Related provisions for PERG 6.7.11
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A firm must notify the FSA immediately it becomes aware, or has information which reasonably suggests, that any of the following has occurred, may have occurred or may occur in the foreseeable future:(1) the firm failing to satisfy one or more of the threshold conditions; or(2) any matter which could have a significant adverse impact on the firm's reputation; or(3) any matter which could affect the firm's ability to continue to provide adequate services to its customers and which
The circumstances which may give rise to any of the events in SUP 15.3.1 R are wide-ranging and the probability of any matter resulting in such an outcome, and the severity of the outcome, may be difficult to determine. However, the FSA expects firms to consider properly all potential consequences of events.
Principle 11 requires a firm to deal with its regulators in an open and cooperative way and to disclose to the FSAappropriately anything relating to the firm of which the FSA would reasonably expect notice. Principle 11 applies to unregulated activities as well as regulated activities and takes into account the activities of other members of a group
Compliance with Principle 11 includes, but is not limited to, giving the FSA notice of:(1) any proposed restructuring, reorganisation or business expansion which could have a significant impact on the firm's risk profile or resources, including, but not limited to:(a) setting up a new undertaking within a firm'sgroup, or a new branch (whether in the United Kingdom or overseas); or (b) commencing the provision of cross border services into a new territory; or(c) commencing the
A notification under Principle 11 may be given orally or in writing (as set out in SUP 15.7.1 R and SUP 15.7.2 G), although the FSA may request written confirmation of a matter. However, it is the responsibility of a firm to ensure that matters are properly and clearly communicated to the FSA. A firm should provide a written notification if a matter either is complex or may be such as to make it necessary for the FSA to take action. A firm should also have regard to Principle
(1) A firm must notify the FSA of:(a) a significant breach of a rule (which includes a Principle, or a Statement of Principle ; or(b) a breach of any requirement imposed by the Act or by regulations or an order made under the Act by the Treasury (except if the breach is an offence, in which case (c) applies);6(c) the bringing of a prosecution for, or a conviction of, any offence under the Act;(d) a breach of a directly applicable provision in the MiFID Regulation; or6(e) a breach
A firm must notify the FSA immediately if:(1) civil proceedings are brought against the firm and the amount of the claim is significant in relation to the firm's financial resources or its reputation; or(2) any action is brought against the firm under section 71 of the Act (Actions for damages) or section 150 (Actions for damages); or(3) disciplinary measures or sanctions have been imposed on the firm by any statutory or regulatory authority, professional organisation or trade
A firm must notify the FSA immediately if one of the following events arises and the event is significant:(1) it becomes aware that an employee may have committed a fraud against one of its customers; or(2) it becomes aware that a person, whether or not employed by it, may have committed a fraud against it; or(3) it considers that any person, whether or not employed by it, is acting with intent to commit a fraud against it; or(4) it identifies irregularities in its accounting
The notifications under SUP 15.3.17 R are required as the FSA needs to be aware of the types of fraudulent and irregular activity which are being attempted or undertaken, and to act, if necessary, to prevent effects on consumers or other firms. A notification under SUP 15.7.3 G should provide all relevant and significant details of the incident or suspected incident of which the firm is aware.
A firm must notify the FSA immediately of any of the following events:(1) the calling of a meeting to consider a resolution for winding up the firm; or(2) an application to dissolve the firm or to strike it off the Register of Companies; or(3) the presentation of a petition for the winding up of the firm; or(4) the making of, or any proposals for the making of, a composition or arrangement with any one or more of its creditors; or(5) an application for the appointment of an administrator
3SUP 15.3.23 D to SUP 15.3.25 D are given in relation to the exercise of the powers of the Society and of the Council generally, with a view to achieving the objective of enabling the FSAto:(1) comply with its general duty under section 314 of the Act (Authority's general duty);(2) determine whether underwriting agents, or approved persons acting for them or on their behalf, are complying with the requirements imposed on them by or under the Act;(3) enforce the provisions of the
3The Society must immediately inform the FSA in writing if it becomes aware that any matter likely to be of material concern to the FSA may have arisen in relation to:(1) the regulated activities for which the Society has permission; or (2) underwriting agents; or (3) approved persons or individuals acting for or on behalf of underwriting agents.
3The Society must inform the FSA if it commences investigations or disciplinary proceedings relating to apparent breaches:(1) of the Act or requirements made under the Act, including the threshold conditions or the Principles or other rules, by an underwriting agent; or(2) of the Statements of Principle by an individual or other person who carries out controlled functions for or on behalf of an underwriting agent.
3The Society must inform the FSA if it commences investigations or disciplinary proceedings which do not fall within the scope of SUP 15.3.24 D but which:(1) involve an underwriting agent, or an approved person who carries out controlled functions for it or on its behalf; or (2) may indicate that an individual acting for or on behalf of an underwriting agent may not be a fit and proper person to perform functions in relation to regulated activities.
The FSA will consider the full circumstances of each case when determining whether or not to take action for a financial penalty or public censure. Set out below is a list of factors that may be relevant for this purpose. The list is not exhaustive: not all of these factors may be applicable in a particular case, and there may be other factors, not listed, that are relevant.(1) The nature, seriousness and impact of the suspected breach, including:(a) whether the breach was deliberate
When deciding whether to take action for market abuse or requiring or encouraging, the FSA may consider the following additional factors:(1) The degree of sophistication of the users of the market in question, the size and liquidity of the market, and the susceptibility of the market to market abuse.(2) The impact, having regard to the nature of the behaviour, that any financial penalty or public censure may have on the financial markets or on the interests of consumers:(a) a
The FSA's rules on systems and controls against money laundering are set out in SYSC 3.2 and SYSC 6.3. The FSA, when considering whether to take action for a financial penalty or censure in respect of a breach of those rules, will have regard to whether a firm has followed relevant provisions in the Guidance for the UK financial sector issued by the Joint Money Laundering Steering Group.
The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. However, the FSA may take disciplinary action against an approved person where there is evidence of personal culpability on the part of that approved person. Personal culpability arises where the behaviour was deliberate or where the approved person's standard of behaviour was below that which would be reasonable in all the circumstances at the time of the conduct
In some cases it may not be appropriate to take disciplinary measures against a firm for the actions of an approved person (an example might be where the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FSA to take action against both the firm and the approved person. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are
In addition to the general factors outlined in DEPP 6.2.1 G, there are some additional considerations that may be relevant when deciding whether to take action against an approved person pursuant to section 66 of the Act. This list of those considerations is non-exhaustive. Not all considerations below may be relevant in every case, and there may be other considerations, not listed, that are relevant.(1) The approved person's position and responsibilities. The FSA may take into
The FSA will not discipline approved persons on the basis of vicarious liability (that is, holding them responsible for the acts of others), provided appropriate delegation and supervision has taken place (see APER 4.6.13 G and APER 4.6.14 G). In particular, disciplinary action will not be taken against an approved person performing a significant influence function simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA will
3In addition to the general factors outlined in DEPP 6.2.1 G, there are some additional considerations that the FSA will have regard to when deciding whether to take action against a person that performs a controlled function without approval contrary to section 63A of the Act.(1) The conduct of the person. The FSA will take into consideration whether, while performing controlled functions without approval, the person committed misconduct in respect of which, if he had been approved,
The primary responsibility for ensuring compliance with Part VI of the Act, the Part 6 rules, the prospectus rules or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision rests with the persons identified in section 91(1) and section 91(1A) (Penalties for breach of Part 6 rules) of the Act respectively. Normally therefore, any disciplinary action taken by the FSA for contraventions of these obligations will in the
However, in the case of a contravention by a person referred to in section 91(1)(a) or section 91(1)(b)(i) or section 91(1A) of the Act ("P"), where the FSA considers that another person who was at the material time a director of P was knowingly concerned in the contravention, the FSA may take disciplinary action against that person. In circumstances where the FSA does not consider it appropriate to seek a disciplinary sanction against P (notwithstanding a breach of relevant requirements
The Principles are set out in PRIN 2.1.1 R. The Principles are a general statement of the fundamental obligations of firms under the regulatory system. The Principles derive their authority from the FSA's rule-making powers set out in section 138(General rule-making power) of the Act. A breach of a Principle will make a firm liable to disciplinary action. Where the FSA considers this is appropriate, it will discipline a firm on the basis of the Principles alone.
The Listing Principles are set out in LR 7. The Listing Principles are a general statement of the fundamental obligations of listed companies. The Listing Principles derive their authority from the FSA's rule making powers set out in section 73A(1) (Part 6 Rules) of the Act. A breach of a Listing Principle will make a listed company liable to disciplinary action by the FSA.
In determining whether a Listing Principle has been broken, it is necessary to look to the standard of conduct required by the Listing Principle in question. Under each of the Listing Principles, the onus will be on the FSA to show that a listed company has been at fault in some way. This requirement will differ depending upon the Listing Principle.
When deciding how to proceed in such cases, the FSA will examine the circumstances of the case, and consider, in the light of the relevant investigation, disciplinary and enforcement powers, whether it is appropriate for the FSA or another authority to take action to address the breach. The FSA will have regard to all the circumstances of the case including whether the other authority has adequate powers to address the breach in question.
