Related provisions for LR 11.1.5A
1 - 20 of 712 items.
A firm must notify the appropriate regulator35 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:35(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
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 appropriate regulator35 expects firms to consider properly all potential consequences of events.35
Principle 11 requires a firm to deal with its regulators in an open and cooperative way and to disclose to the appropriate regulator35appropriately anything relating to the firm of which the appropriate regulator35 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 group3535
10Although PRIN does not apply to a firm in relation to its carrying on of auction regulation bidding, the FCA35expects to be given notice of events that are material to the FCA's35supervision of that business and so firms carrying on that business should have regard to the guidance in SUP 15.3.8 G to SUP 15.3.10 G.3535
Compliance with Principle 11 includes, but is not limited to, giving the appropriate regulator35 notice of:35(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;
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 appropriate regulator35 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 appropriate regulator.35 A firm should provide a written notification if a matter either is complex or may be such as to make it necessary for the appropriate regulator35
(1) A firm must notify the appropriate regulator35 of:35(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;
A firm must notify the appropriate regulator35 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
A firm must notify the appropriate regulator35 immediately if one of the following events arises and the event is significant:35(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
The notifications under SUP 15.3.17 R are required as the appropriate regulator35 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.35
A firm must notify the appropriate regulator35 immediately of any of the following events:35(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
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 appropriate regulator35to:35(1) comply with its general duty under section 314 of the Act (Regulators’35 general duty);35(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
3The Society must immediately inform the appropriate regulator35 in writing if it becomes aware that any matter likely to be of material concern to the appropriate regulator35 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 appropriate regulator35 if it commences investigations or disciplinary proceedings relating to apparent breaches:35(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 appropriate regulator35 if it commences investigations or disciplinary proceedings which do not fall within the scope of SUP 15.3.24 D but which:35(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.
(1) 1A person subject to enforcement action may
agree to a financial penalty or other outcome rather than contest formal action
by the FCA.44(2) The fact that he does so will not
usually obviate the need for a statutory notice recording the FCA's4 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 FCA4 staff.44(3)
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 FCA4 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 FCA4 staff or the person concerned
in order to assist in the consideration of the proposed settlement.4
The terms of any proposed settlement:(1) will be put in writing and be agreed
by FCA4 staff
and the person concerned;4(2) may refer to a draft of the proposed statutory notices setting out the facts
of the matter and the FCA's4 conclusions; 4(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 FCA4 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.4(2) However, if the proposed action
by the FCA4 has
been submitted to the RDC for
consideration, it will be for the RDC to
decide:4(a) whether to extend the period for
representations in response
(1) DEPP 2.4 sets out the FCA's4 approach
to giving third parties copies of statutory
notices pursuant to section 393 (Third party rights) of the Act.4(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
The FCA4 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.4(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 FCA4 may consider the following additional factors:4(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)
The FCA's4 rules on systems and controls against money laundering are set out in SYSC 3.2 and SYSC 6.3. The FCA4, 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.44
The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. However, the FCA4 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 FCA4 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 FCA4 may take into
The FCA4 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 FCA4 will
3In addition to the general factors outlined in DEPP 6.2.1 G, there are some additional considerations that the FCA4 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.4(1) The conduct of the person. The FCA4 will take into consideration whether, while performing controlled functions without approval, the person committed misconduct in respect of which, if he had been
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 FCA4 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) or section 91(1A) of the Act ("P"), where the FCA4 considers that another person who was at the material time a director of P was knowingly concerned in the contravention, theFCA4 may take disciplinary action against that person. In circumstances where the FCA4 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 FCA's4 rule-making powers set out in section 137A4(General rule-making power) of the Act. A breach of a Principle will make a firm liable to disciplinary action. Where the FCA4 considers this is appropriate, it will discipline a firm on the basis of the Principles alone.444
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 FCA's4 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 FCA4.44
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 FCA4 to show that a listed company has been at fault in some way. This requirement will differ depending upon the Listing Principle.4
When deciding how to proceed in such cases, the FCA4 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 FCA4 or another authority to take action to address the breach. The FCA4 will have regard to all the circumstances of the case including whether the other authority has adequate powers to address the breach in question.444
In some cases, it may be appropriate for both the FCA4and 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 FCA4 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 FCA4 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 FCA4 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 FCA4 expects parties to exhaust those procedures. The FCA4 will not, save in exceptional circumstances, take action under any of section 123 (FCA's4power to impose penalties), section 129 (Power of court to impose penalties), section
The FCA4 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 FCA4 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.44
If any of the circumstances in DEPP 6.2.26 G apply, and the FCA4 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.4
In any case where the FCA4 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 FCA4 will consult the Takeover Panel before using any of those powers.44
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 FCA4 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 FCA4 is likely to consider such exercise are:44(1) where the behaviour falls within
The appropriate regulator 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 appropriate regulator 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
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 appropriate regulator 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
12A firm must notify the appropriate regulator in writing of its intention to issue a capital instrument which it intends to include within its capital resources at least one month before the intended date of issue, unless there are exceptional circumstances which make it impracticable to give such a period of notice, in which event the firm must give as much notice as is practicable in those circumstances. When giving notice, a firm must:(1) provide details of the amount of
12A firm must provide a further notification to the appropriate regulator in writing including all the information required in GENPRU 2.2.61BR (1) to (4) as soon as it proposes any change to the intended date of issue, amount of issue, type of investors, stage of capital or any other feature of the capital instrument to that previously notified to the appropriate regulator.
12If a firm proposes to establish a debt securities program for the issue of capital instruments for inclusion within its capital resources, it must: (1) notify the appropriate regulator of the establishment of the program; and(2) provide the information required by GENPRU 2.2.61BR (1) to (4)at least one month before the first proposed drawdown. Any changes must be notified to the appropriate regulator in accordance with GENPRU 2.2.61C R.
