ENF 1
Introduction
to the Enforcement manual
ENF 1.1
Application
- 01/12/2004
ENF 1.1.1
See Notes
The
Enforcement manual contains guidance for firms, approved persons, and other persons, whether or not they are regulated
by the FSA,
on the use of the FSA's enforcement
powers, as set out in ENF
1 Annex 1 G.
- 01/12/2004
ENF 1.2
Purpose
- 01/12/2004
ENF 1.2.1
See Notes
The FSA's effective and proportionate use of its enforcement powers to enforce the requirements of the Act, the rules, the Statements of Principle and other relevant legislation (for example, the Criminal Justice Act 1993 Opens in a new window, the Money Laundering Regulations 1993 Opens in a new window and the Unfair Terms Regulations) play an important role in the pursuit of its regulatory objectives. For example:
- (1) in relation to the market confidence objective, the FSA's powers to bring criminal prosecutions for insider dealing and misleading statements and practices offences, and to impose financial penalties for market abuse, help to maintain confidence in the financial system;
- (2) in relation to the public awareness objective, the imposition of disciplinary measures such as public censures and public statements of misconduct show that regulatory standards are being upheld;
- (3) in relation to the protection of consumers objective, the imposition of disciplinary measures helps to deter future contraventions, ensure high standards of regulatory conduct and protect consumers; in addition, the FSA's powers to vary permission on its own initiative may be used to require a firm to take urgent remedial action to protect the interests of consumers; and
- (4) in relation to the reduction of financial crime objective, the FSA's use of its criminal prosecution powers under the Act helps to reduce financial crime; for example the prosecution of insider dealing and breaches of prescribed regulations relating to money laundering act as a deterrent.
- 01/04/2003
ENF 1.2.2
See Notes
Schedule 1 to the Act (The Financial Services Authority) states
that the FSA must
'maintain arrangements for enforcing the provisions of, or made under, this Act' (see paragraph 6(3)
of Schedule 1). The Enforcement manual describes the FSA's policies and procedures for the exercise
of the enforcement powers given to it by the Act and the Unfair Terms Regulations, as set out in ENF
1 Annex 1 G G. It does not include the statement of procedures
required by section 395 of the Act (The
FSA's procedures) relating to the issue of supervisory notices, warning notices and decision notices, which is in the Decision
making manual (DEC).
- 01/07/2005
ENF 1.2.2A
See Notes
ENF includes
material on the investigation, disciplinary and criminal prosecution powers
that are available to the FSA when
it is performing functions as the competent authority under Part VI of the Act (see ENF 21). The Act provides
a separate statutory framework within which the FSA must operate when it acts in that capacity.
Schedule 7 to the Act modifies
the application of the Act in
relation to the exercise of functions as competent authority under Part VI
of the Act.
When determining whether to exercise its powers in its capacity as competent
authority for listing (for example, the powers described in ENF 21), the FSA will
have regard to the matters and objectives which are applicable to the competent
authority function.
- 01/07/2005
ENF 1.2.3
See Notes
In some cases, the Act expressly requires the FSA to prepare and publish statements of policy and procedures on the exercise of its enforcement powers. The Enforcement manual therefore contains statements of policy and procedures on the following matters:
- (1) sections 69 and 210 of the Act require the FSA to publish statements of policy on the imposition of financial penalties on firms and approved persons (see ENF 13);
- (1A) section 93 of the Act requires the FSA to publish a statement of its policy on the imposition of financial penalties under section 91 of the Act (see ENF 21);
- (2) section 124 of the Act requires the FSA to publish a statement of its policy on the imposition of financial penalties for market abuse (see ENF 14); and
- (3) section 169 of the Act (Investigations etc. in support of overseas regulator) requires the FSA to publish a statement of its policy on the conduct of certain interviews in response to requests from overseas regulators (see ENF 2).
- 01/07/2005
ENF 1.2.4
See Notes
In addition, the Enforcement manual contains guidance in accordance
with section 157(1) of the Act (Guidance)
on the FSA's use
of its enforcement powers in other areas. These include the FSA's power to vary Part IV permissions on its own initiative
(see ENF 3), to apply to court for injunctions (see ENF 6), to obtain restitution (see ENF 9), and to prosecute for
certain criminal offences (see ENF 15).
- 01/12/2004
ENF 1.2.5
See Notes
For ease of reference, ENF
1 Annex 1 G contains a table of the main enforcement
powers showing where they are considered in the manual.
- 01/12/2004
ENF 1.2.6
See Notes
The Authorisation manual (AUTH), the Supervision
manual (SUP),
the Enforcement manual (ENF),
and the Decision making manual (DEC)
form the regulatory processes part of the Handbook:
(1)
AUTH sets
out the relationships between the FSA and
applicants for Part IV
permission and persons wishing
to exercise EEA rights, Treaty rights or UCITS Directive rights;
(2)
SUP sets
out the relationship between the FSA and authorised persons (referred
to in the Handbook as firms); as a general rule,
material that is of continuing relevance after authorisation is in SUP;
(3)
ENF describes
the FSA's enforcement
powers under the Act and
sets out its policies for using those powers; and
(4)
DEC is
principally concerned with, and sets out, the FSA's decision making procedures for decisions
that involve the issue of statutory notices. It also gives guidance on the FSA's procedures for using its powers under
Part XXIV of the Act (Insolvency orders), Part
XXV of the Act (Injunctions
and restitution), Part XXVII of the Act (Criminal Offences) and the Unfair Terms Regulations (see DEC
1.1.3 G and DEC 4.6).
- 01/04/2003
ENF 1.3
The FSA's approach to enforcement
- 01/12/2004
ENF 1.3.1
See Notes
There are a number of principles underlying
the FSA's
approach to the exercise of its enforcement powers:
(1) The effectiveness of the regulatory regime
depends to a significant extent on the maintenance of an open and cooperative
relationship between the FSA and
those whom it regulates.
(2) The FSA will
seek to exercise its enforcement powers in a manner that is transparent, proportionate
and consistent with its publicly stated policies.
(3) The FSA will
seek to ensure fair treatment when exercising its enforcement powers. For
example, the FSA's
decision making process for regulatory enforcement cases generally gives an
opportunity for both written and oral representations to be made, and also
provides a facility for mediation (where settlement discussions are unlikely
to lead to an agreed settlement)
in certain disciplinary cases (see DEC App 1).
- 01/02/2004
ENF 1.3.2
See Notes
The FSA has a range of enforcement powers and, in any particular enforcement situation, the FSA may need to consider which power to use and whether to use one or more powers. So in any particular case, it may often be necessary to refer to a number of chapters of the Enforcement manual. For example, in market abuse cases, it may be necessary to refer to ENF 2 (Information gathering and investigation powers), ENF 6 (Injunctions), ENF 9 (Restitution), ENF 14 (Sanctions for market abuse) and ENF 15 (Prosecution of criminal offences), as well as the Code of Market Conduct (see MAR 1). Appropriate cross-references have been included in each chapter to help the reader use this manual.
- 01/12/2004
ENF 1.3.3
See Notes
The FSA has
a range of regulatory tools to help it meet its regulatory objectives. The powers to conduct
investigations which may lead to formal disciplinary action, together with
powers to take intervention action and obtain restitution, are an important
part of the FSA's
toolkit, but there are many other regulatory tools that the FSA can use. The requirement for authorisation of firms and approval of persons in controlled functions aims
to allow only those who satisfy the necessary criteria (including honesty,
competence and financial soundness) to engage in regulated activity. Supervision enables the FSA to monitor and influence
the behaviour of firms and approved persons.
- 01/12/2004
ENF 1.3.4
See Notes
Where a firm or other person has failed to comply with the requirements
of the Act,
the rules,
or other relevant legislation (such as the Criminal Justice Act 1993, and
the Money Laundering Regulations 1993),
it may be appropriate to deal with this without the need for formal disciplinary
or other enforcement action. The proactive supervision and monitoring of firms, and an open and
cooperative relationship between firms and
their supervisors, will, in some cases where a contravention has taken place,
lead the FSA to
decide against taking formal disciplinary action. However, in those cases,
the FSA will
expect the firm to
act promptly to take the necessary remedial action agreed with its supervisors
to deal with the FSA's
concerns. If the firm does
not do this, the FSA may
take disciplinary or other enforcement action in respect of the original contravention.
- 01/12/2004
ENF 1.3.5
See Notes
The FSA's
enforcement powers are exercised in, and reviewed by, the criminal courts,
the civil courts and the Tribunal.
For example, the FSA has
power to prosecute particular offences in the criminal courts, it may seek
to obtain injunctions in
the civil courts, and its powers to impose disciplinary sanctions are subject
to referral to the Tribunal.
- 01/12/2004
ENF 1.4
The structure of the Enforcement manual
- 01/12/2004
The Enforcement manual
ENF 1.4.1
See Notes
- 01/12/2004
ENF 1.4.2
See Notes
ENF 3 (Variation of Part IV permission on
the FSA's own initiative) outlines the FSA's
powers, policies and procedures for exercising its own-initiative powers to impose limitations or requirements on a firm's permitted business.
- 01/12/2004
ENF 1.4.3
See Notes
ENF
4 (Intervention against incoming firms) is concerned
with the FSA's power
to intervene against incoming
EEA firms and incoming
Treaty firms and the FSA's policy
for exercising that power.
- 01/12/2004
ENF 1.4.4
See Notes
ENF 5 (Cancellation of permission)
outlines the FSA's powers
to cancel a firm'spermission, the procedures
for exercising those powers and the FSA's approach
to their exercise.
- 01/12/2004
ENF 1.4.5
See Notes
ENF 6 (Injunctions) describes
the FSA's powers
to apply to court for injunctions,
and the FSA's approach
to using those powers.
- 01/12/2004
ENF 1.4.6
See Notes
ENF 7 (Withdrawal of approval)
describes the FSA's power
to withdraw approval from approved
persons, the FSA's procedure
and approach in relation to the exercise of this power, other powers that
may be relevant when the FSA considers
the exercise of the withdrawal power, and the effect of the FSA's decision to withdraw approval.
- 01/12/2004
ENF 1.4.7
See Notes
ENF
8 (Prohibition of individuals)
outlines the FSA's power
to make a prohibition order,
the policy and procedure for exercising that power, the effect of the decision
to make a prohibition order,
and the FSA's policy
in relation to applications by individuals to have a prohibition order varied or revoked.
- 01/12/2004
ENF 1.4.8
See Notes
ENF 9 (Restitution and redress)
outlines the FSA's power
to apply to the court for an order for restitution, the FSA's administrative power to require restitution,
the FSA's policy
concerning the use of its powers to obtain restitution, and the way in which
the court or the FSA will
determine the amount of restitution.
- 01/12/2004
ENF 1.4.9
See Notes
ENF 10 (Insolvency proceedings
and orders against debt avoidance) outlines the FSA's powers to seek insolvency orders from the court, the exercise
of the FSA's rights
to be involved in insolvency regimes concerning firms and unauthorised persons, and the policies in
those areas.
- 01/12/2004
ENF 1.4.10
See Notes
ENF 11 (Discipline of firms
and approved persons: the FSA's general
approach) explains the FSA's policy
on private warnings, the criteria which the FSA will use when it decides whether to take
disciplinary action against firms and approved persons; its enforcement
policy relating to approved
persons; the enforcement of the Principles; guidance on the standard of reasonable care
required by some rules;
and the FSA's approach
where disciplinary action may also be taken by other UK or overseas authorities.
- 01/12/2004
ENF 1.4.11
See Notes
- 01/12/2004
ENF 1.4.12
See Notes
ENF 13 (Discipline of firms and approved persons: financial penalties) describes the FSA's powers to impose financial penalties (except those relating to market abuse), and the FSA's policy on the exercise of those powers. In particular, it contains a list of some of the factors which the FSA may take into account when it decides the level of a financial penalty.
- 01/12/2004
ENF 1.4.13
See Notes
ENF 14 (Sanctions for market abuse) describes the FSA's powers to impose financial penalties for market abuse, and contains a statement of policy with a non-exhaustive list of some of the factors which the FSA may take into account when it decides the level of a financial penalty. The chapter also refers to the FSA's power to publish a statement that a person has engaged in market abuse. It also considers the FSA's approach to market abuse cases where there may have been a breach of the Principles, and the FSA's approach to market abuse cases where other regulatory authorities may also be involved.
- 01/12/2004
ENF 1.4.14
See Notes
- 01/12/2004
ENF 1.4.15
See Notes
ENF
16 (Collective investment
schemes) sets out the FSA's policies
and procedures on the use of its enforcement powers in relation to AUTs, ICVCs, and recognised schemes.
- 01/12/2004
ENF 1.4.16
See Notes
- 01/12/2004
ENF 1.4.17
See Notes
ENF 18 (Disapplication orders
against members of the professions) describes the FSA's policy on its power to make an order
disapplying members of
the professions' exemption from the general
prohibition on conducting regulated
activities without authorisation.
- 01/12/2004
ENF 1.4.18
See Notes
ENF 19 (Directions against incoming ECA providers) describes
the FSA's policy
on its power to make a direction against an incoming ECA provider.
- 21/08/2002
ENF 1.4.19
See Notes
ENF 20 (Unfair
terms in consumer contracts) describes the FSA's policy on how it will use its powers
under the Unfair
Terms Regulations.
- 01/07/2005
ENF 1.4.20
See Notes
- 01/07/2005
ENF 1.5
Using the Enforcement manual
- 01/12/2004
ENF 1.5.1
See Notes
(1) Since most of the FSA's enforcement powers are derived from
the Act, the
manual contains a large number of references to the Act. In some instances, the manual quotes
the Act directly
(this is shown in the text by quotation marks) although, where possible, it
uses Handbook definitions
in place of the actual wordings of the Act.
In other cases, where reproducing the entire statutory provision would need
a lengthy quotation, or considerable further explanation, the relevant provision
of the Act has
been summarised. So, users of the manual should refer to the Act as well as to the manual
where necessary.
- 21/08/2002
ENF 1 Annex 1
Table of powers referred to in the Enforcement manual
- 01/12/2004
See Notes
| This table gives the main location in the Enforcement manual where guidance appears on those powers referred to in the Act , in secondary legislation made under the Act, or the Unfair Terms Regulations and in other legislation listed below. In many instances the powers will be referred to in other locations. |
| SUBJECT | PART AND SECTION OF THE ACT | ENFORCEMENT MANUAL LOCATION | |
| Variation and cancellation of permission and withdrawal of authorisation | |||
| Duty to withdraw authorisation | Part III, s 33 | Cancellation of Part IV permission on the FSA's own initiative | |
| Variation and cancellation on the FSA's' own initiative | Part IV, s 45 | Variation of Part IV permission on the FSA's own initiative (Variation), Cancellation of Part IV permission on the FSA's own initiative (Cancellation) | |
| Variation on acquisition of control | Part IV, s 46 | Variation of Part IV permission on the FSA's own initiative | |
| Exercise of powers in support of an overseas regulator | Part IV, s 47 | Variation of Part IV permission on the FSA's own initiative (Variation), Cancellation of Part IV permission on the FSA's own initiative (Cancellation) | |
| Prohibitions and restrictions | Part IV, s 48 | ENF 3.2.10 G | |
| Prohibition of individuals | |||
| Power to make a prohibition order | Part V, s.56 | ENF 8 | |
| Withdrawal of Approval | |||
| Power to withdraw approval | Part V, s 63 | ENF 7 | |
| Disciplinary Powers against Approved persons | |||
| Public statements of misconduct | Part V, s 66 | ENF 11 and ENF 12 | |
| Financial penalties | Part V, s 66 | ENF 11 and ENF 13 | |
| Disciplinary Powers in official listing cases | |||
| Public censure or statement where an issuer or person fails to comply with his obligations under Part VI of the Act, a provision contained in prospectus rules or any other provision made in accordance with the Prospectus Directive | Part VI, s.87M | ENF 21 | |
| Cancellation of sponsor's approval | Part VI, s.88 | ENF 21 | |
| Public censure of sponsor | Part VI, s.89 | ENF 21 | |
| Penalties for breach of Part 6 rules | Part VI, s.91 | ENF 21 | |
| Penalties for Market abuse | |||
| Power to impose penalties | Part VIII, s 123 | ENF 14 | |
| Power to publish statement | Part VIII, s 123 | ENF 14 | |
| Power to request court to impose penalties | Part VIII, s 129 | ENF 14 | |
| Information Gathering and Investigation powers | |||
| Power to require information | Part XI, s 165 | ENF 2.3.2 G - ENF 2.3.7 G | |
| Power to require reports | Part XI, s 166 | ENF 2.3.8 G - ENF 2.3.11 G | |
| Power to appoint persons to carry out general investigations | Part XI, s 167 | ENF 2.3.12 G - ENF 2.3.13 G | |
| Power to appoint persons to carry out investigations in particular cases | Part XI, s 168 | ENF 2.3.14 G - ENF 2.3.15 G | |
| Investigations etc in support of an overseas regulator | Part XI, s 169 | ENF 2.3.16 G -ENF 2.3.17 G and ENF 2.4.10 G - ENF 2.4.12 G | |
| Powers of investigators appointed under s 167 | Part XI, s 171 | ENF 2.4.2 G - ENF 2.4.5 G and ENF 2.4.10 G - ENF 2.4.12 G | |
| Additional powers of investigators appointed as a result of s 168(1) or (4) | Part XI, s 172 | ENF 2.4.6 G- ENF 2.4.7 G and ENF 2.4.10 G - ENF 2.4.12 G | |
| Powers of investigators appointed as a result of s 168(2) | Part XI, s 173 | ENF 2.4.8 G and ENF 2.4.10 G - ENF 2.4.12 G | |
| Information and documents: supplemental provisions | Part XI, s 175 | ENF 2.4.10 G - ENF 2.4.12 G | |
| Entry of premises under warrant | Part XI, s 176 | ENF 2.15.1 G - ENF 2.15.4 G | |
| Investigation powers in official listing cases | Part VI, s.97 | ENF 21 | |
| Investigation powers in relation to collective investment schemes | Part XVII, s 284 | ENF 2.3.18 G - ENF 2.3.21 G and ENF 2.4.13 G | |
| Intervention against Incoming Firms | |||
| General grounds on which power of intervention is exercisable | Part XIII, s 194 | ENF 4.3 | |
| Exercise of powers in support of an overseas regulator | Part XIII, s 195 | ENF 4.3.5 G | |
| Power of intervention | Part XIII, s 196 | ENF 4 | |
| Power to apply to court for injunctions in respect of certain overseas insurance companies | Part XIII, s 198 | ENF 6.8 | |
| Disciplinary Powers against firms | |||
| Public censure | Part XIV, s 205 | ENF 12 | |
| Financial penalties | Part XIV, s 206 | ENF 13 | |
| Authorised unit trusts | |||
| Revocation of authorisation order other than by consent | Part XVII, s 254 | ENF 16.2.3 G -ENF 16.2.4 G and ENF 16.2.10 G - ENF 16.2.14 G | |
| Power to give directions | Part XVII, s 257 | ENF 16.2.5 G - ENF 16.2.7 G and ENF 16.2.10 G - ENF 16.2.14 G | |
| Applications to the court | Part XVII, s 258 | ENF 16.2.8 G - ENF 16.2.14 G | |
| Recognised schemes | |||
| Power to suspend promotion of an EEA scheme | Part XVII, s 267 | ENF 16.4.2 G - ENF 16.4.4 G | |
| Revocation of recognition of s 270 schemes (designated country/territory schemes) and s 272 schemes (individually recognised schemes) | Part XVII, s 279 | ENF 16.4.5 G and ENF 16.4.7 G - ENF 16.4.8 G | |
| Directions in relation to s 270 and s 272 schemes | Part XVII, s 281 | ENF 16.4.6 G - ENF 16.4.8 G | |
| Members of designated professional bodies | |||
| Power to make disapplication orders | Part XX, s 329 | ENF 18 | |
| Disqualification of auditors and actuaries | |||
| Disqualification of auditor of authorised unit trust | Part XVII, s 249 | ENF 17 | |
| Disqualification of auditors and actuaries of authorised persons | Part XXII, s 345 | ENF 17 | |
| Insolvency proceedings and orders against debt avoidance | |||
| Company voluntary arrangements: power to participate in proceedings: | Part XXIV, s 356 | ENF 10.7 - ENF 10.8 | |
| Individual voluntary arrangements: power to participate in proceedings: | Part XXIV, s 357 | ENF 10.7 - ENF 10.8 | |
| Administration orders: power to present petitions | Part XXIV, s 359 | ENF 10.5.1 G - ENF 10.5.4 G | |
| Administration orders: power to participate in proceedings | Part XXIV, s 362 | ENF 10.11.2 G - ENF 10.11.6 G and ENF 10.13 | |
| Receivership: power to participate in proceedings | Part XXIV, s 363 | ENF 10.11.15 G - ENF 10.11.20 G | |
| Voluntary winding up: power to participate in proceedings | Part XXIV, s 365 | ENF 10.5.9 G - ENF 10.5.13 G and ENF 10.11.13 G - ENF 10.11.14 G | |
| Winding-up by the court: power to present petitions | Part XXIV, s 367 | ENF 10.5.5 G - ENF 10.5.8 G | |
| Winding up by the court: power to participate in proceedings | Part XXIV, s 371 | ENF 10.11.9 G - ENF 10.11.12 G and ENF 10.13 | |
| Bankruptcy petitions: power to present petitions | Part XXIV, s 372 | ENF 10.5.14 G - ENF 10.5.17 G and ENF 10.6.12 G - ENF 10.6.14 G | |
| Bankruptcy: power to participate in proceedings | Part XXIV, s 374 | ENF 10.11.22 G - ENF 10.11.23 G and ENF 10.13 | |
| Provisions against debt avoidance: right to apply for an order | Part XXIV, s 375 | ENF 10.9 and ENF 10.10 | |
| Injunctions | |||
| Power to apply to court for injunctions in respect of certain overseas insurance companies | Part XIII, s 198 | ENF 6.8 | |
| Injunctions for breach of a relevant requirement | Part XXV, s 380 | ENF 6.3 and ENF 6.5 - ENF 6.6 | |
| Injunctions in cases of market abuse | Part XXV, s 381 | ENF 6.4 and ENF 6.5 - ENF 6.6 | |
| Restitution | |||
| Power to apply to court for a restitution order | Part XXV, s 382 | ENF 9 | |
| Restitution orders in cases of market abuse | Part XXV, s 383 | ENF 9 | |
| Power to require restitution | Part XXV, s 384 | ENF 9 | |
| Prosecution of Criminal Offences | |||
| Power to prosecute offences under the Act and subordinate legislation | Part XXVII, s 401 | ENF 15 | |
| Power to prosecute other offences | Part XXVII, s 402 | ENF 15 | |
| Directions against incoming ECA provider | |||
| Power to make a direction against an incoming ECA provider | ECD Regulations | ENF 19 | |
| Unfair Terms Regulations | |||
| Power to seek injunctions under the Unfair Terms Regulations | N/A | ENF 20 (Unfair terms in consumer contracts) | |
| The Enforcement manual does not contain guidance inter alia, on the following: | |
| sections 77 and 78 Discontinuance and suspension of listing | |
| sections 297 and 298 Revoking recognition (see REC) | |
| section 348 Restrictions on disclosure of confidential information | |
| section 395 Procedures for the issue of supervisory notices and decision notices (See DEC) | |
| section 404 Schemes for reviewing past business | |
| Schedule 1, Part III, paragraph 17 Fees | |
- 01/07/2005
ENF 2
Information gathering and investigation powers
ENF 2.1
Application and purpose
- 01/12/2004
Application
ENF 2.1.1
See Notes
This
chapter applies to firms, appointed representatives, approved persons, and other persons who may be subject
to the FSA's investigations
or who may be required to provide information to the FSA.
- 01/12/2004
ENF 2.1.1A
See Notes
The FSA's policy on how it
will use its powers to investigate in support of its enforcement functions,
when acting in the capacity of the competent
authority under Part VI of the Act, are set out in ENF 21.2
to ENF 21.4. That guidance contains cross
references to material in this Chapter, where relevant.
- 01/07/2005
Purpose
ENF 2.1.2
See Notes
This chapter explains the FSA's policy on how it
will use its powers to gather information and investigate in support of its
enforcement functions. The FSA may
also use some of these powers to support its supervision functions and the
Supervision manual explains how it will use the powers in those circumstances
(see SUP
2 (Information gathering by the FSA on its own initiative) andSUP 5 (Reports by skilled persons).
- 01/12/2004
ENF 2.2
Introduction
- 01/12/2004
ENF 2.2.1
See Notes
This chapter is divided into two parts.
The first part of the chapter, ENF 2.3 to ENF
2.9, relates to the main provisions
of the Act on
information gathering and investigations. It outlines:
(1) the FSA's powers
to gather information, and to appoint investigators;
(2) the powers of investigators appointed
by the FSA;
and
(3) the FSA's policy
on the use of its powers in each of the following circumstances:
(a) to gather information from firms and unauthorised incoming ECA providers and
to conduct investigations of firms, approved persons, individuals
involved in firms, appointed representatives,
small e-money issuers and unauthorised incoming
ECA providers, including issuing preliminary findings letters;
(b) to investigate suspected market misconduct;
(c) to investigate unauthorised business;
(d) to conduct investigations to assist overseas
authorities; and
(e) to investigate collective investment schemes.
- 21/08/2002
ENF 2.2.2
See Notes
The second part of the chapter, ENF 2.10 to ENF 2.15, relates to provisions that apply to investigations generally.
It outlines:
(1) the provisions of the Act relating to protected items, banking confidentiality
and the admissibility of statements made to investigators;
(2) the FSA's powers
to control and direct investigations;
- 01/12/2004
ENF 2.3
The FSA's powers to gather information and investigate
- 01/12/2004
ENF 2.3.1
See Notes
The FSA's powers
to gather information and to appoint investigators are contained in sections
165 to 169 and 284 of the Act.
They are described in this section of the chapter under the following cross-headings:
(3) general investigations of firms and appointed representatives (section
167:ENF
2.3.12 G and ENF
2.3.13 G);
(4) Investigations of specific contraventions,
offences and other matters (section 168: see ENF
2.3.14 G and ENF
2.3.15 G);
(5) investigations in support of overseas regulators (section 169:
see ENF
2.3.16 G and ENF
2.3.17 G); and
(6) investigations into collective investment schemes (section 284:
see ENF
2.3.18 G to ENF
2.3.21 G).
- 01/12/2004
Requiring information and documents from firms
ENF 2.3.2
See Notes
Section 165 of the Act (FSA's power
to require information) relates to the FSA's powers
to require information and documents from firms. There are two ways
in which the FSA may
do this.
(1) Under section 165(1), the FSA may, by notice in
writing, require a firm to:
(a) provide specified information or information
of a specified description; or
The firm must do this within
a reasonable period of time, which the FSA will
specify, at a specified place. The firm must
provide the specified information in any form that the FSA may reasonably require.- 01/12/2004
ENF 2.3.3
See Notes
- 01/12/2004
ENF 2.3.4
See Notes
- 01/12/2004
ENF 2.3.5
See Notes
(1) Under section 165(7), the FSA may also use the power
to impose requirements to
provide information or to produce documents on:
(b) an operator, trustee or depositary of certain
types of recognised collective
investment schemes who is not an authorised person;
(2) In this context a 'firm' includes a person who was an authorised person but who has now ceased to
be one (section 165(8)).
- 01/12/2004
ENF 2.3.6
See Notes
- 01/12/2004
ENF 2.3.7
See Notes
The FSA may
use its section 165 power to require information and documents from firms in support of both its supervisory
functions and its enforcement functions. The FSA will often use this power in support
of its supervision functions and SUP 2 (Information
gathering by the FSA on
its own initiative) deals with the FSA's use
of the power in that context. For completeness, the use of the power is also
referred to in ENF 2.5 in
support of the FSA's enforcement
functions in relation to firms.
- 01/12/2004
Reports on firms by skilled persons
ENF 2.3.8
See Notes
Section 166 (Reports by skilled persons)
relates to the FSA's power
to require firms to
provide a report by a skilled
person. Under section 166, the FSA may require any of the following, who
are or were at the relevant time carrying on a business, to provide it with
a report on any matter about which the FSA has
required or could require the provision of information or documents under section 165:
(1) a firm ('A');
(2) any other member of A's group;
(3) a partnership of
which A is a member;
(4) a person who
has at any relevant time been one of the above.
The FSA may specify the form
in which it requires the report.- 01/12/2004
ENF 2.3.9
See Notes
- 01/12/2004
ENF 2.3.10
See Notes
(1) Section 166(5) applies to any person ('X') who is providing
or has provided a person whom
the FSA has
required to provide a report ('Y') with services in relation to a matter about
which the FSA has
required the report.
(2) Under section 166(5), X has a duty to
give the skilled person appointed
to provide such a report ('Z') any assistance as Z may reasonably require.
The FSA may
apply for an injunction or,
in Scotland, for an order for specific performance, to enforce this obligation.
- 01/12/2004
ENF 2.3.11
See Notes
As with its power to require information
and documents,
the FSA may
use its section 166 power to require reports by skilled persons in support of both its supervision
and enforcement functions. SUP 5 (Reports
by skilled persons) contains rules and guidance that will apply
whenever the FSA uses
the power. ENF 2.5 refers
briefly to the FSA's use
of the power in support of its enforcement functions in relation to firms. As a result of
article 9G of the Regulated
Activities Order, the FSA has
certain powers to require specified information and documents from a small e-money issuer and a power under section
166 to require a small
e-money issuer to provide a report by a skilled person. These powers are described
in ELM 8.7.
- 27/04/2002
General investigations of firms and appointedrepresentatives
ENF 2.3.12
See Notes
Section 167 of the Act (Appointment of persons to carry out general
investigations) relates to the appointment of investigators to conduct general
investigations into firms and appointed representatives.
(1) Under section 167(1), if it appears to
the FSA (or
the Secretary of State) that there is good reason to do so, then the FSA (or the Secretary
of State) may appoint one or more competent persons to conduct an investigation into:
(b) a particular aspect of that business;
or
(2) Under Section 167(2), if the person appointed to investigate
thinks it necessary for his investigation, he may also investigate the business
of a person who
is or has at any relevant time been:
(b) a partnership of
which A is a member.
(3) Under section 167(4) the FSA may also use this
power in relation to a former firm or
former appointed representative,
concerning:
(a) Business carried on at any time when
it or he was an authorised
person or appointed
representative; or
(4) In section 167 'business' includes any
part of a business even if it does not consist of regulated activities.
- 01/12/2004
ENF 2.3.13
See Notes
Under
the ECD Regulations,
the FSA may
exercise the powers in sections 165 and 166 of the Act in relation to an incoming ECA provider, whether the provider
is a firm or
not. The FSA's policy
on how it will use this power (and other information gathering investigation
powers) in support of its enforcement function is set out in ENF 2.5 (The FSA's policy
on exercising its powers: firms, approved persons, and others). In addition,
under these regulations, the FSA may
exercise the power under section 167 in relation to an unauthorised incoming ECA provider (the Act enables the FSA to appoint an investigator
under section 167 to investigate any part of the business of an incoming ECA provider which
is a firm).
- 21/08/2002
Investigations of specific contraventions, offences and other matters
ENF 2.3.14
See Notes
Section 168 of the Act (Appointment of persons to carry out investigations in particular cases) relates to the conduct of investigations into certain specified contraventions, offences or other matters. The FSA's powers to appoint investigators are contained in section 168(3) and (5) and the circumstances in which it can do so are listed in section 168(1), (2) and (4) of the Act.
- (1) Under section 168(1) and (3) the FSA may appoint one or more competent persons to carry out an investigation on its behalf if it appears to the FSA that there are circumstances suggesting that:
- (a) a person may have breached regulations made under section 142 of the Act (Insurance business: regulations supplementing FSA's rules); or
- (b) a person may be guilty of an offence under section 177 (Offences), 191 (Offences under Part XII), 346 (Provision of false or misleading information to auditor or actuary) or 398(1) (Misleading the FSA: residual cases) of the Act or under Schedule 4 to the Act (Treaty Rights).
- (2) Under section 168(2) and (3) the FSA may appoint one or more competent persons to carry out an investigation on its behalf if it appears to the FSA that there are circumstances suggesting that:
- (a) an offence under section 24(1) (False claims to be authorised or exempt) or 397 (Misleading statements and practices) of the Act or under Part V of the Criminal Justice Act 1993 may have been committed; or
- (b) there may have been a breach of the general prohibition; or
- (c) there may have been a contravention of section 21 (Restrictions on financial promotion) or 238 (Restrictions on promotion of collective investment schemes) of the Act; or
- (d) market abuse may have taken place.
- (3) Under section 168(4) and (5) the FSA may appoint one or more competent persons to carry out an investigation on its behalf if it appears to the FSA that there are circumstances suggesting that:
- (a) a firm may have breached the requirement for permission in section 20 of the Act (Authorised persons acting without permission); or
- (b) a person may be guilty of an offence under the Money Laundering Regulations; or
- (c) a firm may have breached a rule made by the FSA; or
- (d) an individual may not be a fit and proper person to perform functions in relation to a regulated activity carried on by an authorised or exempt person; or
- (e) an individual may have performed or agreed to perform a function in breach of a prohibition order; or
- (f) a firm or an exempt person may have failed to comply with section 56(6) of the Act (Prohibition orders); or
- (g) a firm may have failed to comply with section 59(1) or (2) of the Act (Approval for particular arrangements); or
- (h) a person to whom the FSA has given its approval under section 59 may not be a fit and proper person to perform the function to which that approval relates; or
- (i) a person may be guilty of misconduct for the purposes of section 66 of the Act.
- (4) As a result of regulation 12 of the ECD Regulations, the FSA may also appoint investigators under section 168(4)(c) and (5) where it appears to the FSA that there are circumstances suggesting that an incoming ECA provider, whether a firm or not, may have breached a requirement imposed by the FSA under those regulations.
- 21/08/2002
ENF 2.3.15
See Notes
The FSA may
use these powers to investigate firms, approved persons, individuals
employed by firms,
and small e-money issuers as
well as cases of market misconduct and breaches of the general prohibition. The FSA's policies on the use of this power are
therefore set out in three different sections of this chapter:
(1)
ENF 2.5 deals
with the use of this power and other powers in relation to firms, approved
persons, individuals employed by firms, appointed
representatives, small
e-money issuers, and unauthorised incoming ECA providers;
(2)
ENF
2.6 deals
with the use of this power in relation to cases of market misconduct; and
(3)
ENF 2.7 deals
with the use of this power in relation to unauthorised business.
- 21/08/2002
Investigations in support of overseas regulators
ENF 2.3.16
See Notes
Investigations in support of overseas regulatorsSection 169
of the Act (Investigations
etc. in support of overseas
regulators) relates to investigations conducted to assist an overseas regulator. It
states that at the request of an overseas
regulator, the FSA may
use its powers to require documents or
information under section 165 or to appoint a person to investigate any matter. ENF
2.8.4 G to ENF
2.8.6 G set out the matters that the FSA must, or may, take into account when
considering whether to use these powers in support of an overseas regulator.
- 01/12/2004
- 01/12/2004
Investigations into collective investment schemes
ENF 2.3.18
See Notes
Section 284(1) of the Act (Power to investigate) relates to the FSA's powers to investigate
the affairs of collective
investment schemes. Under section 284, if it appears to the FSA that it is in the
interests of the participants or
potential participants,
or that the matter is of public concern, it may appoint one or more competent persons to investigate
and report on:
(2) the affairs of, or of the operator, trustee or depositary of, any recognised scheme that
relate to its activities carried on in the UK; or
(3) the affairs of, or of the operator, trustee or depositary of, any other collective investment scheme except
a body incorporated by virtue of regulations under section 262 of the Act (that is, an open-ended investment company).
- 01/12/2004
ENF 2.3.19
See Notes
Section 284(2) states that an investigator
appointed under section 284(1) to investigate the affairs of, or of the manager, trustee, operator or depositary of, any scheme may also, if he
thinks it necessary for the purposes of that investigation, investigate:
(1) the affairs of, or of the manager, trustee, operator or depositary of, any other scheme that is mentioned
in section 284(1) whose manager, trustee, operator or depositary is the same person as the manager, trustee, operator or depositary of the scheme;
(2) the affairs of other schemes and persons (including bodies incorporated by
virtue of regulations under section 262 of the Act (Open-ended investment companies) and
the directors and depositaries of those
bodies) as may be prescribed.
- 01/12/2004
ENF 2.3.20
See Notes
Regulations to be made by the Treasury
will also give the FSA powers
to appoint investigators to investigate and report on the affairs of ICVCs, or directors or depositaries of ICVCs.
- 01/12/2004
ENF 2.3.21
See Notes
- 01/12/2004
ENF 2.4
Powers of FSA investigators
- 01/12/2004
ENF 2.4.1
See Notes
The nature and extent of an investigator's
powers depend on the provision of the Act under
which he was appointed.
(1) The powers of an investigator appointed
under section 167 of the Act (Appointment
of persons to carry out general investigations) are contained in section 171
(Powers of persons appointed under section 167) and 175 (Information and documents:
supplemental provisions) of the Act and
are described in ENF
2.4.2 G to ENF
2.4.5 G and ENF
2.4.10 G to ENF
2.4.12 G.
(2) The powers of an investigator appointed
under section 168 of the Act (Appointment
of persons to
carry out investigations in particular cases) depend on whether he is appointed
to investigate the matters listed in section 168(1) and (4) (see ENF 2.3.14 G (1) and ENF 2.3.14 G (3)) or those listed in section 168(2) (see ENF 2.3.14 G (2)):
(a) the powers of an investigator appointed
as a result of section 168(1) or (4) are contained in sections 172 (Additional
power of persons appointed as a result of section 168(1) or (4)) and 175 (Information
and documents: supplemental provisions) and are described in ENF
2.4.6 G to ENF
2.4.7 G and ENF
2.4.10 G to ENF
2.4.12 G;
(b) The powers of an investigator appointed
as a result of section 168(2) are contained in sections 173 (Powers of persons appointed as a
result of section 168(2)) and 175 (Information and documents: supplemental
provisions) and are described in ENF
2.4.8 G and ENF
2.4.10 G to ENF
2.4.12 G.
(3) The powers of an investigator (appointed
under section 169 of the Act (Investigations
etc. in support of overseas
regulator) are the same as those of an investigator appointed
as a result of section 168(1) (see ENF
2.4.9 G, ENF
2.4.6 G to ENF
2.4.7 G and ENF
2.4.10 G to ENF
2.4.12 G).
(4) The powers of an investigator appointed
under section 284 of the Act (Power
to investigate) are contained in section 284(3) and are described in ENF
2.4.13 G.
- 01/12/2004
Powers of section 167 investigators
ENF 2.4.2
See Notes
Section 171 states that an investigator
conducting a general investigation under section 167 of the Act may require the person who is the subject of the investigation
or any person connected
with the person under
investigation:
(1) to attend before the investigator at
a specified time and place to answer questions; or
(2) otherwise to provide such information
as the investigator may require.
- 01/12/2004
ENF 2.4.3
See Notes
- 01/12/2004
ENF 2.4.4
See Notes
However, under section 171(3), the investigator
may only impose requirements referred to in ENF
2.4.2 G and ENF
2.4.3 G) so far as he reasonably
considers the question, provision of information or production of the document to be relevant
to the purposes of the investigation.
- 01/12/2004
ENF 2.4.5
See Notes
For the purposes of section 171 (see ENF
2.4.2 G) , a person is connected with the person under investigation
('A') if he is or has at any relevant time been:
(1) a member of A's group; or
(2) a controller of
A; or
(3) a partnership of
which A is a member; or
- 01/12/2004
Powers of section 168(1) and (4) investigators
ENF 2.4.6
See Notes
Section 172 states that an investigator
appointed as a result of section 168(1) or (4) will have the powers given
by section 171, which are described in ENF
2.4.2 G to ENF
2.4.5 G. Under section 172(2),
he will also have the power to require a person who
is not the subject of the investigation, nor a person connected with the person under investigation, to attend before
him at a specified time and place and answer questions, or otherwise to provide
such information as he may require, for the purposes of the investigation.
- 01/12/2004
ENF 2.4.7
See Notes
The investigator may only impose a requirement
under section 172(2) if satisfied that this is necessary or expedient for
the purposes of the investigation.
- 01/12/2004
Powers of section 168(2) investigators
ENF 2.4.8
See Notes
Section 173 sets out the powers of an
investigator appointed as a result of section 168(2) (see ENF 2.3.14 G (2)). Under section 173, if an investigator
considers that any person is
or may be able to give information which is or may be relevant to the investigation,
he may require that person:
(1) to attend before the investigator at
a specified time and place and answer questions;
(2) otherwise to provide such information
as the investigator may require for the purposes of the investigation;
(3) to produce at a specified time and place
any specified documents or documents of a specified
description which appear to the investigator to relate to any matter relevant
to the investigation;
(4) to give the investigator all assistance
in connection with the investigation which he is reasonably able to give.
- 01/12/2004
Powers of section 169 investigators
ENF 2.4.9
See Notes
Section 169(2) states that an investigator
appointed in support of an overseas
regulator under section 169(1)(b) has the same powers as an
investigator appointed as a result of section 168(1) (see ENF
2.4.6 G to ENF
2.4.7 G and ENF
2.4.10 G to ENF
2.4.12 G).
- 01/12/2004
Powers common to section 167, 168(1), (2) and (4), and 169 investigators
ENF 2.4.10
See Notes
Section 175 provides that if the FSA, or an investigator
appointed by it under Section 167 or 168 of the Act, has the power to require a person to produce a document but that it appears
that the document is
in the possession of a third person,
the FSA or
investigator may use that power in relation to the third person.
- 01/12/2004
ENF 2.4.11
See Notes
Section 175(2) states that the person to whom the document is produced may
take copies or extracts from the document,
or require the person producing
the document ('A')
or any relevant person to
provide an explanation of it. Under section 175(7) a relevant person means a person who:
(1) has been or is or is proposed to be a
director or controller of
A; or
(2) has been or is an auditor of A; or
(3) has been or is an actuary, accountant
or lawyer appointed or instructed by A; or
(4) has been or is an employee of A.
- 01/12/2004
ENF 2.4.12
See Notes
Section 175(3) states that if a person who is required
to produce a document fails
to do so, the FSA or
an investigator may require him to state, to the best of his knowledge and
belief, where the document is. ENF
2.10.2 G explains the provisions
of section 413 of the Act (Protected items) relating to communications or
items that a person may not be required to produce, disclose, or allow to
be inspected.
- 01/12/2004
Powers of section 284 investigators
ENF 2.4.13
See Notes
Section 284(3) states that if an investigator
appointed under section 284 of the Act ('B')
considers that a person ('C')
is or may be able to give information which is relevant to the investigation,
B may require C:
(1) to produce to B any documents in C's possession or under his control which appear to
B to be relevant to the investigation;
(2) to attend before him; and
(3) Otherwise to give B all assistance in
connection with the investigation which C is reasonably able to give; and
that it is C's
duty to comply with that requirement.- 01/12/2004
ENF 2.5
The FSA's policy on exercising its powers: firms, approvedpersons, and others
- 01/12/2004
Introduction
ENF 2.5.1
See Notes
ENF
2.5.2 G to ENF
2.5.11 G refer to the FSA's policies on using
its powers to require information and reports from firms and others(which
are explained in SUP 2 (Information gathering
by the FSAon
its own initiative) and SUP 5 (Reports
by skilled persons)). They also set out the FSA's policy on using its powers to carry
out investigations into the affairs of firms, approved persons, individuals
involved in firms, appointed representatives, small e-money issuers and unauthorised incoming ECA providers. The powers
available to the FSA are
summarised in ENF
2 Annex 3 G.
- 21/08/2002
Requiring information and documents under section 165 of the Act
ENF 2.5.2
See Notes
Section 165 of the Act (FSA's power to require information) gives
the FSA powers
to require the provision of information and documents from firms. Under the ECD Regulations, the FSA may exercise the power under section
165 (and section 166) in relation to an incoming
ECA provider, whether the provider is a firm or not.
- 21/08/2002
ENF 2.5.3
See Notes
The FSA may
require the provision of information and documents under
section 165 of the Act if
it reasonably requires them, in connection with the exercise of the functions
conferred on it by or under the Act (section
165(4)). This power may be used in a range of circumstances and for different
purposes, such as supervision, including routine supervisory activities, and consumer education (see SUP
2).
- 01/12/2004
Reports by skilledpersons under section 166 of the Act and investigations under sections 167 and 168 of the Act.
ENF 2.5.4
See Notes
If the information available to the FSA raises a regulatory
concern about a firm,
an approved person's conduct
or fitness and propriety, a small
e-money issuer or an unauthorised incoming ECA provider, the FSA may need to make further
enquiries by using its powers to require reports by skilled persons or to appoint investigators.
The nature of the FSA's enquiries
will depend on the nature and seriousness of its concerns and on the attitude
of the firm, small e-money issuer or
unauthorised incoming ECA
provider concerned.
- 21/08/2002
ENF 2.5.5
See Notes
The types of concern that may prompt
the FSA to
make further enquiries into a firm cannot
be listed exhaustively. They will extend to any matter which relates to a firm's business and to
the FSA's performance
of its statutory functions, having regard to its regulatory objectives. Broadly speaking,
they will include circumstances which suggest that:
(1) a firm,
or an approved person within
a firm, may
have acted in a way which prejudiced the interests of consumers;
(2) a firm,
or an approved person within
a firm, may
have acted in breach of the requirements of the legislation or the rules;
(3) a firm may
no longer meet the threshold
conditions or an approved
person within a firm may
not be a fit and proper person to
perform a controlled function;
(4) a firm may
have been used or may be being used for the purposes of financial crime including money laundering;
(5) the FSA should
be concerned about the ownership or control of
a firm, including
whether a person who
has acquired influence over the firm meets
the requirements for FSA approval;
(6) the conduct of certain types of regulated activities in
which a firm is
involved are a cause of serious public concern.
- 01/12/2004
Reports by skilled persons
ENF 2.5.6
See Notes
If the FSA decides that it should use its statutory
powers to make further enquiries, it will have regard to the objectives of
those enquiries, and the relative effectiveness of its available powers to
achieve those objectives. For example:
(1) if the FSA's objectives are limited to gathering
historic information or evidence for determining whether enforcement action
may be appropriate, the FSA's information
gathering and investigation powers under sections 165, 167 and 168 of the Act are likely to be more
effective and more appropriate than the power under section 166 (Reports by skilled persons) (see ENF
2.3.2 G to ENF
2.3.15 G); and
- 01/12/2004
ENF 2.5.7
See Notes
SUP 5 contains guidance on the FSA's use of the section
166 power, including guidance on
the appointment and reporting process. It also contains rules and guidance on the duties
of firms which
are subject to section 166 requirements, and guidance on the contractual duties of skilled persons appointed
as a result of section 166 requirements. The rules and guidance in SUP 5 apply
whenever the FSA uses
the section 166 power.
- 01/12/2004
Investigations into general and specific concerns
ENF 2.5.8
See Notes
(1) In some circumstances, the provision
of a report by a skilled
person under section 166 may not be appropriate, or may be insufficient
(because of the limited nature of the power) to address the seriousness of
the FSA's concerns.
This will include cases where an effective and thorough investigation by the FSA is likely to call
for the exercise of powers to require the firm, connected
persons, small
e-money issuer, or unauthorised incoming ECA provider to answer questions
and/or produce documents.
In those cases, the FSA will
appoint an investigator under section 167 or 168 of the Act, if appropriate the FSA may also require the firm, small
e-money issuer or unauthorised incoming ECA provider to provide a skilled person's report
under section 166. In other cases, the FSA may
appoint an investigator, under section 167 or 168, as a result of information
in a report under section 166.
(2) Investigators will usually be members
of the FSA's staff.