In some cases, it may be appropriate for both the FSAand another authority to be involved, and for both to take action in a particular case arising from the same facts. For example, a breach of RIE rules may be so serious as to justify the FSA varying or cancelling the firm's Part IV permission, or withdrawing approval from approved persons, as well as action taken by the RIE. In such cases, the FSA will work with the relevant authority to ensure that cases are dealt with efficiently
In relation to behaviour which may have happened or be happening in the context of a takeover bid, the FSA will refer to the Takeover Panel and give due weight to its views. Where the Takeover Code has procedures for complaint about any behaviour, the FSA expects parties to exhaust those procedures. The FSA will not, save in exceptional circumstances, take action under any of section 123 (FSA'spower to impose penalties), section 129 (Power of court to impose penalties), section
The FSA will not take action against a person over behaviour which (a) conforms with the Takeover Code or rules of an RIE and (b) falls within the terms of any provision of the Code of Market Conduct which states that behaviour so conforming does not amount to market abuse. The FSA will seek the Takeover Panel's or relevant RIE's views on whether behaviour complies with the Takeover Code or RIE rules and will attach considerable weight to its views.
If any of the circumstances in DEPP 6.2.26 G apply, and the FSA considers that the use of its disciplinary powers under section 123 or section 129, or of its injunctive powers under section 381 or of its powers relating to restitution under section 383 or 384 is appropriate, it will not take action during an offer to which the Takeover Code applies except in the circumstances set out in DEPP 6.2.27 G.
In any case where the FSA considers that the use of its powers under any of sections 123, 129, 381, 383 or 384 of the Act may be appropriate, if that use may affect the timetable or outcome of a takeover bid or where it is appropriate in the context of any exercise by the Takeover Panel of its powers and authority, the FSA will consult the Takeover Panel before using any of those powers.
Where the behaviour of a person which amounts to market abuse is behaviour to which the Takeover Code is relevant, the use of the Takeover Panel's powers will often be sufficient to address the relevant concerns. In cases where this is not so, the FSA will need to consider whether it is appropriate to use any of its own powers under the market abuse regime. The principal circumstances in which the FSA is likely to consider such exercise are:(1) where the behaviour falls within
(1) 1A person subject to enforcement action may
agree to a financial penalty or other outcome rather than contest formal action
by the FSA.(2) The fact that he does so will not
usually obviate the need for a statutory notice recording the FSA's decision to take that action. Where, however, the person subject to enforcement action agrees
not to contest the content of a proposed statutory
notice, the decision to give that statutory notice will be taken
by senior FSA staff.(3) The
Settlement discussions may take
place at any time during the enforcement process if both parties agree. This
might be before the giving of a warning notice,
before a decision notice, or
even after referral of the matter to the Tribunal.
But the FSA would
not normally agree to detailed settlement discussions until it has a sufficient
understanding of the nature and gravity of the suspected misconduct or issue
to make a reasonable assessment of the appropriate outcome. Settlement
(1) The settlement decision makers may, but need not, participate in the discussions
exploring possible settlement.(2) If the settlement decision makers have not been involved in the discussions, but
an agreement has been reached, they may ask to meet the relevant FSA staff or the person concerned
in order to assist in the consideration of the proposed settlement.
The terms of any proposed settlement:(1) will be put in writing and be agreed
by FSA staff
and the person concerned;(2) may refer to a draft of the proposed statutory notices setting out the facts
of the matter and the FSA's conclusions; (3) may, depending upon the stage in
the enforcement process at which agreement is reached, include an agreement
by the person concerned to: (a) waive and not exercise any rights
under sections 387 (Warning notices) and 394 (Access to Authority
(1) Where the settlement decision makers decline to issue a statutory
notice despite the proposed settlement, they may invite FSA staff
and the person concerned to
enter into further discussions to try to achieve an outcome the settlement decision makers would be prepared
to endorse.(2) However, if the proposed action
by the FSA has
been submitted to the RDC for
consideration, it will be for the RDC to
decide:(a) whether to extend the period for
representations in response to
(1) DEPP 2.4 sets out the FSA's approach
to giving third parties copies of statutory
notices pursuant to section 393 (Third party rights) of the Act.(2) The decision to give a warning notice or a decision
notice to a third party is a statutory
notice associated decision.(3) In cases therefore where the decision
to give a warning notice or decision notice is taken by settlement decision makers, those decision
makers will decide whether a copy of the notice should be given to a
The FSA has divided its definition of capital into categories, or tiers, reflecting differences in the extent to which the capital instruments concerned meet the purpose and conform to the characteristics of capital listed in GENPRU 2.2.9 G. The FSA generally prefers a firm to hold higher quality capital that meets the characteristics of permanency and loss absorbency that are features of tier one capital. Capital instruments falling into core tier one capital can be included
This table belongs to GENPRU 2.2.17 R
Type of firm |
Location of rules |
Remarks |
BIPRU investment firm without an investment firm consolidation waiver |
GENPRU 2 Annex 4 (Deducts material holdings) |
Applies to a BIPRU investment firm not using GENPRU 2 Annex 5 or GENPRU 2 Annex 6 |
BIPRU investment firm without an investment firm consolidation waiver |
GENPRU 2 Annex 5 (Deducts illiquid assets) |
A BIPRU investment firm must give one Month's prior notice to the FSA before starting to use or stopping using this method |
BIPRU investment firm with an investment firm consolidation waiver |
GENPRU 2 Annex 6 (Deducts illiquid assets and material holdings) |
A firm with an investment firm consolidation waiver must use this method. No other BIPRU investment firm may use it. |
GENPRU 2.2.19 R sets out three different methods of calculating capital resources for BIPRU investment firms. The differences between the three methods relate to whether and how material holdings and illiquid assets are deducted when calculating capital resources. The method depends on whether a firm has an investment firm consolidation waiver. If a firm does have such a waiver, it should deduct illiquid assets, own groupmaterial holdings and certain contingent liabilities. If
4The purpose of GENPRU 2.2.64R (4) is to ensure that a firm retains flexibility over the payment of coupons and can preserve cash in times of financial stress. However, a firm may include, as part of the capital instrument terms, a right to make payments of a coupon mandatory if an item of capital becomes ineligible to form part of its capital resources (e.g. through a change in the relevant rules) and the firm has notified the FSA that the instrument is ineligible.
The FSA considers that dividend pushers diminish the quality of capital by breaching the principle of complete discretion over coupons set out in GENPRU 2.2.64R (4). A dividend pusher operates so that, in a given period of time, payments must be made on senior securities if payments have previously been made on junior securities or securities ranking pari passu. As such, dividend pushers may not be included in the terms of tier one capital, unless the firm has the option to fund
8The FSA considers that a BIPRU firm's financial resources are not preserved under GENPRU 2.2.69CR (2) unless, among other things, the conditions of the substituted payment are that:(1) there is no decrease in the amount of the firm'score tier one capital;(2) the deferred coupon is satisfied without delay using newly issued core tier one capital that has an aggregate fair value no more than the amount of the coupon;(3) the firm is not obliged to find new investors for the newly
(1) 8In relation to the cancellation or deferral of the payment of a coupon in accordance with GENPRU 2.2.64R (4) and GENPRU 2.2.64R (5), GENPRU 2.2.68A R, or GENPRU 2.2.69B R, the FSA expects that situations where a coupon may need to be cancelled or deferred will be resolved through analysis and discussion between the firm and the FSA. If the FSA and the firm do not agree on the cancellation or deferral of the payment of a coupon, then the FSA may consider using its powers
A firm may not include a capital instrument in its tier one capital resources, unless its contractual terms are such that:(1) (if it is redeemable other than in circumstances set out in GENPRU 2.2.64R (3)(a) (redemption on a winding up)) it is redeemable only at the option of the firm or, in the case of a BIPRU firm, on the date of maturity;88(2) the firm cannot exercise that redemption right:(a) before the fifth anniversary of its date of issue;(b) unless it has given notice
8In the case of a BIPRU firm, an incentive to redeem is a feature of a capital instrument that would lead a reasonable market participant to have an expectation that the firm will redeem the instrument. The FSA considers that interest rate step-ups and principal stock settlements, in conjunction with a call option, are incentives to redeem. Only instruments with moderate incentives to redeem are permitted as tier one capital, in accordance with the limited conversion ratio in
A firm may include a term in a tier one instrument allowing the firm to redeem it before the date in GENPRU 2.2.70R (2)(a) if the following conditions are satisfied:(1) the other conditions in GENPRU 2.2.70 R are met;(2) the circumstance that entitles the firm to exercise that right is:8(a) 8(in the case of an insurer) a change in law or regulation in any relevant jurisdiction or in the interpretation of such law or regulation by any court or authority entitled to do so; and(b)
The purpose of GENPRU 2.2.71 R to GENPRU 2.2.72 R is this. In general a tier one instrument should not be redeemable by the firm before its fifth anniversary. However there may be circumstances in which it would be reasonable for the firm to redeem it before then. GENPRU 2.2.71 R allows the firm to include a right to redeem the instrument before the fifth anniversary in certain circumstances. A tax call is an example of a term that may be allowed. GENPRU 2.2.71 R says that the
A firm must not redeem any tier one instrument that it has included in its tier one capital resources unless it has notified the FSA of its intention at least one month before it becomes committed to do so. When giving notice, the firm must provide details of its position after such redemption in order to show how it will:77(1) meet its capital resources requirement;78(2) 7have sufficient financial resources to meet the overall financial adequacy rule; and8(3) 8in the case of
8The FSA considers that, in order to comply with GENPRU 2.2.74 R, the firm should, at a minimum, provide the FSA with the following information:(1) a comprehensive explanation of the rationale for the redemption;(2) the firm's financial and solvency position before and after the redemption, in particular whether that redemption, or other foreseeable internal and external events or circumstances, may increase the risk of the firm breaching its capital resources requirement;(3)
8A BIPRU firm must not purchase a tier one instrument that it has included in its tier one capital resources unless:(1) the firm initiates the purchase;(2) 10[deleted]10(3) the firm has given notice to the FSA in accordance with GENPRU 2.2.79G R; and10(4) 10(in the case of hybrid capital) it is on or after the fifth anniversary of the date of issue of the instrument.