12The capital instruments to which GENPRU 2.2.61B R does not apply are:(1) ordinary shares which:(a) are the most deeply subordinated capital instrument issued by the firm;(b) meet the criteria set out in GENPRU 2.2.83R (2) and (3) and, for a BIPRU firm, GENPRU 2.2.83A R; and(c) are the same as ordinary shares previously issued by the firm;(2) debt instruments issued from a debt securities program, provided that program was notified to the appropriate regulator prior to its first
12A firm must notify the appropriate regulator in writing, no later than the date of issue, of its intention to issue a capital instrument listed in GENPRU 2.2.61E R which it intends to include within its capital resources. When giving notice, a firm must: (1) provide the information set out at GENPRU 2.2.61BR (1) to (3); and(2) confirm that the terms of the capital instrument have not changed since the previous issue by the firm of that type of capital instrument.
12GENPRU 2.2.61B R provides that, in exceptional circumstances, a firm may provide less than one month's notice of the intended issue. The appropriate regulator is unlikely to consider circumstances to be exceptional unless they are such that there is a risk of a firm'scapital resources falling below its capital resources requirement if a one-month notification period is observed. In such circumstances, a firm should notify the appropriate regulator as soon as it has resolved
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 appropriate regulator that the instrument is in
The appropriate regulator 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
8The appropriate regulator 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
(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 appropriate regulator 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 appropriate regulator. If the appropriate regulator and the firm do not agree on the cancellation or deferral of the payment
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 appropriate regulator 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
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 appropriate regulator 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)
8The appropriate regulator considers that, in order to comply with GENPRU 2.2.74 R, the firm should, at a minimum, provide the appropriate regulator 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
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 appropriate regulator 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 appropriate regulator 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;
8The appropriate regulator considers that:(1) in order to comply with GENPRU 2.2.79G R, the firm should, at a minimum, provide the appropriate regulator 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
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 appropriate regulator 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 appropriate regulator.
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 appropriate regulator 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 appropriate regulator 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
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 appropriate regulator may require the firm to convert the instrument into core tier one capital based on its financial and solvency situation. The appropriate regulator 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 appropriate regulator
(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 appropriate regulator may consider using its powers under 55J of the Act to, on its own initiative, vary the firm'sPart 4A
A firm which satisfies the conditions for the inclusion of capital set out in GENPRU 2.2.124 R, must, in addition, if that transaction is in any respect unusual, notify the appropriate regulator at least one Month in advance of the date on which the firm intends to include that capital in its capital resources.
The appropriate regulator is more concerned that the subordination provisions listed in GENPRU 2.2.159 R should be effective than that they should follow a particular form. The appropriate regulator does not, therefore, prescribe that the loan agreement or capital instrument should be drawn up in a standard form.
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 appropriate regulator notice in writing of the proposed amendment and the appropriate regulator 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
In relation to a tier two instrument, a firm must notify the appropriate regulator:(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
(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 appropriate regulator.
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 FCA6 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
FCA6 staff under executive procedures will take the decision to give a warning notice if the FCA6 proposes to:66(1) refuse an application for a Part 4A permission6 or to refuse an application to cancel a Part 4A permission6;66(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 4A permission6;6(3) refuse an application to vary a Part 4A permission6, or to restrict
If representations are made in response to a warning notice proposing the action set out atDEPP 2.5.3G (2), DEPP 2.5.3G (3), DEPP 2.5.3G (3A),6 or DEPP 2.5.3G (6), then the RDC will take the decision to give a decision notice if the action involves a fundamental variation or requirement6 (see DEPP 2.5.8 G). Otherwise, the decision to give the decision notice will be taken by FCA6 staff under executive procedures.6666
6FCA staff under executive procedures will take the decision where the FCA is proposing or deciding to:(1) refuse its consent to the granting by the PRA of an application for a Part 4A permission, or give its consent subject to conditions; (2) refuse its consent to the granting by the PRA of an application for the variation of a Part 4A permission, or give its consent subject to conditions; or(3) refuse its consent to the granting by the PRA of an application to perform a controlled
The RDC will take the decision to give a supervisory notice exercising the FCA's 6own-initiative powers6 (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 variation or requirement6 (see DEPP 2.5.8 G). Otherwise, the decision to give the supervisory notice6 will be taken by FCA6 staff under executive procedures.66666
FCA6 staff under executive procedures will take the following statutory notice decisions:6(1) the refusal of an application for listing of securities;(2) the suspension of listing on the FCA's6 own initiative or at the request of the issuer;6(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
If securities have matured or otherwise ceased to exist the FCA6 will remove any reference to them from the official list. This is a purely administrative process, and not a discontinuance of listing in the sense used in Part 6 of the Act. Decisions relating to imposition of limitations or other restrictions of sponsors and primary information providers.66
6Under section 88(4)(aa) of the Act, if the FCA proposes to impose limitations or other restrictions on the services to which a sponsor's approval relates, it must give him a warning notice. If, after considering any representations made in response to the warning notice, the FCA decides to impose limitations or other restrictions on the services to which a sponsor's approval relates, it must give him a decision notice. Where the sponsor has requested or otherwise agrees to the
6If the FCA is proposing or deciding to refuse a sponsor's application for the withdrawal or variation of a limitation or other restriction on the services to which a sponsor's approval relates under section 88(8)(d) of the Act, the decision maker will be FCA staff under executive procedures where FCA staff decided to impose the limitation or other restriction. Otherwise, the RDC will take the decision to give the warning notice and decision notice.
