FCA APPROACH TO SUPERVISION Flashcards
What does SECTION 20 of FSMA detail?
Authorised persons acting without permission, a firm is prohibited from carrying on a regulated activity in the UK (or purporting to do so) otherwise than in accordance with its permission.
Section 44 of FSMA
Firms wishing to change their Part IV permissions can apply to the FCA/PRA to vary a permission
What should a firm do if it is seeking to vary its Part 4A permission substantially or cancel its Part 4A permission?
Should discuss it with supervisory contacts at the FCA/PRA as soon as possible before it makes an application
- to comply with Principle 11 of the FCA’s principles for business
This is to help the PRA and/or the FCA and the firm to agree the correct approach for the firm.
What does Section 55H of FSMA entail ?
a firm may apply to the PRA and/or the FCA to vary its Part 4A permission to:
1. allow the firm to carry on further regulated activity
2.reduce the number of regulated activities
3. vary the PRA/FCA’s description of its regulated activities
4. cancel requirement applied for by the firm or imposed by the PRA under Section 55M
5. vary any requirement
What happens if a firm wishes to apply to vary their Part 4A permission and it is significant?
Applications for significant change may be processed by the firm’s supervisory contact at the FCA/PRA
these apply to
- carrying on regulated activities such as accepting deposits
- extend the insurance business of a firm which already has a Part 4A permission
- remove a requirement to prevent a firm from holding or controlling client money
- if it causes the firm to change prudential category
When will the FCA/PRA grant permission to vary permissions?
They are required by Section 41 of FSMA to ensure a firm varying their permissions will satisfy the threshold condition in relation to all the regulated activities the firm already has part IV permission for.
The regulator may take such steps as they consider necessary to make sure a firm does this
The regulators may grant a firm’s application for varying the Part 4A permission when it wishes to wind down and cease to carry out new business
The regulator can also refuse an application, if it appears the regulatory objectives would be adversely affected if the application were to be granted
What does Section 55L entail?
A firm can refuse a firms application to cancel their Part 4A permission if they think it is necessary and fulfil’s the FCA/PRA’s regulatory objectives
What does Section 148 entail?
The FCA/PRA granting waivers and modification of rules
The FCA is required to publish a waiver unless they believe it is necessary to not publish it
It can be revoked at any time but only if the conditions of Section 148 are no longer satisfied.
What should the regulator do if it proposes to revoke a waiver?
needs to give the firm written notice
state in the notice a reasonable period for the firm to make representation about the action taken
after considering the representation, the firm needs to be given written confirmation as to whether the regulator has chosen to continue revoking the waiver
What does SUP 15 set out?
Guidance on the type of event or change in condition a firm needs to notify the regulator about
Rules on events and changes in condition that a firm must notify the regulator about
Rules on core information that a firm must provide such as name and names of other regulators
Rules requiring firms to ensure information that is provided is accurate
When must a firm communicate to the FCA?
A significant breach of a rule or Statement of Principle
A breach imposed by FSMA
Bringing about of prosecution under FSMA
Breach of directly applicable provision in the MiFID regulated
A breach of any requirement in Regulation 4C
civil proceedings brought against the firm
Action brought against the firm uner Section 71 of FSMA
firm is prosecuted for fraud or dishonesty
if the trustee of an occupational pension scheme is removed by a court order
What events must the regulators make the FCA aware and notify immediately?
If an employee may have committed fraud
If it becomes aware a person, employed or not, may have committed fraud against it
It considers a person is intending to commit a fraud against it
It identifies irregularities in its accounting or other records
One of the employees may be guilty of serious misconduct concerning their honesty or integrity
SECONDARY STATUTORY NOTICES - What are they?
FURTHER DECISION NOTICES - follows the issue of a decision notice when the FCA has agreed with the recipient to take a different action
NOTICES OF DISCONTINUANCE - Deciding not to proceed with the relevant action
FINAL NOTICES - set out the term of the final action and the date it is effective from
How will the FCA approach making a decision about publications?
- whether information should be published
- whether the identity of the individual should be published
- No decision shall be made until the individual has been consulted
What are the three possible forms of formal disciplinary sanctions?
- public statements of misconduct
- public censures
- financial penalties
What are the low key approaches the FCA could make on enforcement action?