- 21/08/2002
ENF 2.5.9
See Notes
Where the FSA has general concerns about a firm, an appointed representative or
an unauthorised incoming
ECA provider, but the circumstances do not at that stage suggest
any specific breach or contravention, it will rely on its power under section
167 of the Act and,
if it appears that there are good reasons for doing so, the FSA will appoint investigators to investigate
the business of a firm,
an appointed representative or
an unauthorised incoming
ECA provider.
- 21/08/2002
ENF 2.5.10
See Notes
Where it appears to the FSA that circumstances
suggest the contraventions or offences set out in section 168 of the Act (listed in ENF
2.3.14 G) may have happened, the FSA will appoint investigators
under section 168. These powers are wider than those available to investigators
under section 167 (see ENF
2.4.2 G to ENF
2.4.8 G). An investigator appointed
under section 168 may also require persons who
are neither the subject of the investigation, nor connected with the person under investigation,
to attend before him, and to answer questions and provide information. In
addition, where the investigator is appointed as a result of section 168(2),
those persons may
also be required to provide all assistance to the investigator that they are
reasonably able to give.
- 01/12/2004
ENF 2.5.11
See Notes
In some cases, where the FSA has appointed investigators
into a firm or
an unauthorised incoming
ECA provider under
section 167 of the Act,
it may decide that it is appropriate to extend the appointment to cover matters
under section 168 of the Act as
well, if circumstances suggest that one of the specific contraventions, breaches
or offences listed in ENF
2.3.14 G may
have occurred. Where it does so, it will normally notify the person under investigation
that it has appointed the investigators to investigate under section 168 as
well (see ENF 2.12).
- 21/08/2002
Preliminary Findings Letter
ENF 2.5.12
See Notes
Unless it is not practicable to do so
(such as in cases of urgency), FSA staff
(or the investigator appointed by the FSA)
will generally send a preliminary findings letter to a firm, approved
person, individual involved in a firm, appointed
representative or a small
e-money issuer under
investigation (as the case may be) before considering whether to recommend
that enforcement action be initiated.
- 27/04/2002
ENF 2.5.13
See Notes
The letter will set out the facts which
the FSA staff
(or the investigator appointed by the FSA)
consider relevant to the matters under investigation, and will invite the
person concerned to confirm that those facts are complete and accurate. FSA staff (or the investigator
appointed by the FSA)
will allow a reasonable period (normally 28 days) for a response to this letter.
- 01/12/2004
ENF 2.5.14
See Notes
FSA staff
will take into account any response they receive within the period stated
in the preliminary findings letter. They are not obliged to take into account
any response received outside that period.
- 01/12/2004
ENF 2.5.15
See Notes
- 01/12/2004
ENF 2.6
The FSA's policy on investigations into suspected market misconduct
- 01/12/2004
ENF 2.6.1
See Notes
The FSA's power to investigate suspected market misconduct is contained in section 168(2) of the Act (Appointment of persons to carry out investigations in particular cases) (see ENF 2.3.14 G (2)). The FSA may appoint an investigator if circumstances suggest that insider dealing or market abuse may have taken place, or that misleading statements have been made or misleading practices may have been engaged in. Where it appears to the FSA that there are circumstances suggesting that a firm may have engaged in market abuse, the FSA will consider appointing an investigator under section 168(2) to investigate that particular matter, rather than under section 167 (Appointment of persons to carry out general investigations). ENF 2.6.2 G deals in more detail with the circumstances in which the FSA may appoint investigators, in relation to both authorised persons and unauthorised persons.
- 01/12/2004
ENF 2.6.2
See Notes
When considering whether to use its powers to conduct formal investigations into market misconduct, the FSA will take into account a number of factors. These will include:
- (1) the seriousness of its concerns, including the effect of the misconduct on consumers or market confidence;
- (2) the nature of the possible contravention, including the type of market involved, and the duration and frequency of the possible contravention;
- (3) the context of the possible contravention; for example, where the behaviour in question happened or is happening in the context of a takeover bid and, in the FSA's opinion, any investigation may materially affect the timetable or outcome of that bid, the FSA will consult the Takeover Panel and will give due weight to its views; and
- (4) whether another regulatory authority is in a position to investigate and deal with the matters of concern.
- (a) As far as a recognised investment exchange or recognised clearing house is concerned, the FSA will consider the extent to which the relevant exchange or clearing house has adequate and appropriate powers to investigate and deal with the matters of concern itself. The FSA will consult with the relevant exchange or clearing house and give due weight to its views. Where appropriate, the FSA may use its own powers under section 128 of the Act (Suspension of investigations) to prevent a recognised investment exchange or recognised clearing house from starting an investigation or to limit, stop or suspend an existing inquiry.
- (b) As far as the Takeover Panel is concerned, as regards market abuse, the cases in which the FSA expects to take action against a person with Takeover Code responsibilities are limited, as ENF 14.9 (Action involving other UK regulatory authorities) makes clear. The FSA does not therefore expect to use relevant investigative powers unless one of the circumstances in ENF 14.9.6 G applies. Further, unless one of the following exceptions applies, the FSA will not start any investigation into behaviour that has happened or is happening in the context of a takeover bid while that bid is current. The exceptions are where: (i) the case falls within ENF 14.9.7 G, or (ii) the person whose behaviour is to be investigated is not a person who has responsibilities under the Takeover Code.
- 01/12/2004
ENF 2.7
The FSA's policy on investigations into unauthorised business
- 01/12/2004
ENF 2.7.1
See Notes
The FSA may
appoint investigators into unauthorised
persons under section 168 of the Act (Appointment of persons to carry out investigations
in particular cases) (see ENF 2.3.14 G (2) and ENF 2.3.14 G (3)) where it appears
to it that circumstances suggest that:
(1) a person has
contravened the general
prohibition in section 19 of the Act against carrying on a regulated activity without authorisation or exemption; or
(3) a person has
committed a specified offence, including:
(a) Making a false claim to be authorised or exempt;
(b) Contravening the restriction on financial promotion; and
(c) Making a false or misleading statement
to induce an investment
agreement.
- 01/12/2004
ENF 2.7.2
See Notes
The FSA's primary
aim in using its investigation powers will be to protect the interests of consumers. The FSA's priority will be
to confirm whether or not a regulated
activity has been carried on in the United Kingdom by someone without authorisation or exemption,
and, if so, the extent of that activity and whether other related contraventions
have occurred. It will seek to assess the risk to consumers' assets and interests arising from
the activity as soon as possible.
- 01/12/2004
ENF 2.7.3
See Notes
The FSA may
be alerted to possible contraventions or breaches by complaints from the public
or firms,
by referrals from other prosecuting authorities or through its own enquiries.
It will assess on a case-by-case basis whether to carry out a formal investigation,
after considering all the available information. Factors it will take into
account are:
(1) the elements of the suspected contravention
or breach;
(3) whether obligations of confidentiality
inhibit individuals from providing information unless compelled to do so by
the FSA's use
of its formal powers.
- 01/12/2004
ENF 2.7.4
See Notes
At an early stage in the investigation
the FSA may
need to consider whether to take urgent enforcement action to protect consumers. Its investigators
will then use their powers to collect documentary and oral evidence for use
in support of that action. Nevertheless, even when it has commenced enforcement
proceedings, it may need to continue with its fact-finding investigations.
For instance, the FSA may
need further information to consider whether it should use any of its other
statutory powers, to apply for further civil remedies or to start criminal
prosecutions.
- 01/12/2004
ENF 2.7.5
See Notes
The FSA will
not always be the only investigating, enforcement or prosecuting authority
with an interest in investigating unauthorised business. From time to time
the Serious Fraud Office, the Department of Trade and Industry, the police
and the prosecuting authorities (both in the United Kingdom and overseas) may have an
interest in such cases.
- 01/12/2004
ENF 2.7.6
See Notes
The FSA has
agreed guidelines that will establish a framework for liaison and cooperation
in cases where one or more of these authorities has an interest in prosecuting
any aspect of a matter that the FSA is
considering for investigation, investigating or considering prosecuting. These
Guidelines are set out in ENF
2 Annex 1 G G.
- 01/12/2004
ENF 2.8
The FSA's policy for exercising its power to conduct investigations to assist overseas authorities
- 01/12/2004
ENF 2.8.1
See Notes
The FSA's power
to conduct investigations to assist overseas authorities is contained in section
169 of the Act (see ENF
2.3.16 G).
- 01/12/2004
ENF 2.8.2
See Notes
Section 169(1) states that at the request
of an overseas regulator,
the FSA may
use its power under section 165 of the Act (FSA's power to require
information) power to require information and documents, or appoint a person to investigate any matter. These are
referred to as the FSA's investigative
powers.
- 01/12/2004
ENF 2.8.3
See Notes
If the overseas regulator is a competent authority and makes a request under
any Community obligation, section 169(3) states that the FSA must, in deciding whether or not to exercise
its investigative power, consider whether it is necessary to use it to comply
with that obligation.
- 01/12/2004
ENF 2.8.4
See Notes
Section 169(6) states that, if the FSA considers that the
use of its investigative power is necessary to comply with a Community obligation,
the provisions of section 169(4) and (5) (set out in ENF
2.8.5 G and ENF
2.8.6 G)
do not apply.
- 01/12/2004
ENF 2.8.5
See Notes
Under section 169(4), in deciding whether
or not to use its investigative power, the FSA may take into account in particular the
following factors:
(1) whether, in the country or territory
of the overseas regulator concerned,
corresponding assistance would be given to a UK regulatory authority;
(2) whether the case concerns the breach
of a law, or other requirement, which has no close parallel in the United Kingdom or involves
the assertion of a jurisdiction not recognised by the United Kingdom;
(4) whether it is otherwise appropriate in
the public interest to give the assistance sought.
- 01/12/2004
ENF 2.8.6
See Notes
Section 169(5) states that the FSA may decide not to
use its investigative power unless the overseas
regulator agrees to make such contribution towards the cost
as the FSA considers
appropriate.
- 01/12/2004
ENF 2.8.7
See Notes
When it considers whether to use its
investigative power, and whether section 169(4) applies, the FSA will first consider
whether it is able to assist without using its formal powers, for example
by getting the information voluntarily. Where that is not possible, the FSA will take account
of all the factors in ENF
2.8.5 G,
but may give particular weight to the seriousness of the case and its importance
to persons in
the United Kingdom,
and to the public interest.
- 01/12/2004
ENF 2.9
The FSA's policy on investigations into collective investment schemes under section 284
- 01/12/2004
ENF 2.9.1
See Notes
The FSA may
appoint investigators into a collective
investment scheme if it appears to it that it is in the interests
of the participants or
potential participants to
do so or that the matter is of public concern (section 284(1) (Power to investigate)).
In most cases it expects that those involved (such as managers of schemes) will provide information without
the FSA having
to use its formal powers. In other cases, circumstances may be such that the FSA relies on its general
investigative powers. However, in some cases the use of the section 284 power
may be more appropriate.
- 01/12/2004
ENF 2.9.2
See Notes
The types of concern that may prompt
the FSA to
use its powers under section 284 cannot be listed exhaustively. They will
include any matters that could affect the interests of participants or potential participants or matters that could be of
public concern, including questions about the nature and propriety of assets
held by the scheme or the accuracy and propriety of valuation of units in
the scheme. When considering whether to use the powers, factors that the FSA will take into account
include:
(1) the seriousness, in the FSA's opinion, of the
matter of concern;
(2) the degree to which the interests of consumers may be affected;
(3) whether the FSA considers that the persons concerned are willing to cooperate
in giving information;
(4) whether confidentiality obligations may
inhibit individuals from giving information without the FSA having to use its formal powers.
- 01/12/2004
ENF 2.10
Protected items, banking confidentiality, and admissibility
- 01/12/2004
ENF 2.10.1
See Notes
This section sets out additional provisions
that apply to investigations generally.
- 01/12/2004
Protected items
ENF 2.10.2
See Notes
Section 413 of the Act relates to protected items.
(1) Under section 413(1), a person may not be required
under the Act to
produce, disclose or allow inspection of protected
items.
(2)
Protected
items are:
(a) Communications between a professional
legal adviser and his client or any person representing
his client which falls within section 413(3);
(b) Communications between a professional
legal adviser, his client or any person representing
his client and any other person that
falls within section 413(3) (as a result of paragraph (b) of that subsection);
(c) items which -
(i) Are enclosed with, or referred to in,
such communications;
(ii) Fall within section 413(3); and
(iii) Are in the possession of a person entitled to have
them.
(3) A communication or item falls within
section 413(3) if it is made:
(a) in connection with the giving of legal
advice to the client; or
(b) in connection with, or in contemplation
of, legal proceedings and for the purposes of those proceedings.
(4) However under section 413(4) a communication
or item is not a protected
item if it is held with the intention of furthering a criminal
purpose.
(5) Also, under section 175(4) of the Act (Information and documents:
supplemental provisions) a lawyer may be required to give the name and address
of his client.
- 01/12/2004
Banking confidentiality
ENF 2.10.3
See Notes
Under section 175(5) and section 284(8)
(Power to investigate) of the Act,
except in certain circumstances, no person may
be required under Part XI (Information Gathering and Investigations) or section
284 of the Act to
give information or produce a document in
respect of which he owes an obligation of confidence by carrying on banking
business. Those circumstances include, under section 175(5), circumstances
where:
(1) the person to
whom the obligation is owed is the person under
investigation, or a related company;
or
(2) the person to
whom the duty is owed consents to its disclosure; or
(3) the requirement to disclose has been
specifically authorised by the FSA.
- 01/12/2004
Admissibility of statements
ENF 2.10.4
See Notes
Section 174 of the Act (Admissibility of statements made to investigators)
relates to the admissibility of statements made by a person in compliance with information requirements
imposed under sections 171 (Powers of persons appointed under section 167),
172 (Additional power of persons appointed as a result of section 168(1) or
(4)), 173 (Powers of persons appointed as a result of section 168(2)), 175
or 284 of the Act,
to an investigator appointed under section 167 (Appointment of persons to
carry out general investigations), 168 (Appointment of persons to carry out
investigations in particular cases) or 284 of the Act.
(1) Under section 174(1) a statement made
to an investigator by a person complying
with an information requirement can, in general, be used as evidence in any
proceedings, so long as it also complies with any requirements governing the
admissibility of evidence in the circumstances in question.
(2) However, under section 174(2), such a
statement cannot generally be used as evidence in criminal proceedings in
which the person who
made the statement is charged with an offence, or in proceedings in relation
to action against a person under
section 123 of the Act (Penalties
for market abuse).
Nevertheless this does not apply to the offences listed in section 174(3),
such as making false statements or providing false or misleading evidence
to the FSA's investigators.
Where section 174(2) applies:
(a) no evidence relating to the statement
may be adduced; and
(b) no questions relating to it may be asked;
by the prosecution
or the FSA,
unless evidence relating to that statement is adduced, or a question relating
to it is asked, by that person or
on his behalf in the proceedings.- 01/12/2004
ENF 2.10.5
See Notes
Statements made by a person to an investigator other than in compliance
with an information requirement (such as statements made voluntarily) are
not covered by section 174 and can be used as evidence in any proceedings
subject to any requirements governing the admissibility of evidence in the
circumstances in question.
- 01/12/2004
ENF 2.11
The FSA's policy on investigators and control of investigations
- 01/12/2004
Powers of the investigators
ENF 2.11.1
See Notes
The FSA sees
its investigation powers as essentially fact-finding powers. Consequently,
it will ensure that its investigators use them primarily to obtain the information
it needs in order to decide what further action, if any, may be necessary
in a particular case.
- 01/12/2004
ENF 2.11.2
See Notes
In practice, investigators appointed
under sections 167 (Appointment of persons to carry out general investigations),
168 (Appointment of persons to carry out investigations in particular cases)
or 284 (Power to investigate) of the Act may
not always deem it necessary to use their statutory powers. However, where
they do so, they will at all times make this clear to those persons to whom their enquiries are addressed,
and will inform those persons of
the statutory requirements (see ENF 2.4)
and the possible penalties for failure to comply. (See also ENF
2.14.3 G on compulsory interviews and ENF 2.15 on enforcement of requirements).
- 01/12/2004
Control and direction of the investigation
ENF 2.11.3
See Notes
- 01/12/2004
ENF 2.11.4
See Notes
The FSA has
power under section 170(7) to direct an investigator so that it can control:
(1) the scope of the investigation;
(2) the period during which the investigation
is to be conducted;
(3) the conduct of the investigation; and
(4) the reporting of the investigation.
- 01/12/2004
ENF 2.11.5
See Notes
Under section 170(8) a direction may,
in particular:
(1) Confine the investigation to particular
matters;
(2) Extend the investigation to additional
matters;
(3) Require the investigator to stop the
investigation or to take only certain steps; and
(4) Require the investigator to make an interim
report or reports.
- 01/12/2004
ENF 2.11.6
See Notes
Section 170(5) to (9) also applies to
investigations into collective
investment schemes under section 284 of the Act.
- 01/12/2004
ENF 2.11.7
See Notes
Where the FSA has appointed an investigator in response
to a request from an overseas
regulator, it may under section 169(7) (Investigations etc.
in support of overseasregulator) direct the
investigator to allow a representative of
that regulator to attend, and take part in, any interview conducted for the
purposes of the investigation. However, the FSA may only use this power if it is satisfied
that any information obtained by an overseas
regulator as a result of the interview will be subject to safeguards
equivalent to those in Part XXIII of the Act (Public
Record, Disclosure of Information and Cooperation) (section 169(8)).
- 01/12/2004
ENF 2.11.8
See Notes
The factors that the FSA may take into account when deciding whether
to make a section 169(7) interview direction include the following:
(1) the complexity of the case;
(2) the nature and sensitivity of the information
sought;
(3) the FSA's own
interest in the case;
(4) costs, where no Community obligation
is involved, and the availability of resources; and
(5) the availability of similar assistance
to UK authorities
in similar circumstances.
- 01/12/2004
ENF 2.11.9
See Notes
Under section 169(9), the FSA is required to prepare
a statement of policy with the approval of the Treasury on the conduct of
interviews attended by representatives of overseas regulators. The statement is set
out in ENF
2 Annex 2 G G.
- 01/12/2004
ENF 2.12
The FSA's policy on notification to the person under investigation
- 01/12/2004
ENF 2.12.1
See Notes
Section 170(2) of the Act (Investigations: general) requires the FSA to give to the person who is the subject
of the investigation written notice that it has appointed an investigator,
except in relation to the cases set out in section 170(3) (see ENF
2.12.3 G). Under section 170(4), the notice must:
(1) specify the provisions under which, and
as a result of which, it appointed the investigator; and
(2) state the reason for the investigator's
appointment.
- 01/12/2004
ENF 2.12.2
See Notes
If there is a change in the scope or
conduct of the investigation and, in the FSA's opinion,
the person under
investigation is likely to be significantly prejudiced if not made aware of
this, that person must
be given written notice of the change (see section 170(9)). It is impossible
to give a definitive list of the circumstances in which a person is likely to be significantly prejudiced
by not being made aware of the change in the scope or conduct of an investigation.
However, this may include situations where there may be unnecessary costs
from dealing with an aspect of an investigation which the FSA no longer intends to pursue or where
a person may
inadvertently incriminate himself by not knowing of the change in scope.
- 01/12/2004
ENF 2.12.3
See Notes
However, under section 170(3), sections
170(2) and (9) (see ENF
2.12.1 G and ENF
2.12.2 G) do not apply if:
(1) the investigator is appointed as a result
of section 168(1) or (4) (Appointment of persons to carry out investigations
in particular cases) (see ENF 2.3.14 G (1) and ENF 2.3.14 G (3)) and the investigating
authority believes the notice required would be likely to result in the investigation
being frustrated; or
(2) the investigator is appointed as a result
of section 168(2) (see ENF 2.3.14 G (2)).
- 01/12/2004
ENF 2.12.4
See Notes
Where the Act does not require the FSA to give written notice of the appointment
of the investigators, for example where the investigation is into suspected
breaches of the general
prohibition or market misconduct, the FSA will nevertheless consider notifying
the person under
investigation when it becomes clear who that person is.
- 01/12/2004
ENF 2.12.5
See Notes
In investigations into possible insider dealing, market abuse, misleading statements and practices offences, or breaches of the general prohibition, the restriction on financial promotion, or the prohibition on promoting collective investment schemes, the investigator may not know the identity of the perpetrator or may be looking into market circumstances at the outset of the investigation rather than investigating a particular person. For example, market abuse investigations may often be prompted by concerns surrounding, for instance, movements in the market price of a particular investment. In those circumstances the FSA will give an indication of the nature and subject matter of the FSA's investigation to those who are required to provide information to assist with the investigation.
- 01/12/2004
ENF 2.12.6
See Notes
However, when it becomes clear who the person under investigation
is, the FSA will
normally notify him of that fact when it proceeds to exercise its statutory
powers to require information from them. But it will not notify the persons under investigation
if this would prejudice the FSA's ability
to conduct the investigation effectively.
- 01/12/2004
ENF 2.12.7
See Notes
Except where the FSA has issued a warning notice (See DEC 2 Statutory notice procedure: warning
notice and decision notice procedure) and the FSA has subsequently discontinued the proceedings,
the Act does
not require the FSA to
provide notification of the termination of an investigation or subsequent
enforcement action. However, where the FSA has
given a person written
notice that it has appointed an investigator and subsequently decides to discontinue
the investigation without any present intention to take further action, it
will confirm this to the person concerned
as soon as it considers it is appropriate to do so, having regard to the circumstances
of the case.
- 01/12/2004
ENF 2.13
Publicity
- 01/12/2004
ENF 2.13.1
See Notes
The FSA will
not normally make public the fact that it is or is not investigating a particular
matter, or any of the findings or conclusions of an investigation.
- 01/12/2004
Publicity during investigations
ENF 2.13.2
See Notes
Paragraphs ENF
2.13.3 G to ENF
2.13.6 G deal with exceptional circumstances in which the FSA may make a public announcement that it is or is not
investigating a particular matter.
- 01/12/2004
ENF 2.13.3
See Notes
Where the matter in question has occurred
in the context of a takeover
bid, and the following circumstances apply, the FSA may make a public announcement that
it is not investigating, and does not propose to investigate, the matter.
Those circumstances are where the FSA:
(1) has not appointed, and does not propose
to appoint, investigators; and
(2) considers (following discussion with
the Takeover Panel)
that such an announcement is appropriate in the interests of preventing or
eliminating public uncertainty, speculation or rumour.
- 01/12/2004
ENF 2.13.4
See Notes
Where it is investigating any matter,
the FSA will,
in exceptional circumstances, make a public
announcement that it is doing so if it considers such an announcement
is desirable to:
(1) maintain public confidence in the financial system; or
(2) protect consumers; or
(3) prevent widespread malpractice; or
(4) help the investigation itself, for example
by bringing forward witnesses.
In deciding
whether to make an announcement, the FSA will
consider the potential prejudice that it believes may be caused to any persons who are, or who
are likely to be, a subject of the investigation. - 01/12/2004
ENF 2.13.5
See Notes
The exceptional circumstances referred
to in ENF
2.13.4 G may arise where the matters
under investigation have become the subject of public concern, speculation
or rumour. In this case it may be desirable for the FSA to make public the fact of its investigation
in order to allay concern, or contain the speculation or rumour. Where the
matter in question relates to a takeover
bid, the FSA will
discuss any announcement beforehand with the Takeover Panel. Any announcement will be
subject to the restriction on disclosure of confidential information in section
348 of the Act (Restrictions
on disclosure of confidential information by FSA etc).
- 01/12/2004
ENF 2.13.6
See Notes
There will also be cases where publicity
is unavoidable. For example, investigations into suspected criminal offences
may often lead the FSA into
making enquiries amongst the general public which might attract publicity.
- 01/12/2004
ENF 2.13.7
See Notes
The FSA will
not normally publish details of the information found or conclusions reached
during its investigations. In many cases, statutory restrictions on the disclosure
of information obtained by the FSA in
the course of exercising its functions are likely to prevent publication (see
section 348 of the Act).
In exceptional circumstances, and where it is not prevented from doing so,
the FSA may
publish details. Circumstances in which it may do so include those where the
fact that the FSA is
investigating has been made public, by the FSA or otherwise, and the FSA subsequently concludes that the concerns
that prompted the investigation were unwarranted. This is particularly so
if the firm under
investigation wishes the FSA to
clarify the matter.
- 01/12/2004
Publicity following an investigation
ENF 2.13.8
See Notes
Section 391 of the Act (Publication) deals with publication of
regulatory action resulting in final
notices and effective supervisory
notices (see DEC).
(1) Under section 391(4) the FSA must publish such
information about the matter to which a final
notice relates as it considers appropriate.
(2) Similarly under section 391(5), where
a supervisory notice takes
effect the FSA must
publish such information about the matter to which the notice relates as it
considers appropriate.
- 01/12/2004
ENF 2.13.9
See Notes
Where the final notice relates to behaviour in the context of a takeover bid, and the FSA believes that publicity
may affect the timetable or outcome of that bid, the FSA will consult the Takeover Panel and will give due weight
to the Panel's views.
- 01/12/2004
ENF 2.13.10
See Notes
ENF 9.10 (Publication)
sets out the FSA's policy
on publishing details of applications to court for restitution or for the
use of its administrative power to require restitution. The FSA considers that it is generally appropriate
to publish details of successful applications to court or of the exercise
of its administrative powers to require restitution. However, in certain circumstances
it may decide not to publish, for example, if this could damage market confidence
or undermine market integrity in a way that could be damaging to the interests
of consumers.
Where the relevant behaviour has
occurred in the context of a takeover
bid, and the FSA believes
that publicity may affect the timetable or outcome of that bid, the FSA will consult the Takeover Panel and will
give due weight to the Takeover
Panel's views.
- 01/12/2004
ENF 2.13.11
See Notes
The FSA will
also normally publish the outcome of other civil actions, such as the obtaining
of injunctions prohibiting
further illegal activity, and of public hearings in criminal prosecutions.
Again, where the relevant behaviour has
occurred in the context of a takeover
bid, and the FSA is
of the opinion that publicity may materially affect the timetable or outcome
of that bid, the FSA will
consult the Takeover Panel and
will give due weight to the Takeover
Panel's views.
- 01/12/2004
ENF 2.14
The FSA's policy: interviews and interview procedures
- 01/12/2004
ENF 2.14.1
See Notes
As mentioned in ENF
2.11.2 G, the FSA may
not always use its statutory powers to require individuals to be interviewed.
If appropriate, the investigator will first seek to conduct interviews on
a voluntary basis.
- 01/12/2004
Voluntary Interviews
ENF 2.14.2
See Notes
If the interviewee is the subject of
the investigation, the investigator will make a record of the interview and
the FSA will
give a copy of the record to the interviewee. If the interviewee is not the
subject of the investigation, the FSA will
give the interviewee a record of the interview if one has been made by the
investigator. The interviewee may be accompanied by a legal adviser, if he
wishes.
- 01/12/2004
Compulsory interviews
ENF 2.14.3
See Notes
Where the FSA does require a person to answer questions in interview, using its compulsory powers, it will:
- (1) allow that person (whether or not he is the subject of the investigation) to be accompanied by a legal adviser, if he wishes;
- (2) give the person an appropriate warning and an explanation of the limited use that can be made of his answers in criminal proceedings against him, or in proceedings in which the FSA seeks a penalty for market abuse under Part VIII of the Act (Penalties for Market Abuse); and
- (3) give the person a record of the interview (in most cases this will be an audio tape recording).
- 01/12/2004
Interviews under caution
ENF 2.14.4
See Notes
Under sections 401 (Proceedings for offences)
and 402 (Power of the FSA to institute proceedings for certain other offences)
of the Act,
the FSA is
a prosecuting authority in England and Wales and Northern Ireland for a number
of criminal offences. When conducting interviews with suspects for the purpose
of obtaining evidence for use in criminal proceedings, investigators are subject
(with appropriate adaptations) to the statutory requirements of the Police
and Criminal Evidence Act 1984 (PACE) and its Codes, and of the Criminal Procedure
and Investigations Act 1996. Individuals suspected of a criminal offence may
therefore be interviewed under caution. These interviews will be subject to
all the safeguards of PACE Code C and are entirely voluntary on the part of
the suspects. The FSA will
warn the suspect at the start of the interview of his right to remain silent
(and the consequences of remaining silent) and will inform the suspect that
he is entitled to have a legal adviser present.
- 01/12/2004
ENF 2.14.5
See Notes
If a suspect has already been interviewed by the FSA under compulsory powers, before he is interviewed under caution, the investigators will give him the transcript or other record of the compulsory interview and an explanation of the difference between the two types of interview. They will also tell the individual about the limited use that can be made of his previous answers in criminal proceedings or in proceedings in which the FSA seeks a penalty for market abuse under Part VIII of the Act.
- 01/12/2004
ENF 2.14.6
See Notes
Also, where a suspect has been interviewed
under caution, and the FSA subsequently
wishes to conduct a compulsory interview with him, the FSA will again explain the difference between
the two types of interview, and will notify the individual of the limited
use that can be made of his answers in the compulsory interview.
- 01/12/2004
ENF 2.14.7
See Notes
Guidance on the admissibility of statements
made to investigators is set out at ENF
2.10.4 G to ENF
2.10.5 G.
- 01/12/2004
ENF 2.15
The FSA's powers to enforce requirements
- 01/12/2004
Search warrants
ENF 2.15.1
See Notes
The FSA and
its investigators may apply to a magistrate for a warrant to search for and
seize documents or
information. Under section 176 of the Act (Entry
of premises under warrant) a justice of the peace or sheriff may issue a warrant
if he is satisfied that there are reasonable grounds for believing that:
(1) a person has
failed to comply with a requirement to provide information or produce documents, and that the
required documents or
information are on the premises specified in the warrant (see section 176(2));
or
(2) the premises specified in the warrant
are those of a firm or
an appointed representative;
and that there are documents or
information on the premises which could be the object of an information requirement;
and that the requirement would not be complied with, or the documents or information would be removed,
tampered with or destroyed if such a requirement were made (see section 176(3));
or
(3) a serious offence has been or is being
committed; and that documents or
information relevant to that offence are on the specified premises; and that
an information requirement could be imposed on those documents or that information; and that the
requirement would not be complied with, or the documents or information would be removed,
tampered with or destroyed (see section 176(4)).
The offences
relevant to sub-paragraph (3) above are those mentioned in section 168 of
the Act (Appointment
of persons to carry out investigations in particular cases) (see ENF
2.3.14 G), for which the maximum
sentence on indictment is two years or more.- 01/12/2004
ENF 2.15.2
See Notes
The FSA will
consider using these powers to apply for a search warrant when it has concerns
about whether information requirements will be complied with and it believes
that the grounds listed in ENF
2.15.1 G are made out.
- 01/12/2004
ENF 2.15.3
See Notes
A search warrant issued under section
176 will authorise a constable to:
(1) Enter the premises specified in the warrant;
(2) Search the premises and take possession
of documents or
information relevant to the warrant, or take any other steps which may appear
to be necessary to preserve them or prevent interference with them;
(3) take copies of, or extracts from, any
such documents or
information;
- 01/12/2004
ENF 2.15.4
See Notes
- 01/12/2004
Prosecutions
ENF 2.15.5
See Notes
- 01/12/2004
ENF 2.15.6
See Notes
Under section 177(3), (4) and (6) a person commits an offence
if he:
(1) knows or suspects that an investigation
is being or is likely to be conducted, and:
(a) falsifies, conceals, destroys or otherwise
disposes of a document which
he knows or suspects is, or would be, relevant to the investigation; or
(b) causes or permits the falsification,
concealment, destruction or disposal of such a document;
unless he shows
that he had no intention of concealing facts disclosed by the documents from the investigator
(see section 177(3)); or(2) in purported compliance with a requirement
placed on him under Part XI of the Act (Information
Gathering and Investigations), gives information which he knows to be false
or misleading in a material particular, or recklessly gives information which
is false or misleading in a material particular (see section 177(4)); or
(3) intentionally obstructs the use of any
rights conferred by a warrant (see section 177(6)).
- 01/12/2004
Certification procedure
ENF 2.15.7
See Notes
Section 177(1) states that if a person other than the
investigator fails to comply with a requirement imposed on him under Part
XI of the Act,
the person imposing
the requirement may certify that fact in writing to the court. If the court
is satisfied that that person has
no reasonable excuse for failing to comply, it may deal with him as if he
were in contempt. If the person is
a body corporate,
the court may deal with any director or
officer as if he were in contempt (section 177(2)).
- 01/12/2004
ENF 2 Annex 1
Information gathering and investigation powers
- 01/12/2004
See Notes
Appendix to the guidelines on investigation
of cases of interest or concern to the Financial Services Authority and other
prosecuting and other investigating agencies
| Purpose, status and application of the guidelines | |||
| 1. | These guidelines have been agreed by the following bodies ("the
agencies"): • the Financial Services Authority ("the FSA"); • the Serious Fraud Office ("the SFO"); • the Department of Trade and Industry ("the DTI"); • the Crown Prosecution Service ("the CPS"); • the Association of Chief Police Officers in England, Wales and Northern Ireland ("ACPO"); • the Crown Office; • the Department of the Director of Public Prosecutions for Northern Ireland ("the DPP(NI)"); • the Association of Chief Police Officers in Scotland ("ACPO(S)"). | ||
| 2. | The guidelines are intended to assist the agencies when considering cases concerning financial crime and/or regulatory misconduct that are, or may be, of mutual interest to the FSA and one or more of the other agencies. Their implementation and wider points arising from them will be kept under review by the agencies who will liaise regularly. | ||
| 3. | The purpose of the guidelines is to set out some broad principles which the agencies agree should be applied by them in order to assist them to: | ||
| (a) | decide which of them should investigate such cases; | ||
| (b) | co-operate with each other, particularly in cases where more than one agency is investigating; | ||
| (c) | prevent undue duplication of effort by reason of the involvement of more than one agency; | ||
| (d) | prevent the subjects of proceedings being treated unfairly by reason of the unwarranted involvement of more than one agency. | ||
| 4. | The guidelines are intended to apply to the relationships between the FSA and the other agencies. They are not intended to apply to the relationships between those other agencies themselves where there is no FSA interest. They are not legally binding. | ||
| 5. | The guidelines are subject to the restrictions on disclosure of information held by the agencies. They are not intended to override them. | ||
| 6. | The guidelines are relevant to ACPO and ACPO(S) only in so far as they relate to investigations. Similarly, they are relevant to the CPS and the DPP(NI) only in so far as they relate to prosecutions. | ||
| Commencing Investigations | |||
| 7. | The agencies recognise that there are areas in which they have an overlapping remit in terms of their functions and powers (the powers and functions of the agencies are set out in the Appendix to this document). The agencies will therefore endeavour to ensure that only the agency or agencies with the most appropriate functions and powers will commence investigations. | ||
| 8. | The agencies further recognise that in certain cases concurrent investigations may be the most quick, effective and efficient way for some cases to be dealt with. However, if an agency is considering commencing an investigation and another agency is already carrying on a related investigation or proceedings or is otherwise likely to have an interest in that investigation, best practice is for the agencies concerned to liaise and discuss which agency or agencies should take action, ie investigate, bring proceedings or otherwise deal with the matter. | ||
| Indicators for deciding which agency should take action | |||
| 9. | The following are indicators of whether action by the FSA or one of the other agencies is more appropriate. They are not listed in any particular order or ranked according to priority. No single feature of the case should be considered in isolation, but rather the whole case should be considered in the round. | ||
| (a) | Tending towards action by the FSA | ||
| • | Where the suspected conduct in question gives rise to concerns regarding market confidence or protection of consumers of services regulated by the FSA. | ||
| • | Where the suspected conduct in question would be best dealt with by: | ||
| - criminal prosecution of offences which the FSA has powers to prosecute by virtue of the Financial Services and Markets Act 2000 ("the 2000 Act") (see Appendix paragraph 1.4) and other incidental offences; | |||
| - civil proceedings under the 2000 Act (including applications for injunctions, restitution and to wind up firms carrying on regulated activities); | |||
| - regulatory action which can be referred to the Financial Services and Markets Tribunal (including proceedings for market abuse); and | |||
| - proceedings for breaches of Part VI of the Act, of Part 6 rules or the Prospectus Rules or a provision otherwise made in accordance with the Prospectus Directive. | |||
| • | Where the likely defendants are FSA authorised or approved persons. | ||
| • | Where the likely defendants are issuers or sponsors of a security admitted to the official list or in relation to which an application for listing has been made | ||
| • | Where there is likely to be a case for the use of FSA powers which may take immediate effect (eg powers to vary the permission of an authorised firm or to suspend listing of securities). | ||
| • | Where it is likely that the investigator will be seeking assistance from overseas regulatory authorities with functions equivalent to those of the FSA. | ||
| • | Where any possible criminal offences are technical or in a grey area whereas regulatory contraventions are clearly indicated. | ||
| • | Where the balance of public interest is in achieving reparation for victims and prosecution is likely to damage the prospects of this. | ||
| • | Where there are distinct parts of the case which are best investigated with regulatory expertise. | ||
| (b) | Tending towards action by one of the other agencies | ||
| • | Where serious or complex fraud is the predominant issue in the conduct in question (normally appropriate for the SFO). | ||
| • | Where the suspected conduct in question would be best dealt with by: | ||
| - criminal proceedings for which the FSA is not the statutory prosecutor; | |||
| - proceedings for disqualification of directors under the Company Directors Disqualification Act 1986 (normally appropriate for DTI action); | |||
| - winding up proceedings which FSA does not have statutory powers to bring (normally appropriate for DTI action); or | |||
| - criminal proceedings in Scotland. | |||
| • | Where the conduct in question concerns the abuse of limited liability status under the Companies Acts (normally appropriate for DTI action). | ||
| • | Where powers of arrest are likely to be necessary. | ||
| • | Where it is likely that the investigator will rely on overseas organisations (such as law enforcement agencies) with which the other agencies have liaison. | ||
| • | Where action by the FSA is likely to prejudice the public interest in the prosecution of offences for which the FSA is not a statutory prosecutor. | ||
| • | Where the case falls only partly within the regulated area (or criminal offences for which FSA is a statutory prosecutor) and the prospects of splitting the investigation are not good. | ||
| 10. | It is also best practice for the agencies involved or interested in an investigation to continue to liaise as appropriate throughout in order to keep under review the decisions as to who should investigate or bring proceedings. This is particularly so where there are material developments in the investigation that might cause the agencies to reconsider its general purpose or scope and whether additional investigation by others is called for. | ||
| Conduct of concurrent investigations | |||
| 11. | The agencies recognise that where concurrent investigations are taking place, action taken by one agency can prejudice the investigation or subsequent proceedings brought by another agency. Consequently, it is best practice for the agencies involved in concurrent investigations to notify each other of significant developments in their investigations and of any significant steps they propose to take in the case, such as: | ||
| • | interviewing a key witness; | ||
| • | requiring provision of significant volumes of documents; | ||
| • | executing a search warrant; or | ||
| • | instituting proceedings or otherwise disposing of a matter. | ||
| 12. | If the agencies identify that particular action by one party might prejudice an investigation or future proceedings by another, it is desirable for the parties concerned to discuss and decide what action should be taken and by whom. In reaching these decisions, they will bear in mind how the public interest is best served overall. The examples provided in paragraph 9 above may also be used as indicators of where the overall balance of interest lies | ||
| Deciding to bring proceedings | |||
| 13. | The agencies will consider, as necessary, and keep under review whether an investigation has reached the point where it is appropriate to commence proceedings. Where agencies are deciding whether to institute criminal proceedings, they will have regard to the usual codes or guidance relevant to that decision. For example, agencies other than the DPP(NI) or the Crown Office will have regard to the Code for Crown Prosecutors (Note: Different guidance applies to the DPP(NI) and the Crown Office. All criminal proceedings in Scotland are the responsibility of the Lord Advocate. Separate arrangements have been agreed between the FSA and the Crown Office for the prosecution of offences in Scotland arising out of FSA investigations). Where they are considering whether to bring non-criminal proceedings, they will take into account whatever factors they consider relevant (for example, in the case of market abuse proceedings brought by the FSA, these are set out in paragraph 14.4 of the FSA Enforcement manual). | ||
| 14. | The agencies recognise that in taking a decision whether to commence proceedings, relevant factors will include: | ||
| • | whether commencement of proceedings might prejudice ongoing or potential investigations or proceedings brought by other agencies; and | ||
| • | whether, in the light of any proceedings being brought by another party, it is appropriate to commence separate proceedings against the person under investigation. | ||
| 15. | Best practice in these circumstances, therefore, is for the parties concerned to liaise before a decision is taken. | ||
| Closing Cases | |||
| 16. | It is best practice for the agencies, at the conclusion of any investigation where it is decided that no further action need be taken, or at the conclusion of proceedings, to notify any other agencies concerned of the outcome of the investigation and/or proceedings and to provide any other helpful feedback. | ||
| APPENDIX TO THE GUIDELINES ON INVESTIGATION OF CASES OF INTEREST OR CONCERN TO THE FINANCIAL SERVICES AUTHORITY AND OTHER PROSECUTING AND INVESTIGATING AGENCIES | |||
| 1. | The FSA | ||
| 1.1 | The FSA is the single statutory regulator for all financial business in the UK. Its regulatory objectives under the Financial Services and Markets Act 2000 ("the 2000 Act") are: | ||
| • | market confidence; | ||
| • | public awareness; | ||
| • | the protection of consumers; and | ||
| • | the reduction of financial crime. | ||
| (NOTE: The 2000 Act repealed and replaced various enactments which conferred powers and functions on the FSA and other regulators whose functions are now carried out by the FSA. Most notable in this context are the Financial Services Act 1986 and the Banking Act 1987. Transitional provisions under the 2000 Act permit the FSA to continue to investigate and bring proceedings for offences under the old legislation. Details of these transitional provisions are not set out in these guidelines) | |||
| 1.2 | The FSA's regulatory objectives as the competent authority under Part VI of the Act are: | ||
| • | the protection of investors; | ||
| • | access to capital; and | ||
| • | investor confidence. | ||
| 1.3 | Under the 2000 Act the FSA has powers to investigate concerns including: | ||
| • | *regulatory concerns about authorised firms and individuals employed by them; | ||
| • | *suspected market abuse under s.118 of the 2000 Act; | ||
| • | *suspected misleading statements and practices under s.397 of the 2000 Act; | ||
| • | *suspected insider dealing under of Part V of the Criminal Justice Act 1993; | ||
| • | suspected contraventions of the general prohibition under s.19 of the 2000 Act and related offences; | ||
| • | *suspected offences under various other provisions of the 2000 Act (see below); | ||
| • | suspected breaches of Part VI of the Act , of Part 6 rules or the prospectus rules or a provision otherwise made in accordance with the Prospectus Directive. | ||
| The FSA's powers of information gathering and investigation are set out in Part XI of the 2000 Act and in s.97 in relation to its Part VI functions. | |||
| 1.4 | The FSA has power to take the following enforcement action: | ||
| • | discipline authorised firms under Part XIV of the 2000 Act and approved persons under s.66 of the 2000 Act; | ||
| • | impose civil penalties in cases of market abuse under s.123 of the 2000 Act; | ||
| • | prohibit an individual from being employed in connection with a regulated activity, under s.56 of the 2000 Act; | ||
| • | apply to Court for injunctions (or interdicts) and other orders against persons contravening relevant requirements (under s.380 of the 2000 Act) or engaging in market abuse (under s.381 of the 2000 Act); | ||
| • | petition the court for the winding-up or administration of companies, and the bankruptcy of individuals, carrying on regulated activities; | ||
| • | apply to the court under ss.382 and 383 of the 2000 Act for restitution orders against persons contravening relevant requirements or persons engaged in market abuse; | ||
| • | require restitution under s.384 of the 2000 Act of profits which have accrued to authorised persons contravening relevant requirements or persons engaged in market abuse, or of losses which have been suffered by others as a result of those breaches; | ||
| • | (in England and Wales) prosecute offences under the Money Laundering Regulations 1993, Part V Criminal Justice Act 1993 (insider dealing) and various offences under the 2000 Act including (Note: The FSA may also prosecute any other offences which are incidental to those which it has express statutory power to prosecute): | ||
| - carrying on regulated activity without authorisation or exemption, under s.23; | |||
| - making false claims to be authorised or exempt, under s.24; | |||
| - promoting investment activity without authorisation, under s.25; | |||
| - breaching a prohibition order, under s.56; | |||
| - failing to co-operate with or giving false information to FSA appointed investigators, under s.177; | |||
| - failing to comply with provisions about influence over authorised persons, under s.191; | |||
| - making misleading statements and engaging in misleading practices, under s.397; | |||
| - misleading the FSA, under s.398; | |||
| - various offences in relation to the FSA'sPart VI function; | |||
| • | Fine, issue public censures, suspend or cancel listing for breaches of the Listing Rules by an issuer; and | ||
| • | Issue public censures or cancel a sponsor's approval. | ||
| 2 | DTI | ||
| 2.1 | The Secretary of State for Trade & Industry exercises concurrently with the FSA those powers and functions marked with an asterisk in paragraphs 1.3 above. The investigation functions are undertaken by Companies Investigation Branch ("CIB") and the prosecution functions by the Solicitors Office. | ||
| 2.2 | The principal activities of CIB are, however, the investigations into the conduct of companies under the Companies Acts and the Fair Trading Act. These are fact-finding investigations but may lead to follow-up action by CIB such as petitioning for the winding up of a company, disqualification of directors of the company or referring the matter to the Solicitors Office for prosecution. CIB may also disclose information to other prosecution or regulatory authorities to enable them to take appropriate action under their own powers and functions. Such disclosure is, however, strictly controlled under a gateway disclosure regime. | ||
| 2.3 | The Solicitors Office advises on investigation work carried out by CIB and undertakes criminal investigations and prosecutions in respect of matters referred to it by CIB, the Insolvency Service or other divisions of the DTI or its agencies. | ||
| 3 | SFO | ||
| 3.1 | The aim of the SFO is to contribute to: | ||
| • | reducing fraud and the cost of fraud; | ||
| • | the delivery of justice and the rule of law; | ||
| • | maintaining confidence in the UK's business and financial institutions. | ||
| 3.2 | Under the Criminal Justice Act 1987 the Director of the SFO may investigate any suspected offence which appears on reasonable grounds to involve serious or complex fraud and may also conduct, or take over the conduct of, the prosecution of any such offence. The SFO may investigate in conjunction with any other person with whom the Director thinks it is proper to do so; that includes a police force (or the FSA or any other regulator). The criteria used by the SFO for deciding whether a case is suitable for it to deal with are set out in paragraph 3.3. | ||
| 3.3 | The key criterion should be that the suspected fraud is such that
the direction of the investigation should be in the hands of those who would
be responsible for any prosecution. The factors that are taken into account include: | ||
| • | whether the amount involved is at least £1 million (this is simply an objective and recognisable signpost of seriousness and likely public concern rather than the main indicator of suitability); | ||
| • | whether the case is likely to give rise to national publicity and widespread public concern. That includes those involving government bodies, public bodies, the governments of other countries and commercial cases of public interest; | ||
| • | whether the case requires highly specialist knowledge of, for example, stock exchange practices or regulated markets; | ||
| • | whether there is a significant international dimension; | ||
| • | whether legal, accountancy and investigative skills need to be brought together; and | ||
| • | whether the case appears to be complex and one in which the use of Section 2 powers might be appropriate. | ||
| 4 | CPS | ||
| 4.1 | The CPS has responsibility for taking over the conduct of all criminal proceedings instituted by the police in England and Wales. The CPS may advise the police in respect of criminal offences. The CPS prosecutes all kinds of criminal offences, including fraud. Fraud cases may be prosecuted by local CPS offices but the most serious and complex fraud cases will be prosecuted centrally. | ||
| 5 | ACPO and ACPO(S) | ||
| 5.1 | ACPO represents the police forces of England, Wales, and Northern Ireland. ACPO(S) represents the police forces of Scotland. | ||
| 6 | The Crown Office | ||
| 6.1 | The investigation and prosecution of crime in Scotland is the responsibility of the Lord Advocate, who is the head of the Procurator Fiscal Service, which comprises Procurators Fiscal and their Deputes, who are answerable to the Lord Advocate. The Procurator Fiscal is the sole public prosecutor in Scotland, prosecuting cases reported not only by the police but all regulatory departments and agencies. All prosecutions before a jury, both in the High Court of Justiciary and in the Sheriff Court, run in the name of the Lord Advocate; all other prosecutions run in the name of the local Procurator Fiscal. The Head Office of the Procurator Fiscal Service is the Crown Office and the Unit within the Crown Office which deals with serious and complex fraud cases and with the investigation of cases of interest or concern to the Financial Services Authority is the Fraud and Specialist Services Unit: the remit of this Unit is directly comparable to that of the Serious Fraud Office. | ||
| 7 | The DPP(NI) | ||
| 7.1 | The DPP(NI) is responsible for the prosecution of all offences on indictment in Northern Ireland, other than offences prosecuted by the Serious Fraud Office. The DPP(NI) is also responsible for the prosecution of certain summary offences, including offences reported to it by any government department. | ||
- 01/07/2005
ENF 2 Annex 2
Statement of policy on section 169(7) interviews (see ENF 2.8)
- 01/12/2004
See Notes
| 1 | This annex applies when the FSA: | |
| (1) | has appointed, an investigator at the request of an overseas regulator , under section 169(1)(b) of the Act; and | |
| (2) | has directed, or is considering directing, the investigator, under section 169(7) of the Act , to permit a representative of the overseas regulator to attend, and take part in, any interview conducted for the purposes of the investigation. | |
| 2 | In this annex a "section 169(7) interview" means any interview conducted for the purposes of an investigation under section 169(1)(b) of the Act in relation to which the FSA has given a direction under section 169(7) of the Act. | |
| 3 | The purpose of this annex is to set out the statement of the FSA's policy on the conduct of interviews to which a direction under section 169(7) has been given or the FSA is considering giving. The FSA is required to prepare and publish this statement of policy by section 169(9) and (11) of the Act. As required by section 169(10) of the Act, the Treasury has approved the statement of policy. |
| 4 | The FSA is keen to promote co-operation with overseas regulators . It views assistance to overseas regulators as an essential part of the principles set out in section 2(3)(e) of the Act to which it must have regard in discharging its general functions. |
| 5 | Under section 169(1)(b) of the Act , the FSA may appoint an investigator to investigate any matter at the request of an overseas regulator . The powers of the investigator appointed by the FSA (referred to here as the ' FSA's investigator') include the power to require persons to attend at a specified time and place and answer questions (the compulsory interview power). |
| 6 | Where the FSA appoints an investigator in response to a request from an overseas regulator it may, under section 169(7) of the Act , direct him to permit a representative of that regulator to attend and take part in any interviews conducted for the purposes of the investigation. The FSA may only give a direction under section 169(7) if it is satisfied that any information obtained by an overseas regulator as a result of the interview will be subject to the safeguards equivalent to those contained in Part XXIII of the Act (Public Record, Disclosure of Information and Cooperation). |
| 7 | Part XXIII of the Act contains restrictions on the disclosure of confidential information. The restrictions are subject to exceptions contained in regulations made by the Treasury under section 349. |
| 8 | The FSA's policy on how it will use its investigative power, including its power to appoint investigators, in support of overseas regulators, is set out in ENF 2.8. | |
| 9 | The FSA may need to consider whether to use its direction power at two stages of an investigation: | |
| (1) | at the same time that it considers the request from the overseas regulator to appoint investigators; | |
| (2) | after it has appointed investigators, either at the request of the overseas regulator or on the recommendation of the investigators. | |
| 10 | Before making a direction under section 169(7) the FSA will discuss and determine with the overseas regulator how this statement of policy will apply to the conduct of the interview, taking into account all the circumstances of the case. Amongst other matters, the FSA will at this stage determine the extent to which the representative of the overseas regulator will be able to participate in the interview. The overseas regulator will be notified of this determination on the issuing of the direction. | |
| 11 | The direction will contain the identity of the representative of the overseas regulator that is permitted to attend any interview and the role that he will play in the interview. If the FSA envisages that there will be more than one interview in the course of the investigation, the direction may also specify which interview(s) the overseas representative is allowed to attend. | |
| 12 | In circumstances where an interview is to be conducted as part of the investigation, the FSA's investigator will have conduct of the interview. In general, the FSA's investigators will be employees of the FSA , but in appropriate cases the FSA may appoint persons who are not its employees. In those cases, the FSA may choose to require that an FSA employee is present at the interview and may choose to appoint that person as an investigator. | |
| 13 | The FSA's investigator will act on behalf of the FSA and under its control. He may be instructed to permit the representative of the overseas regulator to assist in preparation of the interview. Where the FSA considers it appropriate, it may permit the representative to attend and ask questions of the interviewee in the course of the interview. The interview will be conducted according to the terms of the direction and the notification referred to in ENF 2.4.3 Ann above. | |
| 14 | If the direction does permit the representative of an overseas regulator to attend the interview and ask the interviewee questions, the FSA's investigator will retain control of the interview throughout. Control of the interview means the following will apply: | |
| (1) | The FSA's investigator instigates and concludes the interview, introduces everyone present and explains the procedure of the interview. He warns the interviewee of the possible consequences of refusing to answer questions and the uses to which any answers that are given can and cannot be put. The FSA's investigator will always ask preliminary questions, such as those establishing the identity of the interviewee. | |
| (2) | The FSA's investigator determines the duration of the interview and when, if at all, there should be any breaks in the course of it. | |
| (3) | The FSA's investigator has responsibility for making a record of the interview. The record should note the times and duration of any breaks in the interview and any periods when the representative of the overseas regulator was either present or not present. | |
| (4) | Where the FSA's investigator considers it appropriate, he may either suspend the interview, ask the overseas representative to leave the interview, or terminate the interview and reschedule it for another occasion. In making that decision he will bear in mind the terms of the direction, any agreement made with the overseas regulator as to the conduct of the interview and the contents of this statement of policy. | |
| 15 | The FSA will in general provide written notice of the appointment of an investigator to the person under investigation pursuant to the request of an overseas regulator. Whether or not the interviewee is the person under investigation, the FSA's investigator will inform the interviewee of the provisions under which he has been appointed, the identity of the requesting authority and general nature of the matter under investigation. The interviewee will also normally be informed if a representative of the overseas regulator is to attend and take part in the interview. Notification of any of these matters may not be provided in advance of the interview if the FSA believes that the circumstances are such that notification would be likely to result in the investigation being frustrated. |
| 16 | The interviewee will normally be given a copy of the direction issued under section 169(7) in advance of the interview unless to do so would be likely to result in the investigation being frustrated. The interviewee will also be provided with a copy of this statement of policy. |
| 17 | The FSA's investigator will determine the venue and timing of the interview. The interviewee will be notified of the venue and timing of the interview in advance and in writing. |
| 18 | When the FSA's investigator has exercised the compulsory interview power, at the outset of the interview the interviewee will be given an appropriate warning as stated in ENF 2.14.3 G. The warning, amongst other things, must state that the interviewee is obliged to answer all questions put to them during the interview, including any put by the representative of the overseas regulator . It will also state that in criminal proceedings or proceedings for market abuse the FSA will not use as evidence against the interviewee any information obtained under compulsion during the interview. |
| 19 | The FSA's investigator may decide which documents or other information may be put to the interviewee, and whether it is appropriate to give the interviewee sight of the documents before the interview takes place. Where the overseas regulator wishes to ask questions about documents during the interview and the FSA's investigator wishes to inspect those documents before the interview, he will be given the opportunity to do so. If the FSA's investigator wishes to inspect them and has not been able to do so before the interview, he may suspend the interview until he has had an opportunity to inspect them. |
| 20 | When the FSA's investigator has exercised the compulsory interview power, the FSA's investigator will require the person attending the interview to answer questions. Where appropriate, questions may also be posed by the representative of the overseas regulator. The interviewee will also be required to answer these questions. The FSA's investigator may intervene at any stage during questioning by the representative of the overseas regulator. |
| 21 | Interviews will, in general, be conducted in English. Where the interviewee's first language is not English, at the request of the interviewee arrangements will be made for the questions to be translated into the interviewee's first language and for his answers to be translated back into English. If a translator is employed at the request of the representative of the overseas regulator then the translation costs will normally be met by the overseas regulator. Where interviews are being conducted in pursuance of a Community obligation these costs will be met by the FSA. In any event, the meeting of costs in relation to translators and, where applicable, the translation of documents will always be agreed in advance with the overseas regulator. |
| 22 | All compulsory interviews will be tape-recorded. The method of recording will be decided on and arranged by the FSA's investigator. Costs will be addressed similarly to that set out in the preceding paragraph. The FSA will not provide the overseas regulator with transcripts of the tapes of interviews unless specifically agreed to, but copies of the tapes will normally be provided where requested. The interviewee will be provided with a copy of tapes of the interview but will only be provided with transcripts of the tapes or translations of any transcripts if he agrees to meet the cost of producing them. |
| 23 | The interviewee may be accompanied at the interview by a legal adviser or a non-legally qualified observer of his choice. The costs of any representation will not be met by the FSA . The presence at the interview of a representative of the overseas regulator may mean that the interviewee wishes to be represented or accompanied by a person either from or familiar with that regulator's jurisdiction. As far as practical the arrangements for the interview should accommodate this wish. However, the FSA reserves the right to proceed with the interview if it is not possible to find such a person within a reasonable time or no such person is able to attend at a suitable venue. |
| 24 | In relation to the publication of investigations by overseas regulators, the FSA will pursue a policy similar to the policy that relates to its own investigations. The FSA's policy on publicity during investigations can be found at ENF 2.13. |
- 01/12/2004
ENF 2 Annex 3
Summary of the FSA's information-gathering and investigation powers referred to in ENF 2.5
- 01/12/2004
See Notes
| Section | 165 | 166 | 167 | 168 |
| Description of the power | FSA's power to require information. | Reports by skilled persons. | Appointment of persons to carry out general investigations. | Appointment of persons to carry out investigations in particular cases. |
| Grounds | The information and documents required must be reasonably required in connection with the exercise by the FSA of functions conferred on it by or under the Act. | The report must be on any matter about which the FSA has required or could require the provision of information or production of documents under section 165. | It must appear to the FSA that there is good reason for appointing investigators. | It must appear to the FSA that there are circumstances suggesting that specified breaches, contraventions, market abuse or offences may have occurred. |
| Persons who may be subject of the information requirement /report/investigation | Firm/former firm.Person connected with firm/former firm. Operator etc. of recognised CIS. RIE or RCH. | Firm ("A").Any other member of A's group.Partnership of which A is a member.Person who has at any relevant time been a person falling within any of the three categories mentioned above. | Firm or appointed representative.Former firm or appointed representative (in relation to certain matters).Member of the group of which the person under investigation ("A") is part (if investigator thinks it necessary). Partnership of which A is a member (if investigator thinks it necessary). | A range of persons depending on the circumstances or suspected breaches. |
| Type of person who may exercise or be authorised or appointed under the power | FSA (by notice in writing). FSA officer (i.e an officer of the FSA, including a member of FSA staff or agent of the FSA). | Skilled person nominated or approved by the FSA. | Competent person (including FSA member of staff). | Competent person (including FSA member of staff). |
| Powers of FSA/information-gatherers/skilled persons/ investigators | To require information. To require documents. To require information to be verified. To require documents to be authenticated. To require explanations of documents. |
No specific powers - but there is a duty on persons providing services to the subject of the report to provide all such assistance as the skilled person may reasonably require. | To require persons to attend and answer questions. To require information. To require documents. To require explanations of documents. |
To require persons to attend and answer questions. To require information. To require documents. To require explanations of documents. To require reasonable assistance (section 168(2) investigator only). |
- 01/12/2004
ENF 3
Variation of Part IV permission on the FSA's own initiative
ENF 3.1
Application and purpose
- 01/12/2004
Application
ENF 3.1.1
See Notes
This chapter applies to all firms.