6Under section 89P(5)(b) of the Act, if the FCA proposes to impose limitations or other restrictions on the dissemination of regulated information to which a primary information provider's approval relates, it must give him a warning notice. If, after considering any representations made in response to the warning notice, the FCA decides to impose limitations or other restrictions on the dissemination of regulated information to which a primary information provider's approval
6Under section 89P(9)(d) of the Act, if the FCA is proposing or deciding to refuse a primary information provider's application for the withdrawal or variation of a limitation or other restriction on the dissemination of regulated information to which a primary information provider's approval relates, the decision maker will be FCA staff under executive procedures where FCA staff decided to impose the limitation or other restriction. Otherwise, the RDC will take the decision to
FCA6 staff will usually inform or discuss with the person concerned any action they contemplate before they recommend to the RDC that the FCA6 takes formal action. The FCA6 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 FCA6 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 FCA6 staff under executive procedures.262
The FCA6 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 FCA6 decision maker.66
Some of the distinguishing features of notices given under enactments other than the Act are as follows: (1) [deleted]66(2) [deleted]66(3) Friendly Societies Act 1992, section 58A1: The warning notice and decision notice must set out the terms of the direction which the FCA6 proposes or has decided to give and any specification of when the friendly society is to comply with it. A decision notice given under section 58A(3) must give an indication of the society's right, given by
(1) 5The FCA 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 FCA.(2) The sponsor, or the person applying for approval as a sponsor, must as soon as practicable provide to the FCA 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 FCA in connection with the
10Situations when the FCA may impose restrictions or limitations on the services a sponsor can provide include (but are not limited to) where it appears to the FCA that: (1) the sponsor has no or limited relevant experience and expertise of providing certain types of sponsor services or of providing sponsor services to certain types of company; or(2) the sponsor does not have systems and controls in place which are appropriate for the nature of the sponsor services which the sponsor
A sponsor must provide to the FCA on or after the first business day of January in each year but no later than the last business day of January in each year:77(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, evidence8 of the basis upon which it considers that it meets that criterion8.588(2) [deleted]55(3) [deleted]55(4) [deleted]55
A sponsor must notify the FCA in writing as soon as possible if:(1) 8(a) 8the sponsor ceases to satisfy the criteria for approval as a sponsor set out in LR 8.6.5 R or becomes aware of any matter which, in its reasonable opinion, would be relevant to the FCA in considering whether the sponsor continues to comply with LR 8.6.6 R; or(b) 8the sponsor becomes aware of any fact or circumstance relating to the sponsor or any of its employees engaged in the provision of sponsor services
8Where a sponsor is of the opinion that notwithstanding the circumstances giving rise to a notification obligation under LR 8.7.8 R, it continues to satisfy the ongoing criteria for approval as a sponsor in accordance with LR 8.6.6 R, it must include in its notification to the FCA a statement to that effect and the basis for its opinion.
8Examples of when a sponsor should submit a cancellation request pursuant to LR 8.7.22 R include, but are not limited to:(1) situations where the sponsor ceases to satisfy the ongoing criteria for approval as a sponsor in accordance with LR 8.6.6 R and, following a notification made under LR 8.7.8 R, there are no ongoing discussions with the FCA which could lead to the conclusion that the sponsor remains eligible; or(2) where there is a change of control of the sponsor or any
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 provide any sponsor services8 as of the date the request is submitted to the FCA; and8(5) the name and contact details of the person at the sponsor with whom
10A request by a sponsor for its approval as a sponsor to be suspended 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 suspension to take effect;(4) a signed confirmation that the sponsor will not provide any sponsor services as of the date the request is submitted to the FCA; and(5) the name and contact details of the person at the sponsor with whom
10The FCA may impose restrictions or limitations on the services a sponsor can provide or suspend a sponsor's approval under section 88E of the Act if the FCA considers it desirable to do so in order to advance one or more of its operational objectives.[Note: A statutory notice may be required under section 88F of the Act. Where this is the case, the procedure for giving a statutory notice is set out in DEPP.]
For the purpose of LR 5.6.4R (2), the FCA considers that the following factors are indicators of a fundamental change:(1) the extent to which the transaction will change the strategic direction or nature of its business; or(2) whether its business will be part of a different industry sector following the completion of the transaction; or(3) whether its business will deal with fundamentally different suppliers and end users.
An issuer, or in the case of an issuer with a premium listing, its sponsor, must contact the FCA as early as possible:(1) before announcing a reverse takeover which has been agreed or is in contemplation, to discuss whether a suspension of listing is appropriate; or (2) where details of the reverse takeover have leaked, to request a suspension.
Examples of where the FCA will consider that a reverse takeover is in contemplation include situations where:(1) the issuer has approached the target's board;(2) the issuer has entered into an exclusivity period with a target; or(3) the issuer has been given access to begin due diligence work (whether or not on a limited basis).
Generally, when a reverse takeover is announced or leaked, there will be insufficient publicly available information about the proposed transaction and the issuer will be unable to assess accurately its financial position and inform the market accordingly. In this case, the FCA will often consider that suspension will be appropriate, as set out in LR 5.1.2G (3) and (4). However, if the FCA is satisfied that there is sufficient publicly available information about the proposed
The FCA will generally be satisfied that there is sufficient information in the market about the propos ed transaction if: (1) the target has shares or certificates representing equity securities admitted to a regulated market; and(2) the issuer makes an announcement stating that the target has complied with the disclosure requirements applicable on that regulated market and providing details of where information disclosed pursuant to those requirements can be obtained.
The FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction if the target has securities admitted to an investment exchange or trading platform that is not a regulated market and the issuer:(1) confirms, in a form acceptable to the FCA, that the disclosure requirements in relation to financial information and inside information of the investment exchange or trading platform on which the target'ssecurities
Where the target in a reverse takeover is not subject to a public disclosure regime, or if the target has securities admitted on an investment exchange or trading platform that is not a regulated market but the issuer is not able to give the confirmation and make the announcement contemplated by LR 5.6.12 G, the FCA will generally be satisfied that there is sufficient publicly available information in the market about the proposed transaction such that a suspension is not required
Where an issuer acquires the shares or certificates representing equity securities of a target with a different listing category from its own and the issuer wishes to maintain its existing listing category, the FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if: (1) the issuer will continue to be eligible for its existing listing category following completion of the transaction;(2) the issuer provides an eligibility letter
The FCA will generally be satisfied that a cancellation is not required on completion of a reverse takeover if the target is listed with a different listing category from that of the issuer and the issuer wishes to transfer its listing to a different listing category in conjunction with the acquisition and the issuer as enlarged by the relevant acquisition complies with the relevant requirements of LR 5.4A to transfer to a different listing category.
To enable the FCA 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 FCA's application form covers both issuer registration and covered bond registration as the FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 FCA 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 (which
1Assets which would be eligible for inclusion in a liquidity buffer under BIPRU 12.7 can be liquid assets for the purposes of limb (a) of the definition of liquid assets in Regulation 1(2) of the RCB Regulations. The FCA will also expect that liquid assets which consist of deposits should be held in the same currency or currencies as the regulated covered bonds issued by the issuer.