8A BIPRU firm must not purchase a tier one instrument in accordance with GENPRU 2.2.79A R unless it has notified the FSA of its intention at least one month before it becomes committed to doing so. When giving notice, the firm must provide details of its position after the purchase in order to show how, over an appropriate timescale, adequately stressed, and without planned recourse to the capital markets, it will:(1) meet its capital resources requirement; and(2) have sufficient
8The FSA considers that:(1) in order to comply with GENPRU 2.2.79G R, the firm should, at a minimum, provide the FSA with the following information:(a) a comprehensive explanation of the rationale for the purchase;(b) the firm's financial and solvency position before and after the purchase, in particular whether the purchase, or other foreseeable internal and external events or circumstances, may increase the risk of the firm breaching its capital resources requirement or the
10A BIPRU firm must not announce to the holders of a tier one instrument its intention to purchase that instrument unless it has notified that intention to the FSA in accordance with GENPRU 2.2.79G R and it has not, during the period of one month from the date of giving notice, received an objection from the FSA.
10A BIPRU firm must not include in stage A of the capital resources table different classes of the same share type (for example "A ordinary shares" and "B ordinary shares") that meet the conditions in GENPRU 2.2.83 R and GENPRU 2.2.83A R but have differences in voting rights, unless it has notified the FSA of its intention at least one month before the shares are issued or (in the case of existing issued shares) the differences in voting rights take effect.
If a firm has surplus eligible partnership capital or eligible LLP members' capital that it wishes to repay in circumstances other than those set out in GENPRU 2.2.93 R or GENPRU 2.2.94 R it may apply to the FSA for a waiver to allow it to do so. If a firm applies for such a waiver the information that the firm supplies with the application might include:(1) a demonstration that the firm would have sufficient capital resources to meet its capital resources requirement immediately
8A BIPRU firm must not include a capital instrument at stage B1 of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) its contractual terms are such that:(1) it cannot be redeemed in cash but can only be converted into core tier one capital;(2) it must be converted into core tier one capital by the firm during emergency situations; (3) the emergency situations referred
(1) 8In respect of GENPRU 2.2.115AR (4), the FSA may require the firm to convert the instrument into core tier one capital based on its financial and solvency situation. The FSA will take into account, among other things, the factors identified at GENPRU 2.2.69FG (2), adjusted to take into account the effects of a conversion rather than payment of a coupon.(2) Even if a firm meets its capital resources requirement, the FSA may consider the amount or composition of the firm'stier
(1) 8The effects of the mechanisms described in GENPRU 2.2.117A R will be more meaningful if they happen immediately after losses cause a significant deterioration of the financial as well as the solvency situation and even before the reserves are exhausted.(2) If a firm does not operate the loss absorption mechanism in a prudent and timely way, then the FSA may consider using its powers under section 45 of the Act to, on its own initiative, vary the firm'sPart IV permission
A firm must not amend the terms of the capital or the documents referred to in GENPRU 2.2.159R (8) unless:(1) at least one Month before the amendment is due to take effect, the firm has given the FSA notice in writing of the proposed amendment and the FSA has not objected; and(2) that notice includes confirmation that the legal opinions referred to in GENPRU 2.2.159R (12) and, if applicable, GENPRU 2.2.163 R (General conditions for eligibility as tier two capital instruments:
In relation to a tier two instrument, a firm must notify the FSA:(1) in the case of an insurer, six Months; and(2) in the case of a BIPRU firm, one Month;before it becomes committed to7 the proposed repayment (unless that firm intends to repay an instrument on its final maturity date). When giving notice, the firm must provide details of its position after such repayment in order to show how it will:777(3) meet its capital resources requirement; and7(4) have sufficient financial
(1) The purpose of GENPRU 2.2.177R (2) is to ensure that a firm which issues an item of capital with a coupon retains flexibility over the payments of such coupon and can preserve cash in times of financial stress. However, a firm may include, as part of the capital instrument terms, a right to make payments of a coupon mandatory if an item of capital becomes ineligible to form part of its capital resources (for example, through a change in the relevant rules) and the firm has
A BIPRU firm which adopts the standardised approach to credit risk may include general/collective provisions in its tier two capital resources only if:(1) they are freely available to the firm;(2) their existence is disclosed in internal accounting records; and(3) their amount is determined by the management of the firm, verified by independent auditors and notified to the FSA.
A person wanting to provide sponsor services4, and to be included on the list of sponsors, must apply to the FSA for approval as a sponsor by submitting the following to the Sponsor Supervision Team at the FSA address:4(1) a completed Sponsor Firm Application Form; and4(2) [deleted]44(3) the application fee set out in 1FEES 31[Note: The Sponsor's Firm Application Form can be found on the UKLA section of the FSA's website.]4
When considering an application for approval as a sponsor the FSA may:(1) carry out any enquiries and request any further information which it considers appropriate, including consulting other regulators;(2) request that the applicant or its specified representative answer questions and explain any matter the FSA considers relevant to the application;(3) take into account any information which it considers appropriate in relation to the application.22(4) [deleted]22[Note: The
The FSA will approve a person as a sponsor only if it is satisfied that the person :4(1) is 4an authorised person or a member of a designated professional body;(2) is 4competent to performsponsor services4; and(3) has appropriate 4systems and controls in place to ensure that it cancarry out its role as a sponsor in accordance with this chapter4.4
4In assessing whether a person is competent to provide, or to continue to provide, sponsor services, the FSA may also take into account, where relevant, the quality of anyguidance or advice on the listing rules or disclosure rules and transparency rules5the person has given in circumstances other than in providing sponsor services.5
The nature and extent of the systems and controls which a sponsor will need to maintain will depend upon a variety of factors including:(1) the nature, scale and complexity of its business;(2) the diversity of its operations;(3) the volume and size of the transactions it undertakes;4(4) the volume and size of the transactions it anticipates undertaking in the following year; and44(5) the degree of risk associated with the transactions it undertakes.4
4For each transaction for which it provides sponsor services, a sponsor must:(1) notify the FSA as soon as practicableof the name and contact details of the maincontactperson or persons in the sponsor for that transaction; and(2) ensure that thecontact person or persons: (a) have sufficient knowledge about the listed company or applicant and the proposed transactionto be able to answer queries from the FSA about it; and(b) are available to answer queries from the FSA on any business
(1) If a member of the RDC has a potential conflict of interest in any matter in which he is asked to participate he will disclose the conflict to the RDC Office, and disclose it:(a) in the case of the Chairman of the RDC, to the Chairman or Deputy Chairman of the FSA; or(b) in the case of a Deputy Chairman of the RDC, to the Chairman of the RDC, or if he is unavailable to the Chairman or Deputy Chairman of the FSA; or(c) in the case of any other member, to the Chairman or a Deputy
If the RDC considers it relevant to its consideration, it may ask FSA staff to explain or provide any or all of the following:(1) additional information about the matter (which FSA staff may seek by further investigation); or(2) further explanation of any aspect of the FSA staff recommendation or accompanying papers; or(3) information about FSA priorities and policies (including as to the FSA's view on the law or on the correct legal interpretation of provisions of the Act).
If the RDC decides that the FSA should give a warning noticeor a first supervisory notice:(1) the RDC will settle the wording of the warning notice or first supervisory notice, and will ensure that the notice complies with the relevant provisions of the Act;(2) the RDC will make any relevant statutory notice associated decisions;(3) the RDC staff will make appropriate arrangements for the notice to be given; and(4) the RDC staff will make appropriate arrangements for the disclosure
(1) A warning notice or a first supervisory notice will (as required by the Act) specify the time allowed for making representations. This will not be less than 28 days.(2) The FSA will also, when giving a warning notice or a first supervisory notice, specify a time within which the recipient is required to indicate whether he wishes to make oral representations.
