SUP 6.4 Applications for cancellation of permission

Under section 44(2) of the Act (Variation etc. at request of authorised person), if an authorised person with a Part IV permission applies to the FSA, the FSA may cancel that permission. Cancellation applies to a firm's entire Part IV permission, that is to every activity and every specified investment and not to the individual elements such as specified investments. Changes to the individual elements of a permission would require a variation.

Under section 44(3) of the Act, the FSA may refuse an application from a firm to cancel its Part IV permission if it appears that:

1. (1)

   the interests of consumers, or potential consumers, would be adversely affected if the application were to be granted; and

2. (2)

   it is desirable in the interests of consumers, or potential consumers, for the application to be refused.

1. (1)

   A firm may apply to the FSA to cancel its Part IV permission before it has ceased carrying on all regulated activities. However, where a firm makes a formal application for cancellation of its permission when it has not yet ceased carrying on regulated activities, the FSA will expect the firm:

   1. (a)

      to cease those regulated activities within the short term (normally no more than six months from the date of application for cancellation); and

   2. (b)

      to have formal plans to cease its regulated activities in an orderly manner.

2. (2)

   Firms should note, however, that the FSA will not grant an application for cancellation of Part IV permission until the firm can demonstrate that it has ceased carrying on all regulated activities (SUP 6.4.19 G).

3. (3)

   The FSA may apply additional procedures or require additional information, as if the firm had entered into a long term wind down of business (see SUP 6 Annex 4), if it considers it appropriate to the circumstances of the firm.

Additional guidance for a firm carrying on insurance business, accepting deposits or which holds client money or customer's assets is given in SUP 6 Annex 4. As noted in SUP 6.2.9 G, it will usually be appropriate for a firm to apply for variation of its Part IV permission while winding down (running off) its regulated activities and before applying to cancel its Part IV permission.

1. (1)

   In addition to applying for cancellation of Part IV permission in accordance with SUP 6.4.5 D, a firm may discuss prospective cancellations with its usual supervisory contact at the FSA.4 Alternatively a firm can contact the Firms Contact Centre on 0845 606 9966.

   4
2. (2)

   To contact the Cancellations Team: Cancellations4 Team:

   4
   1. (a)

      write to: Cancellations Team, The Financial ServicesAuthority, 25 The North Colonnade, Canary Wharf, London, E14 5HS; or

   2. (b)

      email cancellation.team@fsa.gov.uk

3. (3)

   If a firm which has applied for cancellation decides to remain authorised it should inform the FSA immediately using one of the methods in SUP 6.4.6 G (2).

When an 4application is received4, the FSA4 will send the firm a written acknowledgement. The firm will be required to provide information which, in the opinion of the FSA, is necessary for it to determine whether to grant or refuse the application for cancellation of Part IV permission. The Cancellations4Team will work with the firm's usual supervisory contact at the FSA during this process.

The information which the FSA may request on the circumstances of the application for cancellation and the confirmations which the FSA may require a firm to provide will differ according to the nature of the firm and the activities it has Part IV permission to carry on.

A firm will be expected to demonstrate to the FSA that it has ceased carrying on regulated activities. The FSA may require, as part of the application, a report from the firm that includes, but is not limited to, the confirmations referred to in SUP 6.4.12 G (as appropriate to the firm's business). The FSA may also require additional information to be submitted with the report including, in some cases, confirmation or verification from a professional adviser on certain matters to supplement the report (see SUP 6.4.15 G).

1. (1)

   If a firm is subject to the complaints rules in DISP, the FSA may request confirmation from the firm that there are no unresolved, unsatisfied or undischarged complaints against the firm from a customer of the firm.

2. (2)

   If there are unresolved or undischarged complaints against a firm from a customer of the firm, the FSA may request confirmation, as appropriate, of the steps (if any) which have been taken under the firm's complaints procedures and the amount of compensation claimed. The FSA may also request an explanation of the arrangements made for the future consideration of such complaints.

If the firm is carrying on designated investment business with retail clients7, the FSA may request confirmation that the firm has written, or intends to write, to all retail clients 7with, or for whom, the firm has conducted regulated activities within a certain period.

The FSA will usually require the report in SUP 6.4.9 G to be signed by a director or other officer with authority to bind the firm. It may include confirmations from the firm that, in relation to business carried on under its Part IV permission, it has:

1. (1)

   ceased carrying on all regulated activities;

2. (2)

   properly disbursed funds in its client bank accounts and closed those accounts;

3. (3)

   discharged all insurance or deposit liabilities; and

4. (4)

   properly transferred all investments, title documents and other property that it held on behalf of clients.

The FSA may also require a resolution from the firm's governing body, for example to support the application for cancellation of permission, expressed to be irrevocable, and to give the signatory the authority to sign the formal report to the FSA.

Under section 397 of the Act (Misleading statements and practices), it is an offence, in purported compliance with a requirement imposed by or under the Act (including the directions in SUP 6.4.5 D), for a person to knowingly or recklessly give the FSA information that is false or misleading. If necessary, a firm should take appropriate professional advice when supplying information required by the FSA. An insurer, for example, may ask an actuary to check assumptions in respect of future claims made under contracts of insurance.

The FSA may require additional information, including professional advice, to supplement or support the report in SUP 6.4.9 G where it considers this appropriate. Examples of reports that may be requested by the FSA include, but are not limited to those detailed in SUP 6.4.16 G.

If a firm is transferring its business, the FSA may require a professional opinion in respect of certain aspects of the transfer. For example, the FSA may require a legal opinion on the validity of arrangements to transfer regulated activities, client money, client deposits, custody assets or any other property belonging to clients, to another authorised person. Alternatively, an auditor or reporting accountant may be requested to verify that a transfer has been properly accounted for in the firm's books and records. Transfers of insurance and banking business are subject to statutory requirements (see SUP 18).