- 01/12/2004
Purpose
ENF 3.1.2
See Notes
This chapter contains a statement of the FSA's policy on how it will use its own-initiative power to vary a firm's Part IV permission under sections 45 (Variation etc on FSA's own initiative) and 47 (Exercise of power in support of overseas regulator) of the Act. The FSA has related powers to intervene against incoming firms and to cancel Part IV permission on its own initiative. These powers are dealt with in ENF
4 (Intervention against incoming firms) and ENF 5 (Cancellation of Part IV permission on the FSA's own initiative and withdrawal of authorisation).
- 01/12/2004
ENF 3.1.3
See Notes
This chapter outlines:
(2) the grounds for exercising that power (both generally and in support of overseas regulators);
(3) the FSA's duty to ensure that firms satisfy the threshold conditions when it exercises its own-initiative powers; and
(4) the FSA's policy on the exercise of the power (both generally and in support of overseas regulators).
- 01/12/2004
ENF 3.1.4
See Notes
The FSA also has powers to vary a firm's Part IV permission at a firm's request under section 44 of the Act (Variation etc at request of authorised person). SUP 6 (Applications to vary and cancel Part IV permission) contains a statement of the FSA's policy in relation to that section of the Act. In this chapter, variation of Part IV permission means variation of on the FSA's own initiative.
- 01/12/2004
ENF 3.2
The FSA's powers to vary Part IV permission on its own initiative
- 01/12/2004
ENF 3.2.1
See Notes
The FSA's powers to vary a firm's Part IV permission on its own initiative, and the grounds for exercising those powers, are contained in sections 45 (Variation etc on FSA's own initiative) to 47 (Exercise of power in support of overseas regulator) of the Act:
(1) section 45 (Variation etc on FSA's own initiative) sets out various cases where the FSA may vary (or cancel) a firm's Part IV permission and identifies the types of provisions that the FSA may impose on a firm;
(2) section 46 (Variation of permission on acquisition of control) gives the FSA power to vary a firm's Part IV permission when a person has acquired control over the firm (and is dealt with in SUP 11.7.18 G (FSA's right to object to existing controllers)); and
(3) section 47 (Exercise of power in support of overseas regulator) gives the FSA power to vary (or cancel) a firm'sPart IV permission in support of an overseas regulator.
- 01/12/2004
Limitations and requirements that the FSA may impose
ENF 3.2.2
See Notes
Sections 45(2) and (4) of the Act identify the types of provisions that the FSA may impose when it uses its own-initiative power to vary Part IV permission under section 45. They also apply when the FSA seeks to exercise this power in support of an overseas regulator under sections 47(1) and (2).
- 01/12/2004
ENF 3.2.3
See Notes
Section 45(2) states that the FSA's own-initiative power includes the power to vary a Part IV permission in any of the ways mentioned in section 44(1) of the Act. Under section 44(1), the FSA may vary a firm's Part IV permission, amongst other ways, by:
- 01/12/2004
ENF 3.2.4
See Notes
Under section 45(4), the FSA's power extends to including in the Part IV permission as varied any provision that it could include if it were giving a fresh Part IV permission in response to an application under section 40 of the Act (Application for permission) (see AUTH 2 Annex 2 G G (Regulated activities and the permission regime) and AUTH 3 (applications for Part IV permission).
- 01/12/2004
ENF 3.2.5
See Notes
The types of provisions that the FSA may include in a fresh Part IV permission are identified in section 42(7) (Giving permission) and section 43 (Imposition of requirements) of the Act. ENF 3.2.6 G to ENF 3.2.10 G describe sections 42(7) and 43 and give examples of the types of limitations and restrictions that the FSA may consider imposing when using its powers to vary Part IV permission in support of its enforcement activities. The FSA may also use its powers to vary Part IV permission in support of its supervision activities and SUP 7.3 (Criteria for varying a firm's permission) includes examples of the limitations and restrictions that the FSA may consider imposing when varying Part IV permission in that context.
- 01/12/2004
ENF 3.2.6
See Notes
Under section 42(7) the FSA may incorporate in the description of a regulated activity such limitations as it considers appropriate (for example, about the circumstances in which the activity may, or may not, be carried on).
- 01/12/2004
ENF 3.2.7
See Notes
Examples of the limitations that the FSA may impose under section 42(7), when exercising its own-initiative power in support of its enforcement function, include limitations on:
(3) The activities of the firm so that they fall within specific regulatory regimes (for example, so that oil market participants, locals, corporate finance advisory firms and service providers are permitted only to carry on those types of activities).
- 01/12/2004
ENF 3.2.8
See Notes
Section 43 relates to the imposition of requirements:
(1) under section 43(1) a Part IV permission may include such requirements as the FSA considers appropriate;
(2) under section 43(2) a requirement may, in particular, be imposed so as to require the firm concerned to:
(a) take specified action; or
(b) refrain from taking specified action.
- 01/12/2004
ENF 3.2.9
See Notes
Examples of requirements that the FSA may consider including in a firm's Part IV permission when exercising its own-initiative power in support of its enforcement function are:
(1) a requirement not to take on new business;
- 01/12/2004
ENF 3.2.10
See Notes
Other requirements that the FSA may include in a Part IV permission are set out in section 48(3) of the Act (Prohibitions and restrictions) and are referred to as 'assets requirements'. An assets requirement is a requirement (under section 43) that:
(1) prohibits the disposal of, or other dealing with, any of the firm's assets (whether in the United Kingdom or elsewhere) or restricts those disposals or dealings; or
- 01/12/2004
ENF 3.3
Grounds for exercising the power to vary Part IV permission
- 01/12/2004
ENF 3.3.1
See Notes
Grounds for varying Part IV permission on the FSA's own-initiative are set out in section 45 and 47 of the Act.
- 01/12/2004
General grounds for exercising the power
ENF 3.3.2
See Notes
Under section 45 of the Act (Variation etc on FSA's own initiative), the FSA may vary a Part IV permission in any of the following cases:
(1) Case A. Where it appears to the FSA that the firm is failing, or is likely to fail, to satisfy the threshold conditions in relation to one or more, or all, of the regulated activities for which the firm concerned has a Part IV permission;
(2) Case B. Where it appears to the FSA that the firm concerned has failed, during a period of at least twelve months, to carry on a regulated activity to which the Part IV permission relates;
(3) Case C. Where it appears to the FSA that it is desirable to vary the Part IV permission in order to protect the interests of consumers or potential consumers in relation to a regulated activity to which the Part IV permission relates.
- 01/12/2004
Grounds for exercising the power in support of an overseas regulator
ENF 3.3.3
See Notes
Under section 47(1) of the Act (Exercise of power in support of overseas regulator), the FSA may exercise its own-initiative power to vary a Part IV permission at the request of, or for the purpose of assisting, a regulator who is:
- (1) outside the United Kingdom; and
- (2) of a kind prescribed in regulations made by the Treasury.
- 01/12/2004
ENF 3.3.4
See Notes
- 01/12/2004
ENF 3.3.5
See Notes
If a request to the FSA for the exercise of its own-initiative power is made by a regulator who is:
(1) outside the United Kingdom;
(2) of a kind prescribed in regulations made by the Treasury; and
(3) acting in pursuance of provisions of a kind prescribed in regulations made by the Treasury;
the FSA must, when it decides whether to exercise that power in response to the request, consider whether it is necessary to do so to comply with a Community obligation.- 01/12/2004
ENF 3.3.6
See Notes
In any case in which the FSA does not consider that the exercise of its own-initiative power is necessary in order to comply with a Community obligation, the FSA may take into account in particular:
(1) whether in the country or territory of the regulator concerned, corresponding assistance would be given to a UK regulatory authority;
(2) whether the case concerns the breach of a law, or other requirement, which has no close parallel in the United Kingdom or which involves the assertion of a jurisdiction not recognised by the United Kingdom;
(4) whether it is otherwise appropriate in the public interest to give the assistance sought.
- 01/12/2004
ENF 3.3.7
See Notes
The FSA may decide not to exercise its own-initiative power, in response to a request, unless the regulator concerned undertakes to make whatever contribution towards the cost of its exercise the FSA considers appropriate. However, this does not apply if the FSA decides that it is necessary for it to exercise its own-initiative power in order to comply with a Community obligation.
- 01/12/2004
ENF 3.4
The FSA's duty to ensure that firms satisfy the threshold conditions
- 01/12/2004
ENF 3.4.1
See Notes
When it varies a firm'sPart IV permission, the FSA has a duty under section 41(2) of the Act (The threshold conditions) to ensure that the firm will satisfy, and continue to satisfy, the threshold conditions in relation to all of the regulated activities for which it has or will have Part IV permission. The duty is qualified by section 41(3) of the Act.
- 01/12/2004
ENF 3.5
The FSA's policy on exercising its own-initiative power
- 01/12/2004
ENF 3.5.1
See Notes
This section sets out the FSA's policy on how it will exercise its own-initiative power to vary Part IV permission. It is arranged as follows:
(1)
ENF 3.5.2 G to ENF 3.5.13 G set out the FSA's policy for exercising its power under section 45 of the Act (Variation etc on FSA's own initiative) and outline its general approach and its approach in urgent cases;
(2)
ENF 3.5.14 G to ENF 3.5.26 G set out the FSA's policy on exercising its power under section 47 of the Act (Exercise of power in support of overseas regulator) in support of overseas regulators;
(3)
ENF 3.5.27 G and ENF 3.5.28 G set out additional considerations that the FSA may or must have regard to when it considers using its own-initiative power.
SUP 7.3 (Criteria for varying a firm's permission) gives additional guidance on the FSA's policy for using its own-initiative power to vary Part IV permission in support of its supervision activities.- 01/12/2004
The FSA's general approach
ENF 3.5.2
See Notes
When it considers how it should deal with a concern about a firm, the FSA will have regard to its regulatory objectives and the range of regulatory tools that are available to it. It will also have regard to:
- 01/12/2004
ENF 3.5.3
See Notes
The FSA will proceed on the basis that a firm (together with its directors and senior management) is primarily responsible for ensuring the firm conducts its business in compliance with the Act and the Principles and the rules. In the context of its enforcement activities, the FSA will take formal action affecting the conduct of a firm's commercial business only if that business is being conducted in such a way that the FSA judges it necessary to act in order to secure compliance with those requirements and/or address the consequences of non-compliance. In the context of its supervision activities, the FSA may take formal action in the circumstances described in SUP 7.3 including where:
(1) the FSA determines that a firm's management, business or internal controls give rise to risks that are not fully captured by the FSA's rules; or
(2) a firm becomes or is to become involved in new products or selling practices which present risks not captured by existing requirements; or
(3) there has been a change in a firm's structure, controllers, activities or strategy which generates uncertainty or creates unusual or exceptional risks.
- 01/12/2004
ENF 3.5.4
See Notes
- 01/12/2004
ENF 3.5.5
See Notes
The FSA envisages that firms will normally take the steps referred to in ENF 3.5.4 G without the need for it to use its own-initiative powers. In the vast majority of cases the FSA will seek to agree with a firm those steps the firm must take to address the FSA's concerns.
- 01/12/2004
ENF 3.5.6
See Notes
Where the FSA considers that it cannot rely on a firm taking effective action, or if the firm fails to comply with the FSA's reasonable request for it to take remedial steps, the FSA will consider exercising its formal powers under section 45 of the Act. This may include instances where the FSA is concerned that the consequences of a firm not taking the desired steps may be serious and:
(1) the firm appears unwilling or unable to take adequate and timely steps to address the FSA's concerns; or
(2) the imposition of a formal statutory requirement may assist the firm to take steps which would otherwise be difficult because of legal obligations owed to third parties.
- 01/12/2004
ENF 3.5.7
See Notes
Section 45 of the Act empowers the FSA to vary, or alternatively to cancel, a firm'sPart IV permission. The same statutory grounds apply to the exercise of both those powers. They are set out in section 45(1) Cases A to C (see ENF 3.3.2 G).
- 01/12/2004
ENF 3.5.8
See Notes
Circumstances in which the FSA will consider varying a firm'sPart IV permission in support of its enforcement function include those where it has serious concerns about a firm, or about the way its business is being or has been conducted, but the concerns are not such as to suggest it should cancel the firm'sPart IV permission (see ENF 5). Examples of these circumstances are where:
(1) under Case A (see ENF 3.3.2 G (1)), the firm appears to be failing, or appears likely to fail, to satisfy the threshold conditions relating to one or more, or all, of its regulated activities, because for instance:
(a) the firm's material and financial resources appear inadequate for the scale or type of regulated activity it is carrying on; or
(b) the firm appears not to be a fit and proper person to carry on a regulated activity because:
(i) it has not conducted its business in compliance with high standards which may include putting itself at risk of being used for the purposes of financial crime or being otherwise involved in such crime
(ii) it has not been managed competently and prudently and has not exercised due skill, care, and diligence in carrying on one or more, or all, of its regulated activities;
(2) under Case C (see ENF 3.3.2 G (3)), it appears that the interests of consumers are at risk because the firm appears to have breached any of Principles 6 to 10 (see PRIN 2.1.1 R) to such an extent that it is desirable that limitations, restrictions, or prohibitions are placed on the firm's regulated activity.
- 01/12/2004
The FSA's approach in urgent cases
ENF 3.5.9
See Notes
Under section 53(2) of the Act (Exercise of own-initiative power: procedure) the FSA may exercise its own-initiative power so that a variation of permission takes effect:
(1) immediately under section 53(2)(a); or
(2) on a specified date under section 53(2)(b); or
(3) when the matter is no longer open to review under section 53(2)(c).
- 01/12/2004
ENF 3.5.10
See Notes
If the FSA decides to impose the variation so that it takes effect immediately or on a specified date, it must state so in the supervisory notice that it is required to give to the firm concerned (see DEC 3). Under section 53(3) the FSA may only do this if it reasonably considers it necessary for the variation to take effect immediately (or on the date specified), having regard to the ground on which it is exercising its own-initiative power.
- 01/12/2004
ENF 3.5.11
See Notes
The FSA will consider exercising its own-initiative power as a matter of urgency under section 53 of the Act where:
(1) the information available to it indicates serious concerns about the firm or its business that need to be addressed immediately; and
- 01/12/2004
ENF 3.5.12
See Notes
It is not possible to provide an exhaustive list of the situations that will give rise to such serious concerns, but they are likely to include one or more of the following characteristics:
(1) information indicating significant loss, risk of loss or other adverse effects for consumers, where action is necessary to protect their interests;
(2) information indicating that a firm's conduct has put it at risk of being used for the purposes of financial crime, or of being otherwise involved in crime;
(3) evidence that the firm has submitted to the FSA inaccurate or misleading information so that the FSA becomes seriously concerned about the firm's ability to meet its regulatory obligations;
(4) Circumstances suggesting a serious problem within a firm or with a firm's controllers that calls into question the firm's ability to continue to meet the threshold conditions.
- 01/12/2004
ENF 3.5.13
See Notes
Whether the urgent exercise of the FSA'sown-initiative power is an appropriate response to serious concerns of this kind will depend on a number of factors. Set out below is a list of factors the FSA may consider. The list is not exhaustive. The FSA will consider the full circumstances of each case when it decides whether urgent variation of Part IV permission is needed:
(1) the extent of any loss, or risk of loss, or other adverse effect on consumers.The more serious the loss or potential loss or other adverse effect, the more likely it is that the FSA's urgent exercise of own-initiative powers will be appropriate, to protect the consumers' interests.
(2) the extent to which customer assets appear to be at risk. Urgent exercise of the FSA's own-initiative power may be appropriate where the information available to the FSA suggests that customer assets held by, or to the order of, the firm may be at risk.
(3) the nature and extent of any false or inaccurate information provided by the firm.Whether false or inaccurate information warrants the FSA's urgent exercise of its own-initiative powers will depend on matters such as:
(a) the impact of the information on the FSA's view of the firm's compliance with the regulatory requirements to which it is subject, the firm's suitability to conduct regulated activities, or the likelihood that the firm's business may be being used in connection with financial crime;
(b) whether the information appears to have been provided in an attempt knowingly to mislead the FSA, rather than through inadvertence;
(4) the seriousness of any suspected breach of the requirements of the legislation or the rules and the steps that need to be taken to correct that breach.
(5) the financial resources of the firm. Serious concerns may arise where it appears the firm may be required to pay significant amounts of compensation to consumers. In those cases, the extent to which the firm has the financial resources to do so will affect the FSA's decision about whether exercise of the FSA's own-initiative power is appropriate to preserve the firm's assets, in the interests of the consumers. The FSA will take account of any insurance cover held by the firm. It will also consider the likelihood of the firm's assets being dissipated without the FSA's intervention, and whether the exercise of the FSA's power to petition for the winding up of the firm is more appropriate than the use of its own-initiative power (see ENF 10).
(6) the risk that the firm's business may be used or has been used to facilitate financial crime, including money laundering. The information available to the FSA, including information supplied by other law enforcement agencies, may suggest the firm is being used for, or is itself involved in, financial crime. Where this appears to be the case, and the firm appears to be failing to meet the threshold conditions or has put its customers' interests at risk, the FSA's urgent use of it's own-initiative powers may well be appropriate.
(7) the risk that the firm's conduct or business presents to the financial system and to confidence in the financial system.
(8) the firm's conduct.The FSA will take into account:
(a) whether the firm identified the issue (and if so whether this was by chance or as a result of the firm's normal controls and monitoring);
(c) the firm's past history, management ethos and compliance culture;
(d) steps that the firm has taken or is taking to address the issue.
(9) the impact that use of the FSA's own-initiative powers will have on the firm's business and on its customers. The FSA will take into account the (sometimes significant) impact that a variation of permission may have on a firm's business and on its customers' interests, including the effect of variation on the firm's reputation and on market confidence. The FSA will need to be satisfied that the impact of any use of the own-initiative power is likely to be proportionate to the concerns being addressed, in the context of the overall aim of achieving its regulatory objectives.
- 01/12/2004
The FSA's approach in support of overseas regulators
ENF 3.5.14
See Notes
Section 47 empowers the FSA to vary, or alternatively to cancel, a firm'sPart IV permission, in support of an overseas regulator. The same statutory grounds apply to the exercise of both powers (see ENF 3.3.3 G). In both cases, the FSA may exercise the power at the request, or for the purpose of assisting a regulator who is:
(1) outside the United Kingdom; and
(2) of a kind prescribed in regulations to be made by the Treasury.
- 01/12/2004
ENF 3.5.15
See Notes
Sections 47(3), (4) and (5) set out matters the FSA may, or must, take into account when it considers whether to exercise the powers (see ENF 3.3.5 G to ENF 3.3.7 G).
- 01/12/2004
ENF 3.5.16
See Notes
In certain circumstances, in support of an overseas regulator, the FSA may need to consider whether to seek to vary a firm'sPart IV permission, or to cancel it. Circumstances in which the FSA may consider varying or cancelling a firm'sPart IV permission in support of an overseas regulator are set out in ENF 3.4.6.
- 01/12/2004
ENF 3.5.17
See Notes
As with cancellation of Part IV permission, the circumstances in which the FSA may consider varying a firm'sPart IV permission in support of an overseas regulator, depend on whether the FSA is required to consider exercising the power in order to comply with a Community obligation.
- 01/12/2004
ENF 3.5.18
See Notes
Under section 47(3), if a relevant overseas regulator acting under prescribed provisions has made a request to the FSA for the exercise of its own-initiative power, the FSA must consider whether it must exercise the power in order to comply with a Community obligation.
- 01/12/2004
ENF 3.5.19
See Notes
Some relevant Community obligations which the FSA may need to consider are those under the following Directives:
(1) the Banking Consultation Directive;
(2) the Insurance Directives;
(3) the Investment Services Directive;
(4) the Insurance Mediation Directive.
- 01/12/2004
ENF 3.5.20
See Notes
Each of these Directives imposes general obligations on the relevant EEAcompetent authority to cooperate and collaborate closely in discharging their functions under the Directives relating to the authorisation ('registration' in the case of IMD insurance intermediaries and IMD reinsurance intermediaries) and supervision of credit institutions, insurance undertakings, investment firms, IMD insurance intermediaries and IMD reinsurance intermediaries and supervision of credit institutions, insurance undertakings, investment firms, IMD insurance intermediary and IMD reinsurance intermediaries.
- 01/12/2004
ENF 3.5.21
See Notes
The FSA views this cooperation and collaboration as essential to effective regulation of the international market in financial services. It will therefore exercise its own-initiative power wherever:
(2) it is satisfied that the use of the power is appropriate (having regard to the considerations set out at ENF 3.5.2 G to ENF 3.5.8 G) to enforce effectively the regulatory requirements imposed under the Single Market Directives or other Community obligations.
- 01/12/2004
ENF 3.5.22
See Notes
The FSA will actively consider any other requests for assistance from relevant overseas regulators (that is requests in relation to which it is not obliged to Act under a Community obligation). Section 47(4) applies in these circumstances. It sets out matters the FSA may take into account when it decides whether to vary or cancel a firm'sPart IV permission in support of the overseas regulator (see ENF 3.3.6 G).
- 01/12/2004
ENF 3.5.23
See Notes
Where section 47(4) applies and the FSA is considering whether to vary a firm'sPart IV permission, it may take account of all the factors described in ENF 3.5.14 G to ENF 3.5.22 G, but may give particular weight to:
(1) The matters set out in paragraphs (c) and (d) of section 47(4) (seriousness, importance to persons in the United Kingdom, and the public interest); and
(2) any specific request made to it by the overseas regulator to vary, rather than cancel, the firm'sPart IV permission.
- 01/12/2004
ENF 3.5.24
See Notes
The FSA will give careful consideration to whether the relevant authority's concerns would provide grounds for the FSA to exercise its own-initiative power if they related to a UK firm. It is not necessary for the FSA to be satisfied that the overseas provisions being enforced mirror precisely those which apply to UK firms. However, the FSA will not assist in the enforcement of regulatory requirements or other provisions that appear to extend significantly beyond the purposes of UK regulatory provisions.
- 01/12/2004
ENF 3.5.25
See Notes
Similarly, the FSA will not need to be satisfied that precisely the same assistance would be provided to the United Kingdom in precisely the same situation. However, it will wish to be confident that the relevant authorities in the jurisdiction concerned would have powers available to them to provide broadly similar assistance in aid of UK authorities, and would be willing properly to consider exercising those powers.
- 01/12/2004
ENF 3.5.26
See Notes
Under section 47(5), the FSA may decide not to exercise its own-initiative power, in response to a request, unless the regulator concerned undertakes to make whatever contribution towards the cost of its exercise the FSA considers appropriate.
- 01/12/2004
Additional considerations
ENF 3.5.27
See Notes
Under section 49 of the Act (Persons connected with an applicant), when it decides whether to vary a Part IV permission the FSA may have regard to any person appearing to it to be in a relevant relationship with a firm. Where the FSA is considering varying the Part IV permission of a firm that is connected to an EEA firm, it must consult the EEA firm's Home State regulator. A firm is connected with an EEA firm if:
- 01/12/2004
ENF 3.5.28
See Notes
Section 50 of the Act (FSA's duty to consider other permissions etc) applies where the firm is an EEA firm, a Treaty firm or a firm authorised as a result of paragraph 1(1) of Schedule 5 (Persons Concerned in Collective Investment Schemes), which has an additional Part IV permission. Under section 50(2), if the FSA is considering whether, and if so how, to exercise its own-initiative power in relation to the firm's additional Part IV permission it must take into account:
(2) any relevant directive; and
(3) relevant provisions of the Treaty.
- 01/12/2004
ENF 3.6
Statutory procedure and the FSA's decision-making processes
- 01/12/2004
ENF 3.6.1
See Notes
When the FSA uses, or proposes to use, its own-initiative power to vary a firm's Part IV permission, it is required to follow the supervisory procedure set out in section 53 of the Act (Exercise of own-initiative power: procedure). DEC 3 (Statutory notice procedure: Supervisory notice procedure) sets out this procedure in detail and describes the content of the notices that the FSA is required to give to the firm concerned. DEC 4 (The decision maker) deals with decision making by the RDC (by full or modified procedure) in cases where the variation would make a fundamental change to the nature of the firm's Part IV permission and with decision-making by executive procedures in other cases of own-initiative variations of Part IV permission.
- 01/12/2004
ENF 3.7
Publicity
- 01/12/2004
ENF 3.7.1
See Notes
The FSA has a duty under section 391(5) of the Act (Publication) to publish such information about supervisory notices (including those which relate to variations of Part IV permission and those which relate to intervention against incoming firms) as it considers appropriate. However, the FSA is prohibited from publishing information which would, in its opinion, be:
(1) unfair to the person against whom the decision is made; or
(2) prejudicial to the interests of consumers.
- 01/12/2004
ENF 3.7.2
See Notes
The FSA also has a duty to maintain a public record containing information about firms. The FSA must include on the public record:
(1) such information as it considers appropriate which may include information about a variation of Part IV permission (or intervention);
(2) information about the services which the firm holds itself out to provide; and
(3) any address known to the FSA at which a notice or document may be served on the firm.
- 01/12/2004
ENF 3.7.3
See Notes
The FSA will consider the question of publicity on a case-by-case basis and will adopt a differentiated approach depending on the nature of the action taken and the circumstances of the case
- 01/12/2004
ENF 3.7.4
See Notes
Where the FSA is using its own-initiative power in support of its supervisory function, and the variation does not bring about a fundamental change in the firm's Part IV permission (see DEC
4.1.5 G), the FSA will not normally publish the supervisory notice, where this would disclose confidential information about the individual firm or would prejudice consumers' interests.
- 01/12/2004
ENF 3.7.5
See Notes
However, the publication of fundamental variations of Part IV permission (and interventions), and the maintenance of an accurate public record, are important elements of the FSA's approach to its consumer protection objective. The FSA will always aim to balance both the interests of consumers and the possibility of unfairness to the person subject to the FSA's action. The FSA will publish, and include in the public record, relevant details of fundamental variations of Part IV permission and interventions imposed on firms, but will use its discretion not to do so if it considers this would best serve the interests of the firm's existing customers.
- 01/12/2004
ENF 4
Intervention against incoming firms
ENF 4.1
Application and purpose
- 01/12/2004
Application
ENF 4.1.1
See Notes
This
chapter applies to incoming
firms. An incoming
firm is:
(1) an EEA
firm; or
(2) a Treaty
firm;
which is exercising,
or has exercised, its right to carry on a regulated activity in the United Kingdom under Schedule 3 (EEA passport rights) or
Schedule 4 (Treaty rights)
to the Act.- 01/12/2004
Purpose
ENF 4.1.2
See Notes
The chapter contains a statement of the FSA's policy on how it
will use its power to intervene against incoming
firms under section 196 of the Act. It outlines:
(1) the FSA's power
to intervene against incoming
firms under section 196 of the Act (The power
of intervention);
(2) the grounds for exercising that power
(both generally and in support of overseas
regulators); and
(3) the FSA's policy
on the exercise of that power.
- 01/12/2004
ENF 4.1.3
See Notes
The FSA has
related powers to impose limitations and requirements on firms that have Part IV permission, and ENF 3 (Variation of permission on
the FSA's own
initiative) contains a statement of the FSA's policy
on how it will use those powers. This chapter refers where appropriate to
the policy in ENF 3.
- 01/12/2004
ENF 4.2
The FSA's power to intervene against incoming firms
- 01/12/2004
ENF 4.2.1
See Notes
The FSA's power
to intervene against incoming
firms, and the grounds for exercising that power, are contained
in sections 194 to 196 of the Act.
Section 196 (The power of intervention) identifies the types of requirements the FSA may impose when it
exercises its power of
intervention against an incoming
firm. Section 195 (Exercise of power in support of overseas
regulator) gives the FSA power
to intervene against an incoming
firm in support of an overseas
regulator and section 194 (General grounds on which power of
intervention is exercisable) relates to all other circumstances.
- 01/12/2004
Requirements that the FSA may impose on incoming firms
ENF 4.2.2
See Notes
Under section 196, where the FSA is entitled to exercise
its power of intervention in
respect of an incoming
firm, it may impose any requirement on
the firm which
it could impose if:
- 01/12/2004
ENF 4.2.3
See Notes
Paragraphs ENF 3.2.8 G to ENF 3.2.10 G explain and provide
examples of the requirements the FSA may impose when it
exercises its power to vary permission.
- 01/12/2004
ENF 4.3
Grounds for exercising the power of intervention against incoming firms
- 01/12/2004
ENF 4.3.1
See Notes
Section 194 of the Act (General grounds on which power of intervention
is exercisable) sets out the general grounds on which the FSA may exercise its power of intervention. Section 195 (Exercise
of power in support of overseas regulator) relates to the exercise of the
power on behalf of an overseas
regulator.
- 01/12/2004
General grounds for exercising the power against incoming firms
ENF 4.3.2
See Notes
Under section 194(1) the FSA may exercise the power of intervention if
it appears to it that:
(1) an incoming
firm has contravened, or is likely to contravene, a requirement
which is imposed on it by or under the Act (in
a case where the FSA is
responsible for enforcing compliance in the United Kingdom); or
(2) an incoming
firm has, in purported compliance with any requirement imposed
by or under the Act,
knowingly or recklessly given the FSA information
which is false or misleading in a material particular; or
(3) it is desirable to exercise the power
in order to protect the interests of actual or potential customers in relation to a regulated activity carried on by the firm.
- 01/12/2004
ENF 4.3.3
See Notes
Under section 194(3) the FSA may exercise the power
if it receives certain information from the Director General of Fair Trading.
Section 194(3) applies to an incoming
EEA firm that is either:exercising an EEA right to carry on
Consumer Credit Act business in the United
Kingdom (see section 194(2) and paragraph 5(a) and (b) of Schedule
3 to the Act (EEA
Passport Rights)).
- 01/12/2004
ENF 4.3.4
See Notes
Section 194(3) permits the FSA to exercise its power of intervention in
respect of the incoming
firm if the Director General of Fair Trading has informed the FSA that:
(1) the firm concerned;
or
(3) if the firm is a body corporate, a controller of the authorised person or an associate of such a controller; has done any of the things specified
in paragraphs (a) to (d) of section 25(2) of the Consumer Credit Act 1974,
that is has:
(a) committed any offence involving fraud
or other dishonesty, or violence; or
(b) Contravened any provision made by or
under that Act,
or by or under any other enactment regulating the provision of credit to individuals
or other transactions with
individuals; or
(c) practised discrimination on grounds of
sex, colour, race or ethnic or national origins in, or in connection with,
the carrying on of any business; or
(d) engaged in business practices appearing
to the Director to be deceitful or oppressive, or otherwise unfair or improper
(whether lawful or not).
- 01/12/2004
Grounds for exercising the power on behalf of an overseas regulator
ENF 4.3.5
See Notes
(1) Under section 195(1) of the Act (Exercise of power
in support of overseas regulator), the FSA may
exercise its power of intervention in
respect of an incoming
firm at the request of an overseas
regulator.
(2) Paragraph (1) applies whether or not
the FSA's power of intervention is
also exercisable as a result of section 194 (see ENF
4.3.2 G to ENF
4.3.4 G).
(3) If:
(a) a Home
State regulator in pursuance of a Community obligation has made
a request to the FSA for
the exercise of the power; or
(b) a Home
State regulator has notified the FSA that it has withdrawn an EEA firm's EEA authorisation;
then, when the FSA decides whether to
exercise its power of intervention,
it must consider whether it is necessary to exercise the power in order to
comply with a Community obligation (See ENF 3.5.19 G for examples
of relevant Community obligations).(4) When the FSA decides in any case that the exercise
of its power is not necessary to comply with a Community obligation, it may
take into account, in particular, the factors that are set out in ENF 3.3.6 G.
- 01/12/2004
ENF 4.4
The FSA's policy on exercising its power of intervention against incoming firms
- 01/12/2004
ENF 4.4.1
See Notes
The FSA's power of intervention and
its own-initiative power to
vary permission are
similar in that:
(1) in both cases the FSA may impose requirements on firms (see ENF 3.2.8 G to ENF 3.2.10 G and ENF
4.2.2 G);
(2) in both cases the power may be exercised
on similar grounds (see ENF 3.3.2 G (3) and ENF 4.3.2 G (3));
(3) the statutory procedure and the FSA's decision making
processes are similar (although there are additional procedures for the FSA to follow in certain
cases where the FSA intervenes
against EEA firms)
(see ENF 3.6 and ENF 4.5);
(4) In both cases, the FSA may exercise its power so that the action
takes effect immediately, or on a specified date, or when the matter is no
longer open to review (see
section 197(1) of the Act (Procedure
on exercise of power of intervention) in relation to the FSA's power
of intervention); and
(5) In both cases, the FSA may only state that the action will have
effect immediately, or on a specified date, if the FSA reasonably considers that it is necessary
for the action to take effect immediately or on that specified date, having
regard to the ground on which it is exercising its power (see section 197(2)
of the Act in
relation to requirements imposed
by power of intervention).
- 01/12/2004
ENF 4.4.2
See Notes
The FSA will
adopt a similar approach to the exercise of its power of intervention as it does to its own-initiative powers to
vary permission,
but with suitable modification for the differences in the statutory grounds
for exercising the powers (for example, see ENF
4.3.4 G).
Consequently the factors and considerations set out in ENF 3.5.2 G to ENF 3.5.28 G are also likely
to be relevant when the FSA is
considering regulatory concerns about incoming
firms.
- 01/12/2004
ENF 4.4.3
See Notes
The FSA will
seek, and take account of, the views of the firm's Home
State regulator when it is considering action against an incoming firm.
- 01/12/2004
ENF 4.5
Statutory procedure and FSA's decision making processes
- 01/12/2004
Section 197 procedure and additional and supplemental procedures
ENF 4.5.1
See Notes
When the FSA uses, or proposes to use, its power of intervention to
impose a requirement on
an incoming firm,
it is required to follow the supervisory
notice procedure contained in section 197 of the Act (Procedure on exercise
of power of intervention). DEC 3 (Statutory notice procedure:
Supervisory notice procedure) sets out this procedure in detail and describes
the content of the notices that the FSA is
required to give to the firm concerned. DEC 4 (The decision maker) also deals with decision making
by the RDC (by
full or modified procedure) in cases where the requirement on the incoming firm would have an effect equivalent
to a fundamental change to the nature of a firm's Part
IV permission; and with decision making by executive procedures in other intervention
cases against incoming
firms.
- 01/12/2004
ENF 4.5.2
See Notes
In addition, in certain cases relating
to EEA firms,
the FSA is
required to follow the additional procedure contained in section 199 of the Act (Additional procedure
for EEA firms in certain cases). Details of this procedure are set out in ENF
4.5.4 G to ENF
4.5.7 G.
- 01/12/2004
ENF 4.5.3
See Notes
Section 200 of the Act (Rescission and variation of requirements)
contains supplemental procedure that the FSA must
follow when it is considering rescinding or varying those requirements that it has imposed on an incoming
firm by exercise of the power
of intervention. Details of this procedure are set out in ENF
4.5.8 G to ENF
4.5.10 G.
- 01/12/2004
Section 199 additional procedure for EEA firms in certain cases
ENF 4.5.4
See Notes
The additional procedure in section 199
applies where it appears to the FSA that
its power of intervention is
exercisable:
(1) in relation to an incoming EEA firm; and
(2) in respect of the contravention of a
relevant requirement.
- 01/12/2004
ENF 4.5.5
See Notes
A requirement is relevant if:
(2) With respect to its contravention, any
of the Single Market Directives provides
that a procedure of the following kind applies:
(b) if the firm fails to comply with that requirement
within a reasonable time, the FSA must
inform the firm's Home State regulator of
this and request it to:
(i) take all appropriate measures to remedy
the situation; and
(ii) inform the FSA of the measures it proposes to take,
or has taken, or the reasons why it has not taken or will not take such measures.
- 01/12/2004
ENF 4.5.6
See Notes
Examples of relevant requirements are
the requirements contained in COB.
All of the chapters of COB apply
to incoming EEA firms.
- 01/01/2004
ENF 4.5.7
See Notes
The additional procedure also differs
between urgent and other cases, as follows.