(1) The recipient of a warning notice or a first supervisory notice may request an extension of the time allowed for making representations. Such a request must normally be made within 14days of the notice being given.(2) If a request is made, the Chairman or a Deputy Chairman of the RDC will decide whether to allow an extension, and, if so, how much additional time is to be allowed for making representations. In reaching his decision he may take account of any relevant comments
(1) If the recipient of a warning notice or a first supervisory notice indicates that he wishes to make oral representations, the RDC staff, in conjunction with the Chairman or a Deputy Chairman of the RDC, will fix a date or dates for a meeting at which the relevant RDC members will receive those representations.(2) In making those arrangements the RDC staff will draw the Chairman's or Deputy Chairman's attention to any particular issues about the timing of the meeting which
The chairman of the relevant meeting will ensure that the meeting is conducted so as to enable:(1) the recipient of the warning notice or first supervisory notice to make representations;(2) the relevant FSA staff to respond to those representations;(3) the RDC members to raise with those present any points or questions about the matter (whether in response to particular representations or more generally about the matter); and(4) the recipient of the notice to respond to points
If the RDC decides that the FSA should give a decision notice or a second supervisory notice:(1) the RDC will settle the wording of the notice which will include a brief summary of the key representations made and how they have been dealt with, and will ensure that the notice complies with the relevant provisions of the Act;(2) the RDC will make any relevant statutory notice associated decisions, including whether the FSA is required to give a copy of the notice to a third party;
FSA staff responsible for recommending action to the RDC will continue to assess the appropriateness of the proposed action in the light of new information or representations they receive and any material change in the facts or circumstances relating to a particular matter. It may be therefore that they decide to give a notice of discontinuance to a person to whom a warning notice or decision notice has been given. The decision to give a notice of discontinuance does not require
(1) 5The FSA may by notice in writing given to a sponsor, or a person applying for approval as a sponsor, require it to provide specified documents or specified information to the FSA.(2) The sponsor, or the person applying for approval as a sponsor, must as soon as practicable provide to the FSA any documents or information that it has been required to provide under (1).(3) This rule applies only to documents or information reasonably required by the FSA in connection with the
A sponsor must provide to the FSA on an annual basis:(1) written confirmation that it continues to satisfy the criteria for approval as a sponsor as set out in LR 8.6.5 R; and5(1A) for each of the criteria in that rule, detailsof the basis upon which it considers that it meets the criteria.5(2) [deleted]55(3) [deleted]55(4) [deleted]55
A sponsor must notify the FSA in writing as soon as possible if:(1) the sponsor ceases to satisfy the criteria for approval as a sponsor set out in LR 8.6.5 R; or(2) the sponsor, or any of its employees who provide sponsor services,5 are:5(a) convicted of any offence involving fraud, theft or other dishonesty; or(b) the subject of a bankruptcy proceeding, a receiving order or an administration order; or(3) any of its employees who providesponsor services5are disqualified by a
A request by a sponsor for its approval as a sponsor to be cancelled must be in writing and must include:(1) the sponsor's name;(2) a clear explanation of the background and reasons for the request;(3) the date on which the sponsor requests the cancellation to take effect;4(4) a signed confirmation that the sponsor will not participate in any services described in LR 8.2 as of the date the request is submitted to the FSA; and(5) the name and contact details of the person at the
The decision to give a warning notice and a decision notice in a particular matter will often not be taken by the same decision maker. Certain types of action require that the warning notice decision be taken by FSA staff under executive procedures and the decision notice decision be taken by the RDC. Similarly, in enforcement cases the RDC might take the decision to give a warning notice,4 but the decision to give a decision notice could be taken by the settlement decision makers
FSA staff under executive procedures will take the decision to give a warning notice if the FSA proposes to:(1) refuse an application for a Part IV permission or to refuse an application to cancel a Part IV permission;(2) impose a limitation or a requirement which was not applied for, or specify a narrower description of regulated activity than that applied for, on the grant of a Part IV permission;(3) refuse an application to vary a Part IV permission, or to restrict a Part IV
If representations are made in response to a warning notice proposing the action set out at DEPP 2.5.3 GDEPP 2.5.3G (2), DEPP 2.5.3G (3) or DEPP 2.5.3G (6), then the RDC will take the decision to give a decision notice if the action involves a fundamental change(see DEPP 2.5.8 G) to the nature of a permission. Otherwise, the decision to give the decision notice will be taken by FSA staff under executive procedures.
The RDC will take the decision to give a supervisory notice exercising the FSA's own initiative power (by removing a regulated activity, by imposing a limitation or requirement or by specifying a narrower description of regulated activity) if the action involves a fundamental change (see DEPP 2.5.8 G) to the nature of a permission. Otherwise, the decision to give the decision notice will be taken by FSA staff under executive procedures.
FSA staff under executive procedures will take the following statutory notice decisions:(1) the refusal of an application for listing of securities;(2) the suspension of listing on the FSA's own initiative or at the request of the issuer;(3) [deleted]22(4) the discontinuance of listing of securities at the issuer's request;(5) the exercise of any of the powers in sections 87K or 87L of the Act in respect of a breach of any applicable provision; and2(6) [deleted]22(7) the refusal
FSA staff will usually inform or discuss with the person concerned any action they contemplate before they recommend to the RDC that the FSA takes formal action. The FSA may also be invited to exercise certain powers by the persons who would be affected by the exercise of those powers. In these circumstances if the person concerned has agreed to or accepted the action proposed then the decisions referred to in DEPP 2.5.13 G will be taken by FSA staff under executive procedures
The decisions referred to in DEPP 2.5.12 G are:(1) the decision to give a supervisory notice pursuant to section 259(3), (8) or 9(b) (directions on authorised unit trust schemes); section 268(3), 7(a) or 9(a) (directions in respect of recognised overseas schemes); or section 282(3), (6) or (7)(b) (directions in respect of relevant recognised schemes) of the Act;(2) the decision to give a warning notice or decision notice pursuant to section 280(1) or (2)(a) (revocation of recognised
A decision to give a warning notice or decision notice refusing an application for an authorisation order declaring a unit trust scheme to be an AUT or ICVC2 will be taken by the RDC only if the application is by an authorised fund manager who is not the operator of an existing AUT or ICVC. Otherwise, the decision to give the warning notice or decision notice will be taken by FSA staff under executive procedures.22
The FSA expects to adopt a procedure in respect of notices under enactments other than the Act which is similar to that for statutory notices under the Act, but which recognises any differences in the legislative framework and requirements. DEPP 2 Annex 1 and DEPP 2 Annex 2 therefore identify notices to be given pursuant to other enactments and the relevant FSA decision maker.
Some of the distinguishing features of notices given under enactments other than the Act are as follows: (1) Building Societies Act 1986, section 36A: There is no right to refer a decision to issue a prohibition order under section 36A to the Tribunal. Accordingly, a decision notice under section 36A(5A) is not required to give an indication of whether any such right exists. A decision notice under section 36A(5A) may only relate to the issue of a prohibition order under section
The issuer must send to the FSA annual written confirmation of compliance with Regulations 16 (sums derived from the issue of regulated covered bonds) and 17 (general requirements on the issuer in relation to the asset pool) of the RCB Regulations in the form set out in RCB 3 Annex 1D (annual confirmation of compliance).
(1) The owner must ensure that a duly authorised representative signs the confirmation and confirms on the FSA's form that the owner has obtained the appropriate third party advice or reports required by this section.(2) The owner must obtain appropriate advice in the same manner as set out in RCB 3.2.2 D.
Under section 169(1)(b) of the Act,
the FSA may
appoint an investigator to investigate any matter at the request of an overseas regulator. The powers of the investigator appointed by the FSA (referred to here as the 'FSA's investigator') include the power to require persons to
attend at a specified time and place and answer questions (the compulsory
interview power).
Where the FSA appoints an investigator in response to a request from an overseas regulator it may, under section 169(7) of the Act,
direct him to permit a representative of that regulator to attend and take
part in any interviews conducted for the purposes of the investigation. The FSA may
only give a direction under section 169(7) if it is satisfied that any information
obtained by an overseas regulator as a result of the interview will
be subject to the safeguards equivalent
The FSA may need to consider whether to use its direction power at two
stages of an investigation:(1) at the same time that it considers
the request from the overseas regulator to appoint investigators;(2) after it has appointed investigators,
either at the request of the overseas regulator or on the recommendation of the
investigators.
Before making a direction under
section 169(7) the FSA will discuss and determine with the overseas
regulator how this statement of policy will
apply to the conduct of the interview, taking into account all the circumstances
of the case. Amongst other matters, the FSA will at this stage determine the extent to which the representative
of the overseas regulator will be able to participate in
the interview. The overseas regulator will be notified of this determination
on the issuing
The direction will contain the
identity of the representative of the overseas
regulator that is permitted to attend any
interview and the role that he will play in the interview. If the FSA envisages that there will be more than one interview in the course
of the investigation, the direction may also specify which interview(s) the overseas representative is allowed to attend.
