The post below was first published on our FSR and Corporate Crime blog.
The FCA has published Consultation Paper 21/28: New cancellation and variation power: Changes to the Handbook and Enforcement Guide (CP21/28). The proposals in CP21/28 relate to and provide guidance on the new power which the regulator was given under the Financial Services Act 2021 (FS Act) to allow it to act more quickly where an FCA-authorised firm is not – or does not appear to be – carrying on FCA-regulated activities.
This power can only be exercised against firms solely authorised and regulated by the FCA (solo-regulated firms). It allows the FCA to expedite a variation or cancellation of a firm’s permissions and to amend the Financial Services Register accordingly. The changes introduced under the FS Act allow the FCA to act without establishing a period of at least 12 months of inactivity. The FS Act also allows the FCA retrospectively to reverse or annul its decision to use the power.
CP21/28 focuses on changes and additions to the Enforcement Guide (EG) and related Sourcebooks (summarised in the box below).
FCA CP21/28: New cancellation and variation power: Changes to the Handbook and Enforcement Guide
|The Supervision Manual (SUP):
The FCA will: describe the new power; the process it will follow when using the power; provide examples of what may lead the FCA to conclude whether a firm is not carrying out regulated activities for which it has permissions; and factors taken into account when considering an application to annul the FCA’s action(s).
|The Enforcement Guide (EG):
The FCA will describe the new power and explain how it may be used alongside investigations, and that it may use the power with immediate effect after sending relevant notices to the firm
|The Compensation Sourcebook (COMP) and Dispute Resolution: Complaints Sourcebook (DISP):
Guidance will be added to both Sourcebooks to explain that, in circumstances where the FCA has annulled a decision, the FSCS may be able to pay compensation in respect of claims made during the period between cancellation and annulment and/or the FOS may be able to consider complaints made during the same.
|Responses to CP21/28 are requested by 29 October 2021.|
The FCA consulted on amendments to the Decision Procedure and Penalties Manual (DEPP) to reflect the new power in its June 2021 Quarterly Consultation Paper (QCP). This included specifying the Regulatory Decisions Committee (RDC) as the FCA’s decision-maker in respect of decisions to annul or not to annul a cancellation or variation. The RDC will follow the warning notice and decision notice procedure set out in DEPP.
This latest consultation also follows closely on the heels of FCA CP21/25 which sets out the regulator’s new approach to decision making in the issuing of statutory notices. (Our article about the proposals in CP21/25 setting out the issues of concern is available here.)
In contrast to the proposals in CP21/25, these proposed amendments to the Handbook are unlikely to raise significant concerns – indeed the FCA’s new power is likely to be welcomed by all stakeholders with an interest in, as the FCA website puts it, ‘a healthy and successful financial system, where firms can thrive and consumers can place their trust in transparent and open markets’. Similar to CP21/25, the FCA presents these proposals as streamlining. However, it is important to note that there will still be a number of steps in the process for the FCA to follow. It will, for example, need to issue at least two notices to a firm when it proposes to cancel or vary permissions using the new power.
The FCA instigated a ‘use it or lose it’ campaign in January 2021, reminding firms to regularly review their permissions to ensure that those which are not used are removed. In all likelihood, those paying least heed to the FCA’s call are those most in need of action.
Fundamentally, enabling the FCA to act more quickly to cancel unused permissions and, in particular, to amend the Register are appropriate baseline controls to mitigate consumer detriment. Inaccuracies in the Register can mislead consumers about the status of a firm and/or about the level of consumer protections available in relation to the products and services it offers, in particular whether FCA complaints handling rules, the Financial Ombudsman Service (FOS) jurisdiction and the Financial Services Compensation Scheme (FSCS) are available. And while financial loss is a frequent outcome of a scam, the impacts can be much broader for consumers who become victims of unscrupulous operators.
The test that the FCA now faces is to use its new power proactively, effectively, fairly, and consistently.