Under section 138A(4) of the Act, the appropriate regulator9 may not give a waiver unless it is satisfied that:99(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 adversely affect the advancement of, in the case of the PRA, any of its objectives and, in the case of the FCA, any of its operational objectives.99
9The FCA must consult the PRA before publishing or deciding not to publish a waiver which relates to:(1) a PRA-authorised person; or(2) an authorised person who has as a member of its immediate group a PRA-authorised person;unless the waiver relates to rules made by the FCA under sections 247 or 248 of the Act.
The appropriate regulator9 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 appropriate regulator9 will aim to give waiver decisions within 20 business days of receiving an application which includes sufficient information. If the appropriate regulator9 expects to take longer, it will tell the firm and give an estimated decision date.
The appropriate regulator9 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 appropriate regulator9 will not do this if the firm has made it clear to the appropriate regulator9 in some other way that it intends to pursue the application. 3999
In some cases, the appropriate regulator9 may give a modification of a rule rather than direct that the rule is not to apply. The appropriate regulator9 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.99
If the appropriate regulator9 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.9
Under section 138A(1) of the Act the appropriate regulator9 may give a waiver with the consent of a firm. This power may be used by the appropriate regulator9 in exceptional circumstances where the appropriate regulator9 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 appropriate regulator9 will inform the firms concerned that the waiver
For an application for a waiver of the presumption of contravention of a binding rule, which is actionable under section 138D9 of the Act, the appropriate regulator9 would normally wish to be satisfied that the evidential rule is itself unduly burdensome or does not achieve the purpose of the rule.299
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 [FCA]5must (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. 5 |
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FCA5 may have regard to:5(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; 5(3) the amount and composition of the UK recognised body's capital;(4)
In assessing whether a UK recognised body has sufficient financial resources in relation to counterparty and market risks, the FCA5 may have regard to:5(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 FCA5 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:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
4(1) 4The FCA5 considers that a UK RIE which at any time holds:5(a) eligible financial resources not less than the greater of:(i) the amount calculated under the standard approach; and (ii) the amount calculated under the risk-based approach; and (b) net capital not less than the amount of eligible financial resources determined under (1)(a);will, at that time, have sufficient financial resources to meet the recognition requirement in respect of operational and other risks unless
4The FCA5 would expect to provide a UK recognised body with individual guidance on the amount of eligible financial resources which it considers would be sufficient for the UK recognised body to hold in respect of operational and other risks in order to satisfy the recognition requirements. In formulating its individual guidance, the FCA5 will ordinarily apply the approach described in REC 2.3.9 G for UK RIEs.5555
4For the purposes of REC 2.3, "net capital" should be in the form of equity. For this purpose, the FCA5 considers that common stock, retained earnings, disclosed reserves and other instruments classified as common equity tier one capital or additional tier one capital constitute equity. The FCA5 considers that, when calculating its net capital, a UK recognised body:55(1) should deduct holdings of its own securities, or those of any undertaking in the same group as the UK recognised
(1) 4Under the standard approach, the amount of eligible financial resources is equal to six months of operating costs.(2) Under the standard approach, the FCA5 assumes liquid financial assets are needed to cover the costs that would be incurred during an orderly wind-down of the UK recognised body'sexempt activities, while continuing to satisfy all the recognition requirements and complying with any other obligations under the Act (including the obligations to pay periodic fees
4For the purposes of calculating the risk-based approach, the FCA5 would normally expect the UK RIE to provide the FCA5 with an annual financial risk assessment that identifies the risks to its business. As a financial risk assessment is likely to form an integral part of the UK RIE's management process and decision-making culture, the FCA5 would normally expect it to be approved by the UK RIE'sgoverning body.555
4The FCA5 would normally expect to use the financial risk assessment prepared by the UK RIE in the course of preparing individual guidance on the amount of financial resources that it considers is sufficient for a UK RIE to hold in order to satisfy the recognition requirements. The financial risk assessment would provide the basis for calculating the amount of eligible financial resources that should be held by the UK RIE under the risk-based approach.5
4The financial risk assessment should be based on a methodology which provides a reasonable estimate of the potential business losses which a UK RIE might incur in stressed but plausible market conditions. The FCA5 would expect a UK RIE to carry out a financial risk assessment at least once in every twelve-month period, or more frequently if there are material changes in the nature, scale or complexity of the UK RIE's operations or its business plans that suggest such financial
4Where a UK RIE is a member of a group, the FCA5 would normally expect the annual risk assessment to be accompanied by a consolidated balance sheet: 5(1) of any group in which the UK RIE is a subsidiary undertaking; or(2) (if the UK RIE is not a subsidiary undertaking in any group) of any group of which the UK RIE is a parent undertaking.
4The FCA5 would expect to consider the financial risk assessment, any proposal with respect to an operational risk buffer and, if applicable, the consolidated balance sheet, in formulating its guidance on the amount of eligible financial resources it considers to be sufficient for the UK RIE to hold in order to meet the recognition requirements. In formulating its guidance, the FCA5 would, where relevant, consider whether or not the financial risk assessment makes adequate provision
4The FCA5 would normally consider a UK recognised body to be failing the recognition requirements if it held financial resources less than the amount calculated under REC 2.3.9G (1)(a)(i) (in respect of UK RIEs). The FCA5 therefore expects a UK recognised body to hold an operational risk buffer of a sufficient amount in excess of this minimum, to ensure that it is at all times able to comply with its regulatory obligations.555
(1) [deleted]55(2) The FCA5 would normally expect a UK RIE to hold, in addition to the minimum amount determined under REC 2.3.9G (1)(a)(i), an operational risk buffer consistent with a risk-based approach.5(a) Where the amount of eligible financial resources calculated by a UK RIE under REC 2.3.17G (5) (the risk-based approach) is greater than the amount of eligible financial resources calculated under REC 2.3.13 G (the standard approach), and the difference is of an amount sufficient
Under section 169(1)(b) and section 131FA2 of the Act,
the FCA3 may
appoint an investigator to investigate any matter at the request of an overseas regulator or EEA regulator2. The powers of the investigator appointed by the FCA3 (referred to here as the 'FCA's3 investigator') include the power to require persons to
attend at a specified time and place and answer questions (the compulsory
interview power).333
Where the FCA3 appoints an investigator in response to a request from an overseas regulator or EEA regulator2 it may, under section 169(7) or section 131FA2 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 FCA3 may
only give a direction under section 169(7) or section 131FA2 if it is satisfied that any information
obtained by an overseas regulator or EEA
regulator2
The FCA3 may need to consider whether to use its direction power at two
stages of an investigation:3(1) at the same time that it considers
the request from the overseas regulator or EEA
regulator2 to appoint investigators;(2) after it has appointed investigators,
either at the request of the overseas regulator or EEA
regulator2 or on the recommendation of the
investigators.