In circumstances where an interview
is to be conducted as part of the investigation, the FSA's investigator will have conduct of the interview. In general,
the FSA's investigators
will be employees of the FSA, but in appropriate cases the FSA may appoint persons who
are not its employees. In those cases, the FSA may choose to require that an FSA employee is present at the interview and may choose to appoint
that person as an investigator.
The FSA's investigator will act on behalf of the FSA and under its control. He may be instructed to permit the representative
of the overseas regulator to assist in the preparation of
the interview. Where the FSA considers it appropriate, it may permit the representative to
attend and ask questions of the interviewee in the course of the interview.
The interview will be conducted according to the terms of the direction and
the notification referred to in DEPP 7.2.6 G.
If the direction does permit the
representative of an overseas regulator to attend the interview and ask
the interviewee questions, the FSA's investigator will retain control of the interview throughout.
Control of the interview means the following will apply:(1) The FSA's investigator instigates and concludes the interview, introduces
everyone present and explains the procedure of the interview. He warns the
interviewee of the possible consequences of refusing to answer questions
The FSA will in general provide written notice of the appointment of
an investigator to the person under
investigation pursuant to the request of an overseas
regulator. Whether or not the interviewee
is the person under investigation,
the FSA's investigator
will inform the interviewee of the provisions under which he has been appointed,
the identity of the requesting authority and general nature of the matter
under investigation. The interviewee will also normally be informed
When the FSA's investigator has exercised the compulsory interview power, at
the outset of the interview the interviewee will be given an appropriate warning.
The warning, amongst other things, must state that the interviewee is obliged
to answer all questions put to them during the interview, including any put
by the representative of the overseas regulator. It will also state that in criminal
proceedings or proceedings for market abuse the FSA will
not use as evidence against
The FSA's investigator may decide which documents or other information
may be put to the interviewee, and whether it is appropriate to give the interviewee
sight of the documents before
the interview takes place. Where the overseas
regulator wishes to ask questions about documents during the interview and the FSA's investigator
wishes to inspect those documents before
the interview, he will be given the opportunity to do so. If the FSA's investigator wishes to inspect them and
When the FSA's investigator has exercised the compulsory interview power, the FSA's investigator
will require the person attending
the interview to answer questions. Where appropriate, questions may also be
posed by the representative of the overseas
regulator. The interviewee will also be
required to answer these questions. The FSA's investigator may intervene at any stage during questioning by
the representative of the overseas regulator.
Interviews will, in general, be
conducted in English. Where the interviewee's first language is not English,
at the request of the interviewee arrangements will be made for the questions
to be translated into the interviewee's first language and for his answers
to be translated back into English. If a translator is employed at the request
of the representative of the overseas regulator then the translation costs will
normally be met by the overseas regulator. Where interviews
All compulsory interviews will
be tape-recorded. The method of recording will be decided on and arranged
by the FSA's investigator.
Costs will be addressed similarly to that set out in the preceding paragraph.
The FSA will
not provide the overseas regulator with transcripts of the tapes
of interviews unless specifically agreed to, but copies of the tapes will
normally be provided where requested. The interviewee will be provided with
a copy of tapes of the interview but will only
The interviewee may be accompanied
at the interview by a legal adviser or a non-legally qualified observer of
his choice. The costs of any representation will not be met by the FSA. The
presence at the interview of a representative of the overseas
regulator may mean that the interviewee
wishes to be represented or accompanied by a person either
from or familiar with that regulator's jurisdiction. As far as practical the
arrangements for the interview should accommodate this wish.
Schedule to the Recognition Requirements Regulations, paragraph 3
2(1) |
The [UK RIE] must ensure that the systems and controls used in the performance of its [relevant functions] are adequate, and appropriate for the scale and nature of its business. |
|
(2) |
Sub-paragraph (1) applies in particular to systems and controls concerning - |
|
(a) |
the transmission of information; |
|
(b) |
the assessment, mitigation and management of risks to the performance of the [UK RIE'srelevant functions]; |
|
(c) |
the effecting and monitoring of transactions on the [UK RIE]; |
|
(ca) |
the technical operation of the [UK RIE], including contingency arrangements for disruption to its facilities; |
|
(d) |
the operation of the arrangements mentioned in paragraph 4(2)(d); and |
|
(e) |
(where relevant) the safeguarding and administration of assets belonging to users of the [UK RIE's] facilities. |
|
In assessing whether the systems and controls used by a UK recognised body in the performance of its relevant functions are adequate and appropriate for the scale and nature of its business, the FSA may have regard to the UK recognised body's:(1) arrangements for managing, controlling and carrying out its relevant functions, including: (a) the distribution of duties and responsibilities among its key individuals and the departments of the UK recognised body responsible for performing
The following paragraphs set out other matters to which the FSA may have regard in assessing the systems and controls used for the transmission of information, risk management, the effecting and monitoring of transactions, the operation of settlement arrangements (the matters covered in paragraphs 4(2)(d) and 19(2)(b) of the Schedule to the Recognition Requirements Regulations) and the safeguarding and administration of assets .
In assessing a UK recognised body's systems and controls for the transmission of information, the FSA may also have regard to the extent to which these systems and controls ensure that information is transmitted promptly and accurately: (1) within the UK recognised body itself; (2) to members; and (3) (where appropriate) to other market participants or other relevant persons.
In assessing a UK RIE's systems and controls for the effecting and monitoring of transactions, and the systems and controls used by a UK recognised body for the operation of settlement arrangements, the FSA may have regard to the totality of the arrangements and processes through which a transaction is effected, cleared and settled, including:(1) a UK RIE's arrangements under which orders are received and matched, and its arrangements for trade and transaction reporting, and (if
In assessing a UK recognised body's systems and controls for the safeguarding and administration of assets belonging to users of its facilities, the FSA may have regard to the totality of the arrangements and processes by which the UK recognised body: (1) records the assets held and the identity of the owners of (and other persons with relevant rights over) those assets; (2) records any instructions given in relation to those assets;(3) records the carrying out of those instructions;(4)
The FSA recognises that a UK RCH2 has legitimate interests of its own and that its general business policy may properly be influenced by other persons (such as its owners). Such a connection does not necessarily imply the existence of a conflict of interest nor is it necessary to exclude individuals closely connected with other persons (for example, those responsible for the stewardship of the owner's interests) from all decision-making processes in a UK recognised body. However,
The FSA may have regard to the arrangements a UK recognised body makes to structure itself and to allocate responsibility for decisions so that it can continue to take proper regulatory decisions notwithstanding any conflicts of interest, including:(1) the size and composition of the governing body and relevant committees; (2) the roles and responsibilities of key individuals, especially where they also have responsibilities in other organisations; (3) the arrangements for transferring
The FSA may also have regard to the systems and controls intended to ensure that confidential information is only used for proper purposes. Where relevant, recognised bodies will have to comply with section 348 (Restrictions on disclosure of confidential information by the FSA etc.) and regulations made under section 349 (Exemptions from section 348) of the Act.
The FSA may also have regard to the contracts of employment, staff rules, letters of appointment for members of the governing body, members of relevant committees and other key individuals and other guidance given to individuals on handling conflicts of interest. Guidance to individuals may need to cover:(1) the need for prompt disclosure of a conflict of interest to enable others, who are not affected by the conflict, to assist in deciding how it should be managed;(2) the circumstances
A UK recognised body's arrangements for internal and external audit will be an important part of its systems and controls. In assessing the adequacy of these arrangements, the FSA may have regard to: (1) the size, composition and terms of reference of any audit committee of the UK recognised body'sgoverning body;(2) the frequency and scope of external audit; (3) the provision and scope of internal audit; (4) the staffing and resources of the UK recognised body's internal audit
Information technology is likely to be a major component of the systems and controls used by any UK recognised body. In assessing the adequacy of the information technology used by a UK recognised body to perform or support its relevant functions, the FSA may have regard to:(1) the organisation, management and resources of the information technology department within the UK recognised body;(2) the arrangements for controlling and documenting the design, development, implementation
Under section 148(4) of the Act, the FSA may not give a waiver unless it is satisfied that:(1) compliance by the firm with the rules, or with the rules as unmodified, would be unduly burdensome, or would not achieve the purpose for which the rules were made; and(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.
(1) If 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 8.3.3D (3) and SUP 15.7.4R to SUP 15.7.9G (Form and method of notification) should be used.55(2) Where SUP 8.3.3 D (3) applies to a firm, GEN 1.3.2R (Emergency) does not apply.55
The FSA will acknowledge an application promptly and if necessary will seek further information from the firm. The time taken to determine an application will depend on the issues it raises. However, the FSA will aim to give waiver decisions within 20 business days of receiving an application which includes sufficient information. If the FSA expects to take longer, it will tell the firm and give an estimated decision date. A firm should make it clear in the application if it needs
The FSA will treat a firm's application for a waiver as withdrawn if it does not hear from the firm within 20 business days of sending a communication which requests or requires a response from the firm. The FSA will not do this if the firm has made it clear to the FSA in some other way that it intends to pursue the application. 3
In some cases, the FSA may give a modification of a rule rather than direct that the rule is not to apply. The FSA may also impose conditions on a waiver, for example additional reporting requirements. A waiver may be given for a specified period of time only, after which time it will cease to apply. A firm wishing to extend the duration of a waiver should follow the procedure in SUP 8.3.3 D. A waiver will not apply retrospectively.