(1) Except as mentioned in (2) the FSA may not exercise its power of intervention in
these cases, unless it is satisfied that:
(a) the firm's Home State regulator has
failed or refused to take appropriate measures to remedy the situation; or
(b) the measures taken by the Home State regulator have
proved inadequate for that purpose.
(2) If the FSA decides it should, as a matter of urgency,
exercise its power of intervention to
protect the interests of consumers,
it may exercise the power:
(a) before complying with the procedure described
in ENF 4.5.5 G (2); or
(b) Where it has complied with that procedure,
before it is satisfied as mentioned in (1).
(3) If it exercises its power of intervention in this way, as a matter
of urgency the FSA must,
at the earliest opportunity, inform the firm's Home State regulator and
the European Commission.
If the Commission decides,
under any of the Single
Market Directives, that the FSA must rescind or vary any requirement imposed by
it in this way, the FSA must
do so.
- 01/12/2004
Section 200 procedure for rescission and variation of requirements
ENF 4.5.8
See Notes
Under section 200 of the Act (Rescission and variation
of requirements), the FSA may
rescind or vary a requirement it
imposed when exercising its power
of intervention, either on its own initiative or on the application
of the person subject
to the requirement.
- 01/12/2004
ENF 4.5.9
See Notes
The following procedure applies where
the FSA on
its own initiative rescinds or varies an existing requirement.
(1) The FSA may
rescind a requirement on
its own initiative by giving written notice to the person concerned. The rescission or variation
takes effect on the date specified in the notice.
(2) The FSA may
vary a requirement on
its own initiative by giving a supervisory
notice to the person concerned
and following the procedure in section 197 of the Act (see ENF
4.5.1 G and DEC 3 (Statutory notice procedure: Supervisory notice procedure)).
- 01/12/2004
ENF 4.5.10
See Notes
The following procedure applies where
the FSA proposes
to refuse an application to rescind or vary an existing requirement.
(2) If the FSA decides to refuse the application:
(a) it must give the applicant a decision notice;
- 01/12/2004
ENF 4.5.11
See Notes
DEC 2 (Statutory notice procedure:
warning notice and decision notice procedure) contains a detailed statement
of the FSA's procedure
for deciding whether to give warning
notices and decision
notices.
- 01/12/2004
ENF 5
Cancellation
of Part IV permission on the FSA's own initiative
ENF 5.1
Application and purpose
- 01/12/2004
Application
ENF 5.1.1
See Notes
This
chapter applies to all firms that
have a Part IV permission.
- 01/12/2004
Purpose
ENF 5.1.2
See Notes
The chapter contains a statement of the FSA's policy on how it
will use its own-initiative
power to cancel a firm's Part IV permission. The FSA has related powers
to vary a Part IV permission on
its own-initiative and to intervene against incoming firms. These powers are dealt with
in ENF 3 (Variation of Part IV permission on the FSA's own
initiative) and ENF
4 (Intervention against
incoming firms).
- 01/12/2004
ENF 5.2
Introduction
- 01/12/2004
ENF 5.2.1
See Notes
The chapter outlines:
(1) the FSA's own-initiative power to
cancel Part IV permission under
sections 45 (Variation etc on the FSA's own initiative) and 47 (Exercise of
power in support of overseas regulator) of the Act and its duty to withdraw authorisation under section
33 (Withdrawal of authorisation by the FSA);
(2) the procedure for exercising those powers;
and
(3) the FSA's policy
in relation to the exercise of those powers.
- 01/12/2004
ENF 5.2.2
See Notes
The statement of policy in this chapter
applies to circumstances where the FSA is
considering using its own-initiative
power to cancel a firm's Part IV permission (and
subsequently to withdraw authorisation).
The FSA also
has power under section 44 of the Act (Variation
etc at the request of authorised person) to cancel a Part IV permission at the request
of a firm.
SUP 6 (Applications to vary and cancel Part IV permission) contains
a statement of the FSA's policy
in relation to that power. In this chapter cancellation of Part
IV permission means
cancellation of Part IV
permission on the FSA's own
initiative.
- 01/12/2004
ENF 5.3
The FSA's powers to cancel Part IV permission and withdraw authorisation
- 01/12/2004
ENF 5.3.1
See Notes
The FSA'sown-initiative power to
cancel Part IV permission is
contained in section 45 of the Act (Variation
etc on the FSA'sown initiative). Section
45 also sets out the general grounds for exercising the power. Section 47
(Exercise of power in support of overseas regulator) sets out the grounds
for exercising the power on behalf of an overseas
regulator.
- 01/12/2004
ENF 5.3.2
See Notes
Section 45 of the Act empowers the FSA to vary, or alternatively to cancel,
a firm'sPart IV permission. The
general statutory grounds for exercising those powers are the same. They are
set out in section 45(1) Cases A to C (see ENF 3.3.2 G). The FSA also has a duty, once
it is satisfied that it is no longer necessary to keep the permission in force, to cancel a firm's Part
IV permission when it has varied a firm'sPart
IV permissionto such an extent that there are no longer any regulated activities for
which the firm has
a Part IV permission.
- 01/12/2002
ENF 5.3.3
See Notes
Under section 47(1) of the Act, the FSA may exercise its own-initiative power to cancel a Part IV permission at
the request of, or for the purpose of assisting,
a regulator who is:
(1) outside the United Kingdom; and
(2) of a kind prescribed in regulations made
by the Treasury.
- 01/12/2004
ENF 5.3.4
See Notes
Section 47(1) applies whether or not
the FSA has
powers which it can exercise in relation to the firm under any provision of Part XIII of
the Act, (Incoming
firms: Intervention by FSA)
(see ENF
4). The detailed provisions of section 47 are set out
in ENF 3.3.3 G to ENF 3.3.7 G.
- 01/12/2004
ENF 5.4
Procedure
- 01/12/2004
ENF 5.4.1
See Notes
When it proposes to cancel the Part IV permission of
a firm under
sections 45 (Variation etc on the FSA's own
initiative) or 47 (Exercise of power in support of overseas regulator) of
the Act, the FSA is required to follow
the statutory procedure set out in section 54 of the Act (Cancellation of Part IV permission: procedure).
- 01/12/2004
ENF 5.4.2
See Notes
Under section 54(1), if the FSA proposes to cancel
a firm'sPart IV permission otherwise
than at the firm's request,
it must give the firm a warning notice, and under
section 54(2), if it then decides to cancel the firm'sPart
IV permission, it must give the firm a decision
notice.
- 01/12/2004
ENF 5.4.3
See Notes
DEC 2 (Statutory notice procedure:
warning notice and decision notice procedure) and DEC 4 (The decision maker) contain a detailed statement of the FSA's procedure for deciding
whether to issue warning
notices and decision
notices.
- 01/12/2004
ENF 5.5
The FSA's policy for exercising its power to cancel Part IV permission
- 01/12/2004
ENF 5.5.1
See Notes
The FSA will
consider cancelling a firm'sPart IV permission in
two main circumstances:
(1) where the FSA has very serious concerns about a firm, or the way its business
is or has been conducted;
(2) where the firm'sregulated
activities have come to an end and it has not applied for cancellation of its Part IV permission.
- 01/12/2004
ENF 5.5.2
See Notes
Examples of these circumstances are set
out in ENF 3.3.2 G.
- 01/12/2004
ENF 5.5.3
See Notes
The FSA'sown-initiative powers to
vary and to cancel Part
IV permission are similar to each other. The FSA may exercise the powers on the same grounds
(see ENF
5.3.2 G) and where appropriate
the FSA may
impose a variation of Part
IV permission which, by removing all regulated activities from the Part IV permission, has
a similar effect to cancelling it. However the statutory procedure is different
and this may determine how the FSA acts
in any particular case. Of greater significance, however, the FSA may impose a variation
of Part IV permission either
with immediate effect, or on a date specified by it (see ENF 3.5.9 G). In contrast a cancellation of Part IV permission only becomes effective
on completion of the statutory procedure, or subsequent referral to the Tribunal, or completion
of the appeal process.
- 01/12/2004
ENF 5.5.4
See Notes
Depending on the circumstances, the FSA may need to consider
whether it should first use its own-initiative
powers to vary a firm'sPart IV permission before
going on to cancel it. Circumstances in which the FSA will consider using its own-initiative power to
vary a firm'sPart IV permission are
set out in ENF 3.5. Amongst other circumstances,
the FSA may
use this power where it considers it needs to take immediate action against
a firm because
of the urgency and seriousness of the situation (see in particular ENF 3.5.9 G to ENF 3.5.11 G).
- 01/12/2004
ENF 5.5.5
See Notes
Where the situation appears so urgent
and serious that the firm should
immediately cease to carry on all regulated
activities, the FSA may
first vary the firm'sPart IV permission so
that there is no longer any regulated
activity for which the firm has
a Part IV permission.
If it does this, the FSA will
then have a duty to cancel the firm'sPart IV permission - once
it is satisfied that it is no longer necessary to keep the Part IV permission in force (See ENF
5.3.2 G).
- 01/12/2002
ENF 5.5.6
See Notes
However, where the FSA has cancelled a firm'sPart
IV permission, it is required by section 33 of the Act (Withdrawal of authorisation
by the Authority) to go on to give a direction withdrawing the firm'sauthorisation. Accordingly, the FSA may decide to keep
a firm'sPart IV permission in
force to maintain the firm's status
as an authorised person and
enable it (the FSA)
to monitor the firm's activities.
For example, where the FSA needs
to supervise an orderly winding down of the firm's regulated business (see SUP 6.4.22(When
will the FSA grant
an application for cancellation of permission)). Alternatively, the FSA may decide to keep
a firm'sPart IV permission in
force to maintain the firm's status as an authorised person to use administrative enforcement
powers against the firm.
For example, where the FSA proposes
to impose a financial penalty on the firm under
section 206 of the Act (Financial
penalties) (see ENF 13).
- 01/12/2002
ENF 5.5.7
See Notes
The circumstances in which the FSA may consider cancelling
a firm'sPart IV permission in
support of an overseas
regulator depend on whether or not the FSA is required to consider exercising the
power in order to comply with a Community obligation. The FSA will consider the factors set out in ENF 3.5.14 G to ENF 3.5.26 G in
relation to variation of Part
IV permission and any specific request made to it by the overseas regulator to
cancel, rather than vary, the firm'sPart IV permission.
- 01/12/2004
ENF 6
Injunctions
ENF 6.1
Application and purpose
- 01/12/2004
Application
ENF 6.1.1
See Notes
This
chapter applies to firms, approved persons, and other persons, whether or not
they are regulated by the FSA.
- 01/12/2004
Purpose
ENF 6.1.2
See Notes
This chapter explains the FSA's powers to apply
to court for injunctions and
gives guidance on
how the FSA intends
to use these powers. The FSA's effective
use of these powers will help it work towards its regulatory objectives of protecting consumers, maintaining
confidence in the financial
system and reducing financial
crime. This chapter does not explain the use of the FSA's power to seek injunctions under the Unfair Terms Regulations.
This is explained in ENF 20 (Unfair terms in consumer
contracts).
- 01/04/2003
ENF 6.2
Introduction
- 01/12/2004
ENF 6.2.1
See Notes
This chapter contains guidance on the use of the FSA's powers under the Act to apply to court for orders:
(1) in relation to the contravention of a
relevant requirement (section 380 of the Act (Injunctions));
(3) at the request of the Home State regulator of an incoming EEA firm (section 198 of the Act (Power to apply to
court for injunction in respect of certain overseas insurance companies)).
- 01/12/2004
ENF 6.2.2
See Notes
- 01/12/2004
ENF 6.2.4
See Notes
The orders the court may make following
an application by the FSA are
generally known in England and Wales and Northern Ireland as injunctions, and
in Scotland as interdicts.
In this chapter, the word 'injunction'
and the word 'order' also mean 'interdict'.
- 01/12/2004
ENF 6.2.5
See Notes
A person who
disobeys an injunction may
be in contempt of court and be liable to imprisonment, to a fine, and/or to
have his assets seized.
- 01/12/2004
ENF 6.2.6
See Notes
- 01/12/2004
ENF 6.3
Section 380: the power
- 01/12/2004
ENF 6.3.1
See Notes
Under section 380 of the Act (Injunctions), the FSA has power to apply
to court for an injunction against persons, whether authorised or not, in connection
with a contravention of a 'relevant requirement'. (The Secretary of State
for Trade and Industry may also apply for injunctions under this section of the Act).
- 01/12/2004
ENF 6.3.2
See Notes
Sections 380(6)(a) and (7)(a) state that
in relation to an application by the FSA,
'relevant requirement' means a requirement:
(1) 'which is imposed by or under the Act; or
(2) which is imposed by or under any other
Act and whose contravention constitutes an offence which the FSA has power to prosecute
under the Act (or
in the case of Scotland, which is imposed by or under any other Act and whose
contravention constitutes an offence under Part V of the Criminal Justice
Act 1993 (insider dealing)
or under prescribed regulations relating to money laundering)'.
- 01/12/2004
ENF 6.3.3
See Notes
Sections 380(1), (2) and (3) set out
the grounds on which the court may grant an injunction.
- 01/12/2004
ENF 6.3.4
See Notes
(1) Under section 380(1), the FSA may apply to court
for an injunction restraining
or prohibiting a contravention of a relevant requirement.
(2) Section 380(1) states, 'If, on the application
of the FSA or
the Secretary of State, the court is satisfied:
(a) that there is a reasonable likelihood
that any person will
contravene a relevant requirement; or
(b) that any person has contravened a relevant requirement
and that there is a reasonable likelihood that the contravention will continue
or be repeated,
the court may
make an order restraining (or in Scotland an interdict prohibiting) the contravention.'- 01/12/2004
ENF 6.3.5
See Notes
(1) Under section 380(2), the FSA may apply to court
for an injunction directing
a person to
remedy a contravention of a relevant requirement.
(2) Section 380(2) states, 'If on the application
of the FSA or
the Secretary of State the court is satisfied:
(a) that any person has contravened a relevant requirement;
and
(b) that there are steps which could be taken
for remedying the contravention,
the court may
make an order requiring that person,
and any other person who
appears to have been knowingly concerned in the contravention, to take such
steps as the court may direct to remedy it.'- 01/12/2004
ENF 6.3.6
See Notes
Under section 380(5), 'remedying a contravention'
(see ENF
6.3.5 G) includes mitigating the
effect of that contravention.
- 01/12/2004
ENF 6.3.7
See Notes
(2) Section 380(3) states, 'If, on the application
of the FSA or
the Secretary of State, the court is satisfied that any person may have:
(a) contravened a relevant requirement; or
(b) been knowingly concerned in the contravention
of such a requirement,
it may make
an order restraining (or in Scotland an interdict prohibiting)
him from disposing of, or otherwise dealing with, any assets of his which
it is satisfied he is reasonably likely to dispose of or otherwise deal with.'- 01/12/2004
ENF 6.4
Section 381: the power
- 01/12/2004
ENF 6.4.1
See Notes
Under section 381 of the Act (Injunctions in cases
of market abuse), the FSA has
power to apply to court for an injunction against persons, whether authorised or not, in cases
of market abuse.
The Secretary of State for Trade and Industry has no power to apply for injunctions under this
section of the Act.
- 01/12/2004
ENF 6.4.2
See Notes
Sections 381(1), (2), (3) and (4) set
out the grounds upon which the court may grant an injunction.
(1) Under section 381(1), the FSA may apply to court
for an injunction restraining
or prohibiting market
abuse.
(2) Section 381(1) states, 'If, on the application
of the FSA,
the court is satisfied:
(b) that any person is or has engaged in market abuse and that
there is a reasonable likelihood that the market abuse will continue or be repeated,
the court may
make an order restraining (or in Scotland an interdict prohibiting) the market abuse.'- 01/12/2004
ENF 6.4.3
See Notes
(1) Under section 381(2), the FSA may apply to court
for an injunction requiring
a person to
take steps to remedy market
abuse.
(2) Section 381(2) states, 'If on the application
of the FSA the
court is satisfied:
(b) that there are steps which could be taken
for remedying the market
abuse,
the court may
make an order requiring him to take such steps as the court may direct to
remedy it.'- 01/12/2004
ENF 6.4.4
See Notes
Under section 381(6), 'remedying the market abuse' (see ENF
6.4.3 G) includes mitigating the
effect of the market abuse.
- 01/12/2004
ENF 6.4.5
See Notes
- 01/12/2004
ENF 6.4.6
See Notes
Section 381(3) states that section 381(4)
(see ENF
6.4.4 G) applies if '...on the
application of the FSA,
the court is satisfied that any person (a)
may be engaged in market
abuse; or (b) may have been engaged in market abuse.'
- 01/12/2004
ENF 6.5
Asset-freezing injunctions
- 01/12/2004
ENF 6.5.1
See Notes
As an alternative to applying to the
court under section 380(3) (Injunctions) or sections 381(3) and (4) (Injunctions
in cases of market abuse) of the Act,
the FSA may
ask the court to exercise its inherent jurisdiction to grant a freezing order,
restraining a person from
disposing of, or otherwise dealing with, assets. To succeed in an application
for an asset-freezing injunction the FSA will have to show
a good arguable case for the granting of the injunction.
- 01/12/2004
ENF 6.5.2
See Notes
The FSA may
request the court to exercise its inherent jurisdiction in cases where it
has evidence showing that there is a reasonable likelihood that a person will contravene
a requirement of the Act and
that the contravention will result in the dissipation of assets belonging
to investors. Unlike an application under section 380(3) or 381(3) and (4),
the FSA will
not have to show that a contravention has already occurred or may have already
occurred.
- 01/12/2004
ENF 6.6
Section 380 and 381 injunctions: the FSA's policy
- 01/12/2004
ENF 6.6.1
See Notes
Sections 380 (Injunctions) and 381 (Injunctions
in cases of market abuse) of the Act enable
the court to make three types of order: to restrain a course of conduct, to
take steps to remedy a course of conduct and to secure assets (see ENF 6.3 and ENF 6.4). An application under the court's inherent jurisdiction will enable
the court to make an order freezing assets. In certain cases, the FSA may seek only one
type of order, although in others it may seek several.
- 01/12/2004
ENF 6.6.2
See Notes
The FSA recognises
that an application for an injunction under
sections 380 and/or 381 of the Act, or under
the court's inherent jurisdiction, will have serious consequences for those
concerned. The broad test the FSA will
apply when it decides whether to seek an injunction is
whether the application would be the most effective way to deal with the FSA's concerns. In deciding
whether an application for an injunction is
appropriate in a given case, the FSA will
consider all relevant circumstances and may take into account a wide range
of factors. The following list of factors is not exhaustive; not all the factors
will be relevant in a particular case and there may be other factors that
are relevant.
(1) The nature and seriousness of a contravention
or expected contravention of a relevant requirement (see ENF
6.3.2 G). The extent of loss, risk of loss, or other adverse effect on consumers, including the
extent to which client assets
may be at risk, may be relevant. The seriousness of a contravention or prospective
contravention will include considerations of:
(a) whether the losses suffered are substantial;
(b) whether the numbers of consumers who have suffered loss are significant;
(c) whether the assets at risk are substantial;
and
(d) whether the number of consumers at risk is significant.
(2) In cases of market abuse, the nature and seriousness
of the misconduct or expected misconduct in question. The following may be
relevant:
(a) the impact or potential impact on the financial system of the
conduct in question. This would include the extent to which it has resulted
in distortion or disruption of the markets, or would be likely to do so if
it was allowed to take place or to continue;
(b) the extent and nature of any losses or
other costs imposed, or likely to be imposed, on other users of the financial system, as a
result of the misconduct.
(3) Whether the conduct in question has stopped
or is likely to stop and whether steps have been taken or will be taken by
the person concerned
to ensure that the interests of consumers are
adequately protected. For example, an application for an injunction may be appropriate where the FSA has grounds for believing
that a contravention of a relevant requirement, market abuse or both may continue or be
repeated. It is likely to have grounds to believe this where, for example,
the Takeover Panel has
requested that a person stop
a particular course of conduct and that person has
not done so.
(4) Whether there are steps a person could take to remedy
a contravention of a relevant requirement or market abuse. The steps the FSA may require a person to take will vary
according to the circumstances but may include the withdrawal of a misleading financial promotion or
publishing a correction, writing to clients or
investors to notify them of FSA action,
providing financial redress and repatriating funds from an overseas jurisdiction.
An application by the FSA to
the court under section 380(2) or 381(2) for an order requiring a person to take such steps
may not be appropriate if, for example, that person has already taken or proposes to take
appropriate remedial steps at his own initiative or under a ruling imposed
by another regulatory authority (such as the Takeover Panel or a recognised investment exchange). If another
authority has identified the relevant steps and the person concerned has failed to take them,
the FSA will
take this into account and (subject to all other relevant factors and circumstances)
may consider it is appropriate to apply for an injunction. In those cases the FSA may consult with the
relevant regulatoryauthority before applying
for an injunction.
(5) Whether there is a danger of assets being
dissipated. The main purpose of an application under section 380(3) (see ENF
6.3.7 G), sections 381(3) and
(4) (see ENF
6.4.6 G) or pursuant to the court's
inherent jurisdiction (see ENF 6.5), is likely to be to safeguard funds containing client assets (ie client accounts) and/or funds and other assets
from which restitution may be made (see ENF 9 (Restitution
and redress)). The FSA may
seek an injunction to
secure assets while a suspected contravention is being investigated or where
it has information suggesting that a contravention is about to take place.
(6) The costs the FSA would incur in applying for and enforcing
an injunction and
the benefits that would result (although the FSA may be able to recover those costs: see ENF
6.2.6 G). There may be other cases
which require the FSA's attention
and take a higher priority, due to the nature and seriousness of the breaches
concerned. There may, therefore, be occasions on which the FSA considers that time and resources should
not be diverted from other cases in order to make an application for an injunction.
These factors reflect the FSA's duty
under the Act to
have regard to the need to use its resources in the most efficient and economic
way.
(7) The disciplinary record and general compliance
history of the person who
is the subject of the possible application. This includes whether the FSA (or a previous regulator) has
taken any previous disciplinary, remedial or protective action against the person. It may also be
relevant, for example, whether the person has
previously given any undertakings to the FSA (or
any previous regulator)
not to do a particular act or engage in particular behaviour and is in breach of those undertakings.
(8) Whether the conduct in question can be
adequately addressed by other disciplinary powers, for example public censure
or financial penalties.
(9) The extent to which another regulatory
authority can adequately address the matter. Certain circumstances may give
rise not only to possible enforcement action by the FSA, but also to action by other regulatory
authorities. The FSA will
examine the circumstances of each case, and consider whether it is appropriate
for the FSA to
take action to address the relevant concern. In most cases the FSA will consult with
other relevant regulatory authorities before making an application for an
order. The FSA's approach
to potential action involving other regulatory authorities is discussed in
detail, in the context of discipline of firms and approved persons, in ENF 11.8 (Action involving other regulatory authorities),
and in the context of sanctions for market
abuse, in ENF 14.9 (Action
involving other UK regulatory authorities).
(10) Whether there is information to suggest
that the person who
is the subject of the possible application is involved in financial crime.
(11) In any case where the FSA is of the opinion that any potential
exercise of its powers under section 381 may affect the timetable or the outcome
of a takeover bid,
the FSA will
consult the Takeover Panel before
taking any steps to exercise these powers and will give due weight to its
views.
- 01/12/2004
ENF 6.7
Other relevant powers
- 01/12/2004
ENF 6.7.1
See Notes
The FSA has
a range of powers it can use to take remedial, protective and disciplinary
action against a person who
has contravened a relevant requirement or engaged in market abuse, as well as its powers to seek injunctions under sections
380 (Injunctions) and 381 (Injunctions in cases of market abuse) of the Act or the courts' inherent jurisdiction.
Where appropriate, the FSA may
exercise these other powers before, at the same time as, or after it applies
for an injunction against
a person.
- 01/12/2004
ENF 6.7.2
See Notes
When, in relation to firms, the FSA applies the broad test outlined in ENF
6.6.2 G, it will consider the
relative effectiveness of the other powers available to it, compared with
injunctive relief. For example, where the FSA has concerns about whether a firm will comply with
restrictions that the FSA could
impose by exercising its own initiative powers (see ENF 3 (Variation of Part IV permission on the FSA's own initiative),
it may decide it would be more appropriate to seek an injunction. This is because breaching any
requirement imposed by the court could be punishable for contempt (see ENF
6.2.5 G). Alternatively, where,
for example, the FSA has
already imposed requirements on a firm by
exercising its own-initiative
powers and these requirements have not been met, the FSA may seek an injunction to enforce
those requirements.
- 01/12/2004
ENF 6.7.3
See Notes
The FSA's own-initiative powers do
not apply to unauthorised
persons. This means that an application for an injunction is the only
power by which the FSA may
seek directly to prevent unauthorised
persons from actual or threatened breaches or market abuse. The FSA will decide whether an application against
an unauthorised person is
appropriate, in accordance with the approach discussed in ENF 6.6. The FSA may
also seek an injunction to
secure assets where it intends to use its insolvency powers (see ENF 10 (Insolvency proceedings and orders against debt
avoidance)) against an unauthorised
person.
- 01/12/2004
ENF 6.7.4
See Notes
In certain cases, conduct that may be
the subject of an injunction application
will also be an offence which the FSA has
power to prosecute under the Act.
In those cases, the FSA will
consider whether it is appropriate to prosecute the offence in question, as
well as applying for injunctions under
section 380, section 381, or both. ENF 15 (Prosecution of criminal
offences) sets out the offences the FSA has
power to prosecute, and the FSA's policy
and procedure for prosecution of these offences.
- 01/12/2004
ENF 6.7.5
See Notes
Where the FSA exercises its powers under section 380,
section 381 or invokes the court's inherent jurisdiction to obtain an order
restraining the disposal of assets, it may also apply to the court for a restitution
order for the distribution of those assets. The FSA's policy and procedure in relation to
restitution orders is set out in ENF 9 (Restitution and redress).
- 01/12/2004
ENF 6.8
Section 198
- 01/12/2004
ENF 6.8.1
See Notes
Under section 198 of the Act (Power to apply to
court for injunction in respect of certain overseas insurance companies) the FSA has power to apply
to court on behalf of the Home
State regulator of certain incoming
EEA firms for an injunction restraining
the incoming EEA firm from
disposing of, or otherwise dealing with, any of its assets.
- 01/12/2004
ENF 6.8.2
See Notes
(1) Section 198(1) sets out the circumstances
in which the FSA may
exercise the power referred to in ENF
6.8.1 G.
(2) Section 198(1) states, 'This section
applies if the FSA has
received a request made in respect of an incoming
EEA firm in accordance with:
- 01/12/2004
ENF 6.8.3
See Notes
The FSA's power
under section 198 is intended to implement article 20.5 of the First Non-Life Directive,
on general insurance, and article 24.5 of the First Life Directive,
on long-term insurance. Section 198(1) limits use of the power to where it
is in accordance with those articles, which means that it can be exercised
only where the Home State
regulator concerned has asked the FSA to prohibit the free disposal of the incoming EEA firm's assets
and has confirmed that:
(1) the incoming
EEA firm has failed to comply with the requirements of article
15 of the First Non-LifeDirective,
or article 17 of the First
LifeDirective; or
(2) the solvency margin of the incoming EEA firm has
fallen below the minimum required by article 16.3 of the First Non-Life Directive,
or article 19 of the First
Life Directive; or
(3) the solvency margin of the incoming EEA firm has
fallen below the guaranteefund as defined in
article 17 of the First
Non-Life Directive, or article
20 of the First Life Directive.
- 01/12/2004
ENF 6.8.4
See Notes
The FSA will
therefore consider exercising this power only where a request from a Home State regulator satisfies
the requirements of section 198(1).
- 01/12/2004
ENF 6.11
Publication
- 01/12/2004
ENF 6.11.1
See Notes
(1) The FSA considers
it generally appropriate to publish details of its successful applications
to the court for injunctions.
For example, where the court has ordered an injunction to prohibit further illegal activity,
it will normally be appropriate to publicise this to inform consumers of the position and help them avoid
dealing with the person who
is the subject of the injunction.
However, there may be circumstances when the FSA decides not to publicise, or not to do
this immediately. These circumstances might, for example, be where publication
could damage confidence in the financial system or
undermine market integrity in a way that would be prejudicial to the interests
of consumers.
(2) Where the behaviour to which the injunction relates has occurred in the context
of a takeover bid,
the FSA will
consult the Takeover Panel over
the timing of publication if the FSA believes
that publication may affect the timetable or outcome of that bid, and will
give due weight to the Takeover
Panel's views.
- 01/12/2004
ENF 7
Withdrawal of approval
ENF 7.1
Application and purpose
- 01/12/2004
Application
ENF 7.1.1
See Notes
This chapter applies to approved persons and to firms.
- 01/12/2004
Purpose
ENF 7.1.2
See Notes
The power to withdraw approval from approved persons is one of various regulatory tools the FSA may use to help it achieve its regulatory objectives. The FSA's effective
use of this power will help ensure high standards of regulatory conduct by preventing an approved person from continuing to perform the controlled function to which the approval relates if he is not a fit and proper person to perform that function. It will also demonstrate generally to approved
persons the consequences of failing to comply with appropriate standards of conduct.
- 01/12/2004
ENF 7.2
Introduction
- 01/12/2004
ENF 7.2.1
See Notes
This chapter contains guidance on:
(1) the FSA's power to withdraw approval from an approved person, under section 63 of the Act (Withdrawal of approval);
(2) the procedure for exercising this power;
(3) the FSA's policy in relation to the exercise of this power;
(4) other powers that may be relevant when the FSA considers the exercise of the power; and
(5) the effect of the FSA's decision to withdraw approval.
- 01/12/2004
ENF 7.3
The FSA's power to withdraw approval
- 01/12/2004
ENF 7.3.1
See Notes
Under section 63(1) of the Act (Withdrawal ofapproval), the FSA may withdraw an approval given under section 59 of the Act (Approval for particular arrangements) if
it considers the person in respect of whom it was given is not a fit and proper person to perform the function to which the approval relates.
- 01/12/2004
ENF 7.3.2
See Notes
When considering whether to withdraw its approval, the FSA may, under section 63(2), consider any matter which it could take into account if it were considering an application made under section 60 of the Act (Applications for approval) in respect of the performance
of the function to which the approval relates.
- 01/12/2004
ENF 7.3.3
See Notes
- 01/12/2004
ENF 7.3.4
See Notes
Section 61(2) states that the FSA may: 'have regard (among other things) to whether the person, or any person who may perform a function on his behalf:
(1) has obtained a qualification;
(2) has undergone, or is undergoing, training; or
(3) possesses a level of competence,
required by general rules in relation to persons performing functions of the kind to which the approval relates.'- 01/12/2004
ENF 7.3.5
See Notes
Rules and guidance contained in the Training and Competence sourcebook (TC) apply to certain specific activities that may be carried out by some approved
persons.
- 01/12/2004
ENF 7.4
Procedure
- 01/12/2004
ENF 7.4.1
See Notes
Under section 63(3) of the Act (Withdrawal of approval), if the FSA proposes to withdraw its approval from an approved person under its section 63(1) power, it must give each of the interested parties a warning notice. The FSA's procedures for issuing warning notices in this area are those set out in DEC 2.2 (Warning notice procedure).
- 01/12/2004
ENF 7.4.2
See Notes
Under section 63(4), if the FSA decides to withdraw its approval, it must give each of the interested parties a decision notice. The FSA's procedures
in relation to decision notices in this area are the same as those set out in DEC 2.3 (Decision notice procedure).
- 01/12/2004
ENF 7.4.3
See Notes
If the FSA decides to withdraw its approval, each of the interested parties may refer the matter to the Tribunal. Further information about referrals to the Tribunal is
set out in DEC 5.1 (The Tribunal).
- 01/12/2004
ENF 7.5
The FSA's policy on withdrawal of approval
- 01/12/2004
ENF 7.5.1
See Notes
The FSA may withdraw its approval only if it considers that the person in respect of whom it was given is not a fit and proper person to perform the function to which the approval relates. Where
a person ceases to perform controlled functions for a firm for reasons unconnected with his fitness and propriety, the firm must notify the FSA through the procedure set out in SUP 10 (Approved persons). ENF 7.5.2 G to ENF 7.5.5 G set out how the FSA will approach the question of whether a person is
a fit and proper person to perform the function to which his approval relates.
- 01/12/2004
ENF 7.5.2
See Notes
The FSA recognises that its decisions to withdraw approval will often have a substantial impact on those concerned. When it considers whether to withdraw approval from a person it will take account of all relevant factors, including, but not limited to, the matters
set out below:
(1) the matters set out in section 61(2) of the Act (Determination of applications) (see ENF 7.3.4 G);
(2) the criteria for assessing the fitness and propriety of approved persons. These are contained in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence
and capability) and FIT 2.3 (Financial soundness). The criteria include:
(a) honesty, integrity and reputation; this includes an individual's openness and honesty in dealing with consumers, market participants and regulators, and ability and willingness
to comply with the requirements placed on him by or under the Act as well as with other legal and professional obligations and ethical standards (see ENF 7.5.2 G (3));
(b) competence and capability; this includes having the necessary skills to carry out the controlled function that he is performing; and
(c) financial soundness; this includes whether the individual has been the subject of any judgement debts or awards in the United Kingdom or elsewhere that are continuing or were not satisfied within a reasonable period;
(3) whether, and to what extent, the approved person has:
(a) failed to comply with the Statements of Principle; or
(4) the relevance, materiality and length of time since the occurrence of any matters indicating unfitness;
(5) the severity of risk which the person poses to consumers and confidence in the financial system; and
(6) the previous disciplinary record and general compliance history of the person including whether the FSA (or any previous regulator) has previously imposed a disciplinary sanction on the person.
- 01/12/2004
ENF 7.5.3
See Notes
The FSA may have regard to the cumulative effect of a number of factors which, when considered on their own, may not be sufficient to show that the person is not fit and proper to continue to carry out a controlled
function.
- 01/12/2004
ENF 7.5.4
See Notes
The FSA may also take account of the particular controlled function which an approved person is carrying out within a firm, the nature
and activities of the firm concerned and the markets within which it operates.
- 01/12/2004
ENF 7.5.5
See Notes
It is impossible to produce a definitive list of matters which the FSA might take into account when considering whether an approved person is not a fit and proper person to continue to carry out
a particular controlled function in a particular firm. This is because of the diverse nature of the activities and controlled functions which the FSA regulates. Accordingly, certain matters that do not fall squarely, or at all, within the matters referred
to above may also be considered, for example, if a person has been convicted of, or dismissed or suspended from employment for abuse of drugs or other substances, or has convictions for serious assault. In these circumstances, the FSA will consider whether the conduct or matter in question is relevant to the person's fitness
and propriety for the particular controlled function.
- 01/12/2004
ENF 7.6
Other powers that may be relevant
- 01/12/2004
ENF 7.6.1
See Notes
This section refers to other powers that may be relevant when the FSA is considering whether to withdraw approval from an approved person.
- 01/12/2004
ENF 7.6.2
See Notes
The FSA may use its investigation powers in relation to approved persons. The FSA's powers to appoint investigators are set out in ENF 2 (Information gathering and investigation powers). In particular, the FSA may appoint investigators if there appear to be circumstances suggesting that:
(1) an individual is not a fit and proper person to be involved in the carrying out of any function in relation to a regulated
activity carried on by an authorised or exempt person (see section 168(4)(d) of the Act (Appointment of persons to carry out investigations in particularcases));
(2) a person in relation to whom the FSA has given its approval under section 59 of the Act (Approval for particular arrangements) may not be a fit and proper person to carry out the function to which the approval relates (see section 168(4)(h) of the Act); or
(3) a person may be guilty of misconduct for the purposes of section 66 of the Act (Disciplinary powers) (see ENF 7.7.3 G and section 168(4)(i) of the Act).
- 01/12/2004
ENF 7.6.3
See Notes
(1) Where it appears to the FSA that an approved person has been guilty of misconduct, it may consider taking disciplinary
action against him under section 66 of the Act (Disciplinary powers), as well as withdrawing his approval. Misconduct is defined in section 66 as a failure to comply with a Statement of Principle issued by the FSA under section 64 of the Act (Conduct: statements
and codes), or being knowingly concerned in a contravention by a firm of a requirement imposed on that firm by or under the Act.
(2) When deciding whether to take disciplinary action as well as withdrawing approval, the FSA will be guided by the criteria set out in ENF 11.4 and ENF 11.5.
The FSA's approach to the discipline of approved persons is set out in ENF 11 (Discipline of authorised firms and
approved persons: the FSA's general approach), ENF 12 (Discipline of firms and approved persons: public censures and public statements) and ENF 13 (Discipline of firms and approved persons: financial penalties).
(3) If it appears to the FSA that the misconduct is likely to continue or that client assets are at risk as a result
of the misconduct, it may consider applying for an injunction to prevent dissipation of those assets and/or to stop the misconduct from continuing. The FSA's approach to the exercise of its power to apply for injunctions is set out in ENF 6 (Injunctions).
- 01/12/2004
ENF 7.6.4
See Notes
Where the information available to the FSA casts doubt on the fitness and propriety of an approved person to be involved in regulated activity conducted by firms generally,
the FSA may consider making a prohibition order against him, as well as withdrawing its approval from him. The scope and effect of a prohibition order may be wider than withdrawal of approval and can extend to a general prohibition on performing any function
in relation to regulated activities of firms generally. The FSA's approach to making prohibition orders is set out in ENF
8 (Prohibition of individuals).
- 01/12/2004
ENF 7.7
The effect of the FSA's decision to withdraw approval
- 01/12/2004
ENF 7.7.1
See Notes
Unless the decision has been referred to the Tribunal, the FSA's decision to withdraw its approval from an approved person will come into effect on the date specified in the final notice (seeDEC 2.3.11 G). Where the decision has been referred to the Tribunal, the FSA is not permitted (under section 133(9) of the Act (Proceedings: general provisions) to take the action specified in the decision notice until that reference, and any appeal against the Tribunal's decision, has been finally disposed of.
- 01/12/2004
ENF 7.7.2
See Notes
When the FSA's decision to withdraw an approval has become effective, the position of the firm on whose application the approval was granted differs depending on whether it directly employs the person concerned,
or whether the person is employed by one of its contractors.
(1) If the firm directly employs the person concerned:
(a) Under section 59(1) of the Act (Approval for particular arrangements), a firm ('A') must take reasonable
care to ensure that: 'no person performs a controlled function under an arrangement entered into by A in relation to carrying on by A of a regulated activity, unless the FSA approves the performance
by that person of the controlled function to which the arrangement relates.'
(b) Therefore, if the firm continues to employ the person concerned to carry out a controlled function, it will be in breach of section 59(1) and the FSA may take enforcement action against it.
(2) If the person concerned is employed by a contractor of the firm.
(a) Under section 59(2), a firm ('A') must: 'take reasonable care to ensure that no person performs a controlled function under an arrangement entered into by a contractor of A in relation to the carrying on by A of a regulated activity, unless the FSA approves the performance by that person of the controlled function to which the arrangement relates.'
(b) Therefore, if a contractor of the firm employs the person concerned, and the contractor continues to employ
the person to carry out a controlled function, the firm itself will be in breach of section 59(2) unless it has taken reasonable care to ensure that this does not happen. The FSA may take enforcement action against a firm that
breaches this requirement.
- 01/12/2004
ENF 7.7.3
See Notes
Firms should be aware of the potential effect that these provisions may have on their contractual relationships with approved persons employed by them and with contractors engaged by them, and their obligations under these contracts.
- 01/12/2004
ENF 7.7.4
See Notes
As stated in ENF 7.4.2 G, the FSA is
required to give a copy of its decision notice to the firm that applied for the approval, and also to a contractor of the firm if the person concerned is employed by the contractor.
- 01/12/2004
ENF 7.8
Publication
- 01/12/2004
ENF 7.8.1
See Notes
- 01/12/2004
ENF 8
Prohibition of individuals
ENF 8.1
Application and Purpose
- 01/12/2004
Application
ENF 8.1.1
See Notes
- 01/12/2004
Purpose
ENF 8.1.2
See Notes
The power to prohibit individuals who
are not fit and proper from carrying out functions in relation to regulated activities helps
the FSA to
work towards its regulatory
objectives of protecting consumers,
promoting public awareness, maintaining confidence in the financial system and reducing financial crime. The FSA may exercise its power
to make a prohibition order where
it considers that , to achieve any of those objectives, it is necessary either
to prevent an individual from carrying out any function in relation to regulated activities or
from being employed by any firm,
or to restrict the functions which he may carry out or the type of firm by which he may be
employed.
- 01/02/2003
ENF 8.2
Introduction
- 01/12/2004
ENF 8.2.1
See Notes
This chapter contains guidance on:
(2) the FSA's procedure
for exercising this power;
(4) the FSA's policy
in relation to applications by individuals for the variation or revocation
of prohibition orders.
- 01/12/2004
ENF 8.3
The FSA's power to make a prohibition order
- 01/12/2004
ENF 8.3.1
See Notes
Under section 56(2) of the Act (Prohibition orders),
the FSA may
make a prohibition order if
it appears that an individual is not fit and proper to carry out functions
in relation to regulated
activities carried on by firms.
The FSA may
make an order prohibiting the individual from carrying out a specified function
in relation to regulated
activities, any function within a specified description, or
any function in relation to regulated
activities.
- 01/12/2004
ENF 8.3.2
See Notes
A prohibition
order may relate to:
(1) a specified regulated activity, any regulated activity falling within a specified
description or all regulated
activities;
- 01/12/2004
ENF 8.3.3
See Notes
Under section 56(4), an individual who
carries out or agrees to carry out a function in breach of a prohibition order is guilty
of an offence and liable, on summary conviction, to a fine not exceeding level
5 on the standard scale (section 37(1) of the Criminal Justice Act 1982 states
that a level 5 fine shall not exceed £5000). In proceedings for an offence
under section 56(4), it is a defence for the accused to show that he took
all reasonable precautions and exercised all due diligence to avoid committing
an offence.
- 01/12/2004
ENF 8.3.4
See Notes
Section 56(6) states that a firm must take reasonable
care to ensure that no function which relates to the carrying on of a regulated activity is
carried out by a person who
is prohibited from carrying out that function by a prohibition order (see ENF
8.11.2 G).
- 01/12/2004
ENF 8.3.5
See Notes
Section 56(8) states that the FSA's power to make a prohibition order applies
to the performance of functions in relation to regulated activities carried on by:
(2) a person to
whom, as a result of Part XX of the Act (Provision of financial services by
members of the professions), the general
prohibition does not apply in relation to that activity (see ENF 8.7);
as it applies
to the carrying out of functions in relation to a regulated activity carried on by a firm.- 01/12/2004
ENF 8.3.6
See Notes
Under section 57(1) of the Act (Prohibition orders:
procedure and right to refer to Tribunal), if the FSA proposes to make a prohibition order it must give the individual
concerned a warning notice setting
out the terms of the prohibition. The FSA's procedures
for issuing warning notices in
this area are the same as those set out in DEC 2.2 (Warning notice procedure).
- 01/12/2004
ENF 8.3.7
See Notes
Under section 57(3), if the FSA decides to make a prohibition order it must
give the individual concerned a decision
notice. The FSA's procedures
in relation to decision
notices in this area are the same as those set out in DEC 2.3 (Decision notice procedure).
- 01/12/2004
ENF 8.3.8
See Notes
An individual who receives a decision notice making
a prohibition order may
refer the matter to the Tribunal.
Further information about referrals to the Tribunal is set out in DEC 5.1 (The Tribunal).
- 01/12/2004
ENF 8.4
The FSA's policy on making prohibition orders
- 01/12/2004
ENF 8.4.1
See Notes
ENF
8.5 to ENF 8.6 set out how the FSA will decide whether approved persons and other
individuals are fit and proper to perform functions in relation to regulated activities.
- 01/12/2004
ENF 8.4.2
See Notes
(1) The FSA will
have the power to make a range of prohibition
orders depending on the circumstances of each case and the range
of regulated activities to
which the individual's lack of fitness and propriety is relevant.
(2) Depending on the circumstances of each
case, the FSA may
seek to prohibit individuals from carrying out any class of relevantfunction
in relation to any class of regulated
activity, or it may limit the prohibition order to specific functions in
relation to specific regulated
activities. The FSA may
also make an order prohibiting an individual from being employed by a particular firm, type of firm or any firm.
(3) The scope of a prohibition order will depend on the range
of functions which the individual concerned carries out in relation to regulated activities,
the reasons why he is not fit and proper and the severity of risk which he
poses to consumers or
the market generally.
(4) The FSA may
also make an order prohibiting an individual from performing functions in
relation to the regulated
activities carried out by exempt
persons and persons covered
by an exemption under Part XX of the Act (provision
of financial services by members of the professions).
- 01/12/2004
ENF 8.4.3
See Notes
The FSA recognises
that its decision to make a prohibition
order will have a substantial impact on the individuals concerned
and, where relevant, their employers. When it decides whether to make a prohibition order the FSA will consider all
relevant circumstances including whether other enforcement action should be
taken or has already been taken against the individual by the FSA. The FSA will also consider
whether enforcement action has been taken against the individual by other
enforcement agencies or designated
professional bodies. Depending on the circumstances of the case,
it may be appropriate to prohibit the individual from performing only certain
functions in relation to regulated
activities carried on by certain firms. Alternatively, the FSA may consider it necessary to prevent
the individual concerned from performing any functions in relation to any regulated activities carried
on by any firm.
- 01/02/2003
ENF 8.5
Prohibition orders against approved persons
- 01/12/2004
ENF 8.5.1
See Notes
When the FSA has concerns about the fitness and propriety
of an approved person,
it may consider whether it should seek to withdraw his approval, prohibit
him from conducting regulated
activities, or both. ENF 7 (Withdrawal of approval)
sets out the FSA's approach
to the use of its power to withdraw approval in relation to individuals who
are approved persons.
The grounds on which the FSA may
withdraw approval are similar to the grounds on which the FSA may consider exercising its power to
make a prohibition order against
individuals who are approved
persons.
- 01/02/2003
ENF 8.5.1A
See Notes
The FSA will consider in each
case whether its regulatory
objectives of maintaining market confidence in the financial system, promoting
public awareness, protecting consumers and
reducing financial crime can
adequately be achieved by withdrawing approval or disciplinary sanctions,
for example, public censure or financial penalties, or by issuing a private
warning. The FSA considers
that a prohibition order generally
has more serious consequences than the withdrawal of approval because a prohibition order will
usually be wider in scope (see ENF
8.3.2 G).
It is therefore likely that the FSA will
consider making a prohibition
order against approved
persons only in the more serious cases of lack of fitness and
propriety where it considers that the other powers available to it are not
sufficient to achieve the FSA's regulatory objectives.
- 01/02/2003
ENF 8.5.2
See Notes
When it decides whether to exercise its
power to make a prohibition
order against an approved
person, the FSA will
consider the following factors:
(1) whether the individual is fit and proper
to perform functions in relation to regulated
activities. The criteria for assessing the fitness and propriety
of approved persons are
contained in FIT 2.1 (Honesty, integrity
and reputation); FIT 2.2 (Competence and capability)
and FIT 2.3 (Financial soundness). The criteria include:
(a) honesty, integrity and reputation; this
includes an individual's openness and honesty in dealing with consumers, market participants
and regulators and ability and willingness to comply with requirements placed
on him by or under the Act as
well as with other legal and professional obligations and ethical standards;
(b) competence and capability; this includes
an assessment of the individual's skills to carry out the controlled function that he is performing;
and
(c) financial soundness; this includes whether
the individual has been the subject of any judgment debts or awards in the
United Kingdom or elsewhere that are continuing or were not satisfied within
a reasonable period;
(2) whether and to what extent, the approved person has:
(a) failed to comply with the Statements of Principle;
or
(b) been knowingly concerned in a contravention
by the relevant firm of
a requirement imposed on the firm by
or under the Act (including
the Principles and
other rules);
(3) the relevance, materiality and length
of time since the occurrence of any matters indicating unfitness;
(4) the particular controlled function the approved person is performing, the nature
and activities of the firm concerned
and the markets in which he operates;
(5) the severity of the risk which the individual
poses to consumers and
to confidence in the financial
system;
(6) the previous disciplinary record and
general compliance history of the individual including whether the FSA (or any previous regulator) has
previously imposed a disciplinary sanction on the individual.