Before making a direction under
section 169(7) or section
131FA2 the FCA3 will discuss and determine with the overseas
regulator or EEA regulator2 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 FCA3 will at this stage determine the extent to which the representative
of the overseas regulator or EEA
regulator2 will be able to participate in
the interview. The overseas regulator
The direction will contain the
identity of the representative of the overseas
regulator or EEA regulator2 that is permitted to attend any
interview and the role that he will play in the interview. If the FCA3 envisages that there will be more than one interview in the course
of the investigation, the direction may also specify which interview(s) the representative is allowed to attend.32
In circumstances where an interview
is to be conducted as part of the investigation, the FCA's3 investigator will have conduct of the interview. In general,
the FCA's3 investigators
will be employees of the FCA3, but in appropriate cases the FCA3 may appoint persons who
are not its employees. In those cases, the FCA3 may choose to require that an FCA3 employee is present at the interview and may choose to appoint
that person as an investigator.333333
The FCA's3 investigator will act on behalf of the FCA3 and under its control. He may be instructed to permit the representative
of the overseas regulator or EEA
regulator2 to assist in the preparation of
the interview. Where the FCA3 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
If the direction does permit the
representative of an overseas regulator or EEA
regulator2 to attend the interview and ask
the interviewee questions, the FCA's3 investigator will retain control of the interview throughout.
Control of the interview means the following will apply:3(1) The FCA's3 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
The FCA3 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 or EEA regulator2. Whether or not the interviewee
is the person under investigation,
the FCA's3 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
When the FCA's3 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 or EEA
regulator2. It will also state that in criminal
proceedings or proceedings for market abuse the FCA3 will
not use
The FCA's3 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 or EEA regulator2 wishes to ask questions about documents during the interview and the FCA's3 investigator
wishes to inspect those documents before
the interview, he will be given the opportunity to do so. If the FCA's3 investigator wishes
When the FCA's3 investigator has exercised the compulsory interview power, the FCA's3 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 or EEA regulator2. The interviewee will also be
required to answer these questions. The FCA's3 investigator may intervene at any stage during questioning by
the representative of the overseas regulator or EEA
regulato
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 or EEA
regulator2 then the translation costs will
normally be met by the overseas regulator
All compulsory interviews will
be tape-recorded. The method of recording will be decided on and arranged
by the FCA's3 investigator.
Costs will be addressed similarly to that set out in the preceding paragraph.
The FCA3 will
not provide the overseas regulator or EEA
regulator2 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
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 FCA3. The
presence at the interview of a representative of the overseas
regulator or EEA regulator2 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
(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 FCA1; or1(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 FCA1; or1(c) in the case of any other member, to the Chairman or
If the RDC considers it relevant to its consideration, it may ask FCA1 staff to explain or provide any or all of the following:1(1) additional information about the matter (which FCA1 staff may seek by further investigation); or1(2) further explanation of any aspect of the FCA1 staff recommendation or accompanying papers; or1(3) information about FCA1 priorities and policies (including as to the FCA's view on the law or on the correct legal interpretation of provisions of the
If the RDC decides that the FCA1 should give a warning noticeor a first supervisory notice:1(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
1If the RDC proposes that the FCA should publish information about the matter to which a warning notice falling within section 391(1ZB) of the Act relates:(1) the RDC will settle the wording of the statement it proposes the FCA should publish (warning notice statement);(2) the RDC staff will make appropriate arrangements for the warning notice statement it proposes the FCA should publish to be given to the persons to whom the warning notice was given or copied;(3) the proposed
(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 141 days.1(2) The FCA1 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
(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 seven1days of the notice being given.1(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 FCA1 staff to respond to those representations;1(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 FCA1 should give a decision notice or a second supervisory notice:1(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 FCA1 is required to give a copy of the notice to a third
FCA1 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
If a person performs an FCA controlled function without approval it is not only the firm that is accountable. Under section 63A of the Act (Power to impose penalties), if the FCA is satisfied that:(1) a person (“P”) has at any time performed an FCA controlled function without approval; and(2) at that time P knew, or could reasonably be expected to have known, that P was performing an FCA controlled function without approval;it may impose a penalty on P of such amount as it considers
(1) In accordance with section 60 of the Act (Applications for approval), applications must be submitted by, or on behalf of, the firm itself, not by:(a) the FCAcandidate; or(b) (where the FCAcandidate works for the firm'sparent undertaking or holding company) by the firm'sparent undertaking or holding company.(2) Usually this will be the firm that is employing the FCAcandidate to perform the FCA controlled function. Where a firm has outsourced the performance of an FCA controlled
Outsourcing arrangements
Outsourcing arrangements |
Submitting form |
|
The FCA will consider A to have taken reasonable care if it enters into a contract with B under which B is responsible for ensuring that the relevant FCA controlled functions are performed by FCA-approved persons, and that it is reasonable for A to rely on this |
Firm B submits FCA-approved persons forms on behalf of firm A |
|
Outsourcing by A to B (both being a member of the same United Kingdom group and each having its registered office in the United Kingdom) |
See SUP 10A.3.4 G |
See SUP 15.7.8 G |
(i) A to B, where B is a non-authorised person not part of the same group as A (ii) A to B, where A is a branch of an overseas firm in the United Kingdom, and B is an overseas undertaking of the same group (iii) A to B, where A is a UK authorised subsidiary of an overseas firm and B is an overseas undertaking of the same group |
Responsibility for (as opposed to the performance of) any activity outsourced to B will remain with A. See SYSC 3.2.4 G and SYSC 8 |
A ensures that an individual approved by the FCA or the PRA under a controlled function that is a significant-influence function has responsibility for the outsourced arrangement and A submits a form in relation to that individual |
Where the notification of an appointed representative (SUP 12.7.1 R) is linked to an application for approval (SUP 10A.13 (Applications for approval and withdrawing an application for approval)), any delay in receiving the notification under SUP 12.7.1 R may delay the FCA's approval of the individuals employed by that appointed representative who will be performing FCA controlled functions for the firm.