If the FSA believes that a particular waiver given to a firm may have relevance to other firms, it may publish general details about the possible availability of the waiver. For example, IPRU(INV) 3-80(10)G explains that a firm that wishes to use its own internal model to calculate its position risk requirement (PRR) will need to apply for a waiver of the relevant rules.
Under section 148(2) of the Act the FSA may give a waiver with the consent of a firm. This power may be used by the FSA in exceptional circumstances where the FSA considers that a waiver should apply to a number of firms (for example, where a rule unmodified may not meet the particular circumstances of a particular category of firm). In such cases the FSA will inform the firms concerned that the waiver is available, either by contacting firms individually or by publishing details
A senior
staff committee will consist of such FSA staff members as the FSA's senior executive committee may from time to time determine. The FSA's senior
executive committee may authorise the chairman of a senior
staff committee to select its other members. A senior staff committee is accountable for
its decisions to the FSA's senior executive committee and, through it, to the FSA Board.
A senior
staff committee may operate through standing or specific sub-committees
to consider particular decisions or classes of decision, for which accountability
will lie through the committee. Each meeting of a senior
staff committee, or sub-committee, will include:(1) an individual with authority to
act as its chairman; and(2) at least two other members.
Statutory
notice decisions to be taken under executive
procedures, and not falling within the responsibility of a senior
staff committee, will be taken by an individual FSA staff member. The decision will be:(1) made by an executive director of
the FSA Board
or his delegate (who will be of at least the level of associate);(2) on the recommendation of an FSA staff
member of at least the level of associate; and(3) with the benefit of legal advice
from an FSA staff
member of at least
An FSA staff member who considers that a statutory
notice decision should be taken above his own
level is free to refer that decision to a more senior level. If an FSA staff
member consults another staff member about a decision, the decision remains
the independent decision of the FSA staff member who consults his colleague, unless it is agreed
that the decision should instead be taken by the colleague, and the colleague
has the delegated authority to do so.
If an individual responsible for
a decision under executive procedures (or
a more senior FSA staff
member with responsibilities in relation to the decision concerned) considers
that it warrants collective consideration, the individual may:(1) take the decision himself, following
consultation with other FSA staff members, as above; or(2) refer it to a senior
staff committee, which will take the decision itself.
(1) FSAstaff
are required by their contract of employment to comply with a code of conduct
which imposes strict rules to cover the handling of conflicts of interest
which may arise from personal interests or associations. FSA staff subject to a conflict of interest must declare that interest
to the person to whom they are
immediately responsible for a decision.(2) If a member of a senior
staff committee has a potential conflict of interest in any
matter in which he is asked to
The procedure for taking decisions
under executive procedures will
generally be less formal and structured than that for decisions by the RDC. Broadly, however, FSA staff responsible for taking statutory
notice decisions under executive
procedures will follow a procedure similar to that described
at DEPP 3.2.7 G to DEPP 3.2.27 G for
the RDC except that:(1) in a case where the decision will
be taken by a senior staff committee: (a) the chairman or deputy chairman
of the senior
Schedule to the Recognition Requirements Regulations, Paragraph 1
2(1) The [UK RIE] must have financial resources sufficient for the proper performance of its [ relevant functions] as a [UK RIE]. |
(2) In considering whether this requirement is satisfied, the [FSA]must (without prejudice to the generality of regulation 6(1)) take into account all the circumstances, including the [UK RIE's] connection with any person , and any activity carried on by the [UK RIE], whether or not it is anexempt activity. |
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FSA may have regard to:(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body acts as a central counterparty or otherwise guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; (3) the amount and composition
In assessing whether a UK recognised body has sufficient financial resources in relation to counterparty and market risks, the FSA may have regard to:(1) the amount and liquidity of its financial assets and the likely availability of liquid financial resources to the UK recognised body during periods of major market turbulence or other periods of major stress for the UK financial system;3 and(2) the nature and scale of the UK recognised body's exposures to counterparty and market
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FSA may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to ensure
The FSA considers that a UK recognised body which (after allowing for the financial resources necessary to cover counterparty and market risks) has at any time:(1) liquid financial assets amounting to at least six months' operating costs; and (2) net capital of at least this amount; will, at that time, have sufficient financial resources to meet the recognition requirement unless there are special circumstances indicating otherwise.
The FSA recognises that UK recognised bodies may wish to satisfy the recognition requirements in different ways. The FSA does not prescribe any particular approach to calculating financial resources or to assessing their adequacy. It is willing to discuss with each UK recognised body the most appropriate way for it to meet the recognition requirement and each UK recognised body will need to be able to show the FSA that its financial resources are at all times sufficient to meet
To enable the FSA to be satisfied that the issuer and the proposed owner will comply with requirements imposed on the issuer or owner, as the case may be, by or under the RCB Regulations, the applicant should use the application form to provide relevant details of the proposed covered bond or programme and demonstrate how each of the requirements will be complied with.
(1) The FSA's application form covers both issuer registration and covered bond registration as the FSA will not normally consider applications for issuer registration in isolation from the application for registration of the covered bond.(2) An issuer which has been admitted to the register of issuers should use the same form to apply for registration of subsequent covered bonds or programmes.(3) The issuer does not need to apply for registration of individual issuances from
In relation to registration of an issuer of regulated covered bonds, the FSA will need to be satisfied that the issuer's compliance with the requirements of the regulatory system has been adequate and does not give rise to any material cause for concern over the issuer's ability to issue regulated covered bonds in compliance with the RCB Regulations.
The FSA will:(1) expect the issuer to demonstrate that it has in place appropriate systems, controls, procedures and policies, including in relation to risk management, underwriting, arrears and valuation; (2) expect the issuer to demonstrate that the cash-flows generated by the assets would be sufficient to meet the payments due in a timely manner including under conditions of economic stress and in the event of the failure of the issuer;(3) take account of any over collateralisation
The risk factors which the FSA will take into account in assessing the issuer's and owner's compliance with Regulations 17(2)(d) (general requirements on issuer in relation to the asset pool) and 23(2) (requirements on owner relating to the asset pool) will include credit risk of the assets, concentration risk, market risk and counterparty risk.
(1) The credit risk of an asset is the risk of loss if another party fails to perform its obligations or fails to perform them in a timely fashion.(2) Where, for example, the asset pool includes residential mortgages the relevant factors which the FSA may consider include: (a) whether the asset pool contains (or could contain) loans made to individuals who have been made bankrupt or have had court judgments made against them;(b) the extent to which the asset pool contains (or
Concentration risk is the risk of loss from exposures being limited in number or variety. The relevant factors the FSA may consider include:(1) the level of granularity of the asset pool (i.e. what is the number and size distribution of assets in the pool); (2) whether the borrowers or collateral is unduly concentrated in a particular industry, sector, or geographical region.
Market risk is the risk that arises from fluctuations in the values of, or income from, assets or in interest or exchange rates. The relevant factors the FSA may consider include whether the hedging agreements (defined in Regulation 1(2) of the RCB Regulations as agreements entered into or assets held as protection against possible financial loss) adequately protect against any adverse mismatched cash-flows due to changes in market variables.
Counterparty risk is the risk that the counterparty to a transaction could default before the final settlement of the transactions cash flows. The relevant factors the FSA may consider include whether the:(1) counterparty has an appropriate credit rating;(2) counterparty can unilaterally terminate the hedging agreement, and if so under what circumstances;(3) contractual arrangements contain appropriate termination procedures (for example, what provisions apply in the event of
(1) The FSA will assess each risk factor separately and then assess any inter-dependencies and correlations to form a judgment on the quality of the asset pool as a whole. For example, an asset pool which is of high credit quality and so low risk due to a combination of factors such as owner occupation, low income multiples, full valuation methodologies, and a strong payments track record, may permit another factor such as high loan-to-value ratios, that would otherwise be considered
The FSA expects the issuer to demonstrate that there are provisions in the covered bond or programme that adequately deal with:(1) the identification and rectification of any breach of Regulations 17(2) (general requirements on issuer in relation to the asset pool) and 24 (requirements on owner relating to the asset pool) of the RCB Regulations;(2) the appointment of replacements for parties, for example servicers, cash managers or paying agents; and(3) the orderly winding-up
The FSA expects the issuer to demonstrate, as part of showing that Regulations 17 (general requirements on issuer in relation to the asset pool) and 24 (requirements on owner relating to the asset pool) of the RCB Regulations will be complied with, that there are provisions in the covered bond or programme which enable the views and interests of investors in the regulated covered bond to be taken account of in an appropriate and timely way by a suitably qualified, adequately resourced,
(1) The FSA expects legal advice to deal adequately with at least the following matters in relation to the actual or proposed arrangements:(a) whether the transfer of the assets to the owner would be upheld in the event of liquidation or administration, or similar collective insolvency proceedings, of the issuer or the transferor (if different from the issuer);(b) the risk of the transfer of an asset to the owner being re-characterised as the creation of a security interest;(c)
(1) The FSA expects the report from the accountants to address at least the following matters:(a) that the level of over collateralisation meets the limits set out in the covered bond arrangements which are designed to ensure compliance with the requirement that the asset pool is capable of covering claims attaching to the bond in Regulation 17 (requirements on issuer in relation to the asset pool) of the RCB Regulations; and(b) that appropriate due diligence procedures have been
An applicant for recognised
body status needs to demonstrate to the FSA that it is able to meet the recognised body requirements31before a recognition
order can be made. Once it has been recognised, a recognised body has to comply with the recognised
body requirements31at all times. (Guidance on
the recognised
body requirements3 applicable to UK
recognised bodies (and applicants) is given in REC 2 and REC 2A).3333
In addition, under section 290A
of the Act (Refusal of recognition
on ground of excessive regulatory provision), the FSA must refuse to make a recognition
order in relation to a body applying for recognition as a UK RIE or UK RCH if it appears to the FSA that an existing or proposed regulatory
provision of the applicant in connection with the applicant's
business as an investment exchange or the provision by the applicant of clearing services imposes, or will impose, an excessive
(1) There
is no standard application form. A prospective applicant should contact the
Markets Division at the FSA at an early stage for advice on the preparation, scheduling and
practical aspects of its application.(2) It
is very important, if an application is to be processed smoothly and in a
reasonable time, that it is comprehensively prepared and based on a well-developed
and clear proposal.
