The Financial Conduct Authority (FCA) will cancel or change permissions of regulated firms not conducting those activities within a month as part of a drive to improve consumer protection.
The FCA will provide a firm with two warnings if it believes it is not using a regulatory permission and will then be able to cancel the permission, or change it, 28 days after the first warning if the firm has not taken appropriate action.
The regulator claims the move will strengthen consumer protection by reducing the risk of consumers misunderstanding or being misled about their exposure to financial risk and how much consumer protection they have.
For example, believing unregulated activities are covered by the Financial Services Compensation Scheme when they are not.
The regulator adds this speedier process will also allow it to act quickly when cancelling a firm’s permission when it is no longer required and to swiftly respond to inappropriate uses of permission. For example, when a permission is being wrongfully used to market high risk products that are not regulated by the FCA.
Where a firm fails to pay its regulatory fees, submit returns or complete annual declarations, the FCA says it may view these as indicators of a lack of regulated activity which may lead to permission being removed through use of this new power.
This new power also supports the FCA’s existing ‘use it or lose it’ initiative, which has seen it carry out 1,090 assessments since May 2021 to see whether firms are undertaking the financial activity for which they have permission. This has resulted in 264 firms applying to voluntarily cancel, and a further 47 to modify, their permission to carry out regulated activities.
Reflected in FCA register
The new powers obtained under the Financial Services Act 2021 give the regulator an additional power, which allows it to act more quickly and efficiently to: vary or cancel the statutory permissions to conduct FCA-regulated activities of many FCA-authorised firms, where those firms:
- appear to be carrying on no FCA-regulated activities for which they have permission, and
- have not responded as directed to notices warning of the risk of such action, and
- reflect such variations and cancellations on the Financial Services Register.
This new power is available following a change in the law which allows the FCA to streamline and shorten the removals process. The FCA launched a consultation paper on this change in September 2021.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Businesses with permissions they don’t need or use, risk misleading consumers.
“These new powers will enable us to take quicker action to cancel permissions that are not used or needed.
“Firms should regularly review their permissions, ensure they are correct, and they are acting in accordance with them. If they are not needed or used, they should seek to cancel them.”