In any case where the application for approval is made by a person applying for permission under Part 4A of the Act, the FCA has until the end of whichever of the following periods ends last: (1) the period within which an application for that permission must be determined; and(2) the period of three months from the time it receives a properly completed application.
The FCA must either grant the application or, if it proposes not to grant an application, issue a warning notice (see DEPP 2). The FCA will deal with cases more quickly than this whenever circumstances allow and will try to meet the standard response times published on the website and in its Annual Report. However, if an application is incomplete when received, or the FCA has knowledge that, or reason to believe that, the information is incomplete, then the processing time will
Application forms must always be completed fully and honestly. Further notes on how to complete the form are contained in each form. If forms are not completed fully and honestly, applications will be subject to investigation and the FCAcandidate's suitability to be approved to undertake an FCA controlled function will be called into question. A person who provides information to the FCA that is false or misleading may commit a criminal offence, and could face prosecution under
Before making a decision to grant the application or give a warning notice, the FCA may ask the firm for more information about the FCA candidate. If it does this, the three-month period in which the FCA must determine a completed application:(1) will stop on the day the FCA requests the information; and(2) will start running again on the day on which the FCA finally receives all the requested information.
The FCA may grant an application only if it is satisfied that the FCA candidate is a fit and proper person to perform the FCA controlled function stated in the application form. Responsibility lies with the firm making the application to satisfy the FCA that the FCA candidate is fit and proper to perform the FCA controlled function applied for.
A person wanting to provide sponsor services4, and to be included on the list of sponsors, must apply to the FCA for approval as a sponsor by submitting the following to the Sponsor Supervision Team at the FCA's 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 FCA's website.]4
When considering an application for approval as a sponsor the FCA 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 FCA considers relevant to the application; and6(3) take into account any information which it considers appropriate in relation to the application.22(4) [deleted]22[Note:
The FCA 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
7Situations when the FCA may impose restrictions or limitations on the services a sponsor can provide include (but are not limited to) where it appears to the FCA that: (1) the employees of the person applying to be a sponsor whom it is proposed will perform sponsor services have no or limited relevant experience and expertise of providing certain types of sponsor services or of providing sponsor services to certain types of company; or(2) the person applying to be a sponsor
4In assessing whether a person is competent to provide, or to continue to provide, sponsor services, the FCA 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
6A sponsor must have in place effective arrangements to create and retain for six years accessible records which are sufficient to be capable of demonstrating that it has provided sponsor services and otherwise complied with its obligations under LR 8in accordance with the listing rules, including:(1) where a declaration is to be submitted under LR 8.4.3R (1), LR 8.4.9R (1), LR 8.4.13R (1), LR 8.4.14R (2)or LR 8.4.17 R or where relevant pursuant to an appointment under LR 8.2.1R
6In considering whether a sponsor has satisfied the requirements regarding sufficiency of records in LR 8.6.16A R, the FCA will consider whether the records would enable a person with general knowledge of the sponsor regime but no specific knowledge of the actual sponsor service undertaken to understand and verify the basis upon which material judgments have been made throughout the provision of the sponsor service.
4For each transaction for which it provides sponsor services, a sponsor must:(1) notify the FCA 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 FCA about it; and(b) are available to answer queries from the FCA on any business
In the3 case of a senior staff committee,3 the
decision will be taken by FCA3 staff who have not been directly involved in establishing the
evidence on which the decision is based
or by two or more FCA staff
who include a person not directly involved in establishing that evidence,3 except in accordance with section 395(3) of the Act.33
A senior
staff committee will consist of such FCA3 staff members as the FCA's3 senior executive committee may from time to time determine. The FCA's3 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 FCA's3 senior executive committee and, through it, to the FCA3 Board.33333
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 decisions referred
to in DEPP
2.5.6A G,3 and not falling within the responsibility of a senior
staff committee, will be taken by an individual FCA3 staff member. The decision will be:3(1) made by an executive director of
the FCA3 Board
or his delegate (who will be of at least the level of associate);3(2) on the recommendation of an FCA3 staff
member of at least the level of associate; and3(3) with the benefit
An FCA3 staff member who considers that a statutory
notice decision or
a decision referred to in DEPP
2.5.6A G3 should be taken above his own
level is free to refer that decision to a more senior level. If an FCA3 staff
member consults another staff member about a decision, the decision remains
the independent decision of the FCA3 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
If an individual responsible for
a decision under executive procedures (or
a more senior FCA3 staff
member with responsibilities in relation to the decision concerned) considers
that it warrants collective consideration, the individual may:3(1) take the decision himself, following
consultation with other FCA3 staff members, as above; or3(2) refer it to a senior
staff committee, which will take the decision itself.
(1) FCA3staff
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. FCA3 staff subject to a conflict of interest must declare that interest
to the person to whom they are
immediately responsible for a decision.33(2) If a member of a senior
staff committee has a potential conflict of interest in any
matter in which he is asked
The procedure for taking decisions
under executive procedures will
generally be less formal and structured than that for decisions by the RDC. Broadly, however, FCA3 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:3(1) in a case where the decision will
be taken by a senior staff committee: (a) the chairman or deputy chairman
of the senior
3Broadly, FCA staff
responsible for taking decisions referred to in DEPP
2.5.6A G will follow
a procedure similar to that described at DEPP 3.2.7 G to DEPP 3.2.27 G for the RDC (subject to the exceptions in DEPP 4.1.13 G (1) to DEPP 4.1.13 G (5) which also reflects that these decisions
are not statutory notice decisions.
