SUP 7.3 Criteria for varying a firm's permission

The FSA expects to maintain a close working relationship with certain types of firm and expects that routine supervisory matters arising can be resolved during the normal course of this relationship by, for example, issuing individual guidance where appropriate (see SUP 9.3). However, the FSA may seek to vary a firm's Part IV permission:

1. (1)

   in circumstances where it considers it appropriate for the firm to be subject to a formal requirement, breach of which could attract enforcement action; or

2. (2)

   if a variation is needed to enable the firm to comply with the requirement, due to agreements the firm may have with third parties. (For example a firm may be under a contractual obligation to do something, but only if it can do so lawfully. In this case, if the FSAconsiders the firm must not do it, then the FSA would need to prevent it doing so through a variation in its Part IV permission to enable the firm to avoid breaching the contractual obligation.)

The FSAmay seek to vary a firm's Part IV permission on its own initiative in certain situations including the following:

1. (1)

   If the FSA determines that a firm's management, business or internal controls give rise to material risks that are not fully addressed by its rules, the FSAmay seek to vary the firm's Part IV permission and impose an additional requirement or limitation on the firm.

2. (2)

   If a firm becomes or is to become involved with new products or selling practices which present risks not adequately addressed by existing requirements, the FSAmay seek to vary the firm's Part IV permission in respect of those risks.

3. (3)

   If there has been a change in a firm's structure, controllers, activities or strategy which generate material uncertainty or create unusual or exceptional risks, then the FSA may seek to vary the firm's Part IV permission. (See also SUP 11.7.14 G to SUP 11.7.18 G for a description of the FSA'sability to vary a firm's Part IV permission on a change in control under section 46 of the Act.)

4. (4)

   If a firm is a member of a financial conglomerate and the FSA is implementing supplementary supervision under the Financial Groups Directive with respect to that financial conglomerate by imposing obligations on the firm. Further material on this can be found in GENPRU 3.12 (Cross sector groups) and SUP 16.7.82 R to SUP 16.7.83 R (reporting requirements with respect to financial conglomerates).1

   2

The FSA may seek to impose requirements or limitations which include but are not restricted to:

1. (1)

   requiring a firm to submit regular reports covering, for example, trading results, management accounts, customer complaints, connected party transactions;

2. (2)

   requiring a firm to maintain prudential limits, for example on large exposures, foreign currency exposures or liquidity gaps;

3. (3)

   requiring a firm to submit a business plan (or for an insurer, a scheme of operations (see SUP App 2));

4. (4)

   limiting the firm's activities;

5. (5)

   requiring a firm to maintain a particular amount or type of financial resources.

The FSA will seek to give a firm reasonable notice of an intent to vary its permission and to agree with the firm an appropriate timescale. However, if the FSA considers that a delay may create a risk to any of the FSA's regulatory objectives,3 the FSA may need to act immediately using its powers under section 45 of the Actto vary a firm's Part IV permission with immediate effect.