- 01/12/2004
ENF 8.5.3
See Notes
The FSA may
have regard to the cumulative effect of a number of factors which, when considered
on their own, may not be sufficient to show that the individual is fit and
proper to continue to carry out the controlled
function.
- 01/12/2004
ENF 8.5.4
See Notes
It is impossible to produce a definitive
list of matters which the FSA might
take into account when considering whether an individual is not a fit and
proper person to
carry out a particular, or any, controlled
function in relation to a particular, or any, firm. This is because of the diverse nature
of the activities and controlled
functions which the FSA regulates.
Therefore, certain matters that do not fit squarely, or at all, within the
matters referred to above may fall to be considered, for example, if an individual
has been convicted of, or dismissed or suspended from employment for abuse
of drugs or other substances, or has convictions for serious assault. In these
circumstances the FSA will
consider whether the conduct or matter in question is relevant to the individual's
fitness and propriety.
- 01/12/2004
ENF 8.5.5
See Notes
Where the FSA has withdrawn the approval of an individual
who is an approved person and
that individual has continued to carry out controlled functions in relation to regulated activities despite
the withdrawal of his approval in relation to those functions, the FSA will consider whether
it is appropriate to make a prohibition
order against him.
- 01/12/2004
ENF 8.6
Prohibition orders against individuals employed or formerly employed by firms but who are not approved persons
- 01/12/2004
ENF 8.6.1
See Notes
Where the FSA considers making a prohibition order against an individual employed
or formerly employed by
a firm who
is not an approved person,
it may make an order only on the grounds that the individual is not fit and
proper to carry out functions in relation to regulated activities carried on by an authorised person.
- 01/02/2003
ENF 8.6.1A
See Notes
Where
the individual concerned is not an approved
person, the FSA will
not have the option of withdrawing approval, nor will it generally have the
option of
exercising its disciplinary powers in relation to the individual concerned
and therefore a prohibition
order may be the only appropriate action available. In these
cases, the FSA will
consider the severity of the risk posed by the individual. It may prohibit
the individual where it considers it necessary to achieve the FSA's
regulatory objectives of maintaining market confidence in
the financial system,
promoting public awareness, protecting consumers and
preventing financial crime.
- 01/03/2003
ENF 8.6.2
See Notes
When considering whether to exercise
its power to make a prohibition
order against an individual employed or formerly employed by a firm who is not an approved person, the FSA will consider those
factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and, if relevant, ENF 8.5.2 G (2) (in relation to conduct when an individual
was an approved person)
andENF 8.5.2 G (6).
- 01/03/2003
ENF 8.7
Prohibition orders against exempt persons and members of professional firms
- 01/12/2004
ENF 8.7.1
See Notes
The FSA may
exercise its power to make a prohibition
order against any individual, including individuals who carry
out regulated activities by
virtue of their status as exempt
persons or by virtue of an exemption from the general prohibition under Part XX of the Act (Provision of financial
services by members of the professions) (see ENF 18 (Disapplication orders
against members of the professions)).
- 01/12/2004
ENF 8.7.1A
See Notes
In
cases where it is considering whether to exercise its power to make a prohibition order against
an individual carrying on exempt
regulated activities by virtue of an exemption from the general prohibition under
Part XX of the Act,
the FSA will
consider whether the particular misconduct might be more appropriately dealt
with by making an order disapplying the exemption using its power under section
329 of the Act.
In most cases where the FSA is
concerned about the fitness and propriety of a specific individual engaged
in exempt regulated activities by
virtue of an exemption under Part XX, it will be more appropriate to consider
whether to make an order prohibiting the individual from performing functions
in relation to exempt regulated
activities than to make a disapplication order (see ENF
18.4.3 G ).
- 01/02/2003
ENF 8.7.2
See Notes
When considering whether to exercise
its power to make a prohibition
order against an exempt
person, the FSA will
consider those factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and ENF 8.5.2 G (6).
- 01/12/2004
ENF 8.8
Prohibition orders against other individuals
- 01/12/2004
ENF 8.8.1
See Notes
The guidance in ENF 8.8 applies to individuals, other
than individuals referred to in ENF
8.5 to ENF 8.7. The FSA will consider exercising its power to
make a prohibition order against
such individuals where they have shown themselves to be unfit to carry out
functions in relation to regulated
activities.
- 01/02/2003
ENF 8.8.2
See Notes
The FSA will
consider the individual's fitness or propriety where, for example, it appears
that:
(1) the individual has been involved in conducting regulated activities in
breach of the general prohibition;
or
(2) the individual has been involved in other
misconduct or offences under the Act which
call into question his honesty, integrity or competence; or
(3) he appears likely to pose a serious risk
to consumers or
confidence in the financial
system in the future.
- 01/12/2004
ENF 8.8.2A
See Notes
In
cases where it is considering whether to exercise its power to make a prohibition order against
individuals not referred to in ENF
8.5 to ENF 8.7 , the FSA will not have the option of considering
whether other enforcement action may adequately deal with the misconduct in
question. In these cases, the FSA will
consider the severity of the risk posed by the individual. It may prohibit
the individual where it considers this is necessary to achieve the FSA's
regulatory objectives of maintaining confidence in the financial system, promoting
public awareness, protecting consumers and
reducing financial crime.
- 01/02/2003
ENF 8.8.3
See Notes
When determining the fitness and propriety
of an individual, who is not an individual referred to in ENF
8.5to ENF 8.7, the FSA will consider the
criteria set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3) and ENF 8.5.2 G (5).
- 01/02/2003
ENF 8.9
Applications for variation or revocation of prohibition orders
- 01/12/2004
ENF 8.9.1
See Notes
At any time after the FSA has made a prohibition order against an individual,
the individual may apply to the FSA to
have the order varied or revoked.
- 01/12/2004
ENF 8.9.2
See Notes
When considering whether to grant or
refuse an application to revoke or vary a prohibition order the FSA will consider all the relevant circumstances
of a case. These may include, but are not limited to:
(1) the seriousness of the misconduct that
resulted in the order;
(2) the amount of time since the original
order was made;
(3) any steps taken subsequently by the individual
to remedy the misconduct;
(4) any evidence which, had it been known
to the FSA at
the time, would have been relevant to the FSA's decision to make the prohibition order;
(5) all available information relating to
the individual's honesty, integrity or competence since the order was made,
including any repetition of the misconduct which resulted in the prohibition order being
made;
(6) where the FSA's finding of unfitness arose from incompetence
rather than from dishonesty or lack of integrity, evidence that this unfitness
has been or will be remedied; for example, this may be achieved by the satisfactory
completion of relevant training and obtaining relevant qualifications, or
by supervision of the individual by his employer;
(7) the financial soundness of the individual
concerned; and
(8) whether the individual will continue
to pose the level of risk to consumers or
confidence in the financial
system which resulted in the original prohibition if it is lifted.
- 01/12/2004
ENF 8.9.3
See Notes
If the individual applying for a revocation
or variation of a prohibition
order proposes to take up an offer of employment to carry out controlled functions,
the approved persons regime
will also apply to him. In these cases, the firm concerned will be required to apply
to the FSA for
approval of that individual's employment in that capacity. The FSA will assess the individual's
fitness and propriety to undertake controlled
functions on the basis of the criteria set out in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness).
- 01/12/2004
ENF 8.9.4
See Notes
The FSA will
not generally grant an application to vary or revoke a prohibition order unless it is satisfied
that the proposed variation will not result in a reoccurrence of the risk
to consumers or
confidence in the financial
system that resulted in the order being made. Equally, the FSA will not revoke a prohibition order unless
it is satisfied that the individual is fit to carry out functions in relation
to regulated activities generally,
or to those specific regulated
activities in relation to which the individual has been prohibited.
- 01/12/2004
ENF 8.9.5
See Notes
If the FSA decides to grant an application to vary
or revoke a prohibition
order it must give the applicant written notice of its decision.
- 01/12/2004
ENF 8.9.6
See Notes
Where the FSA proposes to refuse an application for
revocation or variation, the FSA must
give the applicant a warning
notice setting out the reasons for its proposed refusal (see DEC 2.2 (Warning notice procedure)). If the FSA decides to refuse
an application for revocation or variation of an order it must give the applicant
a decision notice (see DEC 2.3 (Decision notice procedure)). If the FSA refuses an application,
the applicant may refer the matter to the Tribunal (see DEC 5.1 (The Tribunal)).
- 01/12/2004
ENF 8.10
Other powers that may be relevant
- 01/12/2004
ENF 8.10.1
See Notes
This section sets out the other powers
that may be relevant when the FSA considers
whether to exercise its power to make a prohibition
order.
- 01/12/2004
ENF 8.10.2
See Notes
The FSA's powers
to appoint investigators are set out in ENF
2 (Information gathering
and investigation powers). In particular, the FSA may appoint investigators if there appear
to be circumstances suggesting that:
(1) an individual is not fit and proper to
be involved in the carrying out of any function in relation to a regulated activity carried
on by an authorised or exempt
person (section 168(4)(d) of the Act (Appointment of persons to carry out investigations
in particular cases); or
- 01/12/2004
ENF 8.10.3
See Notes
Section 168(2) of the Act also permits the FSA to appoint investigators to investigate unauthorised persons if it appears that:
- (1) an offence has been committed under section 24(1) (False claims to be authorised or exempt) or section 397 (Misleading statements and practices) of the Act or under Part V of the Criminal Justice Act 1993 (section 168(2)(a) of the Act);
- (2) there may have been a breach of the general prohibition (section 168(2)(b) of the Act);
- (3) there may have been a contravention of section 21 in relation to financial promotion generally or section 238 in relation to promotion of collective investment schemes (section 168(2)(c) of the Act);
- (4) market abuse may have taken place (section 168(2)(d) of the Act).
- 01/12/2004
ENF 8.10.4
See Notes
(1) Where it appears to the FSA that an approved person has been
guilty of misconduct, it may consider taking disciplinary action against him
under section 66 of the Act (Disciplinary
powers), as well as making a prohibition
order. Misconduct is defined in section 66 as a failure to comply
with a Statement of Principle or
being knowingly concerned in a contravention by a firm of a requirement imposed on that firm by or under the Act.
(2) When deciding whether to take disciplinary
action as well as making a prohibition
order, the FSA will
be guided by the criteria set out in ENF 11.4 (Criteria for determining
whether to take disciplinary action) and ENF 11.5 (Action against approved
persons). The FSA's approach
to the discipline of approved
persons is set out in ENF 11 (Discipline of authorised
firms and approved persons: the FSA's general approach), ENF 12 (Discipline of firms and approved persons: public censures and
public statements) and ENF 13 (Discipline of firms
And approved persons: financial penalties).
(3) If it appears to the FSA that the misconduct is likely to continue
or that client assets
are at risk as a result of the misconduct, it may consider applying for an injunction to prevent
dissipation of those assets and/or to stop the misconduct continuing. The FSA's approach to the
exercise of its power to apply for injunctions is
set out in ENF 6.
- 01/12/2004
ENF 8.10.5
See Notes
Where the FSA has information that suggests an individual
has committed an offence under the Act,
or under relevant subordinate legislation, it may consider starting criminal
proceedings as well as making a prohibition
order against him. The FSA's policy
and procedures in relation to criminal prosecutions are set out in ENF 15 (Prosecution of criminal offences).
- 01/12/2004
ENF 8.11
The effect of the FSA's decision to make a prohibition order
- 01/12/2004
ENF 8.11.1
See Notes
When the FSA's decision to make a prohibition order has become effective, the
individual concerned may not carry out or agree to carry out any function
in breach of the prohibition
order. Under section 168(4)(e) of the Act (Appointment of persons to carry out investigations
in particularcircumstances), the FSA may appoint investigators
if it appears there are circumstances that suggest that an individual may
have carried out or agreed to carry out a function in breach of a prohibition order. An
individual who performs or agrees to perform a function in breach of a prohibition order is guilty
of an offence under section 56(4) of the Act (Prohibition
orders)(see ENF 15 (Prosecution of criminal
offences)).
- 01/12/2004
ENF 8.11.2
See Notes
The FSA may
consider taking disciplinary action against a firm that has breached the provision in section
56(6) (see ENF
8.3.4 G).
The FSA considers
that a search by a firm of
the FSA Register (see ENF
8.12.2 G) is an essential part
of the statutory duty to take reasonable care to ensure that firms do not employ prohibited
individuals to perform functions in relation to regulated activities. In addition, the FSA expects firms to check the FSARegister, when making applications for approval
under section 59 of the Act (Approval
for particular arrangements).
- 01/12/2004
ENF 8.11.3
See Notes
More generally, if a firm's search of the FSARegister reveals
no record of a prohibition
order, the FSA will
consider taking action for breach of section 56(6) only where the firm had access to other
information indicating that a prohibition
order had been made.
- 01/12/2004
ENF 8.11.4
See Notes
Section 71 of the Act (Actions for damages) gives a private person (and in
prescribed cases, a person who
is not a private person)
a right of action against firms for
losses resulting from a breach by the firm of
the statutory duty in section 56(6).
- 01/12/2004
ENF 8.12
Publication
- 01/12/2004
ENF 8.12.1
See Notes
DEC 5.2 (Publication) sets
out certain requirements of the Act in
relation to publication by the FSA of
its decisions. Once a final
notice relating to a prohibition
order has been issued, the FSA will
generally publicise the decision.
- 01/12/2004
ENF 8.12.2
See Notes
Under section 347(1)(g) of the Act (The record of authorised
persons etc) the FSA must
keep a public record of individuals against whom it has made a prohibition order. Section
347(2)(f) states the record must include the name of the individual and details
of the effect of the prohibition
order. The record of prohibition
orders will be maintained on the FSA Register. The FSA will not enter details of a prohibition order on to
the FSA Register until
a final notice has
been issued.
- 01/12/2004
ENF 8.12.3
See Notes
Once the decision to make a prohibition order is no
longer open to review, the FSA will
consider what additional information about the circumstances of the prohibition order to include
on the FSA Register.
The FSA will
balance any possible prejudice to the individual concerned against the interests
of consumer protection.
- 01/12/2004
ENF 8.12.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry on the FSA Register ceases to
apply to a person (in
the case of a prohibition
order, where that prohibition
order is varied or revoked) it may remove the relevant entry
from the FSA Register.
Section 347(4) provides that, if the FSA decides
not to remove the entry from the FSA Register, it must make
a note of this in the FSA Register and state why
it believes the entry on the FSA Register no longer applies
to the person.
- 01/12/2004
ENF 8.12.5
See Notes
(1) The FSA will
maintain an entry on the FSA
Register while a prohibition order is
in effect. If the FSA grants
an application to vary the order a note of the variation will be made on the FSA Register.
(2) The FSA's policy
in relation to section 347(4) of the Act is
that where an application to revoke a prohibition
order is granted, a note will be made on the FSA Register that
the order has been revoked giving reasons for the revocation. The availability
to firms and consumers of a full record
of FSA action
taken in relation to an individual's fitness and propriety will assist it
in furthering its regulatory objectives,
in particular, the protection of consumers and
the maintenance of confidence in the financial
system.
(3) The FSA will
maintain an annotated record of revoked prohibition
orders for six years from the date of the revocation after which
time the record will be removed from the FSA Register.
- 01/12/2004
ENF 9
Restitution and redress
ENF 9.1
Application and purpose
- 01/12/2004
Application
Purpose
ENF 9.1.2
See Notes
This chapter sets out the FSA's powers to seek redress for consumers in circumstances where persons, whether authorised or not, have breached a relevant requirement of the Act and gives guidance on how it intends to exercise its powers. The FSA's power to apply to the court for an order for restitution, and its administrative power to require restitution, will help it to pursue its regulatory objectives of protecting consumers and maintaining confidence in the financial system.
- 01/12/2004
ENF 9.2
Introduction
- 01/12/2004
ENF 9.2.1
See Notes
This chapter outlines the FSA's powers to:
- (1) apply to the court for an order for restitution where a person, whether authorised or not, has breached a relevant requirement of the Act or has been knowingly concerned in such a breach (section 382 of the Act (Restitution orders));
- (2) apply to the court for an order for restitution where a person, whether authorised or not, has engaged in, required or encouraged others to engage in, market abuse (section 383 of the Act (Restitution orders in cases of market abuse));
- (3) require restitution by a firm which has contravened a relevant requirement of the Act, or been knowingly concerned in such a contravention (section 384(1) of the Act (Power of FSA to require restitution)); and
- (4) require restitution where a person, whether authorised or not, has engaged in, or required or encouraged others to engage in market abuse (section 384(2) of the Act).
- 01/12/2004
ENF 9.3
The FSA's general approach
- 01/12/2004
ENF 9.3.1
See Notes
The FSA will consider exercising its powers to obtain restitution in the light of the facts of each case. When deciding whether to exercise these powers, the FSA will also consider other ways that persons might obtain redress, and whether it would be more efficient or cost-effective for them to use these means instead. The FSA will also consider any proposals by the person concerned to offer redress to any consumers or other persons who have suffered loss, and the adequacy of those proposals, before exercising its powers.
- 01/12/2004
ENF 9.3.2
See Notes
The number of instances in which the FSA might consider using its powers to obtain restitution for market counterparties are likely to be limited. Many of the rules which apply to retail consumers will not be relevant to transactions between market counterparties. Transactions between firms classified as market counterparties will be subject to the FSA's Inter-professional Conduct (see MAR 3).
- 01/12/2004
ENF 9.4
The FSA's power to apply to the court for restitution
- 01/12/2004
ENF 9.4.1
See Notes
The FSA's power to apply to the court for an order for restitution where a person, whether authorised or not, has breached a relevant requirement of the Act is contained in section 382 of the Act (Restitution orders). The Secretary of State may also apply for an order for restitution under this section of the Act.
- 01/12/2004
ENF 9.4.2
See Notes
Section 382 states that:
(1) ' the court may, on the application of the FSA or the Secretary of State, make an order if it is satisfied that a person has contravened a relevant requirement (see ENF 9.4.4 G), or been knowingly concerned in the contravention of such a requirement, and:
(a) that profits have accrued to him as a result of the contravention; or
(b) that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention;
(2) the court may order the person concerned to pay to the FSA such sum as appears to the court to be just having regard:
(a) in a case falling within paragraph (1)(a), to the profits which appear to the court to have accrued;
(b) in a case falling within paragraph (1)(b), to the extent of the loss or adverse effect; or
(c) in a case falling within both these paragraphs, to the profits which appear to the court to have accrued and to the extent of the loss or other adverse effect.'
- 01/12/2004
ENF 9.4.3
See Notes
Where the court orders the person concerned to pay restitution, the sum will be paid to the FSA and distributed as the court directs. Section 382(3) provides that any amount paid to the FSA in line with an order under section 382(2) (see ENF 9.4.2 G (2)) must be paid by it to such qualifying person (see ENF 9.4.8 G) or distributed by it amongst such qualifying persons as the court directs.
- 01/12/2004
ENF 9.4.4
See Notes
Section 382(9)(a) states that 'in relation to an application by the FSA, 'relevant requirement' means a requirement:
(1) which is imposed by or under the Act; or
(2) which is imposed by or under any other Act and whose contravention constitutes an offence which the FSA has power to prosecute under the Act (or, in the case of Scotland, which is imposed by or under any other Act and whose contravention constitutes an offence under Part V of the Criminal Justice Act 1993 (insider dealing) or under prescribed regulations relating to money laundering)'.
- 01/12/2004
ENF 9.4.5
See Notes
The FSA's power to apply to the court for an order for restitution where a person has engaged in, required or encouraged others to engage in, market abuse is in section 383 of the Act (Restitution orders in cases of market abuse). Section 383(1) and (2) state that the court may, on the application of the FSA, make an order under section 383(4) if it is satisfied:
- (1) that a person has:
- (a) engaged in market abuse (section 383(1)(a) of the Act); or
- (b) by taking or not taking any action, required or encouraged another person or persons to engage in behaviour which, if engaged in by the person concerned, would amount to market abuse (section 383(1)(b) of the Act); and
- (2) that profits have accrued to him as a result; or that another person has suffered loss or been otherwise adversely affected as a result (section 383(2)(a) and (b) of the Act).
- 01/12/2004
ENF 9.4.6
See Notes
However, under section 383(3) of the Act the court may not make an order under section 383(4) if it is satisfied that:
(1) the person concerned believed, on reasonable grounds, that his behaviour did not fall within section 383(1)(a) or (b) of the Act (see ENF 9.4.5 G (1)); or
(2) he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within section 383(1)(a) or (b) of the Act (see ENF 9.4.5 G (1)).
- 01/12/2004
ENF 9.4.7
See Notes
The court may order the person concerned to pay to the FSA such sum as appears to the court to be just having regard to those factors set out in ENF 9.4.2 G (2).
- 01/12/2004
ENF 9.4.8
See Notes
Where the court orders the person concerned to pay restitution, the sum will be paid to the FSA and distributed as the court directs. Section 383(5) provides that any amount paid to the FSA in accordance with a restitution order under section 383(4) must be paid by the FSA to a qualifying person (see ENF 9.4.8 G), or distributed between such qualifying persons as the court directs.
- 01/12/2004
ENF 9.4.9
See Notes
A 'qualifying person' is a person appearing to the court to be someone:
(2) who has suffered the loss or other adverse affect mentioned in ENF 9.4.2 G (1)(b) or ENF 9.4.5 G (2).
- 01/12/2004
ENF 9.5
The FSA's power to require restitution
- 01/12/2004
ENF 9.5.1
See Notes
The FSA's administrative power to require restitution from a firm which has breached a relevant requirement is set out in section 384(5) of the Act (Power of FSA to require restitution). This power is exercisable without a court order. Section 384(1) states that the FSA may exercise this power if it is satisfied that a firm has contravened a relevant requirement (see ENF 9.4.4 G), or has been knowingly concerned in a contravention of such a requirement, and:
(1) that profits have accrued to him as a result of the contravention; or
(2) that one or more persons have suffered loss or been adversely affected in any other way as a result of the contravention.
- 01/12/2004
ENF 9.5.2
See Notes
- 01/12/2004
ENF 9.5.3
See Notes
The FSA's administrative power to require restitution in cases where a person, whether authorised or not, has engaged in market abuse is set out in section 384(2) and (3) of the Act. Together section 384(2) and (3) state that the FSA may exercise this power if it is satisfied:
- (1) that a person has:
- (a) engaged in market abuse (section 384(2)(a)), or
- (b) by taking or not taking any action, required or encouraged another person or persons to engage in behaviour which, if engaged in by that person, would amount to market abuse (section 384(2)(b)); and
- (2) that he has profited as a result; or that another person has suffered loss or been adversely affected in any other way as a result of the market abuse.
- 01/12/2004
ENF 9.5.4
See Notes
However, under section 384(4) of the Act the FSA may not require restitution under section 384(2) if, having considered any representations made in response to a warning notice, there are reasonable grounds for it to be satisfied:
(1) that the person concerned believed, on reasonable grounds, that his behaviour did not fall within section 384(2)(a) or (b) (see ENF 9.5.3 G (1)); or
(2) that he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within section 384(2)(a) or (b) (see ENF 9.5.3 G (1)).
- 01/12/2004
ENF 9.5.5
See Notes
The FSA's administrative power to require restitution where there has been a breach of a relevant requirement or market abuse allows the FSA to require the person concerned to pay to the appropriate person (see ENF 9.5.6 G), or share between the appropriate persons identified by the FSA, an amount which the FSA regards as fair. Such an amount will be determined having regard to:
- (1) in a case falling within paragraph ENF 9.5.1 G (1) or the first part of ENF 9.5.3 G (2), the profits that appear to the FSA to have been made; or
- (2) in a case falling within paragraph ENF 9.5.1 G (2) or the second part of ENF ENF 9.5.1 G (2), the extent of the losses or other adverse effect; or
- (3) in a case falling within paragraph ENF 9.5.1 G (2) and ENF 9.5.1 G (2) or both parts of ENF 9.5.1 G (2), the profits that appear to the FSA to have been made and the extent of the loss or other adverse effect.
- 01/12/2004
ENF 9.5.6
See Notes
An 'appropriate person' is a person that appears to the FSA to be someone:
(1) to whom the profits referred to in ENF 9.5.1 G (1) or the first part of ENF 9.5.3 G (2) are attributable; or
(2) who has suffered the losses or other adverse effect referred to in ENF 9.5.1 G (2) or the second part of ENF 9.5.3 G (2).
- 01/12/2004
ENF 9.5.7
See Notes
Where the FSA proposes to exercise its administrative power under section 384(5) in relation to a person it must give him a warning notice. This must state the amount which the FSA proposes to require the person to pay or distribute in accordance with section 384(5) (see ENF 9.5.5 G). The FSA's policy and procedure in relation to warning notices is set out in DEC 2.2 (Warning notice procedure).
- 01/12/2004
ENF 9.5.8
See Notes
Where the FSA decides to exercise its administrative power under section 384(5) in relation to a person it must give him a decision notice. Section 386(2) of the Act (Decision notices) provides that the decision notice must:
(1) state the amount that he is to pay or distribute as mentioned in ENF 9.5.5 G;
(2) identify the person or persons to whom that amount is to be paid or among whom that amount is to be distributed; and
(3) state the arrangements in accordance with which the payment or distribution is to be made.
The FSA's policy and procedure in relation to decision notices is set out in DEC 2.3 (Decision notice procedure).- 01/12/2004
ENF 9.5.9
See Notes
- 01/12/2004
ENF 9.5.10
See Notes
Where the FSA takes action:
(2) on the direction of the Tribunal or court (if the matter has been referred to the Tribunal, or later appealed);
it must give a final notice to the person in relation to whom the power is exercised.- 01/12/2004
ENF 9.5.11
See Notes
The provisions relating to final notices in these circumstances are set out in section 390 of the Act (Final notices)(seeDEC 2.3.11 GDEC 2.3.12 G). Section 390(6) states that a final notice to make a payment must state:
(1) the persons to whom;
(2) the manner in which; and
(3) the period in which;
the payment must be made.- 01/12/2004
ENF 9.5.12
See Notes
The obligation imposed on a person by a final notice is enforceable, on application by the FSA, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.
- 01/12/2004
ENF 9.6
Criteria for determining whether to exercise powers to obtain restitution
- 01/12/2004
ENF 9.6.1
See Notes
The FSA will consider the relevant circumstances of each case when deciding whether it is appropriate to exercise its powers to seek or obtain restitution under sections 382, 383 or 384 of the Act. The factors which the FSA will consider may include, but are not limited to, those set out in ENF 9.6.2 G-ENF 9.6.15 G.
- 01/12/2004
Are the profits quantifiable?
ENF 9.6.2
See Notes
The FSA will consider whether quantifiable profits have been made which are owed to identifiable persons. In certain circumstances it may be difficult to prove that the conduct in question has resulted in the person concerned making a profit. It may also be difficult to find out how much profit and to whom the profits are owed. In these cases it may not be appropriate for the FSA to use its powers to obtain restitution.
- 01/12/2004
Are the losses identifiable?
ENF 9.6.3
See Notes
The FSA will consider whether there are identifiable persons who can be shown to have suffered quantifiable losses or other adverse effects. In certain circumstances it may be difficult to establish the number and identity of those who have suffered loss as a result of the conduct in question. It may also prove difficult in those cases to establish the amount of that loss and whether the losses have arisen as a result of the conduct in question. In these cases it may not be appropriate for the FSA to use its powers to obtain restitution.
- 01/12/2004
The number of persons affected.
ENF 9.6.4
See Notes
The FSA will consider the number of persons who have suffered loss or other adverse effects and the extent of those losses or adverse effects. Where the breach of a relevant requirement by a person, whether authorised or not, results in significant losses, or losses to a large number of persons which collectively are significant, it may be appropriate for the FSA to use its powers to obtain restitution on their behalf. The FSA anticipates that many individual losses resulting from breaches by firms may be more efficiently and effectively redressed by consumers pursuing their claims directly with the firm concerned or through the Financial Ombudsman Service or the compensation scheme where the firm has ceased trading (see ENF 9.6.6 G). However, where a large number of persons have been affected or the losses are substantial it may be more appropriate for the FSA to seek restitution from a firm. In those cases the FSA may consider combining an action seeking restitution from a firm or unauthorised person with disciplinary action or a criminal prosecution.
- 01/12/2004
FSA costs
ENF 9.6.5
See Notes
The FSA will consider thecost of securing redress and whether these are justified by the benefit to persons that would result from that action. The FSA will consider the costs of exercising its powers to obtain restitution and, in particular, the costs of any application to the court for an order for restitution, together with the size of any sums that might be recovered as a result. The costs of the action will, to a certain extent, depend on the nature and location of assets from which restitution may be made. In certain circumstances it may be possible for the FSA to recover the costs of exercising its power to apply to the court for an order for restitution, or a proportion of them, from the party against whom a restitution order is sought.
- 01/12/2004
Is redress available elsewhere?
ENF 9.6.6
See Notes
The FSA will consider the availability of redress through the Financial Ombudsman Service or the compensation scheme. This will be relevant where the loss has resulted from the conduct of a firm. It will not be relevant where losses have resulted from the conduct of unauthorised persons operating in breach of the general prohibition. The Financial Ombudsman Service and the compensation scheme (where the firm has ceased trading) may be a more efficient and effective method of redress in many cases. The Financial Ombudsman Service provides a way for some consumers to obtain redress The compensation scheme may provide redress for some consumers and businesses. The FSA's power to obtain restitution is not intended to duplicate the functions of the Ombudsman or compensation schemes in those cases. However, in certain cases (see ENF 9.6.2 G) it will be more appropriate for the FSA to pursue restitution. Further details of these schemes are set out in COMP.
- 01/12/2004
Is redress available through another regulator?
ENF 9.6.7
See Notes
The FSA will consider the availability of redress through another regulatory authority. Where another regulatory authority, such as the Takeover Panel, is in a position to require appropriate redress, the FSA will not generally exercise its own powers to do so (see ENF 14.9 (Action involving other UK regulatory authorities)). If the FSA does consider that action is appropriate and the matters in question have happened in the context of a takeover bid, the FSA will only take action during the bid in the circumstances set out in ENF 14.9.6 G if the person concerned has responsibilities under the Takeover Code. If another regulatory body has required redress and a person has not met that requirement, the FSA will take this into account and (subject to all other relevant factors and circumstances) may consider it appropriate to take action to ensure that such redress is provided.
- 01/12/2004
Can persons bring their own proceedings?
ENF 9.6.8
See Notes
The FSA will consider whether persons who have suffered losses are able to bring their own civil proceedings. In certain circumstances it may be appropriate for persons to bring their own civil proceedings to recover losses. This might be the case where the person who has suffered loss is a market counterparty and so may be expected to have a high degree of financial experience and knowledge. When considering whether this might be a more appropriate method of obtaining redress, the FSA will consider the costs to the person of bringing that action and the likelihood of success in relation to the size of any sums that may be recovered.
- 01/12/2004
Is the firm solvent?
ENF 9.6.9
See Notes
The FSA will consider the solvency of the firm or unauthorised person concerned. Where the solvency of the firm or unauthorised person would be placed at risk by the payment of restitution, the FSA will consider whether it is appropriate to seek restitution. In those cases the FSA may consider obtaining a compulsory insolvency order against the firm or unauthorised person rather than restitution (see ENF 9.6.10 G). When considering these options, the FSA may also take account of the position of other creditors who may be prejudiced if the assets of the firm or unauthorised person are used to pay restitution payments prior to insolvency.
- 01/12/2004
What other powers are available to the FSA?
ENF 9.6.10
See Notes
(1) The FSA will consider the availability of its power to obtain a compulsory insolvency order against the firm or unauthorised person concerned or to apply to the court for the appointment of a receiver. In certain circumstances it may be appropriate for the FSA to obtain an administration order, winding-up order or bankruptcy order against a firm or unauthorised person carrying out regulated activities in breach of the general prohibition.
(a) Administration orders: the FSA may apply for an administration order against a firm or an unauthorised person operating in breach of the general prohibition. An administrative order places the assets of a firm or unauthorised person under the management of an administrator and may result in the assets of the company being realised to pay creditors. The FSA's procedures in relation to the exercise of its powers to apply for administration orders are set out in ENF 10 (Insolvency proceedings and orders against debt avoidance).
(b) Winding-up orders: the FSA may apply for a winding-up order against a firm or an unauthorised person operating in breach of the general prohibition. A winding-up order places the assets of the firm or unauthorised person under the control of a liquidator who will apply them to repay creditors. The FSA's procedures in relation to the exercise of its powers to apply for winding-up orders are set out in ENF 10.
(c) Bankruptcy orders: the FSA may apply for a bankruptcy order against an individual who is, or has been, an authorised person, or who is carrying on a regulated activity, in breach of the general prohibition. The making of a bankruptcy order places the assets of the individual under the control of a trustee who will use them to repay creditors. The FSA's procedures in relation to the exercise of its powers to apply for bankruptcy orders are set out in ENF 10.
(2) The FSA may decide to exercise its power to obtain a compulsory insolvency order or to apply for the appointment of a receiver rather than to exercise its powers to obtain restitution. This could happen if it has particular concerns about a person's conduct, or financial position and, in particular, whether it is solvent (though the appointment by the court of a receiver is not conditional on the insolvency of the person concerned). The FSA may also consider the cost of compulsory insolvency orders which will be paid out of the assets of the firm, or of the unauthorised person concerned, compared to the cost of seeking restitution. In the case of unauthorised persons operating in breach of the general prohibition, a decision to apply for a compulsory insolvency order rather than restitution will depend on all the circumstances of the case. In particular, the FSA may consider the significance of the unauthorised activities compared to the whole of the business; the nature and conduct of the activities carried on in breach of the general prohibition; and the number and nature of the claims against the person or firm concerned. The FSA's powers to apply for compulsory insolvency orders are set out in ENF 10.
- 01/12/2004
The behaviour of the persons suffering loss
ENF 9.6.11
See Notes
The FSA will consider the conduct of the persons who have suffered loss. As part of its regulatory objectives of increasing consumer awareness of the financial system and protecting consumers, the FSA is required to publicise information about the authorised status of persons and is empowered to give information and guidance about the regulation of financial services. This information should help consumers avoid suffering losses. When the FSA considers whether to obtain restitution on behalf of persons, it will consider the extent to which those persons may have contributed to their own loss or failed to take reasonable steps to protect their own interests.
- 01/12/2004
Other factors which may be relevant.
ENF 9.6.12
See Notes
The FSA will consider the context of the conduct in question. In any case where the FSA believes that any exercise of its powers under section 383 (Restitution orders in cases of market abuse) or 384 (Power of FSA to require restitution) of the Act may affect the timetable or outcome of a takeover bid, it will consult the Takeover Panel before taking any steps to exercise such powers, and will give due weight to its views.
- 01/12/2004
ENF 9.6.13
See Notes
Where the FSA is considering applying to court for a restitution order in relation to market abuse under section 383, it will also consider whether the court would be prevented from making that order by section 383(3). The court cannot make a restitution order against a person under section 383(3) if it is satisfied that one or both of the conditions set out in section 383(3)(a) and (b) are fulfilled (see ENF 9.4.6 G).
- 01/12/2004
ENF 9.6.14
See Notes
A similar provision to section 383(3) applies where the FSA proposes to exercise its power to require restitution in relation to market abuse under section 384(2). In those cases, the FSA cannot exercise its power where, following representations made to it in response to a warning notice, there are reasonable grounds for it to be satisfied that one or both of the conditions set out in section 384(4)(a) and (b) are fulfilled (see ENF 9.5.4 G).
- 01/12/2004
ENF 9.6.15
See Notes
The conditions set out in section 383(3)(a) and (b) and section 384(4)(a) and (b) are the same as those that apply to penalties for market abuse and the FSA will take the same factors into account when considering whether the conditions have been met. ENF 14.4 (Factors relevant to determining whether to take action in market abuse cases) lists those factors.
- 01/12/2004
ENF 9.7
The FSA's choice of powers
- 01/12/2004
ENF 9.7.1
See Notes
Under sections 382 (Restitution orders) and 383 (Restitution orders in cases of market abuse) of the Act the FSA can apply to the court for an order for restitution. Under section 384 (Power of FSA to require restitution) it can also require restitution from firms which have breached a relevant requirement of the Act and persons, whether authorised or not, who have engaged in, or have required or encouraged others to engage in, market abuse.
- 01/12/2004
ENF 9.7.2
See Notes
In cases where it is appropriate to exercise its powers to obtain restitution from firms, the FSA will first consider using its own administrative powers under section 384 before considering taking court action.
- 01/12/2004
ENF 9.7.3
See Notes
However, there may be circumstances in which the FSA will choose to use the powers under section 382 or section 383 to apply to the court for an order for restitution against a firm. Those circumstances may include, for example, where:
(1) the FSA wishes to combine an application for an order for restitution with other court action against the firm, for example, where it wishes to apply to the court for an injunction to prevent the firm breaching a relevant requirement of the Act; the FSA's powers to apply for injunctions restraining firms from breaching relevant requirements of the Act are set out in ENF 6;
(2) the FSA wishes to bring related court proceedings against an unauthorised person where the factual basis of those proceedings is likely to be the same as the claim for restitution against the firm;
(3) there is a danger that the assets of the firm may be dissipated; in those cases, the FSA may wish to combine an application to the court for an order for restitution with an application for an asset-freezing injunction to prevent assets from being dissipated; the FSA's powers to apply for asset freezing injunctions are set out in ENF 6;
(4) the FSA suspects that the firm may not comply with an administrative requirement to give restitution; in those cases the FSA may consider that the sanction for breach of a court order may be needed to ensure compliance; a person who fails to comply with a court order may be in contempt of court and is liable to imprisonment, to a fine and/or to have his assets seized.
- 01/12/2004
ENF 9.7.4
See Notes
The FSA may not use its administrative power to obtain restitution from unauthorised persons except in cases of market abuse. Most cases where redress is obtained from unauthorised persons will therefore be dealt with by an application to the court.
- 01/12/2004
ENF 9.8
Determining the amount of restitution
- 01/12/2004
ENF 9.8.1
See Notes
When deciding how much should be paid by a firm or individual following an application by the FSA to court for an order for restitution, the court may consider those factors set out in ENF 9.5.2 G (2).
- 01/12/2004
ENF 9.8.2
See Notes
Section 382(4) (Restitution orders) and section 383(6) (Restitution orders in cases of market abuse) of the Act state that the court may require the person, whether authorised or not, to supply it with accounts or other information to help the court:
- (1) to establish whether and, if so how much, profit may have been made as a result of the contravention; or
- (2) to establish whether any persons have suffered any losses or adverse effects as a result of the contravention of a relevant requirement or market abuse and, if so, the extent of those losses or adverse effects; or
- (3) to determine how any amounts are to be paid or distributed to qualifying persons.
- 01/12/2004
ENF 9.8.3
See Notes
An application by the FSA for an order for restitution under section 382 or 383 will not prevent a person from bringing a private action for restitution in relation to the same matter. However, the court is likely to consider whether any payments have already been made to private claimants when it decides whether to order restitution in any case.
- 01/12/2004
ENF 9.8.4
See Notes
When the FSA decides the amount of restitution which a firm or unauthorised person must pay following the exercise of its administrative power to require restitution, it must approach the matter in the same way as the court would in accordance with section 382(5) of the Act.
- 01/12/2004
ENF 9.8.5
See Notes
The FSA may obtain information relating to the amount of profits made and/or losses or other adverse effects resulting from the conduct of firms or unauthorised persons as a result of the exercise of its powers to appoint investigators under sections 167 (Appointment of persons to carry out general investigations) or 168 (Appointment of persons to carry out investigations in particular cases) of the Act. The FSA's policy and procedure in respect of its powers to appoint investigators are contained in ENF 2 (Information gathering and investigation powers).
- 01/12/2004
ENF 9.8.6
See Notes
As well as obtaining information through the appointment of investigators, the FSA may consider using its power under section 166 of the Act (Reports by skilled persons) to require a firm to provide a report prepared by a skilled person (see ENF 2.3.8 G to ENF 2.3.11 G). That report may be requested to help the FSA to:
(1) determine the amount of profits which have been made by the firm; or
- 01/12/2004
ENF 9.8.7
See Notes
The person appointed to make a report under ENF 9.8.6 G must be nominated or approved by the FSA and appear to the FSA to have the necessary skills to report on the matter.
- 01/12/2004
ENF 9.9
Other relevant powers
- 01/12/2004
ENF 9.9.1
See Notes
The FSA may apply to the court for an injunction if it appears that a person, whether authorised or not, is reasonably likely to breach a requirement of the Act or engage in market abuse. It can also apply for an injunction if a person has breached a requirement of the Act or engaged in market abuse and is likely to continue doing so. The FSA's procedure in relation to the exercise of its powers to apply for injunctions is set out in ENF 6 (Injunctions).
- 01/12/2004
ENF 9.9.2
See Notes
The FSA may consider taking disciplinary action, or action to impose a penalty for market abuse, as well as seeking restitution, if a person has breached a relevant requirement of the Act or has engaged in, or required or encouraged others to engage in, market abuse. As restitution is essentially restorative it may often be appropriate for the FSA to take disciplinary action. Disciplinary action, or action to impose a penalty for market abuse, may take the form of either:
- (1) imposing a financial penalty: the FSA's policy and procedures in relation to imposing financial penalties is set out in ENF 13 (Financial penalties against firms and approved persons) and ENF 14 (Sanctions for market abuse); or
- (2) making a public statement of misconduct or public censure: the FSA's policy and procedure in relation to public statements of misconduct is set out in ENF 12 (Public statements of misconduct about firms and approved persons) and ENF 14 (Sanctions for market abuse).
- 01/12/2004
ENF 9.9.3
See Notes
The FSA may consider exercising its power to prosecute offences under the Act, as well as applying to seek restitution if a person has breached certain requirements of the Act. The offences the FSA has power to prosecute, and the FSA's policy and procedure in relation to the prosecution of these offences, are set out in ENF 15 (Prosecution of criminal offences).
- 01/12/2004
ENF 9.10
Publication
- 01/12/2004
ENF 9.10.1
See Notes
The FSA considers it generally appropriate to publish details of successful applications to court for restitution, or the exercise of its administrative power to require restitution, in order to protect and inform consumers and maintain market confidence. The FSA's policy in relation to the publication of final notices is set out in DEC 5.2 (Publication). The FSA will normally publish final notices relating to administrative restitution action. However, in certain circumstances it may decide not to publicise that it has obtained an order for restitution or exercised its power to require restitution. It may make that decision where, for example, publication could damage market confidence or undermine market integrity in a way that could be damaging to the interests of consumers. Where the behaviour to which the restitution order or exercise of the FSA's restitutionary power relates has happened in the context of a takeover bid, the FSA will consult the Takeover Panel and, if it believes that publication may affect the timetable or outcome of that bid, will give due weight to the Takeover Panel's views.
- 01/12/2004
ENF 10
Insolvency proceedings and orders against debt avoidance
ENF 10.1
Application
- 01/12/2004
ENF 10.1.1
See Notes
This chapter applies to:
(1)
firms;
(2)
appointed representatives; and
- 01/12/2004
ENF 10.2
Purpose
- 01/12/2004
ENF 10.2.1
See Notes
- 01/12/2004
ENF 10.2.2
See Notes
The FSA's effective use of its powers and rights in insolvency proceedings will help it pursue its regulatory objectives of maintaining market confidence, protecting consumers and reducing financial crime by, amongst other matters, enabling it to apply to court for action to:
(2) ensure the orderly realisation and distribution of their assets.
- 01/12/2004
ENF 10.3
Introduction
- 01/12/2004
ENF 10.3.1
See Notes
This chapter outlines the FSA's:
(1) powers to seek administration, compulsory winding up and bankruptcy orders and, in Scotland, sequestration awards, from the court ENF 10.5), and its policies in relation to the use of those powers ENF 10.6);
(2) powers to apply to court to challenge acts and omissions in company moratoria and to challenge an approved voluntary arrangement in respect of a corporate or individual authorised person, and in Scotland, a trustdeed for creditors granted by an authorised person ENF 10.7), and its policy in relation to the use of those powers ENF 10.8);
(3) power to apply to court for orders against debt avoidance ENF 10.9), and its policy in relation to the use of that power ENF 10.10);
(4) rights in certain cases:
(a) to be informed of third party petitions for administration, compulsory winding up and bankruptcy orders and, in Scotland, sequestration awards;
(b) to receive information and (where relevant) to attend and be heard at meetings of creditors and creditors' committees in the following regimes:
(i) voluntary and compulsory winding up;
(ii) administrations;
(iii) receiverships and administrative receiverships;
(iv) bankruptcies and sequestrations;
(v) company moratoria and voluntary arrangements ;
(vi) individual voluntary arrangements;
(vii) trustdeeds for creditors in Scotland;
in respect of firms or former firms or others who are or have been carrying on a regulated activity while unauthorisedENF 10.11);(5) arrangements for notification of petitions and other documents to which it is entitled ENF 10.12);
(6) policy in relation to the exercise of its rights to be heard and be involved in insolvency regimes affecting persons whether authorised or not ENF 10.13).
- 01/12/2004
ENF 10.3.2
See Notes
The provisions of the Act relating to the FSA's powers and rights in insolvency proceedings refer to the underlying insolvency legislation, namely the Insolvency Act 1986 ('the 1986 Act'), as amended by the Insolvency Act 2000, the Bankruptcy (Scotland) Act 1985 ('the 1985 Act') and the Insolvency (Northern Ireland) Order 1989 ('the 1989 Order'). ENF 10.5, ENF 10.7, ENF 10.9 and ENF 10.11 outline the statutory background to the FSA's powers and rights in insolvency proceedings and summarise the relevant provisions of that underlying insolvency legislation.
- 01/12/2004
ENF 10.4
The FSA's general approach
- 01/12/2004
ENF 10.4.1
See Notes
The FSA takes full account of the principle consistently adopted by the courts that recourse to insolvency regimes is a step to be taken for the benefit of creditors as a whole. It also takes full account of the fact that the court will have regard to the public interest when considering whether to wind up a body on the grounds that it is just and equitable to do so. The FSA will use its powers to seek insolvency orders with these matters in mind.
- 01/12/2004
ENF 10.4.2
See Notes
The FSA will consider the facts of each particular case when it decides whether to use its powers and exercise its rights. The FSA will also consider the other powers available to it under the Act and to consumers under the Act and other legislation, and the extent to which the use of those other powers meets the needs of consumers as a whole and the FSA's regulatory objectives.
- 01/12/2004
ENF 10.5
Statutory background: The FSA's powers to seek insolvency orders
- 01/12/2004
Administration orders
ENF 10.5.1
See Notes
Under section 359 of the Act (Petitions), the FSA may present a petition to the court under section 9 of the 1986 Act or article 22 of the 1989 Order, for an administration order in relation to a company or insolvent partnership which:
(1) is, or has been, an authorised person; or
(2) is, or has been, an appointed representative; or
(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.5.2
See Notes
The court may make an administration order only if it is satisfied that a company or a partnership is, or is likely to become, unable to pay its debts. Sections 359(3) and (4) of the Act provide that a company or partnership is to be treated as unable to pay its debts for the purpose of section 8(1)(a) of the 1986 Act or article 21(1)(a) of the 1989 Order if it is in default on an obligation to pay a sum which is due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the company or partnership.
