This chapter applies to every firm which has a Part IV permission.

The application of this chapter to an incoming EEA firm, incoming Treaty firm or UCITS qualifier with a Part IV permission (a "top-up permission") is limited as explained in SUP 7.2.4 G.

The Handbook primarily contains provisions which apply to all firms or to certain categories of firm. However, a firm may apply for a waiver or modification of rules in certain circumstances as set out in SUP 8; or it may receive individual guidance on the application of the rules, as set out in SUP 9.

The FSA, in the course of its supervision of a firm, may sometimes judge it necessary or desirable to impose additional requirements on a firm or in some way amend or restrict the activities which the firm has permission to undertake. The guidance in this chapter describes when and how the FSA will seek to do this.

By waiving or modifying the requirements of a rule or imposing an additional requirement or limitation, the FSA can ensure that the rules, and any other requirements or limitations imposed on a firm, take full account of the firm's individual circumstances, and so assist the FSA in meeting the regulatory objectives (for example, to protect consumers and maintain market confidence).

The FSA has the power under section 45of the Act (Variation on the Authority's own initiative) to vary a firm's Part IV permission. This includes imposing a statutory requirement or limitation on that Part IV permission. (See AUTH 3.6 and AUTH 3.7 for a further explanation of potential limitations and requirements on a firm's permission.)

The circumstances in which the FSA may vary a firm'sPart IV permission on its own initiative under section 45 of the Act include where it appears to the FSA that:

1. (1)

   one or more of the threshold conditions is or is likely to be no longer satisfied; or

2. (2)

   it is desirable to vary a firm's permission in order to protect the interests of consumers or potential consumers.

The FSA may also use its powers under section 45 for enforcement purposes. ENF 3 sets out in detail the FSA's powers under section 45 and the circumstances under which the FSA may vary a firm's permission in this way, whether for enforcement purposes or as part of its day to day supervision of firms. This chapter provides additional guidance on when the FSA will use these powers for supervision purposes.

The FSA may use its powers under section 45 of the Act only in respect of a Part IV permission ; that is, a permission granted to a firm under section 42 of the Act (Giving permission) or having effect as if so given. In respect of an incoming EEA firm, an incoming Treaty firm, or a UCITS qualifier, this power applies only in relation to any top-up permission that it has. There are similar but more limited powers under Part XIII of the Act in relation to the permission of an incoming EEA firm or incoming Treaty firm under Schedules 3 or 4 to the Act (see ENF 4).

If the FSA exercises its powers under section 45 of the Act, it will do so by issuing a supervisory notice. The procedure that will be followed is set out in DEC 3 and a flowchart is provided in DEC 3 Annex 2.

A firm has a right of referral to the Financial Services and Markets Tribunal (see DEC 5) in respect of the exercise by the FSA of its powers to vary, on its own initiative, the firm'sPart IV 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'sPart 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 be prejudicial to the interest of consumers, 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.