Use it or Lose it
October 4, 2021
The FCA have recently made it clear to firms that if they are not using the full scope of any of their permissions that they will be liable to be reviewed and removed if necessary. This is a part of the FCA’s crackdown of firm’s relying on the ‘Halo Effect’ of having the FCA registration on their website or company documentation.
The changes will only affect firms authorised under Part 4A of the Financial Services and Markets Act 2000, therefore this will not apply to Payment Service Providers (PSPs) or Electronic Money Issuers.
FCA under fire
Potentially a contributing factor, the FCA has recently been accused of ‘negligence’ after the Complaints Commissioner upheld a complaint which alleged the FCA register had shown a firm as an active company years after it was wound up. The complainant said the error meant they invested with a cloned firm as the register showed the firm to be active until January 2020, despite the original company being wound up in 2018. The complainant then asked for financial compensation from the regulator which was dismissed by the FCA before being partially upheld by the Complaints Commissioner, Amerdeep Somal. The FCA has since apologised, and this could in part have contributed to the increased focus in keeping the register and firms permissions up to date.
Firms should be aware that the new Financial Services Act 2021 (FS Act) is making its way through Parliament. This bill gives the FCA new powers to take rapid action with unused regulatory permissions that firms hold. They will be able to serve notice to firms under its supervision that it suspects are not using one or more of their permissions giving the firm 14 days to respond. Where firms fail to respond, the regulator will publish a public notice summarising that the firm in question is not using this permission and if the firm fails to provide satisfactory evidence against this the FCA can vary or remove the firm’s permission after 1 month. This new power is also set out in the new Schedule 6A to the Financial Services and Markets Act 2000 (FSMA).
The FCA have also been publishing with regards to this area, they posted a warning in January that they will use the new power to reduce the risks of consumer harm. As well as this, in the consultation paper CP21/28 (published 9th September) the FCA reiterates this standpoint, citing that they are looking to reduce the risk of clients thinking products and services are regulated when they are not as well as to reduce the potential of being defrauded by cloned firms of authorised firms which no longer conduct FCA-regulated activities. The CP also looks to introduce changes to the Handbook (Supervision Manual SUP) as well as additions to the FCA’s Enforcement Guide to reflect the new powers.
A direct quote from this Consultation Paper ‘we are more likely to use the new power to cancel, rather than vary, firms’ permissions’ clearly signposts the FCA’s intentions.
Since 2001, the FCA has had the power to cancel or vary permissions without consent from the relevant firm. This power would be used where the firm has not been conducting an activity covered by its permission for 12 months. Therefore this power is not a new one, however there is a lot more emphasis on it by the regulator in recent months. Earlier this year it was reported that the FCA emailed 387 advice firms with unused Advising on Pension Transfers and Opt Outs permissions. In the email the regulator stated that if firms were not using these permissions that they should revoke them entirely. The response to this email was that over 300 advice firms gave up their defined benefit transfer permissions as they were not being used.
An increased supervisory focus on firm’s unused permissions brings into question how well firms are adapting and changing their regulatory details along with their business models. The FCA said ‘Firms that don’t risk losing market access. Outdated or incorrect permissions can mislead consumers about the level of protection offered or give credibility to unregulated activities.’
To conclude, the increased focus and new powers of the FCA with regards to permissions mean firms should prioritise updating their permissions to reflect their current scope and business model. Effecta therefore recommend firms prioritise reviewing this in the tail end of 2021 and Effecta are available to assist in the ways outlined below.
How Effecta can Help:
- Undertake an assessment of your firm’s current Scope of Permissions and whether they are still relevant.
- Assist your firm with updating your business plan to reflect any updates to the business model.
- Assist your firm with drafting and submitting a Variation of Permission (VOP) to the FCA and/or other license changes.
- Undertake a wider compliance and infrastructure review in order to streamline and rationalise your firm’s ongoing compliance requirements to match these permissions.
- Keep your firm up to do date on future regulatory updates and areas of supervisory scrutiny.