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Charlotte Henry, senior associate at Norton Rose Fulbright, examines the Financial Conduct Authority’s (FCA) recent policy statement in which the regulator provides specific examples of situations where it might use its enhanced powers.
FCA statement on new accountability regime, LNB News 09/12/2015 79
A new policy statement from the FCA sets out amendments to the Decision Procedure and Penalties Manual (DEPP) and the Enforcement Guide (EG), and advises on how the FCA will enforce the new accountability regime (including the Senior Managers Regime and the Certification Regime). The FCA also sets out how it will use the new powers created by the Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013).
What is the background to this policy statement?
FS(BR)A 2013 gave the regulators enhanced powers when approving senior managers and when taking enforcement action against them—including the ability to grant or vary approvals subject to conditions and/or time limits.
One of the requirements of FS(BR)A 2013 is that each regulator must publish a statement of its policy in respect of these new powers. In July 2014, the FCA and the Prudential Regulation Authority jointly consulted on their proposed Statements of Policy. The FCA’s statement of policy is contained in FCA Handbook SUP 10C (in respect of the variation of approvals at the request of a firm) and DEPP 8 (in respect of the variation of approvals on the FCA’s own initiative.)
The proposed amendments to SUP 10C have already been made in July 2015. This policy statement now amends the DEPP and EG sections of the FCA Rulebook and explains the responses to the July 2014 consultation.
What should businesses be particularly aware of?
The FCA is able to vary, on its own initiative, an approval for the performance of a senior management function wherever they consider it desirable to do so in order to advance one or more of its operational objectives.
The FCA will have regard to the full range of regulatory tools that are available, as appropriate on a case-by-case basis. The result of this is that there is now a more nuanced range of regulatory responses available to the FCA.
It is still open to the FCA to choose to deal with concerns informally by discussion and agreement with the firm and the Senior Management Function (SMF) manager. And in the most serious cases, the FCA can still take steps to withdraw the SMF manager’s approval on the grounds that the individual is not a fit and proper person to perform the function. However, in intermediate cases, the FCA will, as a result of the rule changes, have the ability to impose a condition on the SMF manager’s approval.
If the FCA seeks to impose a condition, the following people may contest the decision:
If any of these persons seek to contest the FCA’s use of the power, the Regulatory Decisions Committee will determine whether the power ought to be varied. If a condition or time limit is breached then the individual will be performing a controlled function without approval. Where this is the case, the FCA may consider taking action against the individual under section 63A of the Financial Services and Markets Act 2000. This section allows the FCA to impose a penalty of ‘such amount as it considers appropriate’.
Has the FCA dealt with industry concerns in the final policy statement?
Comparatively few concerns were raised in relation to this aspect of the rule changes at the consultation stage. In response to requests for guidance on when the FCA will seek to use the own-initiative variation of approval power, the FCA has provided specific examples of situations where the FCA might use the power.
There have been few concerns regarding the creation of the new powers. Any uncertainty arises from concerns over how such powers will be used by the FCA in practice.
Do firms need to take any action in light of this policy statement if faced with regulatory investigation or enforcement activity?
By its nature, the exercise of this power is within the FCA’s discretion and therefore firms would not need to take any immediate action in relation to these rule changes.
If the FCA seeks to vary an approval, the firm needs to consider whether, in the circumstances, it proposes to contest the FCA’s use of the power. As an alternative, the firm could itself apply for a variation to the approval. One reason why doing this may be preferable for the firm is that it may avoid the FCA being required to publish information about the matter.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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