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 FCA3 may have regard to the UK recognised body's:3(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 FCA3 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 paragraph 4(2)(d) of the Schedule to the Recognition Requirements Regulations) and the safeguarding and administration of assets .33
In assessing a UK recognised body's systems and controls for the transmission of information, the FCA3 may also have regard to the extent to which these systems and controls ensure that information is transmitted promptly and accurately: 3(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 for the operation of settlement arrangements, the FCA3 may have regard to the totality of the arrangements and processes through which the UK RIE's transactions are effected, cleared,3 and settled, including:333(1) a UK RIE's arrangements under which orders are received and matched, its arrangements for trade and transaction reporting, and (if relevant) its arrangements with another
In assessing a UK recognised body's systems and controls for the safeguarding and administration of assets belonging to users of its facilities, the FCA3 may have regard to the totality of the arrangements and processes by which the UK recognised body: 3(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 FCA3 recognises that a UK RIE3 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 FCA3 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:3(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 FCA3 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 FCA3 etc.) and regulations made under section 349 (Exemptions from section 348) of the Act.33
The FCA3 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:3(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 FCA3 may have regard to: 3(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 FCA3 may have regard to:3(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
The FCA considers the effect of each of the conditions in PERG 8.14.3G (1) to PERG 8.14.3G (3) to be as follows.(1) The first condition requires the financial promotion to be made, so ruling out any financial promotions which are directed at persons. The effect of article 6(b) and (e) of the Financial Promotion Order is that a communication is made to a person when it is addressed to him and that person to whom the financial promotion is addressed is its recipient. This means
In the FCA's opinion, the indicators referred to in PERG 8.14.4 G suggest that there are two essential elements of a one-off financial promotion. These are that it is tailored to the circumstances of the recipient and that it is individual in nature (in that it is not simply a personalised letter sent out as part of a general mailshot). Apart from this there is no need for the communication to be an isolated instance. For example, the fact that there may be a considerable number
In the FCA's view, a group of recipients who may be engaging in investment activity jointly could include:(1) a married couple;(2) two or more persons who will invest jointly in a product (for example, a cohabiting couple who are not married or members of a family);(3) the directors of a company or partners in a firm;(4) members of a group of companies;(5) the participants in a joint commercial enterprise;(6) the members of an investment club; and(7) the managers or prospective
A financial promotion may fail to satisfy all of the indicators referred to in PERG 8.14.4 G because it is addressed to more than one recipient and they are not persons who will engage in investment activity jointly. In the FCA's view, such a financial promotion is capable of being one-off where the persons are to enter into the same transaction and the promotion is tailored to their individual circumstances. This may typically happen during negotiations for the sale of a company
In the FCA's view, a person such as an investment manager or adviser is not conducting an organised marketing campaign purely because he regularly provides a particular client with financial promotions as part of his service. Neither is such a person conducting an organised marketing campaign purely because he may have several clients whose personal circumstances and objectives may suggest that a particular investment opportunity may attract them. If he considers the individual
In the FCA's view, a person will not be making one-off financial promotions simply by sending out a series of letters to a number of customers or potential customers where a few details are changed (such as the name and address) but the bulk of the letter is standard. Such letters would be likely to be part of an organised marketing campaign.
In the FCA's view, the article 28A exemption should provide scope for persons such as professional advisers to make unsolicited real time financial promotions in various situations. For example, when approaching persons with whom their clients are proposing to do business or those persons’ professional advisers. The exemption will not apply where the financial promotions are part of an organised marketing campaign (see PERG 8.14.4G (3)). So, in cases where a professional adviser
Whether or not it would be reasonable to believe that any person understands the risks associated with the investment activity covered in a financial promotion or would expect to be contacted about it must be judged on the particular circumstances. In the FCA's opinion, the exemption requires that the recipient has the required understanding of risk at the time the promotion is made to him. However, it would be reasonable to believe that a person understands the risk involved
In order to make an unsolicited real time financial promotion, an overseas communicator must rely on either article 32 or article 33. Article 32 provides an exemption for unsolicited real time financial promotions made by an overseas communicator to persons who were previously overseas and were a customer of his then. This is subject to certain conditions, including that, in broad terms, the customer would reasonably expect to be contacted about the subject matter of the financial
This exemption allows a person in another EEA State who lawfully carries on a controlled activity in that State to promote into the United Kingdom. The terms of the exemption are that the promotion must comply with the rules inCOBS 45or MCOB 3 (as relevant). Care should be taken as any failure to satisfy any of the relevant requirements of these rules may mean that this exemption is not satisfied and that the financial promotion may breach section 21 if it has not been approved
In the FCA's opinion;(1) it will not matter that a person enters into arrangements for investment or other purposes provided that he also enters them into for commercial purposes; and(2) each participant must be carrying on the business in question in their own right.This means that the sponsors or promoters of a company who arrange for private investors to become shareholders will not be setting up a joint enterprise simply because the company may intend to carry on a relevant
A person seeking to make a financial promotion to another person may wish to make enquiries of that person to establish whether he is certified. Unless another exemption applies or the financial promotion is approved by an authorised person, such enquiries will not be possible if the enquiry communication is an inducement or invitation to engage in investment activity. In the FSA's view, a communication which is merely an enquiry seeking to establish that a person holds a current
Article 49(4) gives the list of conditions which, if all are met, is proof that the financial promotion is directed at relevant persons. It is not necessary for all or any of the conditions to be met for a financial promotion to be regarded as directed at relevant persons. Ultimately the matter will be one of fact to be determined by taking account of the circumstances in which the financial promotion is made. In the FCA's opinion, it is not necessary for a financial promotion,
To be a sophisticated investor for the purposes of article 50, the recipient of a financial promotion must have a current certificate from an authorised person stating that he has enough knowledge to be able to understand the risks associated with the description of investment to which the financial promotion relates. Where the financial promotion is an outgoing electronic commerce communication3, the certificate may be signed by a person who is entitled, under the law of an EEA
The exemption also requires that certain warnings are given to the potential investor. In this respect, article 50(3)(d) provides that the financial promotion must state that there is a significant risk of losing all monies invested or of incurring additional liability. In the FCA's view, these are alternative statements and whichever is the relevant statement should be included. If there is no risk of incurring additional liability the statement may simply say that there is a
In the FCA's view, a main aim of the exemption (see PERG 8.14.35G (1)) is to remove from the scope of section 21 a financial promotion concerning the sale of a corporate business by a person who, either alone or with others, controls the business to another person who, either alone or with others, proposes to control the business.