- 01/12/2004
ENF 10.5.3
See Notes
In addition, a court may only make an administration order if it considers that making the order would be likely to achieve one or more of the following purposes:
(1) the survival of the company or partnership, and the whole or any part of its undertaking, as a going concern;
(2) the approval of a company voluntary arrangement;
(3) the sanctioning under section 425 of the Companies Act 1985 of a compromise arrangement between the company or partnership and any such persons as are mentioned in that section;
(4) a more advantageous realisation of the assets of the company or partnership than would be effected on a winding up.
- 01/12/2004
ENF 10.5.4
See Notes
Under section 8(4) of the 1986 Act and article 21(4) of the 1989 Order, no administration order can be made in relation to an insurance company (within the meaning of the Insurance Companies Act 1982). Section 360 of the Act (Insurers) empowers the Treasury to order that provisions, or specified provisions, of the 1986 Act and the 1989 Order relating to administration orders are to apply in relation to insurance companies, with such modification as may be specified. As at the date of publication of this manual the Treasury has not yet made such an order.
- 01/12/2004
Winding up by the court
ENF 10.5.5
See Notes
Under section 367 of the Act (Winding-up petitions), the FSA may present a petition to the court for the winding up of a body which:
(1) is, or has been, an authorised person; or
(2) is, or has been, an appointed representative; or
(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.5.6
See Notes
Under section 355 of the Act (Interpretation of this Part), a 'body' is any body of persons over which the court has jurisdiction under any provision of the 1986 Act or the 1989 Order, or made under that Act or Order. It does not however include a body which is a building society, friendly society or industrial and provident society. For the purpose of section 367 of the Act, 'body' includes a partnership.
- 01/12/2004
ENF 10.5.7
See Notes
- 01/12/2004
ENF 10.5.8
See Notes
Section 367(4) and (5) of the Act state that the body is to be treated as unable to pay its debts, within the meaning of section 123 or 221 of the 1986 Act or article 103 or 185 of the 1989 Order, if it is indefault on an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the body.
- 01/12/2004
Voluntary winding up
ENF 10.5.9
See Notes
Under section 365 of the Act (FSA's powers to participate in proceedings), if a company is being wound up voluntarily and it is:
(1) an authorised person; and
the FSA may apply to the court, under section 112 of the 1986 Act, or article 98 of the 1989 Order, to determine any question which arises in the winding up of a company or to request the court to exercise all or any of the powers which the court might exercise if it were winding up the company.- 01/12/2004
ENF 10.5.10
See Notes
- 01/12/2004
ENF 10.5.11
See Notes
Under section 365(6) of the Act, the voluntary winding up of an authorised person that is a company does not bar the right of the FSA to have it wound up by the court.
- 01/12/2004
ENF 10.5.12
See Notes
Under section 365(7) of the Act, if, while a company is being voluntarily wound up, a compromise or arrangement is proposed between the company and its creditors, or any class of creditors, the FSA may apply to the court, under section 425 of the Companies Act 1985 or article 418 of the Companies (Northern Ireland) Order 1986, for an order requiring the convening of a meeting of the creditors or class of creditors
- 01/12/2004
ENF 10.5.13
See Notes
Under section 366 of the Act (Insurers effecting or carrying out long-term contracts of insurance), an insurance company carrying on long term insurance business may not be wound up voluntarily without the FSA's consent. If, in the case of such a company, notice of a general meeting is given specifying the intention to propose a resolution for voluntary winding up, a director of the company must notify the FSA as soon as practicable after he becomes aware of it. Where a moratorium is in place in relation to a company under Schedule A1 to the 1986 Act, the FSA may not petition for an administration order or winding up order in relation to the company while the moratorium is effective.
- 01/12/2004
Bankruptcy and, in Scotland, sequestration
ENF 10.5.14
See Notes
(1) Under section 372 of the Act (Petitions), the FSA has power to present a petition to the court, under section 264 of the 1986 Act or article 238 of the 1989 Order, for the bankruptcy of an individual or, in Scotland, under section 5 of the 1985 Act for the sequestration of the estate of an individual. A petition may be presented only on the grounds that the individual appears to be unable to pay a regulated activity debt or appears to have no reasonable prospect of being able to pay a regulated activity debt.
(2) A regulated activity debt is an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity carried on by the individual.
- 01/12/2004
ENF 10.5.15
See Notes
Under section 372(4) of the Act, an individual appears to have no reasonable prospect of being able to pay a regulated activity debt if:
(1) the FSA has served a demand on him which requires him to establish, to the satisfaction of the FSA, that there is a reasonable prospect of his being able to pay a regulated activity debt, when it falls due; and
(2) at least three weeks have elapsed since the demand was served; and
(3) the individual has not complied with the demand and the court has not set it aside.
- 01/12/2004
ENF 10.5.16
See Notes
A demand (see ENF 10.5.15 G (1)) is to be treated for the purposes of the 1986 Act or the 1989 Order as if it were a statutory demand under section 268 of the 1986 Act or article 242 of the 1989 Order. In relation to petitions served under section 5 of the 1985 Act, the FSA is to be treated as a qualified creditor and, when the petition is presented on the grounds that the individual appears unable to pay a regulated activity debt, that ground is to constitute apparent insolvency for the purposes of the 1985 Act.
- 01/12/2004
ENF 10.5.17
See Notes
The FSA's power to petition only applies to individuals who are, or have been, authorised persons or who are carrying on, or have carried on, a regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.6
The FSA's policy: applications for insolvency orders.
- 01/12/2004
Determining whether a company or partnership is unable to pay its debts
ENF 10.6.1
See Notes
(1) The FSA can petition for an administration order or compulsory winding up order on the grounds that the company or partnership is unable (or, in the case of administration orders, is likely to become unable) to pay its debts. The FSA does not have to be a creditor to petition on these grounds.
(2) Under sections 359 (Petitions) and 367 (Winding-up Petitions) of the Act, a company or partnership is deemed to be unable to pay its debts if it is in default on an obligation to pay a sum due and payable under an agreement where the making or performance of this agreement constitutes or is part of a regulated activity which the company or partnership is carrying on.
(3) The FSA would not ordinarily petition for an administration order unless it believes that the company or partnership is, or is likely to become, insolvent. Similarly, the FSA would not ordinarily petition for a compulsory winding up order solely on the ground of inability to pay debts (as provided in the Act), unless it believes that the company or partnership is or is likely to be insolvent.
(4) While a default on a single agreement of the type mentioned in (2) is, under the Act, a presumption of an inability to pay debts, the FSA will consider the circumstances surrounding the default. In particular, the FSA will consider whether:
(a) the default is the subject of continuing discussion between the company or partnership and the creditor, under the relevant agreement, which is likely to lead to a resolution;
(b) the default is an isolated incident;
(c) in other respects the company or partnership is meeting its obligations under agreements of this kind; and
(d) the FSA has information to indicate that the company or partnership is able to pay its debts or, alternatively, that in addition to the specific default the company or partnership is in fact unable to pay its debts.
- 01/12/2004
Determining whether to seek any insolvency order
ENF 10.6.2
See Notes
(1) Where the FSA believes that a company or partnership to which sections 359(1) and 367(1) of the Act applies (see ENF 10.5.1 G and ENF 10.5.5 G) is, or is likely to be, unable to pay its debts, the FSA will consider whether it is necessary to seek an administration order or compulsory winding up order from the court.
(2) The FSA's approach will be in two stages: the first is to consider whether it is appropriate to seek any insolvency order; the second is to consider which insolvency order will meet, or is likely to meet, the needs of consumers.
- 01/12/2004
ENF 10.6.3
See Notes
In determining whether to seek an insolvency order, the FSA will consider all relevant factors, including:
(1) Whether the company or partnership has taken or is taking steps to deal with its insolvency, including petitioning for its own administration, placing itself in voluntary winding up or proposing to enter into a company voluntary arrangement, and the effectiveness of those steps;
(2) Whether any consumer or other creditor of the company or partnership has taken steps to seek an insolvency order from the court;
(3) the effect on the company or partnership and on the creditors of the company or partnership if an insolvency order is made;
(4) Whether the use of other powers available to the FSA will achieve the same or a more advantageous result in terms of the protection of consumers, and of market confidence and the restraint and remedy of unlawful activity:
(a) in the case of authorised persons and appointed representatives, the interests of consumers may, in certain circumstances, be met by the use of the FSA's intervention powers and by requiring restitution to consumers;
(b) in the case of unauthorised companies and partnerships, the FSA will consider whether the interests of consumers can be achieved by seeking an injunction to restrain continuation of the carrying on of the regulated activity and an order for restitution to consumers;
(c) when it considers whether these courses of action are appropriate, the FSA will take full account of their effects on the creditors of the body;
(5) the nature and extent of the body's assets and liabilities, and in particular whether the body holds client assets and whether its secured and preferred liabilities are likely to exceed available assets;
(6) Whether there is a significant cross border or international element to the business which the company or partnership is carrying on and the effect on foreign assets or on the continuation of the business abroad of making an insolvency order; and
(7) Whether there is a risk of creditors being preferred which may be an advantage in securing a moratorium in relation to proceedings against the body.
- 01/12/2004
ENF 10.6.4
See Notes
After the FSA has determined that it is appropriate to seek an insolvency order, and there is no moratorium in place under Schedule A1 to the 1986 Act, it will consider whether this order should be an administration order or a compulsory winding up order.
- 01/12/2004
Determining which insolvency order to seek
ENF 10.6.5
See Notes
(1) As stated in ENF 10.4 the FSA's general approach to the use of the power to seek an insolvency order from the court is to consider the needs of the consumers and the FSA's regulatory objectives.
(2) The FSA will consider whether to apply for an administration order or a compulsory winding up order having regard to the purpose achieved by the insolvency procedure. In addition, however, an administration order can be made only in relation to companies and partnerships and only where the court believes that making such an order will achieve one or more of the four purposes set out in section 8 of the 1986 Act (see ENF 10.5.3 G). The FSA will apply for an administration order only where it considers this will meet or is likely to meet one or more of these purposes.
(3) In addition, the FSA will consider, where relevant, factors including:
(a) the extent to which the financial difficulties are or are likely to be attributable to the management of the company or partnership or external factors, for example, market forces;
(b) the extent to which it appears to the FSA that the company or partnership may, through an administrator, be able to trade its way out of its financial difficulties;
(c) the extent to which the company or partnership can lawfully and viably continue to carry on regulated activities through an administrator;
(d) the extent to which the sale of the business in whole or in part as a going concern is likely to be achievable;
(f) whether recourse to one regime or another is likely to result in delays in redress to consumers or an additional cost;
(g) whether recourse to one regime or another is likely to result in better redress to consumers;
(h) the adequacy and reliability of the company or partnership's accounting or administrative records;
(j) in the case of an unauthorised company or a partnership carrying on a regulated activity as part of a larger enterprise, the scale and importance of the unauthorised activity in relation to the whole of the company's or partnership's business;
(k) the extent to which the management of the company or partnership is likely to cooperate in determining whether one or more of the purposes of an administration order can be met;
(l) in the case of an unauthorised company or partnership carrying on a regulated activity as part of a larger enterprise, the extent to which the company's or partnership's survival can be anticipated without the discontinuance of the unauthorised regulated activity;
(m) where an administrative receiver is in place, whether the debenture holder is likely to agree to an application for an administration order;
- 01/12/2004
Petitioning for compulsory winding up on just and equitable grounds
ENF 10.6.6
See Notes
(1) The FSA has power under section 367(3)(b) of the Act to petition the court for the compulsory winding up of a company or partnership, on the grounds that it is just and equitable for the body to be wound up, regardless of whether or not the body is able to pay its debts. In some instances the FSA may need to consider whether to petition on both these grounds and on grounds of insolvency.
(2) When deciding whether to petition on these grounds the FSA will consider all relevant facts including:
(a) whether the needs of consumers and the public interest require the body to cease to operate;
(c) whether the needs of consumers and the public interest can be met by using the FSA's other powers;
(d) in the case of an authorised person, where the FSA considers that the authorisation should be withdrawn or where it has been withdrawn, the extent to which there is other business that the person can carry on without authorisation;
(e) in the case of an unauthorised body carrying on a regulated activity as part of a larger enterprise, the scale and importance of the unauthorised regulated activity and the extent to which the enterprise is likely to survive the restraint and remedying of that activity by the use of other powers available to the FSA;
(f) whether there is reason to believe that an injunction to restrain the carrying on of an unauthorisedregulated activity would be ineffective;
(g) whether the body appears to be or to have been involved in financial crime or appears to be or to have been used as a vehicle for financial crime.
(3) Where appropriate the FSA will also take the following factors into account:
(a) the complexity of the body (as this may have a bearing on the effectiveness of winding up or any alternative action);
(b) whether there is a significant cross border or international element to the business being carried on by the body and the impact on the business in other jurisdictions;
(c) the adequacy and reliability of the body's accounting or administrative records;
(d) the extent to which the body's management has cooperated with the FSA.
- 01/12/2004
Petitioning for compulsory winding up of a company or partnership already in voluntary winding up
ENF 10.6.7
See Notes
Section 365(6) of the Act (FSA's powers to participate in proceedings) makes clear that the FSA may petition for the compulsory winding up of a company even if that company is already in voluntary winding up. This power is already available to creditors and contributories of companies in voluntary winding up, although it is rarely exercised. In many instances where there is concern about the way in which a voluntary winding up is proceeding, any creditor or contributory of a company in voluntary winding up (or its liquidator) may apply to the court for it to exercise any power which it would have in a compulsory winding up. For example, the court can be asked to direct the liquidator to investigate a transaction which the company undertook before the winding up. Under section 365(2) of the Act, the FSA also has the power to make such an application.
- 01/12/2004
ENF 10.6.8
See Notes
(1) Given the powers available to creditors (or contributories), the FSA anticipates that there will only be a limited number of cases where it will exercise the right under section 365(6) to petition for the compulsory winding up of a company already in voluntary winding up. The FSA will only be able to exercise this right where one or both of the grounds on which it can seek compulsory winding up are met (see ENF 10.5.7 G).
(2) Factors which the FSA will consider when it decides whether to use this power (in addition to the factors identified in ENF 10.6.5 G and ENF 10.6.6 G in relation to the FSA's decisions to seek compulsory winding up) include:
(a) whether the FSA's concerns can properly and effectively be met by seeking a specific direction under section 365(2) of the Act;
(b) whether the affairs of the company require independent investigation of the kind which follows a compulsory winding up order and whether there are or are likely to be funds available for that investigation;
(c) the composition of the creditors of the company and in particular the ratio of consumer and non-consumer creditors;
(d) the extent to which there are creditors who are or are likely to be connected to the company or its directors and management;
(e) the extent to which the directors and management of the company are cooperating with the liquidator in voluntary winding up;
(g) whether a petition by the FSA for compulsory winding up is likely to have the support of the majority or a large proportion of the creditors; and
(h) the extent of any resulting delay and additional costs.
- 01/12/2004
ENF 10.6.9
See Notes
Where the FSA is requested by a Home State regulator of an EEA firm or a Treaty firm to present a petition for the compulsory winding up of that firm, the FSA will first need to consider whether the presentation of the petition is necessary in order to comply with a Community obligation.
- 01/12/2004
Power to apply to court for a provisional liquidator
ENF 10.6.10
See Notes
Where a petition has been presented for the winding up of a body, the court may appoint a provisional liquidator in the interim period pending the hearing of the petition. An appointment may be sought and made to:
(2) protect assets in the possession or under the control of the company or partnership (in particular where there is a risk that the assets will be dissipated); or
(3) allow the winding up process to start before the determination of the petition where the public interest requires it.
- 01/12/2004
ENF 10.6.11
See Notes
In cases where it decides to petition for the compulsory winding up of a body under section 367 of the Act, the FSA will also consider whether it should seek the appointment of a provisional liquidator. The FSA will have regard, in particular, to the extent to which there may be a need to protect consumers' claims and consumers' funds. Where the FSA decides to petition for the compulsory winding up of a company or partnership on the just and equitable ground, and where the company or partnership is solvent but may become insolvent, the FSA will also consider whether the appointment of a provisional liquidator would serve to maintain the solvency of the company or partnership.
- 01/12/2004
The FSA's use of its power to petition for a bankruptcy order or a sequestration award in relation to an individual
ENF 10.6.12
See Notes
(1) The FSA recognises that the bankruptcy of an individual or the sequestration of an individual's estate are significant measures which may have significant personal and professional implications for the individual involved. In considering whether to present a petition the FSA's principal consideration will be the protection of consumers and its regulatory obligations.
(2) The FSA is also mindful that whilst the winding up of an unauthorised company or partnership should bring an end to any unlawful activity, this is not necessarily the effect of bankruptcy or sequestration. The FSA may, in certain cases, consider the use of powers to petition for bankruptcy or sequestration in conjunction with the use of other powers to seek injunctions and other relief from the court. In particular, where the individual controls assets belonging to consumers and holds, or appears to hold, those assets on trust for consumers, those assets will not vest in the insolvency practitioner appointed in the bankruptcy or sequestration. The FSA will in those circumstances consider whether separate action is necessary to protect the assets and interests of consumers.
- 01/12/2004
ENF 10.6.13
See Notes
(1) If an individual appears to be unable to pay a regulated activity debt, or to have no reasonable prospect of doing so, then section 372 of the Act permits the FSA to petition for the individual's bankruptcy, or in Scotland, for the sequestration of the individual's estate. The FSA will petition for bankruptcy or sequestration only if it believes that the individual is, in fact, insolvent.
(2) In determining this, as a general rule, the FSA will serve a demand requiring the individual to establish, to the FSA's satisfaction that there is a reasonable prospect that he will be able to pay the regulated activity debt.
(3) The FSA will consider the response of each individual to that demand on its own facts and in the light of information, if any, available to the FSA. Exceptionally, the FSA may not first proceed to serve a demand if:
(a) the individual is already indefault of a regulated activity debt which has fallen due and payable; and
(b) the FSA is satisfied, either because the individual has confirmed it or on the information already available to the FSA, that the individual is insolvent and has no reasonable prospect of paying another regulated activity debt when it falls due.
- 01/12/2004
ENF 10.6.14
See Notes
If the FSA believes that the individual is insolvent, the factors it will consider when it decides whether to seek a bankruptcy order or sequestration award include:
(1) whether others have taken steps to deal with the individual's insolvency, including a proposal by the individual of a voluntary arrangement, a petition by the individual for his own bankruptcy or sequestration, or a petition by a third party for the individual's bankruptcy or the sequestration of the individual's estate;
(2) whether the FSA can deal with the individual using other powers available to it under the Act, without the need to seek a bankruptcy order or sequestration award;
(3) the extent of the individual's insolvency or apparent insolvency;
(4) the number of consumers affected and the extent of their claims against the individual;
(5) whether the individual has control over assets belonging to consumers;
(6) the individual's conduct in his dealings with the FSA, including the extent of his cooperation with the FSA;
(7) whether the individual appears to be, or to have been, involved in financial crime;
(8) the adequacy of the individual's accounts and administration records;
(9) in the case of an unauthorised individual who is carrying on or who has carried on a regulated activity, the nature, scale and importance of that activity and the individual's conduct in carrying on that activity;
(10) whether there would be an advantage in securing a moratorium in respect of proceedings against the individual; and
(11) whether there are any special personal or professional implications for that individual if a bankruptcy order or sequestration award is made.
- 01/12/2004
ENF 10.7
Statutory background: the FSA's powers to challenge voluntary arrangements
- 01/12/2004
ENF 10.7.1
See Notes
Under section 357(3) of the Act (FSA's powers to participate in proceedings [individual voluntary arrangements], the FSA is entitled to attend a creditors' meeting, called to approve proposals for an individual voluntary arrangement. The FSA has no power under the Act to attend the meeting of creditors at which proposals for a company's voluntary arrangement are approved, other than in the case of certain small companies for whom a moratorium is in place under Schedule A1 to the 1986 Act (see ENF 10.7.5 G).
- 01/12/2004
ENF 10.7.2
See Notes
However, in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition, where a member applies to the court to challenge a decision taken at the creditors' meeting, the FSA has the right to be heard by the court on that application.
- 01/12/2004
ENF 10.7.3
See Notes
(1) Under section 356 of the Act (FSA's powers to participate in proceedings [company voluntary arrangements], if a voluntary arrangement has been approved in respect of a company which is an authorised person, the FSA may make an application to the court where it considers that:
(a) the voluntary arrangement approved at the relevant meetings of creditors unfairly prejudices the interests of a creditor, member or contributor of the company; or
(b) there has been some material irregularity at or in relation to the meetings; or
(c) both (a) and (b) apply.
(2) In addition, the FSA may make an application to the court if it or any of the company's creditors or any other creditor is dissatisfied by any act, omission or decision of the supervisor of the voluntary arrangement.
(3) If a person other than the FSA makes such an application to the court, the FSA is entitled to be heard at any hearing relating to the application.
(4) Section 357 contains the same provision in relation to a voluntary arrangement approved in respect of an individual who is an authorised person.
- 01/12/2004
ENF 10.7.4
See Notes
Under section 358 of the Act (FSA's powers to participate in proceedings [trust deeds for creditors in Scotland]), if, in Scotland, a trustdeed has been granted by or on behalf of a debtor who is an authorised person, the FSA has the rights of a qualifying creditor under paragraph 7 of Schedule 5 to the 1985 Act. Consequently, the FSA may, subject to the time limits applying to that paragraph, petition for sequestration of the debtor's estate on the grounds of unduly prejudicial distribution of the estate.
- 01/12/2004
ENF 10.7.5
See Notes
(1) Under paragraph 44 of Schedule A1 to the 1986 Act, the FSA is empowered to apply to the court to challenge certain actions by a nominee or by directors of a company for whom a moratorium has been obtained and any voluntary arrangement subsequent to that moratorium under Schedule A1 of the 1986 Act.
(2) Schedule A1 to the 1986 Act applies to certain small companies. It does not apply to insurance companies, authorised institutions or former authorised institutions within the meaning of the Banking Act 1987 [now repealed] parties to a marketcontract, a money marketcontract or a related contract, companies whose property is subject to a market charge, money market charge or a system charge, or where the company is a participant within the meaning of the Settlement Finality Regulations or any of its properties is subject to a collateral security charge within the meaning of these Regulations.
- 01/12/2004
ENF 10.7.6
See Notes
The FSA's powers under Schedule A1 to the 1986 Act may be exercised by it in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.8
The FSA's policy: applications in relation to voluntary arrangements
- 01/12/2004
ENF 10.8.1
See Notes
In general terms, the approval of a voluntary arrangement (in relation to companies, partnerships and individuals) requires more than 75% of the creditors to whom notice of a meeting has been sent and who are present in person or by proxy. The arrangement must also not be opposed by more than 50% of creditors given notice of the meeting and who have notified their claim, but excluding secured creditors and creditors who are, in the case of companies or partnerships, connectedpersons and, in the case of individuals, associates. The FSA will therefore not normally challenge an arrangement approved by a majority of creditors.
- 01/12/2004
ENF 10.8.2
See Notes
Exceptionally, the FSA will consider making such a challenge after considering, in particular, the following matters:
(1) the ratio of consumer to non-consumer creditors;
(2) Whether the FSA has concerns, or is aware of concerns of creditors, about the regularity of the meeting or the identification of connected or associated creditors and the extent to which creditors with those concerns could themselves make the application;
(3) whether the company, partnership or individual has control of consumer assets which might be affected by the voluntary arrangement;
(4) the complexity of the arrangement;
(5) the nature and complexity of the regulated activity;
(6) the company's, partnership's or individual's previous dealings with the FSA, including the extent of its cooperation with the FSA and its compliance history; and
(7) whether the FSA is aware of any matters which would materially affect the rights and expectations of creditors under the voluntary arrangement as approved.
- 01/12/2004
ENF 10.8.3
See Notes
Similarly, the FSA will not normally petition for sequestration of a debtor's estate following the grant of a trustdeed, if the trustdeed has been, or appears likely to be, acceded to by a majority of creditors.
- 01/12/2004
ENF 10.8.4
See Notes
The FSA will consider making a challenge in relation to acts, omissions or decisions of a nominee during a moratorium having regard to the following matters in particular:
(1) whether the FSA is aware of matters indicating that the proposed voluntary arrangement does not have a reasonable prospect of being approved and implemented or that the company is likely to have insufficient funds available to it to carry on its business during the moratorium;
(3) in the case of an unauthorised company, whether that company is able to carry on its business lawfully during the moratorium without undertaking any regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.9
Statutory background: the FSA's power to apply for orders against debt avoidance
- 01/12/2004
ENF 10.9.1
See Notes
Under section 375 of the Act (Provisions against debt avoidance: FSA's right to apply for an order), the FSA may apply to the court, under section 423 of the 1986 Act or article 367 of the 1989 Order, for an order where a transaction is entered into at an undervalue and where:
(1) at the time the transaction was entered into, the debtor was carrying on a regulated activity (whether or not in contravention of the general prohibition); and
(2) a victim of the transaction is, or was, party to an agreement entered into with the debtor, the making and performance of which constituted or was part of a regulated activity carried on by the debtor.
- 01/12/2004
ENF 10.9.2
See Notes
The FSA's application is to be treated as made on behalf of every victim of the transaction. Under section 423 of the 1986 Act or article 367 of the 1989 Order, the court may make such order as it thinks fit to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of persons who are victims of the transaction.
- 01/12/2004
ENF 10.10
The FSA's policy: applications for orders against debt avoidance
- 01/12/2004
ENF 10.10.1
See Notes
When it decides whether to make an application for an order against debt avoidance, the FSA will consider all relevant factors, including the following:
(1) the extent to which the relevant transactions involved dealings in consumers' funds;
(2) whether it would be appropriate to petition for a winding-up order, bankruptcy order, or sequestration award, in relation to the debtor and the extent to which the transaction could properly be dealt with in that winding up, bankruptcy or sequestration;
(3) the number of consumers or other creditors likely to be affected and their ability to make an application of this nature; and
(4) the size of the transaction.
- 01/12/2004
ENF 10.11
Statutory background: the FSA's rights to information in insolvency regimes
- 01/12/2004
Administration
ENF 10.11.1
See Notes
Under section 361 of the Act (Administrator's duty to report to the FSA), if an administration order is in force in relation to a company or partnership as a result of a petition presented by a person other than the FSA, and it appears to the administrator that the company or partnership is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the administrator must report the matter to the FSA without delay.
- 01/12/2004
ENF 10.11.2
See Notes
Under section 362 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA petitions the court for an administration order in relation to a company or partnership which:
(1) is, or has been, an authorised person; or
(2) is, or has been, an appointed representative; or
(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition;
then the FSA is entitled to be heard at the hearing of the petition and at any other hearing of the court in relation to the company's or partnership's administration.- 01/12/2004
ENF 10.11.3
See Notes
Under section 362(3), any notice or other document required to be sent to a creditor of such a company or partnership in administration (see ENF 10.11.2 G) must also be sent to the FSA.
- 01/12/2004
ENF 10.11.4
See Notes
Under section 362(4), the FSA may apply to the court, under section 27 of the 1986 Act or article 39 of the 1989 Order, if it believes that the company's affairs, business and property are being or have been managed by the administrator in a manner which is unfairly prejudicial to the interest of its creditors and members generally, or to some part of its creditors and members, or that any act or proposed act or omission of the administrator is or would be prejudicial.
- 01/12/2004
ENF 10.11.5
See Notes
- 01/12/2004
ENF 10.11.6
See Notes
Under section 362(6), if, during the course of the administration of a company, a compromise or arrangement is proposed between the company and its creditors, or any class of creditors, the FSA may apply to the court under section 425 of the Companies' Act 1985 or article 418 of the Companies' (Northern Ireland) Order 1986, for an order requiring a meeting of the creditors or class of creditors to be summoned.
- 01/12/2004
Compulsory winding up
ENF 10.11.7
See Notes
Under section 369 of the Act (Insurers: service of petition etc. on the FSA), if a person other than the FSA presents a petition for the winding up of an insurance company which is an authorised person, the petitioner must serve a copy of the petition on the FSA. In addition, if a person other than the FSA applies to have a provisional liquidator appointed in respect of an insurance company which is an authorised person, that person must serve a copy of the application on the FSA.
- 01/12/2004
ENF 10.11.8
See Notes
Under section 370 of the Act (Liquidator's duty to report to the FSA), if a company or partnership is in voluntary liquidation, or is being wound up on a petition presented by a person other than the FSA, and it appears to the liquidator that the company or partnership is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the liquidator must report the matter to the FSA without delay.
- 01/12/2004
ENF 10.11.9
See Notes
Under section 371 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA presents a petition for the winding up of a body which is, or has been, an authorised person or appointed representative, or is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the FSA is entitled to be heard on the petition and any other hearing of the court in relation to the body under or by virtue of Part IV or V of the 1986 Act or Part V or VI of the 1989 Order .
- 01/12/2004
ENF 10.11.10
See Notes
- 01/12/2004
ENF 10.11.11
See Notes
Under section 371(4) of the Act, a person appointed for the purpose by the FSA is entitled:
(1) to attend any meeting of creditors of the body;
(2) to attend any meeting of a creditors' committee established under section 101, 141 or 142 of the 1986 Act or article 87 or 120 of the 1989 Order; and
(3) to make representations about any matter which is to be decided at such a meeting.
- 01/12/2004
ENF 10.11.12
See Notes
Under section 371(5), if, during the winding up of a company, a compromise or arrangement is proposed between a company and its creditors or any class of creditors, the FSA may apply to the court under section 425 of the Companies Act 1985 or article 418 of the Companies (Northern Ireland) Order 1989 for an order requiring a meeting of the creditors or class of creditors to be summoned.
- 01/12/2004
Voluntary liquidation
ENF 10.11.13
See Notes
Under section 365(4) of the Act, in the case of a company which is being wound up voluntarily and is an authorised person (not an insurer) carrying on long term insurance business, any notice or other document required to be sent to a creditor of the company must also be sent to the FSA.
- 01/12/2004
ENF 10.11.14
See Notes
Also, section 365(5) of the Act permits a person appointed for the purpose by the FSA:
(1) to attend any meeting of creditors of the company summoned under any enactment;
(2) to attend any meeting of a creditors' committee summoned under section 101 of the 1986 Act or article 87 of the 1989 Order;
(3) to make representations as to any matter for decision at that meeting.
- 01/12/2004
Receivership
ENF 10.11.15
See Notes
Section 363 of the Act (FSA's powers to participate in proceedings) entitles the FSA to be heard on applications and to receive reports about receiverships, where a receiver has been appointed in relation to a company which:
(1) is, or has been, an authorised person; or
(2) is, or has been, an appointed representative; or
(3) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.
- 01/12/2004
ENF 10.11.16
See Notes
Under section 363(2) of the Act, the FSA is entitled to be heard on an application, under section 35 or 63 of the 1986 Act or article 45 of the 1989 Order, by a receiver, or a person by whom or on whose behalf the receiver has been appointed, for directions in relation to any particular matter arising in connection with the performance of the receiver's functions.
- 01/12/2004
ENF 10.11.17
See Notes
Under section 363(3) of the Act, the FSA is entitled to apply to the court, under sections 41(1)(a) or 69(1)(a) of the 1986 Act or article 51(1)(a) of the 1989 Order, if the Receiver:
(1) defaults in filing, delivering or making any return, account or other document or in giving any notice which a receiver is, by law, required to file, deliver, make or give; or
(2) (when the company is in liquidation) fails to render appropriate accounts of his receipts or payments and to vouch them and pay over to the liquidator the amount of property payable to him, when required by the liquidator to do so.
- 01/12/2004
ENF 10.11.18
See Notes
- 01/12/2004
ENF 10.11.19
See Notes
Under section 363(5), a person appointed for the purpose by the FSA is entitled to:
(1) attend any meeting of creditors of the company under any enactment;
(2) attend any meeting of a creditors' committee established under sections 49 or 68 of the 1986 Act or article 59 of the 1989 Order;
(3) make representations as to any matter for decision at such meetings.
- 01/12/2004
ENF 10.11.20
See Notes
Under section 364 of the Act (Receiver's duty to report to the FSA), if a receiver has been appointed in relation to a company and it appears to the receiver that the company is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the receiver must report this to the FSA without delay.
- 01/12/2004
Bankruptcy and sequestration
ENF 10.11.21
See Notes
Under section 373 of the Act (Insolvency practitioner's duty to report to the FSA), if a bankruptcy order or, in Scotland, a sequestration award is in force in relation to an individual, following a petition presented by a person other than the FSA, and it appears to the insolvency practitioner that the individual is carrying on, or has carried on, a regulated activity in contravention of the general prohibition, the insolvency practitioner must report this to the FSA without delay. For these purposes 'individual' includes, in Scotland, an entity under section 6(1) of the 1985 Act.
- 01/12/2004
ENF 10.11.22
See Notes
Under section 374 of the Act (FSA's powers to participate in proceedings), if a person other than the FSA presents a petition to the court for:
(1) a bankruptcy order to be made against an individual; or
(2) the sequestration of an individual's estate; or
(3) the sequestration of the estate belonging to or held jointly by an entity mentioned in section 6(1) of the 1985 Act;
and that individual or entity is or has been an authorised person, or is carrying on or has carried on a regulated activity in contravention of the general prohibition, then the FSA is entitled to be heard at the hearing of the petition and at any other hearing relating to the bankruptcy or sequestration under Part IX of the 1986 Act, Part IX of the 1989 Order or the 1985 Act. A copy of the insolvency practitioner's report prepared under section 274 of the 1986 Act or article 248 of the 1989 Order must be sent to the FSA.- 01/12/2004
ENF 10.11.23
See Notes
Section 374(4) of the Act permits a person appointed for the purpose by the FSA:
(1) to attend any meeting of creditors of the individual or entity;
(2) to attend any meeting of a creditors' committee established under section 301 of the 1986 Act or article 274 of the 1989 Order;
(3) to attend any meeting of commissioners held under paragraph 17 or 18 of Schedule 6 to the 1985 Act;
(4) to make representations as to any matter for decision at such meetings.
- 01/12/2004
Company Moratoria
ENF 10.11.24
See Notes
Under paragraph 44 of schedule A1 to the 1986 Act, where a moratorium is in place or a voluntary arrangement has been approved under that schedule in relation to a company to which the schedule applies (see ENF 10.7.5 G) and which is or has been an authorised person or an appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition, the FSA has the right:
(1) To receive any notice or other documents required by schedule A1 to the 1986 Act to be sent to a creditor;
(2) To be heard in any application for leave in relation to disposal of charged property (paragraph 20 of schedule A1);
(3) To be heard in any application made other than by the FSA to challenge the actions or omissions of a nominee (paragraphs 26 and 27 of schedule A1 to the 1986 Act);
(4) To attend and participate in but not vote at any meeting of creditors of the company or of the moratorium committee ;
(5) To be heard in any application by a member of the company in relation to a decision taken by the creditors' meeting under paragraph 36 of schedule A1 to the 1986 Act;
(6) To be heard in any application made other than by the FSA to challenge a decision to approve a voluntary arrangement in relation to the company under paragraph 38 of schedule A1 to the 1986 Act;
- 01/12/2004
ENF 10.12
The FSA's arrangements for notification of petitions and other documents
- 01/12/2004
ENF 10.12.1
See Notes
ENF 10.12.2 G to ENF 10.12.4 G contain information for insolvency practitioners and others about sending copies of petitions, notices and other documents to the FSA, and about making reports to the FSA. Insolvency practitioners and others have duties to give that information and those documents to the FSA under various sections in Part XXIV of the Act (Insolvency). ENF 10.12.2 G identifies the relevant sections of the Act and paragraphs of ENF 10.11 that explain some of the duties.
- 01/12/2004
ENF 10.12.2
See Notes
Insolvency regime and relevant sections of the Act and ENF 10.11
| Insolvency regime | Relevant sections of the Act and paragraphs of ENF 10.11 |
| Administration | Sections 361 and 362(3) - see ENF 10.11.1 G and ENF 10.11.3 G |
| Compulsory winding up | Sections 369, 370, and 371(3) - see ENF 10.11.7 G, ENF 10.11.8 G and ENF 10.11.10 G |
| Voluntary liquidation | Section 365(4) - see ENF 10.11.13 G |
| Receivership | Sections 363(4) and 364 - see ENF 10.11.18 G and ENF 10.11.20 G |
| Bankruptcy and sequestration | Sections 373 and 374(3) - see ENF 10.11.21 G and ENF 10.11.22 G |
| Company moratoria | Paragraph 44 of schedule A1 to the 1986 Act - see ENF 10.11.24 G (1) |
| Individual voluntary arrangements | Section 357(3) - not in ENF 10.11 - relates to notices of the result of the creditors' meetings. |
| Trust deeds for creditors | Section 358(2)(a) and (b) - not in ENF 10.11 - relates to copies of trust deeds and copies of certain other documents of information sent to creditors. Section 358(4) - not in ENF 10.11 - relates to notices of any meeting of creditors held in relation to the trust deed. |
- 01/12/2004
ENF 10.12.3
See Notes
Unless ENF 10.12.4 G applies, the information and documents identified in ENF 10.12.2 G should be sent to the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS marked 'Insolvency Information'. If the person who is subject to the insolvency regime ('the insolvent person') is an authorised person, the information and documents should, in the first instance, be addressed to the insolvent person's supervisory contact at the FSA (if known).
- 01/12/2004
ENF 10.12.4
See Notes
This paragraph applies if the insolvent person is an authorised person and the sender of the information or documents knows that the insolvent person's supervisory contact operates from Edinburgh. In this case information or documents should, in the first instance, be sent to the Financial Services Authority, Quayside House, 127 Fountainbridge, Edinburgh EH3 8DJ.
- 25/07/2005
ENF 10.13
The FSA's policy: rights on petitions by third parties and involvement in creditors meetings
- 01/12/2004
ENF 10.13.1
See Notes
Section 362 of the Act (FSA's powers to participate in proceedings [administration orders]) gives the FSA the right to be heard at the hearing of a petition by a third party for an administration order in respect of an authorised person, appointed representative or an unauthorised company or partnership which is carrying on or has carried on a regulated activity while unauthorised. The FSA has the same right to be heard on a petition by a third party for compulsory winding up (section 371 of the Act (FSA's powers to participate in proceedings [winding up by the court]) and bankruptcy or sequestration (section 374 of the Act (FSA's powers to participate in proceedings [Bankruptcy]). The FSA also has the right to be heard in any hearing in court following the making of such an order.
- 01/12/2004
ENF 10.13.2
See Notes
The FSA will exercise the right to be heard on a third party's petition or in subsequent hearings only where it believes it has information that it considers relevant to the court's consideration of the petition or application. These circumstances may include:
(1) where the FSA has relevant information which it believes may not otherwise be drawn to the court's attention; especially where the FSA has been asked to attend for a particular purpose (for example to explain the operations of its rules);
(2) where the FSA believes that the insolvency order being sought by a third party is inappropriate to meet the needs of consumers and the public interest; and
(3) where the FSA believes that the making of an insolvency order will affect the FSA's exercise of its other powers under the Act, and wishes to make the court aware of this.
- 01/12/2004
ENF 10.13.3
See Notes
The making of an insolvency order operates to stay any proceedings already in place against the company, partnership or individual, and prevents proceedings being commenced while the insolvency order is in place. Proceedings can continue or be commenced against those persons only with the court's permission. This may affect the effectiveness of the FSA's use of its powers to seek injunctions and restitutionary orders from the court. The FSA will draw the court's attention to this potential effect where the FSA believes it is a relevant consideration, but it is a matter for the court to determine its relevance in a particular case.
- 01/12/2004
ENF 10.13.4
See Notes
The FSA is given power to receive the same information as creditors are entitled to receive in the winding up, administration, receivership or voluntary arrangement of an authorised person, of appointed representatives and of persons who have carried out a regulated activity while unauthorised. The FSA is also entitled to attend and make representation at any creditors' meeting or (where relevant) creditors' committee meeting taking place in those regimes. When it decides whether to exercise its power to attend and make representations at meetings the factors which the FSA will take into account include:
(1) the extent of claims by consumers upon the body or individual;
(3) the extent to which the FSA is aware of concerns of consumers (or other creditors or contributories) about the way in which the insolvency regime is proceeding;
(4) whether the circumstances which gave rise to the insolvency regime might have general implications for others carrying on regulated business;
(5) whether the creditors include shareholders, directors, or other persons who have a connection with the management or ownership of the body or are associated with the individual;
(6) the complexity or specialisation of the business of the body or individual; and
(7) where there is a significant cross border or international element to the business which the company, partnership or individual is carrying out.
- 01/12/2004
ENF 11
Discipline: The FSA's general approach
ENF 11.1
Application and purpose
- 01/12/2004
Application
ENF 11.1.1
See Notes
- 01/12/2004
Purpose
ENF 11.1.2
See Notes
This chapter describes the FSA's general approach to the discipline of firms and approved persons. It describes the FSA's policy on private warnings, explains the criteria which the FSA will use in determining whether to take disciplinary action, and describes some particular aspects of enforcement policy on approved persons, the enforcement of the Principles, the FSA's approach where disciplinary action may also be taken by other authorities, and a particular aspect of enforcement policy relating to breaches of the money laundering rules. The FSA's approach to discipline when it is performing functions as the competent authority under Part VI of the Act is dealt with in ENF 21.
- 01/07/2005
ENF 11.2
Introduction
- 01/12/2004
ENF 11.2.1
See Notes
Disciplinary measures are one of the regulatory tools available to the FSA. They are not the only tool, and it may be appropriate to address many instances of non-compliance without recourse to disciplinary action. However, the effective and proportionate use of the FSA's powers to enforce the requirements of the Act, the rules and the Statements of Principle will play an important role in buttressing the FSA's pursuit of its regulatory objectives. The imposition of disciplinary measures (that is, financial penalties, public censures and public statements) shows that regulatory standards are being upheld and helps to maintain market confidence, promote public awareness of regulatory standards and deter financial crime. An increased public awareness of regulatory standards also contributes to the protection of consumers.
- 01/12/2004
ENF 11.2.2
See Notes
The disciplinary measures available to the FSA under Part V (Performance of Regulated Activities) and Part XIV (Disciplinary Measures) of the Act are:
(1) public statements and public censures (described in ENF 12); and
(2) financial penalties (described in ENF 13).
ENF 11 Annex 1 G and ENF 11 Annex 2 G contain diagrams describing how these disciplinary measures may apply to firms and approved persons respectively.- 01/12/2004
ENF 11.2.3
See Notes
Other measures are available to the FSA where it considers it is necessary to take protective or remedial action, (rather than disciplinary action) or where a firm's continuing ability to meet the threshold conditions or where an approved person's fitness and propriety to perform the controlled functions to which his approval relates, is called into question. These include:
(1) the variation or cancellation of permission and the withdrawal of a firm'sauthorisation (described in ENF 3 and ENF 5);
(3) the prohibition of an individual from performing a specified function in relation to a regulated activity (described in ENF
8).
- 01/12/2004
ENF 11.2.4
See Notes
Additional considerations apply in determining whether to take enforcement action for market abuse cases (section 123 of the Act (Power to impose penalties in cases of market abuse)). These are described in ENF 14 (Sanctions for market abuse). The Act also gives the FSA criminal prosecution powers in relation to insider dealing and misleading statements and practices offences. These are described in ENF 15 (Prosecution of criminal offences).
- 01/12/2004
ENF 11.3
Private warnings
- 01/12/2004
ENF 11.3.1
See Notes
In certain cases, despite having concerns regarding the behaviour of a firm or approved person, the FSA may decide that it is not appropriate, having regard to all the circumstances of the case, to bring formal disciplinary action. In these types of case, the FSA considers that it will be helpful for a firm or approved person to be made aware that they came close to being subject to formal disciplinary action, and may to that end, if appropriate, give a private warning. (It is, of course, open to the FSA not to give a private warning if it does not consider that one is necessary.)
- 01/12/2004
ENF 11.3.2
See Notes
Examples of circumstances where the FSA will tend to give a private warning rather than take formal disciplinary action include where the matter giving cause for concern is minor in nature or degree, or where the firm or approved person has taken full and immediate remedial action. However, these circumstances on their own will not determine the course of action taken by the FSA.
- 01/12/2004
ENF 11.3.3
See Notes
Generally, the FSA would expect to use private warnings in the context of firms and approved persons. However, the FSA may also issue private warnings in circumstances where the persons involved may not necessarily be authorised. For example, private warnings may be issued in potential cases of market abuse (see ENF 14), cases where the FSA considered making a prohibition order (see ENF 8) or a disapplication order (see ENF 18).
- 01/12/2004
ENF 11.3.4
See Notes
In relation to firms and approvedpersons, a private warning will state that:
(1) the FSA has had cause for concern arising from the conduct of a firm or approvedperson, although no determination that a firm has contravened a requirement, or that an approved personhas been guilty of misconduct, has been made by the FSA;
(2) the FSA does not at present intend to take formal disciplinary action, having regard to all the circumstances of the case;
(3) the private warning will form part of the firm's or approved person's compliance history, and may be taken into account in deciding whether the FSA brings disciplinary action against the firm or approved person in the future; and
(4) the FSA requires the firm or approved person to acknowledge receipt of the warning letter and invites the firm or approved person to comment on the private warning if they wish to do so.
- 01/12/2004
ENF 11.3.5
See Notes
Where the FSA gives a private warning to an approved person, it may if appropriate inform the approved person'sfirm (or employer, if different).
- 01/12/2004
ENF 11.3.6
See Notes
Private warnings, together with any comments received in response, will form part of the firm's or approved person's compliance history. As such they may influence the FSA's decision whether to commence disciplinary action in relation to future breaches. However, where disciplinary action is commenced in those circumstances earlier, private warnings will not be relied upon in determining whether a breach has taken place, or in determining the level of sanction, if any, to be imposed.
- 01/12/2004
ENF 11.3.7
See Notes
Where the FSA is assessing the relevance of private warnings in determining whether to commence disciplinary action, the age of a private warning will be taken into consideration. However, a long-standing private warning may still be relevant.
- 01/12/2004
ENF 11.3.8
See Notes
Private warnings may be considered cumulatively, although they relate to separate areas of a firm's business, where the concerns which gave rise to those warnings are considered to be indicative of a firm's compliance culture. Similarly, private warnings issued to different subsidiaries of the same parent company may be considered cumulatively where the concerns which gave rise to those warnings relate to a common management team.
- 01/12/2004
ENF 11.3.9
See Notes
As well as private warnings, it is also open to the FSA to indicate to a firm in ordinary correspondence that the FSA has concerns about a particular aspect of the way it conducts its regulated activities. This correspondence may, for example, have arisen from a supervision visit. This correspondence will also form part of a firm's compliance history.
- 01/12/2004
ENF 11.4
Criteria for determining whether to take disciplinary action
- 01/12/2004
ENF 11.4.1
See Notes
In determining whether to take disciplinary action in respect of conduct appearing to the FSA to be a breach, the FSA will consider the full circumstances of each case. A number of factors may be relevant for this purpose. The following list is not exhaustive: not all of these factors may be relevant in a particular case, and there may be other factors that are relevant.
(1) The nature and seriousness of the suspected breach
(a) whether the breach was deliberate or reckless;
(b) the duration and frequency of the breach (including, in relation to a firm, when the breach was identified by those exercising significant influence functions in the firm);
(c) the amount of any benefit gained or loss avoided as a result of the breach;
(d) whether the breach reveals serious or systemic weaknesses of the management systems or internal controls relating to all or part of a firm's business;
(e) the impact of the breach on the orderliness of financial markets, including whether public confidence in those markets has been damaged;
(f) the loss or risk of loss caused to consumers or other market users;
(g) the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach; and
(h) whether there are a number of smaller issues, which individually may not justify disciplinary action, but which do so when taken collectively.
(2) The conduct of the firm or the approved person after the breach
(a) how quickly, effectively and completely the firm or approved person brought the breach to the attentions of the FSA or another relevant regulatory authority;
(b) the degree of co-operation the firm or approved person showed during the investigation of the breach;
(c) any remedial steps the firm or approved person has taken since the breach was identified, including: identifying whether consumers have suffered loss and compensating them; taking disciplinary action against staff involved (where appropriate); addressing any systemic failures; and taking action designed to ensure that similar problems do not arise in future; and
(d) the likelihood that the same type of contravention (whether on the part of the firm or approved person concerned or others) will recur if no disciplinary action is taken.
