This chapter applies to every firm which has a Part 4A permission.2

2

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 FCA2, 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 FCA2 will seek to do this.

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By waiving or modifying the requirements of a rule or imposing an additional requirement or limitation, the FCA2 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 FCA2 in meeting its2statutory objectives under the Act.2

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4In some circumstances, the FCA may consider that it is insufficient to impose such requirements, amendments or limitations and that it will use its powers under the Act to remove one or more such activities from or cancel the Part 4A permission of a firm, whether under its own-initiative variation power or, where the relevant firm is an FCA-authorised person, under its additional own-initiative variation power.

The FCA5 has the power under section 55J7 of the Act and, in respect of FCA-authorised persons, Schedule 6A to7 the Act to vary or cancel7 a firm'sPart 4A permission and/or, under section 55L of the Act, to7 impose a requirement on a firm. Varying a firm’s Part 4A permission can include removing one or more regulated activities from those to which the Part 4A permission relates, varying the description of such an activity and/or7 imposing a limitation on that Part 4A permission.

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The circumstances in which the FCA5 may vary or cancel7 a firm'sPart 4A permission5 on its own initiative or impose a requirement on a firm5 under sections 55J or 55L5 of the Act include where it appears to the FCA5 that:

5 5 5 5

1. (1)

   one or more of the threshold conditions for which the FCA is responsible5 is or is likely to be no longer satisfied by the firm7; or

2. (2)

   it is desirable to vary or cancel7 a firm's permission in order to meet any of the FCA's5 statutory objectives under the Act; or53

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3. (3)

   a firm has not carried out one or more7regulated activities7 to which its Part 4A permission applies for a period of at least 12 months, in which case those activities may be removed from the permission7.

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7The FCA may also decide to vary or cancel an FCA-authorised person’s Part 4A permission on its own initiative under Schedule 6A to the Act:

1. (1)

   if that person appears to the FCA not to be carrying on any regulated activity to which the permission relates, including, without restriction, if the person has failed to:

   1. (a)

      pay a periodic fee or levy under the Handbook; or

   2. (b)

      provide the FCA with information required under the Handbook; and

2. (2)

   if that person, when served by the FCA with two notices under paragraph 2 of Schedule 6A, has not:

   1. (a)

      responded in the manner directed, in those notices or otherwise, by the FCA; nor

   2. (b)

      taken other steps as may also be so directed by the FCA;

   the second of which notices will specify any proposed variation and its effective date or the effective date of the proposed cancellation.

1. (1)

   7The FCA, having served on the relevant firm notices under paragraph 2 of Schedule 6A to the Act, as described in SUP 7.2.2AG, must serve notice, under paragraph 3 of Schedule 6A, on the firm of its subsequent decision whether or not to vary or cancel.

2. (2)

   If the FCA decides to vary or cancel, the notice served under paragraph 3 must specify any variation and the date on which the variation or cancellation takes effect.

3. (3)

   The FCA may publish, on the Financial Services Register and otherwise, notices it serves under paragraph 2 or 3 of Schedule 6A to the Act and will record on the Financial Services Register any such variation or cancellation.

7Apart from the circumstances described in SUP 7.2.2AG(1), the FCA may also form the view, under Schedule 6A to the Act, that a firm is no longer conducting any regulated activity to which its permission relates in light of, without restriction:

1. (1)

   one or more reports, provided to the FCA by the firm, under SUP 16 or otherwise, indicating that it is no longer doing so;

2. (2)

   the firm’s failure, on two or more occasions, to respond substantively to FCA correspondence, requesting a response, sent to:

   1. (a)

      the address of the firm’s principal place of business in the United Kingdom, as notified to the FCA in accordance with SUP 15.5.4R(1); or

   2. (b)

      one or more other postal or electronic addresses previously provided to the FCA by the firm, or otherwise used by the firm, for the purpose of correspondence with the FCA and not known by the FCA to have been superseded in that regard; or

3. (3)

   correspondence from the FCA, sent to such an address, being returned or otherwise notified to the FCA as undelivered.

1. (1)

   7The FCA’s additional own-initiative variation power under Schedule 6A to the Act has, unlike the FCA’s own-initiative variation power under section 55J of the Act, a single basis: that it appears to the FCA that the relevant FCA-authorised person is not carrying on any regulated activity to which its Part 4A permission relates.

2. (2)

   If the FCA uses its additional own-initiative variation power, it is therefore more likely to cancel the relevant firm’s permission, rather than merely vary it by removing or amending the description of one or more such activities or by imposing one or more limitations.

3. (3)

   The FCA will, however, consider all relevant facts and circumstances, including, without restriction:

   1. (a)

      the relevant firm’s responses, if any, to the notices given by the FCA under paragraph 2 of Schedule 6A; and

   2. (b)

      if applicable, the factors described in SUP 6.4.22G, including whether there are any matters relating to the firm requiring investigation,

   before deciding whether to use its additional own-initiative variation power and whether to use it to cancel or vary.