A firm which is applying for cancellation of Part IV permission and which is not otherwise authorised by, or under, the Act should, at the same time, comply with SUP 10.13.6 R and notify the FSA of persons ceasing to perform controlled functions. These forms should give the effective date of withdrawal, if known (see SUP 10 (Approved persons)).

The FSA will usually not cancel a firm's Part IV permission until the firm can demonstrate that, in relation to business carried on under that permission, it has, as appropriate:

1. (1)

   ceased carrying on regulated activities or fully run off or transferred all insurance liabilities;

2. (2)

   repaid all client money and client deposits;

3. (3)

   discharged custody assets and any other property belonging to clients; and

4. (4)

   discharged, satisfied or resolved complaints against the firm.

If it is not possible for a firm to demonstrate a relevant matter referred to in SUP 6.4.19 G, for example, depositors are uncontactable, the firm will be expected to have satisfied the FSA that it has made adequate provisions for discharging any liabilities to clients which do not involve the firm carrying on regulated activities.

Before the FSA cancels a firm's Part IV permission, the firm will be expected to be able to demonstrate that it has ceased or transferred all regulated activities under that permission. For example, the firm may be asked to provide evidence that a transfer of business (including, where relevant, any client money, customer assets or deposits or insurance liabilities) is complete. As noted in SUP 6.4.9 G, the FSA may require the firm to confirm this by providing a report, in a form specified by the FSA:

1. (1)

   as part of the application for cancellation of permission, if the firm has ceased carrying on all regulated activities under its Part IV permission at the time of application (see SUP 6.4.9 G); or

2. (2)

   after the application but before its determination, if the firm has not ceased carrying on regulated activities under its Part IV permission at the time of application.

In deciding whether to cancel a firm's Part IV permission, the FSA will take into account all relevant factors in relation to business carried on under that permission, including whether:

1. (1)

   there are unresolved, unsatisfied or undischarged complaints against the firm from any of its customers;

2. (2)

   the firm has complied with CASS 4.3.99 R,5 CASS 5.5.80 R and CASS 7.2.15 R5 (Client money: discharge of fiduciary duty) and CASS 4.3.104 R and CASS 7.2.19 R 5(Client money: allocated but unclaimed client money) if it has ceased to hold client money; these rules apply to both repayment and transfer to a third party;1

   5
3. (3)

   the firm has ceased to hold or control custody assets in accordance with instructions received from clients (including instructions set out in an agreement entered into in accordance with CASS 2.3.2 R (Custody: client agreement)) and COBS 6.1.7 R7 (Information concerning safeguarding of designated investments belonging to clients and client money)5;

4. (4)

   the firm has repaid all client deposits, if it is ceasing to carry on regulated activities including accepting deposits;

5. (5)

   the FSA or another regulator has commenced an investigation against the firm or continuing enforcement action against the firm;

6. (6)

   there are any matters affecting the firm which should be investigated before a decision on whether the firm should have its Part IV permission cancelled by the FSA or be disciplined;

7. (7)

   the firm has unsettled or unexpired liabilities to consumers, for example, outstanding contracts (such as deposits or insurance liabilities);

8. (8)

   the firm has settled all its debts to the FSA; and

9. (9)

   the factors set out in SUP 6.4.19 G apply.

If the FSA has granted an application for cancellation of Part IV permission and withdrawn a firm's status as an authorised person (see SUP 6.5) it will retain certain investigative and enforcement powers in relation to the firm as a former authorised person. These include:

1. (1)

   information gathering and investigation powers in Part XI of the Act (Investigation gathering and investigations) (seeEG 3 (Use of information gathering and investigation powers)6);

   6
2. (2)

   powers to apply to court for injunctions and restitution orders in Part XXV of the Act (Injunctions and restitution) (seeEG 106 (Injunctions) and EG 116 (Restitution and redress));

   66
3. (3)

   powers in Part XXIV of the Act (Insolvency) to petition for administration orders or winding up orders against companies or insolvent partnerships, or bankruptcy orders (or in Scotland sequestration awards) against individuals (see EG 13 (Insolvency)6);

   6
4. (4)

   powers in Part XXVII of the Act (Offences) to prosecute offences under the Act and other specified provisions (see EG 126 (Prosecution of criminal offences)).

   6

However, the FSA will not be able to use the following powers against former authorised persons:

1. (1)

   powers to take disciplinary action against firms by publishing statements of misconduct under section 205 of the Act (Public censure) or imposing financial penalties under section 206(1) of the Act (Financial penalties); and

2. (2)

   the power to require firms to make restitution under section 384 of the Act (Power of the FSA to require restitution).

Consequently, the FSA considers that it will have good reason not to grant a firm's application for cancellation of permission where:

1. (1)

   it proposes to exercise any of the powers described in SUP 6.4.24 G; or

2. (2)

   it has already begun disciplinary and restitution proceedings against the firm by exercising either or both of these powers against the firm.

TheFSA's use of those powers is outlined in DEPP 6 (Penalties)6.

1. (1)

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

2. (2)

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

3. (3)

   Within these time limits, however, the length of the process will relate directly to the complexity of variation requested and whether the firm has fully wound down (run off) its activities at the time it applies. The FSA publishes standard response times on its website 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.

A decision to grant an application for cancellation of permission will be taken by appropriately experienced FSA staff. Where, however, the FSA staff dealing with the application recommend that a firm's application for cancellation of Part IV permission be refused, the decision will be taken by the RDC if the applicant makes representations to the FSA. If there are no representations, the decision will be made under executive procedures.3

See DEPP6 for guidance on the FSA's decision making procedures, including the procedures it will follow if it proposes to refuse an application for cancellation of Part IV permission.