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The FCA now has the power to remove permissions from firms that are not using them or haven’t used them in the last 12 months. Given the time it may take to reapply, reviewing the permissions you hold now could save time in future.
In January last year the FCA launched its ‘use it or lose it’ campaign for permissions, reminding firms of the requirement to regularly review their regulatory permissions to ensure they are up to date and removed where they are not needed. This has culminated in last month’s Policy Statement: PS22/5: New cancellation and variation power: Changes to the Handbook and Enforcement Guide setting out the new rule changes that enhance the FCA’s powers to cancel or vary permissions. The FCA can now start using it new powers, which apply to all firms authorised by the FCA, including those under the temporary permissions regime, and those under the supervised run-off.
These new powers were developed in response to the FCA’s failings with London Capital & Finance plc (LCF), as identified in the Gloster Review. The FCA was found to have given LCF permissions for activities which it did not carry on, giving it an ‘imprimatur of respectability’ that was crucial to attracting investors who eventually lost their money.
By being able to quickly vary or cancel permissions, the FCA expect that they will be able to reduce the risk of consumers being defrauded by criminals impersonating or cloning authorised firms no longer conducting regulated activities. In addition, the FCA was concerned that delays in removing unused permissions were responsible for consumers believing a firm’s unregulated activities had regulatory protection.
What do the new powers entail?
The Financial Services Act 2021 gave the FCA the additional power to cancel or vary the permissions of a regulated firm without their consent. This power can be exercised if a firm does not conduct a regulated activity within 12 months of being given permission to carry on that activity. It can also be used if a firm does not respond to warning notices in the manner directed by the FCA.
The FCA can now move quickly to cancel permissions if firms are not using them. Firms will receive two warning notices, at least 14 days apart, informing them of the FCA’s intention to use their powers. The proposed variation or cancellation date will be at least 14 days after the second notice, meaning that it will take the regulator a minimum of 28 days to vary or cancel a permission.
The regulator has recognised that there will be occasions where a firm intending to offer an innovative product or service will need to spend time on development. In these circumstances the FCA is prepared to take into consideration a firm’s evidenced intention, ability and concrete plans to commence a regulated activity in the near future.
What do firms need to do?
As before, it is important that if you no longer intend to carry on a regulated activity, you should submit a cancellation or variation of permission application to the FCA. The FCA register will record if the FCA had to cancel a permission due to an absence of activity.
Being proactive is critical. Comprehensive reviews should check for any unused or unnecessary permissions. If you have plans to expand into an area you are not currently using, you must consider how you will justify it to the regulator with the correct planning, controls and staff. Not doing this risks the FCA taking unilateral action to remove the permissions. In the current environment, if you then need to reapply it could cost you considerable time and effort.