An application should:(1) be
made in accordance with any directions the FSA may make under section 287 (Application by an investment exchange),3 section 288 (Application by a clearing
house) of the Act or (for RAPs)
regulation 2 of the RAP regulations;33(2) in
the case of an application under sections 287 or
288 of the Act, 3be accompanied by the applicant's regulatory
provisions and
in the case of an application under section 287 of the Act information
required pursuant to sub-sections
Under section 289 of the Act (Applications: supplementary) or (for an RAP applicant)
regulation 2 of the RAP regulations,3 the FSA may
require the applicant to provide additional information, and may require the
applicant to verify any information in any manner. In view of their likely
importance for any application, the FSA will normally wish to arrange for its own inspection of an applicant's
information technology systems.
1In
the case of an application to become a UK
RIE or an RAP3, under subsection 290(1B) of the Act and
(for an RAP applicant) regulation
2(8) of the RAP regulations3, the application must be determined by the FSA before the end of the period of six months beginning
with the date on which it receives the completed application.
At any time after making a formal
application, the applicant may make amendments to its rules, guidance or any
other part of its application submitted to the FSA. Any amendments or additional information (except in relation
to an RAP applicant)3 are likely to be forwarded
by the FSA to the Director General of Fair Trading and the Treasury under
section 303 of the Act (Initial
report by Director) (see REC 5.1.5 G).
(1) The FSA will
keep the applicant informed of the progress of the application.(2) It
may be necessary to ask the applicant to clarify or amplify some aspects of
its proposals. The FSA may wish to discuss various aspects of the application and may
invite the applicant to attend one or more meetings for that purpose. When
requested to do so, the FSA will explain the nature of the information which it has asked
an applicant to supply in connection with its application.
Where the FSA considers that it is unlikely to make a recognition
order, or (in the case of a UK
RIE or UK
RCH)3 to seek the
Treasury's approval, it will discuss its concerns with
the applicant as early as possible with a view to enabling the applicant to
make changes to its rules or guidance, or other parts of the application (see REC 5.2.7 G).
If the FSA decides
that it will not make a recognition order,
it will follow the procedure set out in section 298 of the Act (Directions
and
Information and supporting documentation (see REC 5.2.4 G).
(1) |
Details of the applicant's constitution, structure and ownership, including its memorandum and articles of association (or similar or analogous documents ) and any agreements between the applicant, its owners or other persons relating to its constitution or governance (if not contained in the information listed in REC 5.2.3A G)1. An applicant for RAP status must provide details of the relationship between the governance arrangements in place for the UK RIE and the RAP.3 |
(2) |
Details of all business to be conducted by the applicant, whether or not a regulated activity (if not contained in the information listed in REC 5.2.3A G)1. |
(3) |
Details of the facilities which the applicant plans to operate, including details of the trading platform or (for an RAP) auction platform,3 settlement arrangements, clearing services and custody services which it plans to supply. An applicant for RAP status must provide details on the relationship between the auction platform and any secondary market in auction products which it operates or plans to operate.3 |
(4) |
Copies of the last three annual reports and accounts and, for the current financial year, quarterly management accounts. |
(5) |
Details of its business plan for the first three years of operation as a UK recognised body (if not contained in the information listed in REC 5.2.3A G)1. |
(6) |
A full organisation chart and a list of the posts to be held by key individuals (with details of the duties and responsibilities) and the names of the persons proposed for these appointments when these names are available (if not contained in the information listed in REC 5.2.3A G)1. |
(7) |
Details of its auditors, bankers, solicitors and any persons providing corporate finance advice or similar services (such as reporting accountants) to the applicant. |
(8) |
Details of any relevant functions to be outsourced or delegated, with copies of relevant agreements. |
(9) |
Details of information technology systems and of arrangements for their supply, management, maintenance and upgrading, and security. |
(10) |
Details of all plans to minimise disruption to operation of its facilities in the event of the failure of its information technology systems. |
(11) |
Details of internal systems for financial control, arrangements for risk management and insurance arrangements to cover operational and other risks. |
(12) |
Details of its arrangements for managing any counterparty risks, including details of margining systems, guarantee funds and insurance arrangements. |
(13) |
Details of internal arrangements to safeguard confidential or privileged information and for handling conflicts of interest. |
(14) |
Details of arrangements for complying with the notification rules and other requirements to supply information to the FSA. |
(15) |
Details of the arrangements to be made for monitoring and enforcing compliance with its rules and with its clearing, settlement and default arrangements. |
(16) |
A summary of the legal due diligence carried out in relation to ascertaining the enforceability of its rules (including default rules)and arrangements for margin against any of its members based outside the United Kingdom, and the results and conclusions reached. |
(17) |
Details of the procedures to be followed for declaring a member in default, and for taking action after that event to close out positions, protect the interests of other members and enforce its default rules. |
(18) |
Details of membership selection criteria, rules and procedures, including (for an RAP) details of how the rules of the UK RIE will change in order to reflect RAP status.3 |
(19) |
Details of arrangements for recording transactions effected by, or cleared through, its facilities. |
(20) |
Details of arrangements for detecting financial crime and market abuse , including arrangements for complying with money laundering law. |
(21) |
Details of criteria, rules and arrangements for selecting specified investments to be admitted to trading on (or cleared by) an RIE, or to be cleared by an RCH and, where relevant, details of how information regarding specified investments will be disseminated to users of its facilities. |
(22) |
Details of arrangements for cooperating with the FSA and other appropriate authorities, including draft memoranda of understanding or letters. |
(23) |
Details of the procedures and arrangements for making and amending rules, including arrangements for consulting on rule changes. |
(24) |
Details of disciplinary and appeal procedures, and of the arrangements for investigating complaints. |
Section 395 of the Act (The FSA's procedures)
requires the FSA to
publish a statement of its procedure for the giving of statutory
notices. The procedure must be designed to secure, among other
things, that the decision which gives rise to the obligation to give a statutory notice is taken by a person not
directly involved in establishing the evidence on which that decision is based. The
types of statutory notices and
related notices, and the principal references to them in the
Table: Summary of statutory and related notices
Notice |
Description |
Act reference |
Further information |
Gives the recipient details about action that the FSA proposes to take and about the right to make representations. |
Section 387 |
||
Gives the recipient details about action that the FSA has decided to take. The FSA may also give a further decision notice if the recipient of the original decision notice consents. |
Section 388 |
||
Identifies proceedings set out in a warning notice or decision notice and which are not being taken or are being discontinued. |
Section 389 |
||
Sets out the terms of the action that the FSA is taking. |
Section 390 |
||
Gives the recipient details about action that the FSA has taken or proposes to take, for example to vary a Part IV permission. |
Section 395(13) |
Decisions on whether to give a statutory notice will be taken by a 'decision
maker'. The FSA's assessment
of who is the appropriate decision maker is subject to the requirements of
section 395 of the Act and will
depend upon the nature of the decision, including its complexity, importance
and urgency. References to the 'decision maker' in DEPP are
to:(1) the Regulatory
Decisions Committee (RDC);
or(2) FSA staff
under executive procedures;
or(3) FSA staff
under the settlement decision
The decision maker will also take
decisions associated with a statutory notice (a
'statutory notice associated decision'). Statutory notice associated decisions include
decisions:(1) to set or extend the period for
making representations;(2) on whether the FSA is required to give a copy of
the statutory notice to any
third party and, if so, the period for the third party to make representations;
and(3) on whether to refuse access to FSA material,
relevant to the relevant statutory
DEPP 2 to DEPP 5 set out:(1) which decisions require the giving
of statutory notices and who takes them (DEPP 2);(2) the nature and procedures of the RDC (DEPP 3);(3) the procedure for decision making
by FSA staff
under executive procedures (DEPP 4);(4) the procedure for decision making
by FSA staff
under the settlement decision procedure (DEPP 5).