(3) The previous regulatory record of the firm or approved person
(a) whether the FSA (or any previous regulator) has taken any previous disciplinary action resulting in adverse findings against the firm or approved person;
(b) whether the firm or approved person has previously given any undertakings to the FSA (or any previous regulator) not to do a particular actor engage in particular behaviour;
(c) whether the FSA (or any previous regulator) has previously taken protective action in respect of a firm, using its own initiative powers, by means of a variation of a Part IV permission (see ENF 3) or otherwise, or has previously requested the firm to take remedial action, and the extent to which such action has been taken; and
(d) the general compliance history of the firm or approved person, such as previous private warnings or the type of correspondence referred to in ENF 11.3.9 G.
(4)
Guidance given by the FSA
The FSA will take into account whether any guidance has been issued relating to the behaviour in question and if so the extent to which the firm or approved person has sought to follow that guidance: see the Reader's Guide part of the Handbook.
The FSA will take into account whether any guidance has been issued relating to the behaviour in question and if so the extent to which the firm or approved person has sought to follow that guidance: see the Reader's Guide part of the Handbook.
(5) Action taken by the FSA in previous similar cases
The FSA will take account of action which it has taken previously in cases where the breach has been the same or similar.
The FSA will take account of action which it has taken previously in cases where the breach has been the same or similar.
(6) Action taken by other regulatory authorities
Where other regulatory authorities propose to take action in respect of the breach which is under consideration by the FSA, or one similar to it, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action (see ENF 11.8).
Where other regulatory authorities propose to take action in respect of the breach which is under consideration by the FSA, or one similar to it, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action (see ENF 11.8).
- 01/12/2004
ENF 11.5
Action against approved persons
- 01/12/2004
ENF 11.5.1
See Notes
The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. Normally, therefore, the FSA's main focus, in considering whether disciplinary action is appropriate, will be on the firm rather than on approved persons.
- 01/12/2004
ENF 11.5.2
See Notes
However, in some cases, it will not be appropriate to take disciplinary measures against a firm for the actions of an approved person (for example, if the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FSA to take action against both the firm and the approved person. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are appropriate to its business SYSC
3.1.1 R), and an approved person may have taken advantage of those deficiencies to front run orders or misappropriate assets.
- 01/12/2004
ENF 11.5.3
See Notes
The FSA will, however, only take disciplinary action against an approved person where there is evidence of personal culpability on the part of that approved person. Personal culpability arises where the behaviour was deliberate or where the approved person's standard of behaviour was below that which would be reasonable in all the circumstances.
- 01/12/2004
ENF 11.5.4
See Notes
Section 66 of the Act (Disciplinary powers) contains specific provisions stating when the FSA may take action against an approved person (see ENF 11.5.7 G and ENF 11.5.8 G). In accordance with section 64 of the Act (Conduct: statements and codes), the FSA has issued Statements of PrincipleAPER 2) about the conduct it expects of approved persons and a Code of Practice for Approved PersonsAPER 3 and APER 4) to help determine whether an approved person's conduct complies with the Statements of Principle.
- 01/12/2004
ENF 11.5.5
See Notes
The Code of Practice for Approved Persons sets out descriptions of conduct which, in the FSA's opinion, do not comply with the relevant Statements of Principle. Account will be taken of the context in which a course of conduct was undertaken, including the precise circumstances of the individual case, the characteristics of the particular controlled function and the behaviour to be expected in that function (see APER 3.1).
- 01/12/2004
ENF 11.5.6
See Notes
(1) The FSA will consider whether disciplinary action against an approved person, rather than action against the firm, would be appropriate, taking into account the responsibility of those exercising significant influence functions in the firm for the conduct of the firm. The FSA will also consider whether to take disciplinary action against an approved person for an act of misconduct, if he was knowingly concerned in a breach of a rule by the firm, or if he has failed to comply with one of the Statements of Principle.
(2) However, the FSA will not discipline approved persons on the basis of vicarious liability (that is, holding them responsible for the acts of others), provided appropriate delegation has taken place (see APER 4.6.13 G and APER 4.6.14 G). In particular, disciplinary action will not be taken against an approved person performing a significant influence function simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA will consider that an approved person performing a significant influence function may have breached Statements of Principle 5 to 7 (see ENF 11.5.10 G) only if his conduct was below the standard which would be reasonable in all the circumstances (see also APER 3.1.8 G).
(3) An approved person will not be in breach if he has exercised due and reasonable care when assessing information, has reached a reasonable conclusion and has acted on it.
- 01/12/2004
The FSA's statutory powers to take disciplinary action against approved persons
ENF 11.5.7
See Notes
Section 66(1) of the Act provides that the FSA may take action against an approved person where it appears to the FSA that he is guilty of misconduct and if the FSA is satisfied in all the circumstances that it is appropriate to take action against him.
- 01/12/2004
ENF 11.5.8
See Notes
Section 66(2) of the Act provides that a person is guilty of misconduct if, while an approved person:
(1) he has failed to comply with a Statement of Principle issued under section 64; or
- 01/12/2004
ENF 11.5.9
See Notes
In determining whether an approved person's conduct complies with a Statement of Principle, the FSA will take into account in particular the extent to which the approved person has complied with the Code of Practice for Approved Persons.
- 01/12/2004
ENF 11.5.10
See Notes
The Statements of Principle and the Code of Practice for Approved Persons are set out in APER 2, APER 3 and APER 4. They are divided into two sections:
(2)
Statements of Principle 5 to 7 apply only to the conduct of those approved persons performing a significant influence function.
- 01/12/2004
ENF 11.5.11
See Notes
In assessing whether it is appropriate to take disciplinary action against an approved person, the FSA may consider the following, amongst other factors:
(1) whether action against the firm rather than the approved person would be a more appropriate regulatory response; and
(2) whether disciplinary action would be a proportionate response to the nature and seriousness of the breach by the approved person.
- 01/12/2004
ENF 11.5.12
See Notes
Where disciplinary action is taken against an approved person the onus will be on the FSA to show that the approved person has been guilty of misconduct.
- 01/12/2004
ENF 11.6
Discipline for breaches of Principles for Businesses
- 01/12/2004
ENF 11.6.1
See Notes
The Principles are set out in PRIN 2.1.1 R. The Principles are a general statement of the fundamental obligations of firms under the regulatory system. The Principles derive their authority from the FSA's rule-making powers set out in section 138 of the Act (General rule-making power). A breach of a Principle will make a firm liable to disciplinary action.
- 01/12/2004
ENF 11.6.2
See Notes
In determining whether a Principle has been broken, it is necessary to look to the standard of conduct required by the Principle in question. Under each of the Principles, the onus will be on the FSA to show that a firm has been at fault in some way. This requirement will differ depending upon the Principle: for example, under Principle 1, the FSA must show that a firm has failed to conduct its business with integrity; under Principle 2, the FSA must prove that the firm has failed to Act with due skill, care and diligence in the conduct of its business.
- 01/12/2004
ENF 11.6.3
See Notes
- 01/12/2004
ENF 11.7
The standard of reasonable care
- 01/12/2004
ENF 11.7.1
See Notes
In a number of circumstances the regulatory system requires a firm to take reasonable care in relation to particular behaviour. For example, Principle 3 requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, and SYSC
3.1.1 R (taken with SYSC
3.1.2 G) requires a firm to take reasonable care to establish and maintain such systems and controls as are appropriate to the nature, scale and complexity of its business.
- 01/12/2004
ENF 11.7.2
See Notes
In considering whether a firm has taken reasonable care, the FSA will consider all the circumstances of the case, and regards the following as particularly relevant:
(1) what information the firm knew at the time of the behaviour, and what information they ought to have known in all the circumstances;
- 01/12/2004
ENF 11.7.3
See Notes
Similar considerations will apply to those in ENF 11.7.2 G in considering whether an approved person took reasonable care or reasonable steps in relation to particular behaviour.
- 01/12/2004
ENF 11.8
Action involving other regulatory authorities
- 01/12/2004
ENF 11.8.1
See Notes
Some types of breach committed by firms and approved persons may potentially result not only in disciplinary action by the FSA, but also action by other regulatory authorities. These authorities could include, for example, the RIEs, the designated professional bodies, and the Society, as well as overseas authorities (action concerning criminal offences and liaison with other prosecuting authorities is dealt with separately in ENF 15).
- 01/12/2004
ENF 11.8.2
See Notes
A firm's breach on a prescribed market, for example, could lead to the FSA considering whether the firm has engaged in behaviour which falls within the market abuse provisions of the Act (section 123); the same breach could also constitute a breach by the firm of a rule of the relevant RIE. The FSA would also consider whether to take disciplinary action against an approved person for an act of misconduct if he was knowingly concerned in a breach of a rule by the firm, or if he had failed to comply with one of the Statements of Principle (see ENF 11.5). ENF 14 contains further guidance on market abuse cases which may involve not only potential action by the FSA, but also potential action by other regulatory authorities.
- 01/12/2004
ENF 11.8.3
See Notes
The FSA is developing operating arrangements with each of the relevant UK authorities concerning cases where more than one regulatory authority may have an interest. These arrangements will ensure that the FSA and the other authorities approach the cases in a co-ordinated, effective and efficient manner, and that those who are the subject of investigations or potential disciplinary action are treated fairly. Similarly, the FSA is involved in contributing to a number of international initiatives to enhance effective enforcement action where overseas authorities also have an interest.
- 01/12/2004
ENF 11.8.4
See Notes
(1) The FSA will examine the circumstances of each case, and consider, in the light of the relevant investigation, disciplinary and enforcement powers, whether it is appropriate for the FSA or another authority to take action to address the breach.
(2) It may be appropriate for both the FSA and the other authority or authorities to be involved, and for both to take action, in a particular case arising from the same facts. For example, it may be appropriate for the FSA to take disciplinary action against an approved person, and for another authority to take separate action against the firm.
(3) In other cases, it may be appropriate for both the FSA and another authority to take action against a firm or an approved person in relation to the same conduct. For example, a breach of RIE rules may be so serious as to justify the FSA varying or cancelling the firm'sPart IV permission, or withdrawing approval from approved persons, as well as action taken by the RIE.
- 01/12/2004
ENF 11.8.5
See Notes
Similar considerations will apply where an overseas authority is involved. If the conduct constitutes a breach of the relevant UK provisions, as well as constituting a breach of the laws of the overseas jurisdiction, both the FSA and the overseas authority will have an interest in taking action to protect their regulatory standards.
- 01/12/2004
ENF 11.9
Discipline for breaches of the money laundering rules
- 01/12/2004
ENF 11.9.1
See Notes
The FSA's money laundering rules are set out in
ML 1 to ML 8. The FSA, when considering whether to take disciplinary action in respect of a breach of those rules, will have regard to whether a firm has followed relevant provisions in the Joint Money Laundering Steering Group's Guidance Notes for the Financial Sector.
- 01/12/2004
ENF 11 Annex 1
Disciplinary action - Firms
- 01/12/2004
See Notes
Disciplinary action - Firms
- 01/12/2004
ENF 11 Annex 2
Disciplinary action - approved persons
- 01/12/2004
See Notes
Disciplinary action - approved persons
- 01/12/2004
ENF 12
Discipline: public censures and public statements
ENF 12.1
Application
- 01/12/2004
ENF 12.1.1
See Notes
This chapter applies to any firm or person who may be the subject of public censure or a public statement. The Act empowers the FSA to issue a public censure or public statement in the following circumstances:
- (1) the FSA may issue a public censure on a firm under section 205 of the Act (Public censure) where it considers that the firm has contravened a requirement imposed on it by or under the Act;
- (2) the FSA may issue a public statement of misconduct on an approved person under section 66 of the Act (Disciplinary powers) where it considers that he is guilty of misconduct; misconduct is defined in the Act as failure to comply with a Statement of Principle issued by the FSA under section 64 of the Act (Conduct: statements and codes), or being knowingly concerned in a contravention by a firm of a requirement imposed on that firm by or under section 66 of the Act;
- (3) the FSA may issue a public statement under section 123 of the Act (Power to impose penalties in cases of market abuse) where a person has engaged in market abuse; this is considered separately in ENF 14 (Sanctions for market abuse);
- (4) the FSA may issue a public statement under section 87M (Public censure of issuer) and section 91 of the Act (Penalties for breach of Part 6 rules) where there has been a contravention of Part VI of the Act, the Part 6 rules or the prospectus rules, or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision (see ENF 21).
- 01/07/2005
ENF 12.1.2
See Notes
Where the FSA proposes to issue a public censure or public statement under the sections of the Act described in ENF 12.1.1 G, the firm or approved person in question will be given a warning notice setting out the terms of the statement or censure the FSA proposes to issue, as required by sections 207 (Proposal to take disciplinary measures), 67 (Disciplinary measures: procedure and right to refer to Tribunal), 126 (Warning notices) and 92 (Procedure). Further details of the procedure that the FSA will follow in these circumstances are set out in DEC.
- 01/12/2004
ENF 12.2
Purpose
- 01/12/2004
ENF 12.2.1
See Notes
The purpose of this chapter is to describe some of the factors which may be relevant to the FSA when it determines whether to issue a public censure or public statement. Public censures and public statements are among a variety of tools the FSA may use to help it achieve its regulatory objectives. Where the FSA considers that formal disciplinary action is appropriate, public censures and public statements may, in some cases, be an alternative to financial penalties.
- 01/12/2004
ENF 12.2.2
See Notes
The FSA regards the decision to issue a public censure or public statement as a serious sanction. The FSA is aware of the effect such a statement may have on the reputation or business of a firm or approved person. However, where it is not appropriate to impose a financial penalty, the FSA considers that a public censure or public statement may have particular value in enabling the FSA to pursue its regulatory objectives by highlighting the requirements and standards of conduct expected of firms and approved persons, and demonstrating that those standards are being effectively enforced, so helping to maintain confidence in the financial system. In addition, public censures and public statements promote public awareness of the standards of behaviour expected of firms and approved persons. Increased public awareness also contributes towards greater consumer protection.
- 01/12/2004
ENF 12.3
Factors in determining whether to issue a public censure or public statement
- 01/12/2004
ENF 12.3.1
See Notes
Where a breach of the Act or of the rules has occurred, the FSA may consider that formal disciplinary action is not warranted. For example, the proactive supervision and monitoring of firms is central to promoting compliance, and some instances of non-compliance may be addressed satisfactorily by a firm's supervisors, without the need for formal disciplinary action. Alternatively, where the FSA has concerns regarding the behaviour of a firm or approved person, but has made no determination that a breach has occurred, it may issue a private warning.
- 01/12/2004
ENF 12.3.2
See Notes
- 01/12/2004
ENF 12.3.3
See Notes
The criteria for determining whether it is appropriate to issue a public censure or public statement rather than impose a financial penalty are similar to those for determining the level of financial penalty listed in ENF 3 (Discipline of firms and approved persons: financial penalties). The starting point is that the FSA will consider all the relevant circumstances of the case. Some particular considerations may be relevant when the FSA determines whether to impose a public censure or public statement rather than a financial penalty. The following list is not exhaustive (not all of these factors may be relevant in a particular case, and there may be other factors that are relevant):
(1) if the firm or approved person has made a profit or avoided a loss as a result of the breach or misconduct, this may be a factor in favour of a financial penalty, on the basis that a firm or approved person should not be permitted to benefit from its breach or misconduct;
(2) if the breach or misconduct is more serious in nature or degree, this may be a factor in favour of a financial penalty, on the basis that the sanction should reflect the seriousness of the breach or misconduct; other things being equal, the more serious the breach or misconduct, the more likely the FSA is to impose a financial penalty;
(3) if the firm or approved person has admitted the breach or misconduct and provides full and immediate co-operation to the FSA, and takes steps to ensure that consumers are fully compensated for any losses arising from the contravention, this may be a factor in favour of a public censure or statement of misconduct, rather than a financial penalty, depending upon the nature and seriousness of the breach or misconduct;
(4) if the firm or approved person has a poor disciplinary record or compliance history (for example, where the FSA has previously brought disciplinary action resulting in adverse findings in relation to the same or similar behaviour), this may be a factor in favour of a financial penalty, on the basis that it may be particularly important to deter future cases;
(5) the FSA's approach in similar previous cases: the FSA will seek to achieve a consistent approach to its decisions on whether to impose a penalty or issue a public statement; and
(6) if the firm or approved person has inadequate means (excluding any manipulation or attempted manipulation of their assets) to pay the level of financial penalty which their breach or misconduct would otherwise attract, this may be a factor in favour of a lower level of penalty or a public statement. However, it would only be in an exceptional case that the FSA would be prepared to agree to impose a public statement rather than a financial penalty, if a financial penalty would otherwise be the appropriate sanction. Examples of such exceptional cases could include:
(a) verifiable evidence that an approved person would suffer serious financial hardship if the FSA imposed a financial penalty; and
- 01/12/2004
ENF 13
Discipline: Financial penalties
ENF 13.1
Application and purpose
- 01/12/2004
Application
ENF 13.1.1
See Notes
This chapter applies to any person on whom a financial penalty may be imposed. The Act empowers the FSA to impose a financial penalty in the following circumstances:
- (1) on a firm, where the FSA considers that the firm has contravened a requirement imposed on it by or under section 206 of the Act (Financial penalties);
- (2) on an approved person, where the FSA considers that he is guilty of misconduct; this is defined in the Act as failure to comply with a Statement of Principle issued by the FSA under section 64 (Conduct: statements and codes), or being knowingly concerned in a contravention by the relevant firm of a requirement imposed on that firm by or under section 66 of the Act (Disciplinary powers);
- (3) on any person, where the FSA is satisfied that the person is or has engaged in market abuse or, by taking or refraining from taking any action, has required or encouraged another person to engage in market abuse; the power to impose penalties for market abuse under section 123 of the Act is considered separately in ENF 14;
- (4) where there has been a contravention of the Part 6 rules (section 91 of the Act (Penalties for breach of Part 6 rules )). The FSA's powers in this regard are dealt with separately in ENF 21 .
- 01/07/2005
Purpose
ENF 13.1.2
See Notes
Financial penalties are one of a variety
of regulatory tools the FSA may
employ to help it to achieve its regulatory
objectives. The principal purpose of financial penalties is
to promote high standards of regulatory conduct by deterring firms and approved persons who have
breached regulatory requirements from committing further contraventions, helping
to deter other firms and approved persons from committing
contraventions, and demonstrating generally to firms and approved persons the benefits of compliant
behaviour.
- 01/12/2004
ENF 13.1.3
See Notes
To
help the FSA to
achieve this purpose (as set out in ENF
13.1.2 G), GEN 6 contains rules prohibiting a firm or member from entering into, arranging, claiming
on or making a payment under a contract
of insurance that is intended to have, or has, the effect of
indemnifying any person against
a financial penalty.
- 01/01/2004
ENF 13.2
Introduction
- 01/12/2004
ENF 13.2.1
See Notes
Sections 69 and 210 of the Act require the FSA to issue statements
of policy about the imposition of financial penalties on firms and approved persons. The material in this chapter
constitutes the FSA's statements
of policy and guidance under
those provisions. The FSA may
at any time alter or replace these statements of policy after consultation.
- 01/12/2004
ENF 13.2.2
See Notes
- 01/12/2004
ENF 13.3
Factors relevant to determining the appropriate level of financial penalty
- 01/12/2004
ENF 13.3.1
See Notes
(1) The FSA will
consider all the relevant circumstances of a case when it determines the level
of financial penalty (if any) that is appropriate and in proportion to the
contravention in question.
(2) With the exception of contraventions
involving the submission of returns no more than 28 business days late (see ENF 13.5), the FSA does
not propose to adopt a tariff of penalties for different kinds of contravention.
This is because there will be very few other cases in which all the circumstances
of the case are essentially the same, and the FSA considers that, in general, the use of
a tariff for particular kinds of contravention would inhibit the flexible
and proportionate policy which it intends to adopt in this area.
- 01/12/2004
ENF 13.3.2
See Notes
(1) Section 69 of the Act (Statement of policy) requires that the FSA's policy in determining
the amount of a penalty in relation to approved
persons must include having regard to:
(a) the seriousness of the misconduct in
question in relation to the nature of the principle or requirement concerned;
(b) the extent to which that misconduct was
deliberate or reckless;
(c) whether the person on whom the penalty
is to be imposed is an individual.
- 01/12/2004
ENF 13.3.3
See Notes
The factors which may be relevant when
the FSA determines
the amount of a financial penalty for a firm or approved person include
the following.
(1) The seriousness of the misconduct or
contravention.In
relation to the statutory requirement to have regard to the seriousness of
the misconduct or contravention, the FSA recognises
the need for a financial penalty to be proportionate to the nature and seriousness
of the misconduct or contravention in question. The following may be relevant:
(a) in the case of an approved person, the FSA must have regard to the seriousness of
the misconduct in relation to the nature of the Statement of Principle or requirement concerned.
Similarly, in the case of a firm, the FSA must have regard to
the seriousness of the contravention in relation to the nature of the requirement
contravened.
(b) the duration and frequency of the misconduct
or contravention (including, in relation to a firm, when the contravention was identified
by persons exercising significant influence functions at
the firm);
(c) whether the misconduct or contravention
revealed serious or systemic weaknesses of the management systems or internal controls relating
to all or part of a firm's business;
(d) the impact of the misconduct or contravention
on the orderliness of financial markets, including whether public confidence
in those markets has been damaged;
(e) the loss or risk of loss caused to consumers or other market
users. If a contravention has caused loss to another firm, that firm may be able to take its own action against
the firm which
has committed the contravention; however, the FSA generally expects firms to comply with regulatory requirements,
regardless of the nature of the counterparty; for example, persistent departures
from MAR 3 (Inter-professional conduct) may have implications
for the FSA's assessment
of a firm's continued
fitness and propriety.
(2) The extent to which the contravention
or misconduct was deliberate or reckless. In determining whether a contravention
or misconduct was deliberate, the FSA may
have regard to whether the firm's or approved person'sbehaviour was intentional,
in that they intended or foresaw the consequences of their actions. The matters
to which the FSA may
have regard in determining whether a contravention was reckless include, but
are not limited to, the following:
(c) whether the firm or approved
person has given no apparent consideration to the consequences
of the behaviour that
constitutes the contravention.
If the FSA decides that behaviour was deliberate
or reckless, it may be more likely to impose a higher penalty on a firm or approved person than would otherwise be the
case. (3) Whether the person on whom the penalty is to be imposed
is an individual, and the size, financial resources and other circumstances
of the firm or
individual. This
will include having regard to whether the person is an individual, and to the size,
financial resources and other circumstances of the firm or approved
person. The FSA may
take into account whether there is verifiable evidence of serious financial
hardship or financial difficulties if the firm or approved
person were to pay the level of penalty associated with the
particular contravention or misconduct. The FSA regards these factors as matters to be
taken into account in determining the level of a penalty, but not to the extent
that there is a direct correlation between those factors and the level of
penalty. The size and financial resources of a firm or approved
person may be a relevant consideration, because the purpose
of a penalty is not to render a firm or approved person insolvent
or to threaten its solvency. Where this would be a material consideration,
the FSA will
consider, having regard to all other factors, whether a lower penalty would
be appropriate; this is most likely to be relevant to smaller firms or groups of firms or approved persons with lower
financial resources; but if a firm or
individual reduces its solvency with the purpose of reducing its ability to
pay a financial penalty, for example by transferring assets to third parties,
the FSA will
take account of those assets when determining the amount of a penalty. The
size of the firm may
also be a relevant consideration for the following reasons:
(a) the degree of seriousness of a contravention
may be linked to the size of the firm.
For example, a systemic failure in a large firm could damage or threaten to damage a
much larger number of consumers than
would be the case with a small firm:
contraventions in firms with
a high volume of business over a protracted period may therefore be more serious
than contraventions over similar periods in firms with a smaller volume of business;
and
(b) the size of a firm and its resources may also be relevant
in relation to mitigation, in particular what steps the firm took after the contravention had been
identified; the FSA will
take into account what it is reasonable to expect from the firm in relation to its size and resources,
and factors such as what proportion of a firm's resources
were used to resolve a problem.
(4) The amount of profits accrued or loss
avoided. The FSA may have regard to
the amount of profits accrued or loss avoided as a result of the contravention
or misconduct, for example:
(a) the FSA will
propose a penalty which is consistent with the principle that a firm or approved person should not benefit from the
contravention or misconduct; and
(b) the penalty should also act as an incentive
to the firm or approved person (and others)
to comply with regulatory standards.
(5) Conduct following the contravention. The FSA may take into account
the conduct of the firm or approved person in bringing
(or failing to bring) quickly, effectively and completely the contravention
or misconduct to the FSA's attention
and:
(a) the degree of cooperation the firm or approved person showed during the investigation
of the contravention or misconduct (where a firm or approved
person has fully cooperated with the FSA's investigation, this will be a factor
tending to reduce the level of financial penalty);
(b) any remedial steps taken since the contravention
or misconduct was identified, including identifying whether consumers suffered loss, compensating them,
taking disciplinary action against staff involved (if appropriate), and taking
steps to ensure that similar problems cannot arise in the future.
(6) Disciplinary record and compliance history. The previous
disciplinary record and general compliance history of the firm or approved
person may be taken into account. This will include whether
the FSA (or
any previous regulator)
has taken any previous formal disciplinary action, resulting in adverse findings,
against the firm or approved person, or whether
the FSA has
previously required the firm to
take remedial action by means of a variation of Part IV permission (see ENF 3), or has previously requested the firm to take remedial action, and the extent
to which that action has been taken. For example, the disciplinary record
of a firm or approved person could lead
to the FSA increasing
the penalty, where the firm or approved person has committed
similar contraventions or misconduct in the past. In assessing the relevance
of a firm's or approved person's disciplinary
record and compliance history, the age of a particular matter will be taken
into account, although a long-standing matter may still be relevant. However,
in undertaking this assessment, private warnings will not be taken into account.
(7) Previous action taken by the FSA.The action that
the FSA has
taken previously in relation to similar behaviour by
other firms or approved persons may be
taken into account. The FSA will
seek to ensure consistency when it determines the appropriate level of penalty.
If it has taken disciplinary action previously in relation to a similar contravention
or misconduct, this will clearly be a relevant factor. However, as stated
at ENF
13.3.1 G, with the exception of
the specific circumstances described at ENF 13.5,
the FSA does
not intend to adopt a tariff system, and there may be other relevant factors
which could increase or decrease the seriousness of the contravention or misconduct.
(8) Action taken by other regulatory authorities. This could include
for example:
(a) action taken or to be taken against a firm or approved person by other regulatory authorities
which may be relevant where it relates to the contravention or misconduct
in question;
(b) action taken by any previous regulator regarding the general
level of penalties.
(9) The timing of
any agreement as to the amount of the disciplinary penalty. The FSA and the person subject to disciplinary
action may seek to agree the amount of any financial penalty and other terms.
In recognition of the benefits of such agreements, ENF 13.7 provides that the amount of the penalty which might
otherwise have been payable will be reduced to reflect the stage at which
the FSA and
the person concerned
reach an agreement.
- 20/10/2005
ENF 13.3.4
See Notes
The list of criteria in ENF
13.3.3 G above is not exhaustive, and all the relevant circumstances of
the case will be taken into consideration.
- 01/12/2004
ENF 13.3.5
See Notes
- 01/12/2004
ENF 13.3.6
See Notes
A firm (or approved person) may ask
the FSA to
permit the firm (or approved person) to pay
a financial penalty by instalments. However, the FSA will consider agreeing to payment of
a financial penalty by instalments only where there is verifiable evidence
of serious financial hardship or financial difficulties if the firm or approved person were required to pay the full
payment in a single instalment. This reflects the fact that the purpose of
a penalty is not to render a firm or approved person insolvent
or to threaten solvency. The FSA will
determine the appropriate level and number of instalments having regard to
the overall circumstances of the case. However, the period within which the
full payment of the penalty must be made will not generally exceed one year
from the date of the final
notice.
- 01/02/2003
ENF 13.4
Decision making procedure and publication
- 01/12/2004
ENF 13.4.1
See Notes
The Act requires
the FSA to
issue a warning notice, decision notice and final notice before imposing
a financial penalty. More information on the procedure the FSA will follow in these circumstances is
contained in DEC.
- 01/12/2004
ENF 13.4.2
See Notes
The FSA will
consider the circumstances of each case, but ordinarily will publicise the
financial penalty by issuing a press release, giving details of the behaviour and the penalty
imposed. However, the Act provides
(section 391(6) (Consultation)) that the FSA may not publish information in
these circumstances where it would be unfair to the person on whom the financial penalty is imposed,
or prejudicial to the interests of consumers.
- 01/12/2004
ENF 13.5
Financial penalties for late submission of reports
- 01/12/2004
ENF 13.5.1
See Notes
This section sets out the FSA's policy and procedures in relation
to financial penalties for late submission of reports. It applies to reporting
by firms required
under all rules (not
including the
Part 6 rules
) which require firms to report to the FSA on a periodic basis. It also applies
to periodic reporting by firms required
by the provisions specified in (6) and (7). The following is a list of the
main periodic reporting rules (the
list may not be comprehensive) and those other provisions:
(1) the rules set
out in
SUP
10.9.8 R (Significant management functions) and
SUP 16 (Reporting requirements);
(2)
IPRU(INS) 9.37(4), IPRU(INS) 9.38R, IPRU(INS) 9.6(1) R, IPRU(INS) 9.6 (6) (Financial
reporting) and IPRU(INS) 10.2
(Information to be provided to the FSA);
(3)
IPRU(FSOC) 3.1(7)
R (Management and control), IPRU(FSOC) 5.1(2)R, IPRU(FSOC) 5.2(2) R, IPRU(FSOC) 5.2(3)R (Prudential
reporting) and IPRU(FSOC) 6.3(1)
(Statistical information relating to EEA branches and services operations);
(4)
DISP 1.5.4 R to DISP
1.5.7 R(Reporting complaints to the FSA) and DISP
5.5.1 R (Information requirement);
(5)
LLD
3.3.1 R
to
LLD
3.3.2 R
(The Central Fund),
and
LLD
4.3.1 R
to
LLD
4.3.2 R
(Capacity transfer
market) and the rules set
out in
LLD
15.2.1 R
and LLD
15.10.2 R (Reporting by the Society)
;
(6)
the
reporting requirements in the pensions review provisions and FSAVC review provisions;
that is, the provisions of the deemed scheme under the Financial Services
and Markets Act 2000 (Transitional Provisions) (Review of Pensions Business)
Order 2001 (SI 2001/2512);
(8)
CRED
14.10.10 R (Audited accounts of credit unions) andCRED
17.6.3 R to CRED
17.6.7 R (Complaint
handling procedures for credit unions).
References in ENF 13.5 to 'reports' include all
the various types of reports and other documents, including annual controllers
reports, annual close links reports, compliance reports, financial reports,
persistency reports, accounts and balance sheets, and actuary and auditor
reports that must be submitted to the FSA in accordance with the rules and other provisions
specified in (1) to (8).- 01/07/2005
ENF 13.5.2
See Notes
The FSA attaches
considerable importance to the timely submission by firms of the reports referred to in ENF
13.5.1 G. This is because the
information that they contain is essential to the FSA's assessment of whether a firm is complying with
the requirements and standards of the regulatory
system and to the FSA's understanding
of that firm's business.
- 01/12/2004
ENF 13.5.3
See Notes
(1) In general, the FSA's approach to disciplinary action arising
from the late submission of a report will depend upon the length of time after
the due date that the report in question is submitted. Where the period of
delay is no more than 28 business
days, the FSA considers
that in the majority of cases it will be appropriate to limit the sanction
imposed on the firm concerned
to a financial penalty fixed by reference to the indicative scale of penalties
at ENF
13 Annex 1 G.
(2) There may, however, be exceptional circumstances
in which the FSA considers
that it is appropriate not to seek a penalty, or to impose a lower penalty
than the one indicated by the scale. This may be appropriate if the firm is an individual.
If the person concerned
is an individual, it is open to him to make representations to the FSA as to why he should
not be the subject of a financial penalty, or why a lower penalty should be
imposed. If he does so, the matters to which the FSA will have regard will
include the matters set out in ENF 13.3.3 G (3).It should
be noted that an administrative difficulty such as pressure of work does not,
in itself, constitute an exceptional circumstance for this purpose.
(3) Equally, the FSA may impose a higher penalty than the
one indicated by the scale at ENF
13 Annex 1 G having
regard to the seriousness of the contravention and the extent to which the
contravention was deliberate or reckless. This may include, for example, a
case where a firm repeatedly
fails to submit its reports on time or where there is information that suggests
that such a delay was deliberate.
(4) The FSA will
also have regard to the submission frequency of the late report when assessing
the seriousness of the contravention. For example, a short delay in submitting
a weekly or monthly report can have serious implications for the supervision
of the firm inquestion.
Such a delay may therefore be subject to a higher penalty than the one suggested
by the indicative scale.
- 11/04/2002
ENF 13.5.4
See Notes
Reference to an indicative scale of penalties
for breaches of this nature represents an exception to the FSA's general policy described in ENF
13.3.1 G. The FSA considers that it is appropriate to treat
this type of breach differently from other regulatory breaches on the basis
that the nature of the facts establishing the breach is likely to be similar
in each case and that the scale will ensure consistency in the treatment of
the firms in
question.
- 01/12/2004
ENF 13.5.5
See Notes
(1) Where a report is submitted more than
28 business days after
the due date, and there are no exceptional circumstances justifying the failure
to submit on time, the financial penalty imposed is likely to exceed the amount
indicated by the scale at ENF
13 Annex 1 G for
21 to 28 business days delay.
The FSA will
determine the precise level of the financial penalty to be imposed in accordance
with the approach discussed in ENF
13.3.3 G.
(2) In addition, in appropriate cases, the FSA may bring disciplinary
action against the approved
person or persons within
the firm's management
who are ultimately responsible for ensuring that the firm's reports are completed and returned
to the FSA (see ENF 11.5 (Action against approved persons)).
- 01/12/2004
ENF 13.5.5A
See Notes
In
applying the guidance in ENF 13.5, the FSA may treat a report which is materially
incomplete or inaccurate as not received until it has been submitted in a
form which is materially complete and accurate. For the purposes of the guidance, the FSA may also treat a report
as not received where the method by which it is submitted to the FSA does not comply with
the prescribed method of submission.
- 11/04/2002
ENF 13.5.5B
See Notes
In most late reporting cases, it will
not be necessary for the FSA to
appoint an investigator under its powers discussed in ENF
2since the fact of the breach will be clear. It follows that the FSA will not usually send
the firm concerned
a preliminary findings letter (see ENF
2.5.12 G))
for late-reporting disciplinary action.
- 01/12/2004
ENF 13.5.5C
See Notes
A failure by a firm to submit a report by the due date may
indicate wider problems within the firm,
for which more serious disciplinary sanctions or other enforcement action
(see ENF 11.2.3 G) or both, may be appropriate.
- 01/12/2004
ENF 13.5.6
See Notes
The FSA will
use the decision making procedure set out in DEC
4.5.2 G to DEC
4.5.6 G to decide whether to impose a financial penalty
for the late submission of a report. It will use this procedure whether the
period of delay is more than or less than 28 business days, including if no submission
has been made at all.
- 11/04/2002
ENF 13.5.7
See Notes
(1) Once a final notice has been issued relating to
a financial penalty and any other relevant sanction for a late report, the FSA will consider whether
it is unfair to the firm or
prejudicial to the interests of consumers to
publish information relating to the decision. The FSA anticipates that in most cases where
reports have been submitted late, no such unfairness or prejudice will exist.
If so, it will enter details of the decision in the FSA Register.
(2) The FSA may
also publicise the sanctions on a wider basis where the contravention is considered
to be particularly serious. Examples of situations that may result in wider
publicity include where the period of delay exceeds 28 business days and/or where the firm in question has previously
failed to submit its reports on time to the FSA or to any previous regulator.
- 01/12/2004
ENF 13.5.8
See Notes
ENF
13.3.6 G contains guidance concerning requests
for permission to pay financial penalties by instalments. That guidance also applies
to penalties for late submission of reports.
- 01/02/2003
ENF 13.5.9
See Notes
The settlement discount scheme set
out in ENF 13.7 does not apply to financial
penalties for late submission of reports.
- 20/10/2005
ENF 13.6
Breaches of prudential requirements and financial penalties
- 01/12/2004
ENF 13.6.1
See Notes
Where a firm has breached prudential requirements
(for example, rules relating
to the adequacy of financial resources), the FSA will consider all the relevant circumstances
of a case (including the factors listed in ENF
13.3.3 G)
in determining whether to impose a financial penalty.
- 01/12/2004
ENF 13.6.2
See Notes
In considering whether to impose a financial
penalty on a mutual (such as a building
society), the FSA will
take into account the impact that a penalty may have on a firm's customers,
as the FSA would
with any firm.
However, the FSA may
decide to impose a financial penalty on a mutual, taking into account all
the circumstances of the case (including the factors listed in ENF
13.3.3 G), even though this may have a direct impact
on that mutual's customers.
This reflects the fact that a significant proportion of a mutual's customers are shareholder-members;
to that extent, their position involves an assumption of risk that is not
assumed by customers of
a firm incorporated
as a company.
Whether a firm is
a mutual will not, by itself, increase or decrease the level of a financial
penalty.
- 01/12/2004
ENF 13.6.3
See Notes
PRU 7.6.33 R
prohibits a long-term insurer (including a firm qualifying for authorisation
under Schedule 3 or 4 to the Act),
which is not a mutual, from paying a financial penalty from a long-term insurance
fund.
- 31/12/2004
ENF 13.7
Discount for early settlement
- 20/10/2005
ENF 13.7.1
See Notes
Persons subject
to disciplinary action may be prepared to agree the amount of any financial
penalty and other conditions which the FSA seeks
to impose by way of disciplinary action. Such conditions might include, for
example, the amount or mechanism for the payment of compensation to consumers.
The FSA recognises
the benefits of such agreements, in that they offer the potential for securing
earlier redress or protection for consumers and the saving of cost to the person concerned and the FSA itself in contesting
the financial penalty. The penalty that might otherwise be payable in respect
of misconduct or contravention by the person concerned
will therefore be reduced to reflect the timing of any settlement agreement.
- 20/10/2005
ENF 13.7.2
See Notes
In appropriate cases the FSA's approach will be
to negotiate with the person concerned
to agree in principle the amount of a financial penalty having regard to the
factors set out in ENF 13.3.
(This starting figure will take no account of the existence of the settlement discount scheme described
in this section.) Such amount ("A") will then be reduced by a percentage of
A according to the stage in the process at which agreement is reached. The
resulting figure ("B") will be the amount actually payable by the person concerned in respect
of the misconduct or contravention. However, where part of a proposed financial
penalty specifically equates to the disgorgement of profit accrued or loss
avoided then the percentage reduction will not apply to that part of the penalty.
- 20/10/2005
ENF 13.7.3
See Notes
(1)
FSA has identified four
stages of a disciplinary action for these purposes:
(a) the period from commencement of an investigation until the FSA has
(i) a sufficient
understanding of the nature and gravity of the misconduct or contravention
to make a reasonable assessment of the appropriate penalty; and
(ii) communicated
that assessment to the person concerned
and allowed a reasonable opportunity to reach agreement as to the amount of
the penalty ("stage 1");
(b) the period from
the end of stage 1 until the expiry of the period for making written representations
or, if sooner, the date on which the written representations are sent in response
to the giving of a warning
notice ("stage 2");
(c) the period from
the end of stage 2 until the giving of a decision
notice ("stage 3");
(d) the period after
the end of stage 3, including proceedings before the Tribunal and any subsequent appeals ("stage
4").
(2) The communication
of the FSA's assessment
of the appropriate penalty for the purposes of ENF
13.7.3 G (1)(a) need not be in a prescribed form but
will include an indication of the breaches alleged by the FSA. It may include the provision of a draft warning notice.
(3) The reductions in penalty will be as follows:
| Stage at which agreement reached | Percentage reduction |
| Stage 1 | 30 |
| Stage 2 | 20 |
| Stage 3 | 10 |
| Stage 4 | 0 |
- 20/10/2005
ENF 13.7.4
See Notes
(1) Any settlement
agreement between the FSA and
the person concerned
will therefore need to include a statement as to the appropriate penalty discount
in accordance with this procedure.
(2) In certain circumstances
the person concerned
may consider that it would have been possible to reach a settlement at an
earlier stage in the action, and argue that it should be entitled to a greater
percentage reduction in penalty than is suggested by the table at ENF
13.7.3 G (3). It may be, for example,
that the FSA no
longer wishes to pursue disciplinary action in respect of all of the acts
or omissions previously alleged to give rise to the contravention of a requirement.
In such cases, the person concerned
might argue that it would have been prepared to agree an appropriate penalty
at an earlier stage and should therefore benefit from the discount which would
have been available at that time. Equally, FSA staff may consider that greater openness
from the person concerned
could have resulted in an earlier settlement.
(3) Arguments of
this nature risk compromising the goals of greater clarity and transparency
in respect of the benefits of early settlement, and invite dispute in each
case as to when an agreement might have been possible. It will not usually
be appropriate therefore to argue for a greater reduction in the amount of
penalty on the basis that settlement could have been achieved earlier.
(4) However, in
exceptional cases FSA may
accept that there has been a substantial change in the nature or seriousness
of the disciplinary action being taken against the person concerned, and that an agreement would
have been possible at an earlier stage if the action had commenced on a different
footing. In such cases the FSA and
person concerned may agree that the amount of the reduction in penalty should
reflect the stage at which a settlement might otherwise have been possible.
- 20/10/2005
ENF 13 Annex 1
Indicative scale of financial penalties for reports no more than 28 business days late (see ENF 13.5)
- 01/12/2004
ENF 13 Ann 1
See Notes
| Number of business days late | Annual fees payable by firm | |||||||
| Note | ||||||||
| £1 to £150 | £151 to £500 | £501 to £1,000 | £1,001 to less than £10,000 | £10,000 to less than £20,000 | £20,000 to less than £50,000 | £50,000 to less than £100,000 | £100,000 or greater | |
| 22-28 | 40 | 100 | 200 | 400 | 800 | 2000 | 4000 | 6000 |
| 15-21 | 30 | 75 | 150 | 300 | 600 | 1500 | 3000 | 4500 |
| 8-14 | 20 | 50 | 100 | 200 | 400 | 1000 | 2000 | 3000 |
| 1-7 | 10 | 25 | 50 | 100 | 200 | 500 | 1000 | 1500 |
| Note | ||||||||
| 1. For this purpose, the annual fee payable by the firm is the annual fee for the most recent financial year for which the FSA has fully invoiced the firm before the date on which the relevant report first became late. | ||||||||
| 2. Where the firm first becomes authorised after 1 December 2001, and at the time the report first becomes late the firm has not previously been fully invoiced by the FSA for an annual fee, the annual fee of the firm will be treated as less than £10,000 | ||||||||
- 01/10/2002
ENF 14
Sanctions
for market abuse
ENF 14.1
Application and purpose
- 01/12/2004
Application
ENF 14.1.1
See Notes
This chapter applies to any person, whether regulated or not, who may be the subject of a financial penalty or public statement on the basis that the FSA suspects the person:
- (1) is or has engaged in market abuse; or
- (2) by taking or refraining from taking any action has required or encouraged another person or persons to engage in behaviour which, had he engaged in it himself, would amount to market abuse.
- 01/12/2004
ENF 14.1.2
See Notes
In this chapter, the expression 'market abuse cases' includes cases involving market abuse and cases involving requiring or encouraging.
- 01/12/2004
Purpose
ENF 14.1.3
See Notes
In enforcing the market abuse regime, the FSA's priority will be to protect prescribed markets from any damage to their efficiency caused by manipulation of the market and misuse of information. The FSA's effective and appropriate use of its powers to deal with market abuse cases will help ensure high standards of regulatory conduct and maintain confidence in the UK financial system, by demonstrating that high standards of market conduct are appropriately enforced in the UK financial markets. The public enforcement of these standards also furthers the FSA's public awareness regulatory objective. In addition, the enforcement of the market abuse regime will help the FSA work towards its regulatory objective of protecting consumers, as it will help to deter future market abuse by market participants, and help to reduce financial crime.
- 01/12/2004
ENF 14.1.4
See Notes
However, the FSA is also aware that the possible or actual
use of its enforcement powers may have an adverse impact on the market, for
example, by causing public uncertainty or affecting the timing or outcome
of a takeover bid,
and will take this into account.
- 01/12/2004
ENF 14.2
Introduction
- 01/12/2004
ENF 14.2.1
See Notes
Section 124 of the Act (Statement of policy) states that the FSA must prepare and issue a statement of its policy on:
- (1) the imposition of penalties under section 123 (Power to impose penalties in cases of market abuse);
- (2) the amount of penalties under that section; and
- (3) the circumstances in which the FSA is to be expected to regard a person as:
- (a) having a reasonable belief that his behaviour did not amount to market abuse; or
- (b) having taken reasonable precautions and exercised due diligence to avoid engaging in market abuse.
This chapter is the FSA's statement of policy under section 124 of the Act. However, the FSA may at any time change or replace this statement of policy after consultation.
- 01/12/2004
ENF 14.2.2
See Notes
The Act gives the FSA criminal prosecution powers in relation to insider dealing and misleading statements and practices offences. The FSA's use of these powers is considered separately in ENF 15 (Prosecution of criminal offences). The Act also gives the FSA a power to impose a financial penalty, or, in certain circumstances, to ask the court to consider imposing a financial penalty on a person who has engaged in market abuse or required or encouraged (see ENF 14.3.1 G). Where the FSA is entitled to impose a financial penalty, it may publish a statement that a person has engaged in market abuse instead. These powers and the FSA's policy on their use are set out in this chapter. ENF 14 Annex 1 G G contains a diagram summarising the steps relating to action for financial penalties or public statements in market abuse cases. The FSA's Code of Market Conduct (see MAR 1), issued by the FSA under section 119 of the Act (The code), contains those provisions which the FSA considers will give appropriate guidance to those deciding whether or not behaviour amounts to market abuse or requiring or encouraging.
- 01/12/2004
ENF 14.2.3
See Notes
In addition, the Act gives the FSA power to obtain injunctions and restitution in relation to market abuse cases. These powers are described in ENF 6 (Injunctions) and ENF 9 (Restitution and redress) respectively.
- 01/12/2004
ENF 14.3
Financial penalties and public statements in market abuse cases
- 01/12/2004
Financial penalties
ENF 14.3.1
See Notes
Under section 123(1)(a) and section 123(1)(b) of the Act (Power to impose penalties in cases of market abuse), the FSA may impose a financial penalty where a person (A):
- (1) is or has engaged in market abuse; or
- (2) by taking or refraining from taking any action has required or encouraged another person or persons to engage in behaviour which, had it been engaged in by A, would amount to market abuse.
See ENF 14.5.1 G for the factors the FSA may take into account when determining whether either of these two conditions is met.
- 01/12/2004
ENF 14.3.2
See Notes
Section 123(2) of the Act states that the FSA may not impose a penalty on a person if, having considered
any representations made to it in response to a warning notice, there are reasonable grounds
for it to be satisfied that:
(1) the person believed,
on reasonable grounds, that his behaviour did
not fall within section 123(1)(a) or section 123(1)(b) of the Act; or
(2) he took all reasonable precautions and
exercised all due diligence to avoid behaving in a way which fell within section
123(1)(a) or section 123(1)(b) of the Act.