The FCA5 may also use its own-initiative powers5 for enforcement purposes. EG 82 sets out in detail the FCA's5 powers under sections 55J and 55L of the Act5 and the circumstances under which the FCA5 may use its own-initiative powers5 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 FCA5 will use these powers for supervision purposes.

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7The FCA may use its additional own-initiative variation power, under Schedule 6A to the Act, where it appears to the FCA that an FCA-authorised person is conducting no regulated activity to which its Part 4A permission relates, in an enforcement context, including, without restriction:

1. (1)

   during an investigation into the FCA-authorised person in question and/or a person associated with that FCA-authorised person;

2. (2)

   when considering the possibility of such an investigation; or

3. (3)

   during proceedings against the FCA-authorised person in question and/or a person associated with that FCA-authorised person.

The FCA5 may use its own-initiative powers5 and additional own-initiative variation power7 only in respect of a firm's5Part 4A permission5; that is, a permission granted to a firm under sections 55E or 55F5 of the Act (Giving permission) or having effect as if so given. 6

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5The FCA will consult the PRA before using its own-initiative powers in relation to a PRA-authorised person, or a member of a group which includes a PRA-authorised person.

5In the case of a dual-regulatedPRA-authorised person, the FCA may exercise its own-initiative variation power to add a new regulated activity other than a PRA-regulated activity to those activities already included in the firm'sPart 4A permission, or to widen the description of a regulated activity, only after consulting with the PRA.

If the FCA5 exercises its own-initiative powers5, it will do so by issuing a supervisory notice. The procedure that will be followed is set out in DEPP 22.

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7If the FCA exercises its additional own-initiative variation power, under Schedule 6A to the Act, it will do so, as described more fully in SUP 7.2.2AG and SUP 7.2.2BG, after:

1. (1)

   issuing notices under paragraph 2 of that Schedule; and

2. (2)

   deciding to exercise the power, issue a notice under paragraph 3 of that Schedule,

which notices the FCA may decide to publish, in which case Schedule 6A to the Act provides that the FCA may do so in such manner as it considers appropriate.

A firm has a right of referral to the Tribunal4 in respect of the FCA exercising its own-initiative powers on5 the firm'sPart 4A permission.5

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1. (1)

   7A firm has no right of referral to the Tribunal in respect of the FCA exercising its additional own-initiative variation power, under Schedule 6A to the Act, on the firm’s Part 4A permission.

2. (2)

   The FCA cannot exercise that power, on which guidance is given in SUP 7.2.2AG to SUP 7.2.2DG, until it has given the firm two notices in writing and considered any response to those notices.

3. (3)

   Such response will, if it complies with an applicable FCA direction, given in those notices or otherwise, lead to the FCA not exercising that power.

4. (4)

   The date on which the FCA proposes to exercise that power and, if different, the date on which the resulting variation or cancellation of the firm’s Part 4A permission is proposed to take effect, must be specified in the second of those notices and both dates must be at least 14 days after the date on which that notice is given.

5. (5)

   Further, a firm can apply, within 12 months of the exercise of the FCA’s power taking effect, to the FCA under Schedule 6A to the Act for the retrospective annulment of the decision to exercise it.

6. (6)

   More detailed guidance on such annulment is given in SUP 7.4.

7. (7)

   Whatever decision the FCA takes on that application, both the firm and the FCA have a right of referral to the Tribunal in respect of the matter.

The FCA5 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, where the FCA deems it appropriate, it will exercise its own-initiative powers:5

5

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 FCA5considers the firm must not do it, then the FCA5 would need to prevent it doing so through a variation in its Part 4A permission5 to enable the firm to avoid breaching the contractual obligation.)

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The FCA 5 may also5 seek to exercise its own-initiative powers in certain situations,5 including the following:

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1. (1)

   If the FCA5 determines that a firm's management, business or internal controls give rise to material risks that are not fully addressed by existing requirements, the FCA5may seek to use its own-initiative powers.

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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 FCA5may seek to vary the firm'sPart 4A permission5 in respect of those risks.

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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 FCA5 may seek to use its own-initiative powers.5 (See also SUP 11.74 for a description of the FCA's5ability to impose a requirement5 on the acquisition of5 control of a firm under section 55O5 of the Act.)

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4. (4)

   At the request of, or to assist an overseas regulator as set out in section 55Q of the Act.5

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5. (5)

   6The FCA may separately exercise its additional own-initiative variation power, as described in SUP 7.2.2AG to SUP 7.2.2DG and SUP 7.2.3AG.

Pursuant to sections 55L, 55N, 55O, 55P and 55Q of the Act, within the scope of its functions and powers, the FCA5may seek to impose requirements which include but are not restricted to:

5 5

1. (1)

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

2. (2)

   where appropriate, 5requiring 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;5

4. (4)

   limiting the firm's activities;

5. (5)

   requiring an FCA-authorised person5 to maintain a particular amount or type of financial resources.

