Part IV permission will need to provide information about the classes of contract of insurance for which variation of Part IV permission is requested and also those classes qualifying to be carried on, on an ancillary or supplementary basis. For example, an insurer applying to vary its permission to include class 10 (motor vehicle liability, other than carrier's liability) must satisfy the FSA that it will meet, and continue to meet, threshold condition 2A(Appointment of claims representatives). Firms should note that, although the FSA is able in principle to use its power to give Part IV permission for an applicant to carry on a regulated activity for which it did not originally apply, this is not possible under the Insurance Directives, which set out minimum information requirements for an application for authorisation including information on the specified investments the applicant proposes to deal in.10

1. (1)

   A firm carrying on insurance business which is seeking to cease such business in respect of one or more classes of specified investment, but which is not intending to cease all insurance business, should apply to vary its Part IV permission to remove the activity of effecting contracts of insurance in respect of those specified investments in relation to which it no longer wishes to carry on business. A firm intending to cease all insurance business should refer to SUP 6 Annex 4.

2. (2)

   If the application for variation of Part IV permission is granted by the FSA, the firm will have Part IV permission only to carry out contracts of insurance in respect of the specified investments in relation to which it no longer wishes to carry on business (see SUP 6 Annex 4). This will allow the firm to run off this aspect of its business. When the business in question has been run-off completely, the firm should then apply to vary its Part IV permission to remove the relevant classes of specified investment.

1. (1)

   14If the FSA's information technology systems fail and online submission is unavailable for 24 hours or more, the FSA will endeavour to publish a notice on its website confirming that online submission is unavailable and that the alternative methods of submission set out in SUP 6.3.15 D (4) and SUP 15.7.4 R to SUP 15.7.9 G (Form and method of notification) should be used.

2. (2)

   14Where SUP 6.3.15 D (4) applies to a firm, GEN 1.3.2 R (Emergency) does not apply.

1. (1)

   Section 51(2) of the Act (Applications under this Part) requires that the application for variation of Part IV permission must contain a statement:

   1. (a)

      of the desired variation; and

   2. (b)

      of the regulated activity or regulated activities which the firm proposes to carry on if its permission is varied.

2. (2)

   The full form and content of the application for variation of Part IV permission is a matter for direction by the FSA, who will determine the additional information and documentation required on a case by case basis.

1. (1)

   [deleted]7

2. (2)

   A firm is advised to discuss its application with its usual supervisory contact at the FSA before submission, particularly if it is seeking a variation of permission within a short timescale. A firm is also advised to include as much detail as possible (including any additional information identified by its supervisors at this stage) with its application.7

The FSA, as soon as possible after receipt of an application, will advise the firm of any additional information which is required as part of its application (see SUP 6.3.23 G to SUP 6.3.27 G). The amount of information the FSA will require will vary depending on the scale of the variation in the context of the firm as a whole, and the nature, risk profile and complexity of the variation.

A firm which is making an application for variation of Part IV permission to wind down (run off) its business before applying for a cancellation of that permission (see SUP 6.2.9 G) should read SUP 6 Annex 4 for details of the additional procedures that apply.

In certain cases, FSA may consider that granting an application for variation of Part IV permission which includes adding further regulated activities or changing a requirement or limitation would cause a significant change in the firm's business or risk profile. In these circumstances, the FSA may require the firm to complete appropriate parts of the full application pack (see the FSA website "How do I get authorised": http://www.fsa.gov.uk/Pages/Doing/how/index.shtml10), as directed by the FSA. Applications for variation involving significant changes may be processed by the firm's usual supervisory contact at the FSA, in conjunction with the Permissions10 department. Examples of an application for variation of Part IV permission which may represent a significant change include, but are not limited to, an application:

1. (1)

   to carry on new regulated activities such as accepting deposits;

2. (2)

   to extend the insurance business of a firm which already has Part IV permission which includes carrying out or effecting contracts of insurance (or both), to new classes of specified investment; or

3. (3)

   to remove a requirement preventing a firm from holding or controlling client money; or

4. (4)

   which causes the firm to change prudential category by, for example, removing a requirement relating to prudential category (see SUP App 1).1

A firm that wishes to make a significant change to its business, or is unsure whether the changes it is proposing would be considered to be significant, should contact its usual supervisory contact at the FSA. The FSA will discuss with the firm whether it will be required to submit parts of the application pack and whether any reports from third parties may be required.1

1. (1)

   The FSA may ask for any information it reasonably requires before determining the application. The information required will be determined on a case by case basis, taking into account the FSA's existing knowledge of the firm and the variation requested. The FSA will advise the firm of the information required at an early stage in the application process.

2. (2)

   The nature of the information and documents requested will be related to the risks posed to the FSA's regulatory objectives by the regulated activities and any unregulated activities that the firm is seeking to carry on. This information will be proportional to the nature of the business which the firm intends to carry on or the risks posed by the firm.

1. (1)

   The information the FSA may require includes, but is not limited to, the examples given in SUP 6.3.25 G:

Specific information may also be required by the FSA on the activities the firm intends to cease, or cease carrying on in relation to any specified investments (see SUP 6 Annex 4).

When determining whether to grant an application, the FSA may request further information, including reports from third parties such as the firm's auditors, and may require meetings with, and visits to, the firm. The FSA may also require a statement from members of the firm's governing body confirming, to the best of their knowledge, the completeness and accuracy of the information supplied. The FSA may also discuss the application with other regulators , exchanges.

1. (1)

   The FSA is required by section 41(2) of the Act to ensure that a firm applying to vary its Part IV permission satisfies and will continue to satisfy the threshold conditions in relation to all the regulated activities for which the firm has or will have Part IV permission after the variation. However, the FSA's duty under the Act does not prevent it, having regard to that duty, from taking such steps as it considers necessary in relation to a particular firm, to meet any of its regulatory objectives.15 This may include granting a firm's application for variation of Part IV permission when it wishes to wind down (run off) its business activities and cease to carry on new business as a result of no longer being able to satisfy the threshold conditions.

