"Use it or Lose it": The FCA Consults on Handbook changes relating to Cancellation & Variation Powers of Regulatory Permissions


The FCA announced in January of this year that firms need to regularly review their regulatory permissions as the FCA will be taking a "use it or lose it" approach. The FCA have today (9 September 2021) published a consultation paper (CP21/28) on how they are going to implement their "use it or lose it" approach within the FCA Handbook. The consultation closes on 29 October 2021.

The FCA's consultation paper is on the changes to the Handbook and Enforcement Guide on the FCA's power to vary or cancel the the permissions granted under Part 4A of the Financial and Services Markets Act 2000 ("FSMA"), where a firm appears not to be carrying out the regulated activities for which they are permitted.

Previously, the FCA would have to wait 12 months before varying or cancelling a firm's permissions. However, under the new powers granted to the FCA under the Financial Services Act 2021 (the "FS Act"), if the FCA considers a permission is no longer being used by a firm, the FCA can now proactively vary or cancel such permission by giving the firm with 14 days' notice stating that it appears to the FCA that the firm is no longer carrying on a regulated activity to which the permission relates. If no response is received, the FCA will then give a further 14 days' notice to the firm setting out the proposed variation or cancellation, the date on which such variation or cancellation will happen and any such steps that the firm should take that would result in the FCA not varying or cancelling the permission. 

The FCA has said that this approach is to better protect consumers, reduce fraud and to ensure the Financial Services Register is accurate.

The FS Act also sets out sets out an "annulment" procedure for aggrieved firms who have had their permissions varied or cancelled as set out above. The aggrieved firm can apply to the FCA within 12 months of the variation or cancellation for the decision to be annulled. The FCA may then: a) annul the decision; b) annul the decision subject to conditions; or c) refuse to annul the decision. The FCA must determine their decision with six months of an annulment application being made. 

In line with the FCA's noticeably more combative stance toward the firms they regulate, this consultation makes it clear that whereas the FCA felt previously limited to merely vary a firm's permissions if a firm was not using all it had; now the FCA has added the power to proactively cancel a firm's permissions (as a whole), even during an investigation (i.e. before any formal decision has been reached). Taken with the new timeframes in the FS Act, therefore, the proposals being consulted upon mean the FCA can drive a firm being investigated out of business within a month.

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we are more likely to use the new power to cancel, rather than vary, firms’ permissions
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