The disaster recovery provider sets up and maintains a range of IT and related facilities (PABX etc). The disaster recovery contracts so far considered by the FSA give the recipient, subject to certain conditions including an up front payment, priority access to all or a specified part of these facilities if a 'disaster' causes the failure of a similar business system on which the recipient relies. The provider sells access to the same facilities to a number of different recipients,
However, the disaster recovery contracts considered by the FSA had two key features.(1) Priority access to facilities in the event of a disaster was expressed to be on a 'first come, first served' basis. The contracts provided expressly that if the facilities needed by recipient A were already in use, following an earlier invocation by recipient B, the provider's obligation to recipient A was reduced to no more than an obligation of 'best endeavours' to meet A's requirements.
An important part of the conclusion in PERG 6.7.5 G was that, although the provider assumed a risk at the outset of the contract, looking at the contract as a whole and interpreting the common law in the context of the FSA's objectives (see PERG 6.5.2 G and PERG 6.5.3 G) there was no relevant assumption of risk.(1) The presence or absence of an assumption of risk is an important part of the statutory rationale for the prudential regulation of insurance.(2) In Medical Defence Union
The FSA is unlikely to classify a contract containing a simple manufacturer's or retailer's warranty as a contract of insurance, if the FSA is satisfied that the warranty does no more that crystallise or recognise obligations that are of the same nature as a seller's or supplier's usual obligations as regards the quality of the goods or services.
Other things being equal, the FSA is likely to classify a contract of sale containing a warranty that has one or more of the features in PERG 6.7.11 G as a contract of insurance. The features in PERG 6.7.11 G (1) and (2) typically distinguish a 'third party' warranty and an 'extended warranty' from a 'simple' manufacturer's or retailer's warranty.
If a warranty is provided by a third party, the FSA will usually treat this as conclusive of the fact that there are different transactions and an assumption or transfer of risk. This conclusion would not usually depend on whether the provider is (or is not) a part of the same group of companies as the manufacturer or retailer. But it will be the third party (who assumes the risk) that is potentially effecting a contract of insurance.
A manufacturer or retailer may undertake a warranty obligation to his customer in a separate contract with the customer, distinct from the contract of sale or supply of goods or services. The FSA will examine the separate contract to see if it is a contract of insurance. But the mere existence of a separate warranty contract is unlikely to be conclusive by itself.
A manufacturer or retailer may undertake an obligation to ensure that the customer becomes a party to a separate contract of insurance in respect of the goods sold. This would include, for example, a contract for the sale of a freezer, with a simple warranty in relation to the quality of the freezer, but also providing insurance (underwritten by an insurer and in respect of which the customer is the policyholder) covering loss of frozen food if the freezer fails. The FSA is unlikely
The FSA distinguishes the contract in PERG 6.7.15 G from a contract under which the manufacturer or retailer assumes the obligation to provide the customer with an indemnity against loss or damage if the freezer fails, but takes out insurance to cover the cost of having to provide the indemnity to the customer. The obligation to indemnify is of a different nature from the seller's or supplier's usual obligations as regards the quality of goods or services and is an insurance obligation.
The following are examples of typical warranty schemes operated by motor dealers. Provided that, in each case, the FSA is satisfied that the obligations assumed by the dealer are not significantly more extensive in content, scope or duration that a dealer's usual obligations as to the quality of motor vehicles of that kind, the FSA would not usually classify the contracts embodying these transactions as contracts of insurance.(1) The dealer gives a verbal undertaking to the purchaser
Some providers argued that these schemes amount to nothing more than a 'manufacturer's warranty' of their own work, within the scope of PERG 6.7.7 G (Example 3: manufacturers' and retailers' warranties). However, HM Revenue and Customs is expected to make a significant number of random checks of self-assessment forms, irrespective of the quality of the work done by the provider. These random checks are also covered by the schemes. The FSA concluded, therefore, that these schemes
If, however, a contract of this kind were structured so that the recipient was charged at a commercial rate for any legal services in fact provided, the FSA's approach will be to treat the arrangement as non-insurance. This is principally because, by taking on obligations of this kind, the provider does not assume a relevant risk (see PERG 6.7.6 G). The position might be different if the solicitor carries the additional obligation to pay for alternative legal services to be provided
In most cases a firm will provide the information required by this section as part of its compliance with the provisions of SUP. To the extent that the FSA does not obtain sufficient, or sufficiently detailed, information it may seek this by using its general information gathering powers (see SUP 2 (Information gathering by the FSA on its own initiative)).
3A fee-paying payment service provider and a fee-paying electronic money issuer4 must notify to the FSA the value (as at the valuation date specified in Part 4 of FEES 4 Annex 11) of each element of business on which the periodic fee (other than a flat fee)4 payable by the firm under 1 R4 is to be calculated, including any payment services carried on by its agents from an establishment in the United Kingdom. 4
LR 8.4.2 R to LR 8.4.4 G2 apply in relation to an application for admission of equity shares5if an applicant does not have equity shares5already listed and:255(1) the production of a prospectus or equivalent document1is required; or(2) the application is accompanied by a certificate of approval from another competent authority; or(3) the application is accompanied by a summary document as required byPR 1.2.3R (8).
A sponsor must not submit to the FSA an application on behalf of an applicant, in accordance with LR 3, unless it has come to a reasonable opinion, after having made due and careful enquiry, that:(1) the applicant has satisfied all requirements of the listing rules relevant to an application for admission to listing;(2) the applicant has satisfied all applicable requirements set out in the prospectus rules unless the home Member State of the applicant is not, or will not be, the
A sponsor must:(1) submit a completed Sponsor's Declaration on an Application for Listing to the FSA2 either:2(a) on the day the FSA is to consider the application for approval of the prospectus and prior to the time the prospectus is approved; or(b) at a time agreed with the FSA, if the FSA is not approving the prospectus or if it is determining whether a document is an equivalent document1;(2) submit a completed Shareholder Statement or Pricing Statement, as applicable, to the
A sponsor must not submit to the FSA an application on behalf of an applicant, in accordance with LR 3 (Listing applications), unless it has come to a reasonable opinion, after having made due and careful enquiry, that:(1) the applicant has satisfied all requirements of the listing rules relevant to an application for admission to listing;(2) the applicant has satisfied all applicable requirements set out in the prospectus rules unless the home Member State of the applicant is
A sponsor must:(1) submit a completed Sponsor's Declaration on an Application for Listing to the FSA either:(a) on the day the FSA is to consider the application for approval of the prospectus and prior to the time the prospectus is approved; or11(b) at a time agreed with the FSA if the FSA is not approving the prospectus or if it is determining whether a document is an equivalent document1;(2) submit a completed Shareholder Statement or Pricing Statement, as applicable, to the
LR 8.4.12 R to LR 8.4.13 R apply in relation to transactions involving an issuer with 5 a premium listing4 of equity shares5that:54(1) is required to produce a class 1 circular; or4(2) is producing a circular that proposes a reconstruction or a re-financing which does not constitute a class 1 transaction; or(3) is producing a circular for the proposed purchase of own shares;(a) which does not constitute a class 1 circular; and(b) is required by LR 13.7.1R (2) to include a working
A sponsor must not submit to the FSA, on behalf of a listed company, an application for approval ofa circular regarding a transaction set out in LR 8.4.11 R, unless the sponsor has come to a reasonable opinion, after having made due and careful enquiry, that:(1) the listed company has satisfied all requirements of the listing rules relevant to the production of a class 1 circular or other circular;(2) the transaction will not have an adverse impact on the listed company's ability
A sponsor acting on a transaction falling within LR 8.4.11 R must:(1) submit a completed Sponsor's Declaration for the Production of a Circular to the FSA on the day the circular is to be approved by the FSA and prior to the time the circular is approved;(2) submit a completed Pricing Statement, if applicable, to the FSA by 9 a.m on the day the FSA is to consider the application; and(3) ensure that all matters known to it which, in its reasonable opinion, should be taken into
In relation to a proposed transfer under LR 5.4A, a sponsor appointed in accordance with LR 8.2.1A Rmust:(1) submit a letter to the FSA setting out how the issuer satisfies each listing rule requirement relevant to the category of listing to which it wishes to transfer, by no later than when the first draft of the circular or announcement required under LR 5.4A is submitted;(2) submit a completed Sponsor’s Declaration to the FSA for the proposed transfer on the day the circular
A sponsor must not submit to the FSA on behalf of an issuer a final circular or announcement for approval or a Sponsor’s Declaration for a transfer, unless it has come to a reasonable opinion, after having made due and careful enquiry, that:(1) the issuer satisfies all eligibility requirements of the listing rules that are relevant to the new category to which it is seeking to transfer;(2) the issuer has satisfied all requirements relevant to the production of the circular required