   15
2. (2)

   In addition, the FSA may refuse the application if it appears that any of its regulatory objectives15 would be adversely affected if the application were to be granted and it is desirable in order to meet any of its regulatory objectives15 for the application to be refused.

   1515

In determining whether the firm satisfies and continues to satisfy the threshold conditions, the FSA will consider whether the firm is ready, willing and organised to comply with the regulatory requirements it will be subject to if the requested variation of Part IV permission is granted.

The FSA will also consider the specific requirements that apply to certain types of activity as these may not allow certain combinations of activity.

In considering whether to grant a firm's application to vary its Part IV permission, the FSA will also have regard, under section 49(1) of the Act (Persons connected with an applicant), to any person6 appearing to be, or likely to be, in a relationship with the firm which is relevant. The Financial Groups Directive Regulations make special consultation provisions where the FSA is exercising its functions under Part IV of the Act (Permission to carry on regulated activities) for the purposes of carrying on supplementary supervision6.10 Broadly, where the FSA, in the course of carrying on supplementary supervision, is considering varying the Part IV permission of a person who is a member of a group which is a financial conglomerate, the consultation provisions in section 49(2) of the Act are disapplied. In their place, the regulations impose special obligations, linked to the Financial Groups Directive, to obtain the consent of the relevant competent authorities, to consult those authorities and to consult with the group itself.10

The FSA's power to vary a Part IV permission after it receives an application from a firm extends to including in the Part IV permission as varied any provision that could be included as though a fresh permission was being given in response to an application under section 40 of the Act (Application for permission). Under sections 42 (Giving permission) and 43 of the Act (Imposition of requirements), the FSA may:

1. (1)

   incorporate in the description of a regulated activity a limitation (for example, as to the circumstance in which a regulated activity may or may not be carried on); or

2. (2)

   specify a narrower or wider description of regulated activity than the firm applied for in the application for variation of Part IV permission (see SUP 3.9.29G(3) for restrictions on insurers); or

3. (3)

   require the firm not to take a specified action (for example, not to hold client money); or

4. (4)

   require the firm to take a specified action (for example, to submit financial returns more frequently than normal).

Thus, when determining an application for variation of Part IV permission, the FSA can, therefore:

1. (1)

   include new limitations and vary existing limitations, either on application from the firm (for example, the customer categories with which a firm may carry on a specified activity), or if considered appropriate by the FSA under section 42(7)(a) of the Act; or

2. (2)

   include any new requirements and vary existing requirements, either on application from the firm or where considered appropriate by the FSA under section 43 of the Act to ensure that the firm satisfies and continues to satisfy the threshold conditions.

If limitations or requirements are varied or imposed by the FSA which were not included in the firm's application for variation of Part IV permission, the FSA will be required to issue the firm with a warning notice and decision notice (see SUP 6.3.39 G).

Under section 52(1) of the Act (Determination of applications), the FSA has six months to consider a completed application from the date of receipt.

If the FSA receives an application which is incomplete (that is, if information or a document required as part of the application is not provided), section 52(2) of the Act requires the FSA to determine that incomplete application within 12 months of the initial receipt of the application.

Within these time limits, however, the length of the process will relate directly to the complexity of the variation requested. The FSA publishes standard response times on its website at www.fsa.gov.uk setting out how long the application process is expected to take in practice. From time to time, the FSA also publishes its performance against these times.

At any time after receiving an application and before determining it, the FSA may require the applicant to provide additional information or documents. The circumstances of each application will dictate what additional information or procedures are appropriate.

A decision to grant an application for variation of Part IV permission, as applied for, will be taken by appropriately experienced FSA staff. However, if the FSA staff dealing with the application recommend that a firm's application for variation of Part IV permission be either refused or granted subject to limitations or requirements or a narrower description of regulated activities than applied for, the decision will be taken by either the RDC or executive procedures.

DEPP 9gives guidance on the FSA's decision making procedures including the procedures it will follow if it proposes to refuse an application for variation of Part IV permission either in whole or in part (for example, an application granted by the FSA but subject to limitations or requirements not applied for).

If the variation of Part IV permission is given, the FSA will expect a firm to commence a new regulated activity in accordance with its business plan (revised as necessary to take account of changes during the application process) or scheme of operations for an insurer. Firms should take this into consideration when determining when to make an application to the FSA.

1. (1)

   Firms should be aware that the FSA may exercise its own-initiative power to vary or cancel their Part IV permission if they do not (see EG 8 (Variation and cancellation of permission on the FSA's own initiative and intervention against incoming firms))9:

   1. (a)

      commence a regulated activity for which they have Part IV permission within a period of at least 12 months from the date of being given; or

   2. (b)

      carry on a regulated activity for which they have Part IV permission for a period of at least 12 months (irrespective of the date of grant).

2. (1A)

   13The FSA may exercise its own-initiative power to cancel an investment firm's Part IV permission if the investment firm has provided or performed no investment services and activities at any time during the period of six months ending with the day on which the warning notice under section 54(1) of the Act is given (see EG 8).9

   [Note: article 8(a) of MiFID]

3. (2)

   If the FSA considers that such a variation or cancellation of the firm's Part IV permission is appropriate, it will discuss the proposed action with the firm and its reasons for not commencing or carrying on the regulated activities concerned.

When a firm commences new regulated activities following a variation of a Part IV permission, it should have particular regard to the requirements of Principle 11 (Relations with regulators) (see SUP 15.3.8 G (1)(c)).