- private warning
- take supervisory action such as
- cancelling or varying the firm’s Part 4A permission- withdrawing an approved persons status
- prohibiting a person from performing a role in relation to regulated activity
The measures might be used if the FCA considers it necessary to take protective or remedial action
Warnings are not in themselves disciplinary - but a decision is final
What is the criteria for Disciplinary Action?
NATURE AND SERIOUSNESS OF THE SUSPECTED BREACH
- deliberate or reckless?
- does it reveal serious/systemic issues?
CONDUCT OF THE FIRM
- How quickly, effectively and completely was the breach brought to the attention of the FCA?
- Has the firm taken remedial steps since the breach?
Previous regulatory record of the firm or approved person?
OUTLINE PRIVATE WARNINGS
These are issued when there are concerns regarding the behaviour of the firm but decides to not bring forth disciplinary action
In such circumstances, the FCA believes it is helpful to let the recipient know that they came close to disciplinary action, and the private warning serves this purpose.
The private warning will state the FCA have had cause for concern but does not want to take disciplinary action
VARIATION OF PERMISSION
PART 4A permission granted to the firm by the FCA can be varied on the FCA’s own initiative
When it considers how a firm should deal with concerns
- the responsibilities of a firm’s management to deal with concerns about the firm and how the business has been run
- the principle that a restriction imposed on a firm should be proportionate to the objectives the FCA is seeking to achieve
SITUATIONS WHEN THE FCA WILL VARY A FIRM’S PERMISSIONS
If the firm is not satisfying the threshold conditions
If the firm’s material and financial resources appear inadequate for the scale or type of activity it is carrying on
the firm appears not to be a fit and proper person to carry on a regulated activity because
- it has not conducted business in compliance with regulations or
- it has not been managed competently and prudently and has not exercised due skill care and diligence
- breached requirements
WHEN WILL THE FCA CANCEL A FIRM’S PART 4A PERMISSION?
(SET OUT IN SECTION 55L OF FSMA)
- Non-compliance with an FOS award against the firm
- material non-disclosure in an application for authorisation or approval
- failure to have or maintain adequate financial resources
- not complying with financial resources requirements
- non-submission or providing false information in regulatory returns/repeated failure to submit such returns
- non-payment of FCA fees or repeated failure to pay FCA fees
- failure to provide the FCA with valid contact details or failure to maintain the details provided
What is SECTION 56 of FSMA?
Under Section 56 of FSMA, the FCA has the right to make a prohibition order against an individual.
This order can prohibit the individual from carrying out particular functions, or from being employed by any authorised firm if the FCA considers it necessary for the achievement of its four statutory objectives.
Prohibition orders are quite severe.
What are the steps with disciplinary actions?
- issue a warning notice
- follow this by a decision notice
- provide the right to go to the Upper Tribunal
Section 22 of FSMA
For an activity to be a regulated activity it must be carried out by way of business
Accepting deposits will not be regarded as carrying out by way of business if a person does not hold himself as accepting deposits on a day-to-day basis
A person managing assets on a discretionary basis while acting as a trustee of an OPS may in certain circumstance be regarded as acting by way of business if we would not be regarded as doing so
A person who carries on an insurance mediation activity will not be regarded as doing so by way of business unless he takes up or pursues that activity for remuneration.
Who is the decision maker on Authorisations?
It was executive procedures and the RDC but now it is just executive procedures
What is straightforward cancellations (etc threshold conditions)
It was the RDC but now it is executive procedures
Interventions (such as variation of permissions)
Executive procedures and the RDC but now it is executive procedures
Who does approvals to commence civil or criminal proceedings
RDC (or Executive Procedures where criminal proceedings under legislation other than FSMA) - now it is executive procedures
What are the processes for fines?
- removing any profits made from misconduct
- setting a figure to reflect the seriousness of the breach
- considering any aggravating and mitigating factors
- achieving the appropriate deterrent effect
- applying any settlement discount
Firms need to understand and realise that the regulator has changed its focus: now firms can be facing a significant penalty and demand for remedial action for a weak control framework, even without evidence of actual consumer detriment
Will focus on senior management
How much has been levied as fines by the FCA?
£52,802,900
What was the amount levied by the FCA as fines to firms?
£215,834,156 (26 fines)