In the FCA's17 opinion, provided that the purpose of the transaction is for the buyer to acquire the necessary control, it is irrelevant who is the seller. The exemption specifically applies to financial promotions which are communicated on behalf of the parties or potential parties to the transaction.1717
Several exemptions, including article 43 of the Financial Promotion Order (Members and creditors of certain bodies corporate), apply only in relation to relevant investments being shares or debentures or alternative debentures7 in the body corporate or a member of its group, or warrants or certificates representing certain securities relating to such shares or debentures or alternative debentures.7 In the FCA's view, an exchangeable debt security which is partly a debenture or
The exemptions for bearer instruments (articles 41 and 42 of the Financial Promotion Order) relate to financial promotions made to or directed at persons entitled to bearer instruments. For clarity, the FCA takes the view that persons who hold bearer instruments through a clearing system such as Euroclear or Clearstream are persons entitled to those instruments for the purposes of articles 41 and 42.
17Where the PRA is the appropriate UK regulator, it will consult the FCA before deciding whether to give consent to a change (or proposed change) and where the FCA is the appropriate UK regulator, it will consult the PRA before deciding whether to give consent in relation to a UK firm whose immediate group includes a PRA-authorised person.
7When the appropriate UK regulator17 receives a notice from a UK MiFID investment firm (see SUP 13.6.5BG (1)), it is required by regulation 11A(3) to inform the relevant Host State regulator of the proposed change as soon as reasonably practicable. The firm in question may make the change once the period of one month beginning with the day on which it gave notice has elapsed.17
Section 395 of the Act (The FCA's and PRA's procedures) requires the FCA2 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 or by two or more persons who include
a person not directly involved in establishing
Table: Summary of statutory and related notices
Notice |
Description |
Act reference |
Further information |
Gives the recipient details about action that the FCA2 proposes to take and about the right to make representations. 2 |
Section 387 |
||
Gives the recipient details about action that the FCA2 has decided to take. The FCA2 may also give a further decision notice if the recipient of the original decision notice consents. 22 |
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 FCA2 is taking. 2 |
Section 390 |
||
Gives the recipient details about action that the FCA2 has taken or proposes to take, for example to vary a Part 4A permission.2 22 |
Section 395(13) |
2Section 395 of the Act also
requires the FCA to publish
a statement of its procedure for decisions which gives rise to an obligation
for the PRA to include a statement
under section 387(1A) in a warning notice or
a statement under section 388(1A) in a decision
notice as follows:(1) Section 387(1A) provides that where
the FCA proposes to refuse
consent for the purposes of section 55F, 55I or 59 of the Act,
or to give conditional consent as mentioned in section 55F(5) or 55I(8),
2Where an application for Part
4A permission is made to the PRA as
the appropriate regulator (section 55A(2)(a) of the Act),
the PRA may only give permission
with the consent of the FCA (section
55F of the Act). FCA consent can be conditional on the PRA imposing limitations or specifying the
permission is for certain regulated activities only.
2Where an application to vary a Part
4A permission is made to the PRA as
the appropriate regulator (section 55A(2)(a) of the Act),
the PRA may only give permission
with the consent of the FCA (section
55I of the Act). The FCA may withhold its consent to a proposed
variation if it appears to it that it is desirable to do so in order to advance
one or more of its operational objectives. FCA consent
can be conditional on the PRA imposing
limitations, or the PRA specifying
the permission
Decisions on whether to give a statutory notice will be taken by a 'decision
maker'. The FCA's2 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:2(1) the Regulatory
Decisions Committee (RDC);
or(2) FCA2 staff
under executive procedures;
or2(3) FCA2 staff
under the settlement
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 FCA2 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;
and2(3) on whether to refuse access to FCA2 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 FCA2 staff
under executive procedures (DEPP 4);2(4) the procedure for decision making
by FCA2 staff
under the settlement decision procedure (DEPP 5).2
The power in regulation 5A of the RAP Regulations to impose a civil penalty
or publish a statement adds to the FCA's2 other supervisory powers in relation to RAPs (see REC 4) and
its power to impose penalties on an RAP under
the Money Laundering Regulations.
The FCA2 will
use this power under the RAP Regulations where
it is appropriate to do so and with regard to the relevant factors listed
in DEPP 6.2.1 G.
In deciding between a civil penalty or a public statement, the FCA2 will
The FCA2 will notify the subject of the investigation that it has appointed
officers to carry out an investigation under either or both the RAP Regulations or the Money
Laundering Regulations and the reasons for the appointment,
unless notification is likely to prejudice the investigation or otherwise
result in it being frustrated. The FCA2 expects to carry out a scoping visit early on in the enforcement
process in most cases.22
The FCA2 will also have regard to whether the person followed any of the FCA's2 guidance
and will not take action under regulation 5A where there are reasonable grounds
for it to be satisfied that the person took all reasonable steps and exercised
all due diligence to ensure that the requirement was complied with.22
When the FCA2 proposes or decides to take action against an RAP in
exercise of its power in regulation 5A of the RAP
Regulations, it must give the RAP a warning notice or a decision
notice respectively. Those notices must state the amount of
the penalty or set out the terms of the statement, as applicable. On receiving
a warning notice, the RAP has a right to make representations
on the FCA's2 proposed
decision.22
Where the FCA2 is proposing or deciding to publish a statement censuring an RAP or impose a penalty on the RAP under regulation 5A of the RAP Regulations, the FCA's2 decision maker will be the RDC.
This is to ensure that the FCA's2 power to censure or impose a penalty on an RAP has
the same layer of separation in the decision making process, and is exercised
consistently with, similar penalty and censure powers of the FCA2 under other legislation. The RDC will
make its decisions