The UK Financial Conduct Authority (FCA) has published its Policy Statement PS22/5 setting out the changes it is making to the FCA Handbook in light of the additional powers granted under the Financial Services Act 2021. This follows on from statements made by the FCA over the course of the last 18 months, in which it has set out a change in its approach to the supervision of regulated firms where they have not been using the regulatory permissions granted to them. The FCA has been looking to step up its approach so that it can make quicker and more effective decisions. Reflecting this, the Policy Statement recognises that the FCA intends to use this power as part of the wider ‘use it or lose it’ exercise that it has been undertaking since the report by Dame Elizabeth Gloster in relation to London Capital & Finance Plc.
It should be recalled that the FCA has always had the power to cancel or vary a firm’s Part 4A permissions to carry on regulated activities if the firm was not using them; however, previously it had to wait 12 months to do so in some situations. The new power allows the FCA to cancel or vary permissions without the firm applying or the FCA obtaining the firm’s consent. It can use this new power if it considers that a firm is currently carrying on none of the regulated activities it has permission for without having to wait for 12 months, and provides a more streamlined procedure for the FCA to follow. In case mistakes are made, it also provides some room to reverse or annul decisions to use it.
This change should allow the FCA to address issues seen over the last few years such as the practice of ‘badging’. Badging involves an entity seeking authorisation where only a very small part of its business is regulated, and is designed to create the impression that the entirety of its business is regulated (in so doing, providing the consumer with a false confidence). The FCA is looking to make sure that consumers have the full picture as to whether they are protected or not, and that tools such as the Financial Services Register reflect the correct status of businesses operating within the regulatory perimeter accurately.
The changes will apply to firms authorised or deemed, under the temporary permissions or supervised run-off regimes, to be authorised by the FCA. This means that it will not apply to firms authorised by the Prudential Regulation Authority rather than the FCA. The changes may also affect individuals who hold approved functions at authorised FCA firms and may be of interest to professional advisers to such firms and to consumers, whether wholesale or retail. It should be noted that the FCA may use the power immediately; however, it will only do so after sending the relevant firm notices warning of the possibility of variation or cancellation and considering its responses to those notices.
In common with many of the changes being introduced by the FCA as part of its ‘Transformation’, it will be interesting to see how and how often the power is used.