   5

The FCA5 will seek to give a firm reasonable notice of an intent to vary its permission or impose a requirement5 and, except when exercising its additional own-initiative variation power,6 to agree with the firm an appropriate timescale. However, if the FCA5 considers that a delay may create a risk to any of the FCA's statutory objectives5,3 the FCA5 may need to act immediately using its powers under section 55J and/or 55L5 of the Act5 with immediate effect.

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1If the FCA decides to exercise its additional own-initiative variation power, the relevant FCA-authorised person can apply, under paragraph 4 of Schedule 6A to the Act, within 12 months of the decision taking effect, to the FCA for that decision to be retrospectively annulled. The FCA must notify that person of its right to apply when notifying that person, under paragraph 3 of Schedule 6A, of the decision to exercise the power and can direct what information should be included in the application and what form it should take.

1The FCA can annul the decision unconditionally or subject to such conditions as it considers appropriate or refuse to annul. The FCA is permitted by Schedule 6A to the Act to annul, whether unconditionally or subject to conditions, only if satisfied that, in all the circumstances, it is just and reasonable to do so.

1Schedule 6A to the Act specifies that the conditions that the FCA can impose when annulling include, without restriction:

1. (1)

   the removal or modification of the description of one or more of the regulated activities that the relevant firm was permitted to carry on immediately before the decision annulled was taken; and

2. (2)

   the withdrawal or variation of one or more approvals previously given by the FCA under section 59 of the Act in respect of one or more roles at the firm, which condition, if imposed, the FCA considers can apply only to approvals that will otherwise be restored as a result of the annulment.

Schedule 6A specifies that such variations of permission and withdrawals or variations of approval take effect, if imposed as conditions, on the date on which the relevant annulment takes effect.

1In determining whether and subject to what conditions it is just and reasonable to annul, the FCA will consider all the relevant circumstances, including, without restriction:

1. (1)

   the applicant firm’s reasons for failing to respond as directed to the relevant notices served on it under paragraph 2 of Schedule 6A to the Act;

2. (2)

   what explanation the firm has for the facts that led the FCA to form the view that it was no longer carrying on any regulated activity to which its permission related; and

3. (3)

   if applicable, what remedial steps the firm proposes to take in relation to those.

1Other factors the FCA may consider, in so determining, may include, without restriction:

1. (1)

   the applicant firm’s ability to comply, after annulment, with the threshold conditions and whether any concerns arising in this regard can be addressed via the imposition of conditions;

2. (2)

   whether the firm applied promptly after the cancellation or variation of its permission has taken effect and, if it did not, its reasons for such delay;

3. (3)

   whether and, if so, in what manner, to what extent and why the firm has breached section 19 or 20 of the Act since the cancellation or variation took effect;

4. (4)

   where the relevant decision is that the applicant firm’s permission be cancelled, the extent to which the firm:

   1. (a)

      has followed, since the cancellation, the requirements of the regulatory system that would have applied to it but for the cancellation, including, without restriction, those in DISP and COMP; and

   2. (b)

      is willing, to the extent it was unable to follow those requirements during the period of cancellation, to address, after annulment, the consequences of not following those requirements, in particular the effects on other persons; and

5. (5)

   whether any awards or directions by the Ombudsman against the firm have not yet been complied with.

1The effect of annulment is specified by Schedule 6A to the Act:

1. (1)

   the relevant variation or cancellation is treated as never having taken place; but

2. (2)

   where, by virtue of that fact, any person becomes subject to a statutory obligation in relation to which the FCA has functions, the FCA is permitted, in exercising those functions, to treat that person as not having become subject to that obligation;

3. (3)

   in which case the FCA must notify that person appropriately.

1. (1)

   1If the FCA decides to annul, it will give the relevant firm a notice in writing, specifying the date on which the annulment takes effect and the conditions, if any, attached to the annulment.

2. (2)

   Where the FCA proposes to refuse to annul, it will give the relevant firm a warning notice and, where the FCA decides to refuse to annul, it will give the relevant firm a decision notice. Detail of the procedure under which those two notices will be provided is given in DEPP 2 and 3.

3. (3)

   Whatever the FCA’s decision, either or both of the firm and the FCA can refer the matter to the Tribunal.

4. (4)

   In determining such a reference, the Tribunal may give such directions, and may make such provision, as it considers reasonable for placing the firm and other persons in the same position (as nearly as may be) as if the firm’s permission had not been varied or cancelled.

1The following other chapters of the Handbook contain rules making provision for and guidance as to the effect of annulment:

1. (1)

   FEES 4, FEES 4A, FEES 5, FEES 6, FEES 7A to FEES 7D and FEES 13;

2. (2)

   DISP 1 and DISP 2; and

3. (3)

   COMP 6.