- 01/12/2004
ENF 14.3.3
See Notes
The FSA can apply to the court under section 381 of the Act (Injunctions in cases if market abuse) for an injunction restraining market abuse and under section 383 of the Act (Restitution orders in cases of market abuse) for an order for restitution in market abuse cases. In these cases, under section 129(1) of the Act (Power of court to impose a penalty in cases of market abuse), it may ask the court to consider whether the circumstances are such that a penalty should be imposed on the person concerned. In deciding whether to ask the court to impose a financial penalty, the FSA may take into account, amongst other matters, the factors set out in ENF 14.4.2 G and ENF 14.6.2 G (1) to ENF 14.6.2 G (6). The FSA's power to apply to court for injunctions and orders for restitution in market abuse cases are described in ENF 6 (Injunctions) and ENF 9 (Restitution and redress) respectively.
- 01/12/2004
Public statements
ENF 14.3.4
See Notes
Section 123(3) of the Act states that if the FSA is entitled to impose a penalty on a person under section 123(1) (see ENF 14.3.1 G and ENF 14.3.2 G) it may, instead of imposing a penalty on him, publish a statement to the effect that he has engaged in market abuse.
- 01/12/2004
ENF 14.4
Factors relevant to determining whether to take action in market abuse cases
- 01/12/2004
ENF 14.4.1
See Notes
Not all cases involving market abuse or requiring or encouraging will warrant enforcement action. The FSA will consider all the relevant circumstances of the case when deciding whether to seek to impose a financial penalty or, where it is entitled to impose a financial penalty, whether a public statement would be more appropriate.
- 01/12/2004
ENF 14.4.2
See Notes
When it decides whether to take action for behaviour appearing to the FSA to amount to market abuse or requiring or encouraging, the FSA may take into account a number of factors. The following list is not exhaustive: not all of these factors may be relevant in a particular case, and there may be other factors that are relevant.
- (1) The nature and seriousness of the suspected behaviour, including:
- (a) the nature and seriousness of any breach of the Code of Market Conduct;
- (b) whether the behaviour was deliberate or reckless;
- (c) the duration and frequency of the behaviour;
- (d) the impact of the behaviour on prescribed markets, including whether public confidence in those markets has been damaged; and
- (e) the amount of any benefit gained or loss avoided as a result of the behaviour; and
- (f) the loss or risk of loss caused to consumers or other market users.
- (2) The conduct of the person concerned after the behaviour was identified, including the following.
- (a) How quickly, effectively and completely the person brought the behaviour to the attention of the FSA or another relevant regulatory authority.
- (b) The degree of cooperation the person showed during the FSA's investigation of the behaviour of concern or during those of any other regulatory authority (for example, the Takeover Panel or an RIE) which is allowed to share information obtained during an investigation with the FSA. In this context, persons are reminded that they may have a duty to co-operate with other regulatory authorities. For example, MAR 4.3.4 G requires firms to whom that rule applies to assist the Takeover Panel in certain circumstances. However, a person will not necessarily avoid action for market abuse or requiring or encouraging merely by fulfilling a duty to co-operate.
- (c) Any remedial steps that the person has taken to address the behaviour, whether on his own initiative or in meeting the requirement of another regulatory authority, and how promptly that person has taken those steps. This might include identifying those who have suffered loss and compensating them, taking disciplinary action against staff (where appropriate), and taking action designed to ensure that similar problems do not arise in the future. It might also include (for example, in the context of a takeover bid) any steps taken to correct a misleading statement or misleading impression or distortion of the market. However, a person will not necessarily avoid a penalty merely by fulfilling a duty to take remedial action.
- (d) Whether the person concerned has complied with any requirements or rulings of another regulatory authority relating to his behaviour (for example, where relevant, those of the Takeover Panel or an RIE).
- (e) The nature and extent of any false or inaccurate information given by the person and whether the information appears to have been given in an attempt knowingly to mislead the FSA.
- (3) The degree of sophistication of the users of the market in question, the size and liquidity of the market, and the susceptibility of the market to market abuse. For example, where the users of a market are generally not market professionals, and they have suffered loss as a result of the behaviour and that loss has not been promptly or adequately compensated for by the person concerned, this may be a factor in favour of the imposition of a penalty (this does not, however, mean that the FSA will not take action to impose financial penalties on persons whose behaviour falls within the market abuse provisions where only market professionals have suffered).
- (4) Action taken by other regulatory authorities. Where other regulatory authorities propose to take action in respect of the behaviour which is under consideration by the FSA, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action. For example, the FSA has powers to impose unlimited financial penalties, whereas an RIE's powers may be more limited in a particular case. Where the behaviour of the person concerned is also, in the opinion of the Takeover Panel, a breach of that person's responsibilities under the Takeover Code, the FSA would not expect to use its powers under the market abuse regime against that person, except in the circumstances described in ENF 14.9.6 G. If the FSA considers that using its powers may be appropriate in those circumstances, it will not take action during the bid except in the circumstances described in ENF 14.9.7 G.
- (5) Action taken by the FSA in previous similar cases. The FSA will take account of action it has taken previously in market abuse cases where the behaviour has been the same or similar.
- (6) The impact, having regard to the nature of the behaviour, that any financial penalty or public statement may have on the financial markets or on the interests of consumers:
- (a) a penalty may show that high standards of market conduct are being enforced in the financial markets, and may bolster market confidence;
- (b) a penalty may protect the interests of consumers by deterring future market abuse and improving standards of conduct in a market;
- (c) in the context of a takeover bid, the FSA may consider that the impact of the use of its powers is likely to have an adverse effect on the timing or outcome of that bid, and therefore it would not be in the interests of financial markets or consumers to take action for market abuse during the takeover bid. If the FSA considers that the proposed use of its powers may have that effect, it will consult the Takeover Panel and give due weight to its views.
- (7) The likelihood that the same type of behaviour (whether on the part of the person concerned or others) will happen again if no action is taken.
- (8) The disciplinary record and general compliance history of the person, including:
- (a) whether the FSA has taken any previous action against the person for market abuse or requiring or encouraging which resulted in adverse findings;
- (b) whether the conduct of the person in relation to the markets has caused concern to another regulatory authority or been the subject of a warning or other action by a regulatory authority;
- (c) whether the person has previously given any undertakings to the FSA not to engage in particular behaviour; and
- (d) the general compliance history of the person, such as previous private warnings (see ENF 11.3).
- 01/12/2004
ENF 14.5
Factors determining whether the FSA may impose a financial penalty in market abuse cases
- 01/12/2004
ENF 14.5.1
See Notes
The factors which the FSA may take into account when deciding whether either of the two conditions in ENF 14.3.2 G is met, include, but are not limited to:
- (1) in relation to whether the person concerned reasonably believed that his behaviour did not amount to market abuse or requiring or encouraging
- (a) whether, and if so to what extent, the person concerned took reasonable precautions to avoid engaging in market abuse or requiring or encouraging (see (2));
- (b) whether, and if so to what extent, the behaviour in question was or was not analogous to behaviour described in the Code of Market Conduct (see MAR 1) as amounting or not amounting to market abuse or requiring or encouraging;
- (c) whether the FSA has issued any guidance on the behaviour in question and if so, the extent to which the person sought to follow that guidance (see the Reader's Guide part of the Handbook regarding the status of guidance);
- (d) whether, and if so to what extent, the behaviour complied with the rules of any relevant prescribed market or any other relevant market or other regulatory requirements (including the Takeover Code or the SARs) or any relevant codes of conduct or best practice;
- (e) the level of knowledge, skill and experience to be expected of the person concerned; and
- (f) whether, and if so to what extent, the person can demonstrate that the behaviour was engaged in for a legitimate purpose and in a proper way;
- (2) in relation to whether the person concerned took all reasonable precautions and exercised all due diligence to avoid engaging in market abuse or requiring or encouraging:
- (a) whether, and if so to what extent, the person followed internal consultation and escalation procedures in relation to the behaviour (for example, did the person discuss the behaviour with internal line management and/or internal legal or compliance departments);
- (b) whether, and if so the extent to which, the person sought any appropriate expert legal or other expert professional advice and followed that advice;
- (c) whether, and if so to what extent, the person sought advice from the market authorities of any relevant prescribed market or, where relevant, consulted the Takeover Panel, and followed the advice received;
- (d) whether the FSA has issued any guidance on the behaviour in question and if so, the extent to which the person has sought to follow that guidance (see the Reader's Guide part of the Handbook regarding the status of guidance); and
- (e) whether, and if so to what extent, the behaviour complied with the rules of any relevant prescribed market or any other relevant market or other regulatory requirements (including the Takeover Code or the SARs) or any relevant codes of conduct or best practice.
- 01/12/2004
ENF 14.5.2
See Notes
The list in ENF
14.5.1 G is not exhaustive, and there may be other factors
that are relevant in establishing the conditions referred to in ENF
14.3.2 G, depending on the facts of each case.
- 01/12/2004
ENF 14.6
FSA's choice of powers: financial penalties/public statements
- 01/12/2004
ENF 14.6.1
See Notes
As with statements of public censure issued for other breaches of the requirements of the Act (see ENF 12), the FSA will consider whether to publish a statement that market abuse has occurred instead of imposing a financial penalty where it considers that such a statement may more appropriately address the particular behaviour in question.
- 01/12/2004
ENF 14.6.2
See Notes
When considering whether a public statement is more appropriate than a financial penalty the FSA will take into account all the circumstances of the case. In particular, the FSA may have regard to factors similar to those in ENF 12.3.3 G. Those factors include the following.
- (1) If the person has made a profit or avoided a loss as a result of the behaviour, this may be a factor in favour of a financial penalty, on the basis that a person should not be allowed to benefit from market abuse or requiring or encouraging.
- (2) If the behaviour is serious in nature or degree, this may be a factor in favour of a financial penalty, on the basis that the sanction should reflect the seriousness of the behaviour (other things being equal, the more serious the behaviour, the more likely the FSA is to impose a financial penalty).
- (3) If the person has admitted the behaviour and provides full and immediate cooperation to the FSA, and takes steps to ensure that those who have suffered loss due to the behaviour are fully compensated, this may be a factor in favour of a public statement, rather than a financial penalty, depending on the nature and seriousness of the behaviour.
- (4) The FSA's approach in similar previous cases. The FSA will seek to achieve a consistent approach to its decisions on whether to impose a financial penalty or issue a public statement.
- (5) If the person has a poor compliance history. For example, where the FSA has previously taken action against the person for behaviour amounting to market abuse or requiring or encouraging which resulted in adverse findings, this may be a factor in favour of a financial penalty.
- (6) The impact of a financial penalty on the person concerned. In exceptional cases, if the person has inadequate means (excluding any manipulation or attempted manipulation of their assets) to pay the financial penalty which the behaviour would otherwise attract, this may be a factor in favour of a lower level of penalty or a public statement. Circumstances in which the FSA may be willing to issue a public statement include where there is verifiable evidence that the person would suffer serious financial hardship if it imposed a financial penalty.
- 01/12/2004
ENF 14.6.3
See Notes
The list of factors in ENF
14.6.2 G is not exhaustive. Not all the factors may
be relevant in a particular case, and there may be others that are relevant.
- 01/12/2004
ENF 14.7
Determining the level of a financial penalty in a market abuse case
- 01/12/2004
ENF 14.7.1
See Notes
The FSA's approach to financial penalties in market abuse cases will be consistent with its approach to financial penalties in other disciplinary cases concerning firms and approved persons (see ENF 13.3).
- 01/12/2004
ENF 14.7.2
See Notes
The FSA will take into account all the circumstances of a case when it determines the appropriate level of penalty, if any. The FSA does not propose to use a tariff of penalties for market abuse cases, given the wide range of different types of behaviour that may amount to market abuse or requiring or encouraging.
- 01/12/2004
ENF 14.7.3
See Notes
Section 124(2) of the Act (Statement of policy) states that the FSA's policy in determining
the amount of a penalty must include having regard to: (a) whether the behaviour in respect of
which the penalty is to be imposed had an adverse effect on the market in
question and, if it did, how serious that effect was; (b) the extent to which
that behaviour was
deliberate or reckless; and (c) whether the person on whom the penalty is to be imposed
is an individual.
- 01/12/2004
ENF 14.7.4
See Notes
The FSA considers that the factors which may be relevant when it sets the amount of a penalty in market abuse cases include, the following.
- (1) Adverse effect on markets and the seriousness of that effect.
- A financial penalty must be in proportion to the nature and seriousness of the abuse in question. The following may be relevant:
- (a) the loss or risk of loss caused to consumers or other market users;
- (b) the duration and frequency of the behaviour; and
- (c) the impact of the behaviour on the orderliness of prescribed markets including whether confidence in those markets has been damaged.
- (2) The extent to which the behaviour was deliberate or reckless.In determining whether the behaviour was deliberate or reckless, the FSA will take into account all the circumstances of the behaviour which resulted in the market abuse or requiring or encouraging. For example, the FSA may have regard to whether the person intended or foresaw the consequences of their behaviour, or gave any consideration to the consequences of their behaviour. If the FSA decides that the behaviour was deliberate or reckless, it would be more likely to impose a higher penalty on a person than would otherwise be the case.
- (3) Whether the person on whom the penalty is to be imposed is an individual.This will include having regard to the financial resources and other circumstances of the individual and may include whether there is verifiable evidence of serious financial hardship or financial difficulties if the individual were to pay the financial penalty that would, in the absence of this consideration, be imposed (see also the discussion of this factor in ENF 13.3.3 G (3)).
- (4) The amount of profits accrued or loss avoided.The FSA may have regard to the amount of profits accrued or loss avoided as a result of the behaviour, for example:
- (a) the FSA will propose a penalty that is consistent with the principle that a person should not benefit from behaviour amounting to market abuse or requiring or encouraging; and
- (b) the penalty should also act as an incentive to the person and others to comply with required standards of market conduct.
- (5) Conduct following the behaviour of concern.The FSA may take into account:
- (a) the conduct of the person in bringing (or failing to bring) the behaviour to the FSA's attention (or the attention of other regulatory authorities, where relevant) quickly, effectively and completely;
- (b) the degree of co-operation the person showed during the investigation of the behaviour by the FSA or any other regulatory authority allowed to share information with the FSA, such as an RIE or the Takeover Panel. (In this context, persons are reminded that they may have a duty to co-operate with other regulatory authorities; for example, MAR 4.3.4 G requires firms to whom that rule applies to assist the Takeover Panel in certain circumstances). Where a person has fully cooperated with an investigation, this will be a factor tending to reduce the level of financial penalty;
- (c) any remedial steps taken by the person since the behaviour was identified (whether on their own initiative or that of the FSA or another regulatory authority) including correcting any misleading statement or impression, identifying whether consumers or other market users have suffered loss and compensating them, taking disciplinary action against staff involved (if appropriate), and taking steps to ensure similar problems do not happen in the future; and
- (d) whether the person concerned has complied with any requirements or rulings of another regulatory authority relating to his behaviour (for example, where relevant, those of the Takeover Panel).
- (6) Disciplinary record and compliance history.The disciplinary record and general compliance history of the person may be taken into account, including whether the FSA has previously taken any action against the person for behaviour amounting to market abuse or requiring or encouraging which resulted in adverse findings. For example, the compliance history of a person could lead to the FSA increasing the penalty where the person has engaged in behaviour falling within ENF 14.3.1 G (1) or ENF 14.3.1 G (2). In assessing the relevance of a person's compliance history, the age of the previous behaviour will be taken into account, although a long-standing matter may still be relevant. However, in undertaking this assessment, private warnings will not be taken into account.
- (7) Previous action taken by the FSA.The action the FSA has taken over previous similar behaviour may be taken into account. The FSA will seek to ensure consistency when it determines the appropriate level of penalty. For example, any disciplinary action taken in relation to similar market abuse cases will clearly be a relevant factor. However, as stated at ENF 14.7.2 G, the FSA does not intend to set up a tariff system and there may be other relevant factors which could increase or decrease the seriousness of the matter.
- (8) Action taken by other regulatory authorities.Action taken or to be taken by other regulatory authorities (for example, the Takeover Panel or an RIE) in relation to the behaviour may be relevant. The degree to which any remedial or compensatory steps required by other regulatory authorities have been taken (and whether taken promptly) may also be relevant.
- (9) The timing of any agreement as to the amount of the penalty for market abuse. The FSA and the person on whom a penalty is to be imposed may seek to agree the amount of any financial penalty and other terms. In recognition of the benefits of such agreements in disciplinary actions, ENF 13.7 provides that the amount of the penalty which might otherwise have been payable will be reduced to reflect the stage at which the FSA and the person concerned reach an agreement. The same regime is to apply to agreements as to the amount of the penalty in market abuse cases.
- 20/10/2005
ENF 14.7.5
See Notes
The factors listed in ENF
14.7.4 G are not exhaustive, and all the relevant circumstances
of the case will be taken into consideration.
- 01/12/2004
ENF 14.7.6
See Notes
A person may ask the FSA to permit the person to pay a financial penalty in a market abuse case by instalments. However, the FSA will consider agreeing to payment of a financial penalty by instalments only where there is verifiable evidence of serious financial hardship or financial difficulties if the person were required to pay the full payment in a single instalment. This reflects the fact that the purpose of a penalty is not to render a person insolvent or to threaten solvency. The FSA will determine the appropriate level and number of instalments having regard to the overall circumstances of the case. However, the period within which the full payment of the penalty must be made will not generally exceed one year from the date of the final notice.
- 01/02/2003
ENF 14.8
Market abuse and breaches of the FSA Principles
- 01/12/2004
ENF 14.8.1
See Notes
Principle 5 (Market conduct) (see PRIN 2.1.1 R) requires a firm to observe proper standards of market conduct. Any behaviour which constitutes market abuse or requiring or encouraging will also constitute a breach of Principle 5. Where the principal mischief arising from the behaviour appears to be market abuse or requiring or encouraging, the FSA will take enforcement action under the market abuse regime rather than as a breach of Principle 5.
- 01/12/2004
ENF 14.8.2
See Notes
Behaviour which breaches Principle 5 may not necessarily be market abuse under section 118 of the Act (Market abuse). So, where the principal mischief arising from the behaviour appears to be a breach of Principle 5, and the FSA is satisfied that it would not be appropriate to deal with the case under the market abuse regime, it will take enforcement action as a breach of the Principles (together with other breaches of other rules, if relevant). However, where it is unclear or arguable where the principal mischief lies, the FSA may take enforcement action as a breach of the Principles (and, if relevant, breaches of other rules) and in the alternative, for market abuse or requiring or encouraging. Enforcement of the Principles is considered further in ENF 11.6 (Discipline for breaches of Principles for Businesses).
- 01/12/2004
ENF 14.9
Action involving other UK regulatory authorities
- 01/12/2004
ENF 14.9.1
See Notes
As stated in ENF 11.8 (Action involving other regulatory authorities), some market abuse cases may involve not only potential action by the FSA, but also potential action by other regulatory authorities. In relation to behaviour which may have occurred or be occurring on a prescribed market, the FSA will refer to the relevant RIE and give due weight to its views. In a case where the FSA considers that it would be appropriate to bring action against a person under the market abuse regime, the relevant RIE may also wish to bring action against the person for breaches of its own rules. In each case, the FSA will coordinate action with the RIE concerned to ensure that cases are dealt with effectively and fairly, under operating arrangements [to be agreed] between the FSA and the RIEs. The FSA will have regard to all the circumstances of the case, including whether the other regulatory authorities have adequate powers to address the behaviour in question.
- 01/12/2004
ENF 14.9.2
See Notes
In relation to behaviour which may have happened or be happening
in the context of a takeover
bid or to which the SARs are
relevant, the FSA will refer to the Takeover Panel and give
due weight to its views. Where the Takeover
Codeor SARs has procedures for
complaint about any behaviour,
the FSA expects
parties to exhaust those procedures. The FSA will
not, save in exceptional circumstances, take action under any of section 123
(FSA's power to impose penalties), section 129 (Power of court to impose penalties),
section 381 (Injunctions - see ENF 6), sections 383 or 384
(Restitution - see ENF 9) in respect of behaviour to which the Takeover Codeor SARs are relevant before the conclusion of the
procedures available under the Takeover
Code or
the SARs,
as the case may be.
- 01/12/2004
ENF 14.9.3
See Notes
The FSA will not take action against a person over behaviour which (a) conforms with the Takeover Code or rules of an RIE and (b) falls within the terms of any provision of the Code of Market Conduct which states that behaviour so conforming does not amount to market abuse. The FSA will seek the Takeover Panel's or relevant RIE's views on whether behaviour complies with the Takeover Code or RIE rules and will attach considerable weight to its views.
- 01/12/2004
ENF 14.9.4
See Notes
If any of the circumstances in ENF
14.9.6 G apply, and the FSA considers that the
use of its disciplinary powers under section 123 or 129, or of its injunctive
powers under section 381 or of its powers relating to restitution under section
383 or 384 is appropriate, it will not take action during an offer to which
the Takeover Codeor SARs apply except in the circumstances
set out in ENF
14.9.7 G.
- 01/12/2004
ENF 14.9.5
See Notes
In any case where the FSA considers that the use of its powers
under any of sections 123, 129, 381, 383 or 384 of the Act may be appropriate, if that use may affect
the timetable or outcome of a takeover
bid or a tender offer governed by the SARs, it will consult the Takeover Panel before
using any of those powers.
- 01/12/2004
ENF 14.9.6
See Notes
Where the behaviour of a person which amounts to market abuse is behaviour to which the Takeover Code or the SARs are relevant, the use of the Takeover Panel's informal powers will often be sufficient to address the relevant concerns. In cases where this is not so, the FSA will need to consider, against the background of this manual, whether it is appropriate to use any of its own powers under the market abuse regime. The principal circumstances in which the FSA is likely to consider such exercise are:
- (1) where the Takeover Panel is unable to investigate properly due to lack of cooperation by the relevant person;
- (2) where the behaviour falls within sections 118(2)(a) , 118(3) or 118(4)of the Act;
- (3) where a person has deliberately or recklessly failed to comply with a Takeover Panel ruling;
- (4) where the FSA's approach in previous similar cases (which may have happened otherwise than in the context of a takeover bid) suggests that a financial penalty should be imposed (see ENF 14.6.2 G (4));
- (5) where the Takeover Panel asks the FSA to consider the use of its powers to impose a financial penalty;
- (6) where the behaviour extends to securities or a class of securities which may be outside the Takeover Panel's jurisdiction;
- (7) where the behaviour threatens or has threatened the stability of the financial system; and
- (8) where for any other reason the Takeover Panel asks the FSA to consider the use of any of its powers referred to in ENF 14.9.2 G.
- 01/07/2005
ENF 14.9.7
See Notes
The exceptional circumstances in which
the FSA will
consider the use of powers during a takeover
bid are listed in ENF 14.9.6 G (1) to
ENF 14.9.6 G (3),
ENF 14.9.6 G (6),
ENF 14.9.6 G (7)
and, depending
on the circumstances,
ENF 14.9.6 G (8).
- 01/12/2004
ENF 14.9.8
See Notes
The guidance given
in ENF
14.9.6 G and ENF
14.9.7 G does not apply to a person who has no responsibilities under
the Takeover Code.
- 01/12/2004
ENF 14.9.9
See Notes
Where the FSA proposes to publish details of financial
penalties it has imposed in relation to behaviour which
has happened in the context of a takeover
bid, it will consult the Takeover
Panel over the timing of publication where the FSA is of the opinion
that publication may affect the timetable or outcome of that bid, and will
give due weight to the Takeover
Panel's views.
- 01/12/2004
ENF 14.10
The FSA's endorsement of the Takeover Code and the SARs
- 01/12/2004
ENF 14.10.1
See Notes
The FSA has made rules under section 143
of the Act (Endorsement
of codes etc.) endorsing the Takeover
Code and the SARs.
The effect of the FSA's endorsement
in MAR 4.2.1 R is that, under section 143 of the Act:
(1) at the request of the Takeover Panel, the FSA may take enforcement action against a firm which breaches the Takeover Code or the SARs under Part IV (Variation
of permission -
see ENF 3), Part XIII (Intervention against incoming firms
- see ENF
4), Part XIV (Disciplinary measures - see ENF 11, ENF 12 and ENF 13) and Part XXV (Injunctions and restitution - see ENF 6 and ENF 9);
(2) at the request of the Takeover Panel, the FSA may take enforcement action against an approved person under section
66(2)(b) of the Act (Disciplinary
powers - see ENF 11).
- 06/02/2006
ENF 14.10.2
See Notes
Section 143(5) of the Act states that 'a failure to comply with
a requirement imposed, or ruling given, under an endorsed provision is to
be treated as a failure to comply with the endorsed provision under which
that requirement was imposed or ruling was given'. So the FSA may take enforcement action as described
in ENF
14.10.1 G where there has been
a failure of this kind.
- 01/12/2004
ENF 14.10.3
See Notes
A breach of the Takeover Code or the SARs, or being knowingly concerned in a
breach by another person,
may also be relevant to enforcement action taken by the FSA on other grounds, including:
(1) withdrawal of approval under section
63 of the Act (Withdrawal
of approval) on the basis that an approved
person is not fit and proper (see ENF 7); and
(2) making a prohibition order against a person under section 56
of the Act (Prohibition
orders - see ENF
8).
- 01/12/2004
ENF 14.10.4
See Notes
The FSA is
only able to take enforcement action under section 143 of the Act in respect of a breach
of the Takeover Code or
the SARs at
the request of the Takeover
Panel. However, if the behaviour in
question, leaving aside any breach of the Takeover Code or the SARs, could also constitute a breach of
the rules,
or in relation to an approved
person, a Statement
of Principle, the FSA may
use its enforcement powers whether a request has been received from the Takeover Panel or not.
In that situation, however, the FSA will
consult the Takeover Panel and
give due weight to its views.
- 01/12/2004
ENF 14.11
Action involving overseas authorities
- 01/12/2004
ENF 14.11.1
See Notes
In certain circumstances, behaviour that takes place
outside the United Kingdom may
damage the integrity of prescribed
markets. The FSA's Code of Market Conduct (see MAR
1.2.9 G) contains guidance on
the circumstances in which behaviour outside
the United Kingdom may
amount to market abuse or requiring or encouraging.
- 01/12/2004
ENF 14.11.2
See Notes
Where behaviour that has taken place overseas amounts
to market abuse or requiring or encouraging,
the FSA will
consider whether it is appropriate to impose a financial penalty or issue
a public statement about the person concerned.
When deciding whether to impose a sanction in these circumstances the FSA may consider the factors
in ENF 14.4. In addition to these factors,
the FSA will
consider the extent to which the abusive behaviour is
capable of being dealt with by action by the relevant overseas regulator or other enforcement agency.
The FSA will
consider in each case whether it is appropriate for it or another enforcement
agency to take action.
- 01/12/2004
ENF 14.11.3
See Notes
In some cases both the FSA and the relevant overseas regulator (or other enforcement agency) may have an interest in taking enforcement action against the person concerned. For example, if the behaviour involves a breach of relevant rules or laws of the overseas jurisdiction as well as the market abuse provisions of the UK legislation it may be appropriate for both the FSA and the overseas authority or agency to take action. In those circumstances, the FSA will work with the relevant overseas authorities to coordinate effective enforcement action.
- 01/12/2004
ENF 14.12
Decision making procedure and publication of sanctions
- 01/12/2004
ENF 14.12.1
See Notes
The Act requires
the FSA to
issue a warning notice, decision notice and final notice before imposing
a financial penalty or issuing a statement. More information on the procedure
the FSA will
follow in these circumstances is contained in DEC.
- 01/12/2004
ENF 14.12.2
See Notes
The FSA will
ordinarily publicise a financial penalty or statement by issuing a press release
giving details of the behaviour and
the sanction imposed. However, the Act provides
that the FSA may
not publish information in those circumstances where it would be unfair to
the person on
whom a sanction is imposed, or prejudicial to the interests of consumers.
- 01/12/2004
ENF 14 Annex 1
Action for financial penalties or public statements in market abuse cases
- 01/12/2004
See Notes
Action for financial penalties or public
statements in market abuse cases
- 01/12/2004
ENF 15
Prosecution
of criminal offences
ENF 15.1
Application and purpose
- 01/12/2004
Application
ENF 15.1.1
See Notes
This
chapter applies to all firms and
individuals employed by firms, approved persons, appointed representatives,
and any other persons who
may be involved in committing criminal offences that the FSA has power to prosecute under the Act.
- 01/12/2004
Purpose
ENF 15.1.2
See Notes
The purpose of this chapter is to set
out the FSA's powers
to prosecute criminal offences under sections 401 of the Act (Proceedings for Offences) and 402 of
the Act (Power
of the FSA to
institute proceedings for certain other offences), and to provide guidance on how the FSA intends to exercise
these powers.
- 01/12/2004
ENF 15.2
Introduction
- 01/12/2004
ENF 15.2.1
See Notes
Under section 401 of the Act (Proceedings for Offences),
the FSA has
power to prosecute the following offences:
(1) carrying on or purporting to carry on
a regulated activity without authorisation or exemption
(under section 23);
(2) making false claims to be authorised or exempt (under
section 24);
(3) communicating an invitation or inducement
to engage in investment
activity in breach of the restrictions on financial promotion (under section 25);
(4) misleading the FSA and other contraventions in relation
to the exercise of Treaty
rights (under paragraph 6 of Schedule 4);
(5) performing or agreeing to perform functions
in breach of a prohibition
order (under section 56(4));
(6) [deleted]
(7)
offering new securities to the public
before publishing a prospectus required by the
prospectus
rules
made under section
84 of the Act (section
85(3));
(8) [deleted]
(9) failing to cooperate with, or giving
false information to, FSA appointed
investigators (under section 177);
(11) carrying on, or purporting to carry on,
business in contravention of a consumer
credit prohibition (under section 203(9));
(12) making false claims to be a person to whom the general prohibition does
not apply as a result of Part XX of the Act (Provision
of Financial Services by Members of the Professions) (under section 333);
(13) providing false or misleading information
to an auditor or actuary (under
section 346);
(14) disclosing confidential information in
contravention of the statutory restrictions under sections 348 and 350(5)
(see section 352);
(15) failure by a director of an insurer carrying on long-term insurance business to
notify the FSA of
a general meeting to propose a resolution for voluntary winding up (under
section 366(3));
(17) Misleading the FSA (under section 398).
- 01/07/2005
ENF 15.2.2
See Notes
Under section 402 of the Act (Power of the FSA to
institute proceedings for certain other offences), the FSA has power to prosecute the following
offences:
(1)
insider
dealing under Part V of the Criminal Justice Act 1993 (under
section 402(1)(a));
(2) Breaches of the prescribed regulations
relating to money laundering (under
section 402(1)(b)).
- 01/12/2004
ENF 15.2.3
See Notes
The FSA has
power to prosecute these offences in England, Wales and Northern Ireland,
but not in Scotland. In Scotland, the Crown Office will remain responsible
for prosecutions.
- 01/12/2004
ENF 15.3
The FSA's power to prosecute criminal offences
- 01/12/2004
ENF 15.3.1
See Notes
- 01/12/2004
ENF 15.3.2
See Notes
Under section 401 of the Act:
(1) proceedings for an offence under the Act, or subordinate legislation
made under the Act,
may be instituted in England and Wales only:
(a) by the FSA or the Secretary of State; or
(b) by or with the consent of the Director
of Public Prosecutions;
(2) proceedings for an offence under the Act, or subordinate legislation
made under the Act,
may be instituted in Northern Ireland only:
(a) by the FSA or the Secretary of State; or
(b) by or with the consent of the Director
of Public Prosecutions for Northern Ireland; and
(3) except in Scotland, proceedings for an
offence under section 203 (Power to prohibit the carrying on of Consumer Credit
Act business) may also be instituted by the Director General of Fair Trading.
- 01/12/2004
ENF 15.3.3
See Notes
Under section 402 of the Act the FSA may, except in Scotland, institute proceedings
for an offence under:
(1) Part V of the Criminal Justice Act 1993
(Insider dealing); and
(2) Prescribed regulations relating to money laundering.
- 01/12/2004
ENF 15.3.4
See Notes
The FSA does
not have power to prosecute the offences referred to in ENF
15.3.2 G and ENF
15.3.3 G in
Scotland. Public prosecution of these offences in Scotland is the responsibility
of the Crown Office.
- 01/12/2004
ENF 15.4
The FSA's general approach
- 01/12/2004
ENF 15.4.1
See Notes
The FSA's general
policy is to pursue through the criminal justice system all those cases where
criminal prosecution is appropriate. The principles the FSA will apply when it decides whether a
case is appropriate for criminal prosecution are set out in ENF 15.5. When considering whether to prosecute a breach of the prescribed
regulations in relation to money
launderingENF 15.2.2 G (2))
the FSA will
also have regard to whether the person concerned
has complied with the (Guidance Notes for the Financial Sector) produced by
the Joint Money Laundering Steering Group.
- 01/12/2004
ENF 15.4.2
See Notes
In relation to misleading statements and practices offences and insider dealing, where the FSA also has power to impose a sanction for market abuse, it will decide whether to commence criminal proceedings or impose a sanction after considering the factors set out in ENF 15.5 and ENF 15.7.2 G.
- 01/12/2004
ENF 15.4.3
See Notes
In cases where criminal proceedings have
commenced or will be commenced, the FSA may
consider whether also to take civil or regulatory action. That action might
include:
(1)
injunctions (the FSA's policy and procedure
in relation to the exercise of its powers to obtain injunctions against persons, whether authorised or not, is set out in ENF 6);
(2) restitution (the FSA's policy and procedure in relation to
the exercise of its power to obtain restitution against persons, whether authorised or not, is set out in ENF 9);
(3) own-initiative action (the FSA's policy and procedure
in relation to the exercise of its own-initiative
powers in relation to firms is
set out in ENF 3);
(4) withdrawal of approval or cancellation
of permission and
withdrawal of authorisation (the FSA's policy and procedure
in relation to its power to withdraw approval from approved persons is set out inENF 7 and its policy and procedure in relation to its power to cancel
a firm'spermission and withdraw authorisation is set out
in ENF 5);
(5) prohibition of individuals from carrying
out functions in connection with regulated
activities (the FSA's policy
and procedure in relation to its powers to make prohibition orders against individuals, whether authorised or not, is set
out in ENF
8). The commencement of criminal proceedings against
an individual (particularly where that individual is an approved person) will raise concerns in relation
to that individual's fitness and propriety to perform functions in relation
to regulated activities.
The FSA may
therefore consider making a prohibition
order against him if proceedings result in a criminal conviction.
- 01/12/2004
ENF 15.4.4
See Notes
When it decides whether to take any of
the civil or regulatory actions set out in ENF
15.4.3 G,
where criminal proceedings are in contemplation, the FSA will have regard to the following factors:
(1) whether, in the FSA's opinion, the taking of civil or regulatory
action might unfairly prejudice the prosecution, or proposed prosecution,
of criminal offences;
(2) whether, in the FSA's opinion, the taking of civil or regulatory
action might unfairly prejudice the defendants in the criminal proceedings
in the conduct of their defence; and
(3) whether it is appropriate to take civil
or regulatory action, having regard to the scope of the criminal proceedings
and the powers available to the criminal courts.
- 01/12/2004
ENF 15.5
The Code for Crown Prosecutors
- 01/12/2004
ENF 15.5.1
See Notes
When the FSA decides whether to bring criminal proceedings
in England, Wales or Northern Ireland, or to refer the matter to another prosecuting
authority in England, Wales or Northern Ireland (see ENF
15.8.1 G), it will apply the basic principles set out
in the Code for Crown Prosecutors. The November 2004 edition of the Code
is set out in ENF
15 Annex 1 G.
- 16/06/2005
ENF 15.5.2
See Notes
Under the Code for Crown Prosecutors,
the FSA will in each case apply the Full
Code Test (see paragraph 5.1 of ENF
15 Annex 1 GG) whether:
(1) there is sufficient evidence to provide
a realistic prospect of conviction against the defendant on each criminal
charge ('the evidential test'); and
(2) having regard to the seriousness of the
offence and all the circumstances, criminal prosecution is in the public interest
('the public interest test').
- 16/06/2005
The evidential test
ENF 15.5.3
See Notes
The FSA will
apply the evidential test in accordance with the guidance contained in the
Code for Crown Prosecutors (see paragraphs 5.2
to 5.5 of ENF
15 Annex 1 G G). In particular,
the FSA will
commence proceedings only where it is satisfied that the evidence is such
that a jury or a bench of magistrates (properly directed in accordance with
the law) is more likely than not to convict the defendant of the charge alleged.
- 16/06/2005
ENF 15.5.4
See Notes
In deciding whether there is enough evidence
to prosecute, the FSA will
consider whether the evidence can be used in criminal proceedings and is reliable.
The FSA will
not generally be able to use, or refer to, in criminal proceedings a statement
made by the defendant in compliance with the FSA's compulsory powers of investigation.
The FSA will
only be able to use those statements where the alleged offence is either making
false statements otherwise than on oath, or providing false or misleading
evidence to the FSA's investigators
(see section 177(4) of the Act (Offences)).
- 01/12/2004
The public interest test
ENF 15.5.5
See Notes
In each case where the evidential test
is satisfied, the FSA will
consider whether a prosecution would be in the public interest. This will
depend on the circumstances of each individual case. The FSA will balance the factors for and against
prosecution, and apply the guidelines set out in the Code for Crown Prosecutors.
Only if the FSA determines
that criminal prosecution is in the public interest (see paragraphs 5.6 to 5.13 of ENF
15 Annex 1 G G)
will it proceed to prosecute.
- 16/06/2005
ENF 15.6
FSA cautions
- 01/12/2004
ENF 15.6.1
See Notes
In some cases, the FSA may decide to issue a formal caution
rather than to prosecute an offender. In these cases the FSA will follow the Home Office Guidance
on the cautioning of offenders, currently contained in the Home Office Circular
18/1994. The FSA will
not administer a caution unless it is satisfied that the following conditions
are met:
(1) there is sufficient evidence of the offender's
guilt to give a realistic prospect of conviction;
(2) the offender admits the offence; and
(3) the offender understands the significance
of a caution and gives informed consent to being cautioned.
- 01/12/2004
ENF 15.6.2
See Notes
Where the FSA decides to administer a formal caution,
a record of the caution will be kept by the FSA, but
the FSA will
not publish the caution. The issue of a caution may influence the FSA in its decision whether
or not to prosecute the offender if he offends again. If the offender is a firm or an approved person, a caution
given by the FSA will
form part of the firm's or approved person's regulatory
record for the purposes of ENF 11.4.1 G (3). If relevant,
the FSA will
take the caution into account in deciding whether to take disciplinary action
for subsequent regulatory misconduct by the firm or the approved person. The FSA may also take a caution into account
when considering a person's honesty, integrity and reputation and his fitness
or propriety to perform controlled or other functions in relation to regulated
activities (see FIT 2.1.3 G).
- 01/12/2004
ENF 15.7
Criminal prosecutions in cases of market abuse
- 01/12/2004
ENF 15.7.1
See Notes
The FSA's power to impose sanctions for market abuse is intended to complement the existing criminal regime for insider dealing and misleading statements and practices offences. In some cases there will be instances of market misconduct that may arguably involve a breach of the criminal law as well as market abuse as defined in the Act. When the FSA decides whether to commence criminal proceedings rather than impose a sanction in relation to that misconduct, it will take into account those factors set out in the Code for Crown Prosecutors referred to in ENF 15.5. When deciding whether to prosecute market misconduct which also falls within the definition of market abuse, application of the tests set out in ENF 15.5 may involve consideration of some of the factors set out in ENF 15.7.2 G.
- 01/12/2004
ENF 15.7.2
See Notes
The factors which the FSA may consider when deciding whether to commence a criminal prosecution for market misconduct rather than impose a sanction for market abuse include, but are not limited to, the following:
- (1) the seriousness of the misconduct: if the misconduct is serious and prosecution is likely to result in a significant sentence, criminal prosecution may be appropriate;
- (2) whether there are victims who have suffered loss as a result of the misconduct: where there are no victims a criminal prosecution is less likely to be appropriate;
- (3) the extent and nature of the loss suffered: where the misconduct has resulted in substantial loss and/or loss has been suffered by a substantial number of victims, criminal prosecution may be appropriate;
- (4) the effect of the misconduct on the market: where the misconduct has resulted in significant distortion or disruption to the market and/or has significantly damaged market confidence, a criminal prosecution may be appropriate;
- (5) the extent of any profits accrued or loss avoided as a result of the misconduct: where substantial profits have accrued or loss avoided as a result of the misconduct, criminal prosecution may be appropriate;
- (6) whether there are grounds for believing that the misconduct is likely to be continued or repeated: if it appears that the misconduct may be continued or repeated and the imposition of a financial penalty is unlikely to deter further misconduct, a criminal prosecution may be more appropriate than a financial penalty;
- (7) whether the person has previously been cautioned or convicted in relation to market misconduct or has been subject to civil or regulatory action in respect of market misconduct: where this is the case, a criminal prosecution may be appropriate;
- (8) the extent to which redress has been provided to those who have suffered loss as a result of the misconduct and/or whether steps have been taken to remedy any failures in systems or controls which gave rise to the misconduct: where such steps are taken promptly and voluntarily, criminal prosecution may not be appropriate; however, potential defendants will not avoid prosecution simply because they are able to pay compensation;
- (9) the effect that a criminal prosecution may have on the prospects of securing redress for those who have suffered loss: where a criminal prosecution will have adverse effects on the solvency of a firm or individual in circumstances where loss has been suffered by consumers, the FSA may decide that criminal proceedings are not appropriate;
- (10) whether the person is being or has been voluntarily cooperative with the FSA in taking corrective measures; however, potential defendants will not avoid prosecution merely by fulfilling a statutory duty to take those measures;
- (11) where an individual's misconduct involves dishonesty or an abuse of a position of authority or trust: in these circumstances, criminal prosecution may be appropriate;
- (12) where the misconduct in question was carried out by a group, and a particular individual has played a leading role in the commission of the misconduct: in these circumstances criminal proceedings may be appropriate in relation to that individual;
- (13) the personal circumstances of an individual may be relevant to a decision whether to commence a criminal prosecution.
- 01/12/2004
ENF 15.7.3
See Notes
The importance attached by the FSA to these factors will
vary from case to case and the factors are not necessarily cumulative or exhaustive.
- 01/12/2004
ENF 15.7.4
See Notes
It is the FSA's policy not to impose a sanction for market abuse where a person is being prosecuted for market misconduct or has been finally convicted or acquitted of market misconduct (following the exhaustion of all appeal processes) in a criminal prosecution arising from substantially the same allegations. Similarly, it is the FSA's policy not to commence a prosecution for market misconduct where the FSA has brought or is seeking to bring disciplinary proceedings for market abuse arising from substantially the same allegations.
- 01/12/2004
ENF 15.7.5
See Notes
Where the FSA decides to commence criminal proceedings for market misconduct or imposes a sanction for market abuse, it may also consider taking civil or regulatory action. That action may include:
- (1) applying to court for an injunction to prevent market abuse continuing or to require the person to take steps to remedy the consequences of the abuse (see ENF 6.4);
- (2) applying to court for an order for restitution (see ENF 9.4) or exercising its administrative power to require restitution (see ENF 9.5) in relation to profits accrued by the person or loss suffered by others as a result of the abuse.
- (3) withdrawal of approval (see ENF 7) or cancellation of permission and withdrawal of authorisation (see ENF 5).
- (4) prohibition of individuals from carrying out functions in connection with regulated activities (see ENF 8).
- 01/12/2004
ENF 15.7.6
See Notes
The FSA does
not have power to prosecute offences of market misconduct in Scotland. These
proceedings will remain the responsibility of the Crown Office.
- 01/12/2004
ENF 15.8
Liaison with other prosecuting authorities
- 01/12/2004
ENF 15.8.1
See Notes
The FSA has
power to prosecute offences under the Act in
England or Wales and in Northern Ireland. In addition the following authorities
also have that power:
(1) in England and Wales: the Secretary of
State for Trade and Industry, the Director General of Fair Trading (in relation
to offences involving the Consumer Credit Act), the Crown Prosecution Service and,
in cases of serious or complex fraud, the Serious Fraud Office;
(2) in Northern Ireland: the Secretary of
State for Trade and Industry, the Director of Public Prosecutions in Northern
Ireland, and in cases of serious or complex fraud, the Serious Fraud Office.
- 01/12/2004
ENF 15.8.2
See Notes
- 01/12/2004
ENF 15.8.3
See Notes
The FSA has
agreed guidelines that will establish a framework for liaison and cooperation
in cases where one or more of these authorities has an interest in prosecuting
any aspect of a matter that the FSA is
considering for investigation, investigating or considering prosecuting. These
Guidelines are set out in ENF 2 Annex 1 G G.
- 01/12/2004
ENF 15 Annex 1
Code for Crown prosecutors
- 01/12/2004
See Notes
Code for Crown prosecutors
The November 2004 edition of the code is reproduced below by kind permission of the Crown Prosecution Service.
The November 2004 edition of the code is reproduced below by kind permission of the Crown Prosecution Service.
| 1 | INTRODUCTION | |
| 1.1 | The decision to prosecute an individual is a serious step. Fair and effective prosecution is essential to the maintenance of law and order. Even in a small case a prosecution has serious implications for all involved - victims, witnesses and defendants. The Crown Prosecution Service applies the Code for Crown Prosecutors so that it can make fair and consistent decisions about prosecutions. | |
| 1.2 | The Code helps the Crown Prosecution Service to play its part in making sure that justice is done. It contains information that is important to police officers and others who work in the criminal justice system and to the general public. Police officers should apply the provisions of this Code whenever they are responsible for deciding whether to charge a person with an offence. | |
| 1.3 | The Code is also designed to make sure that everyone knows the principles that the Crown Prosecution Service applies when carrying out its work. By applying the same principles, everyone involved in the system is helping to treat victims, witnesses and defendants fairly, while prosecuting cases effectively. | |
| 2 | GENERAL PRINCIPLES | |
| 2.1 | Each case is unique and must be considered on its own facts and merits. However, there are general principles that apply to the way in which Crown Prosecutors must approach every case. | |
| 2.2 | Crown Prosecutors must be fair, independent and objective. They must not let any personal views about ethnic or national origin, disability, sex, religious beliefs, political views or the sexual orientation of the suspect, victim or witness influence their decisions. They must not be affected by improper or undue pressure from any source. | |
| 2.3 | It is the duty of Crown Prosecutors to make sure that the right person is prosecuted for the right offence. In doing so, Crown Prosecutors must always act in the interests of justice and not solely for the purpose of obtaining a conviction. | |
| 2.4 | Crown Prosecutors should provide guidance and advice to investigators throughout the investigative and prosecuting process. This may include lines of inquiry, evidential requirements and assistance in any pre-charge procedures. Crown Prosecutors will be proactive in identifying and, where possible, rectifying evidential deficiencies and in bringing to an early conclusion those cases that cannot be strengthened by further investigation. | |
| 2.5 | It is the duty of Crown Prosecutors to review, advise on and prosecute cases, ensuring that the law is properly applied, that all relevant evidence is put before the court and that obligations of disclosure are complied with, in accordance with the principles set out in this Code. | |
| 2.6 | The Crown Prosecution Service is a public authority for the purposes of the Human Rights Act 1998. Crown Prosecutors must apply the principles of the European Convention on Human Rights in accordance with the Act. | |
| 3 | THE DECISION TO PROSECUTE | |
| 3.1 | In most cases, Crown Prosecutors are responsible for deciding whether a person should be charged with a criminal offence, and if so, what that offence should be. Crown Prosecutors make these decisions in accordance with this Code and the Director's Guidance on Charging. In those cases where the police determine the charge, which are usually more minor and routine cases, they apply the same provisions. | |
| 3.2 | Crown Prosecutors make charging decisions in accordance with the Full Code Test (see section 5 below), other than in those limited circumstances where the Threshold Test applies (see section 6 below). | |
| 3.3 | The Threshold Test applies where the case is one in which it is proposed to keep the suspect in custody after charge, but the evidence required to apply the Full Code Test is not yet available. | |
| 3.4 | Where a Crown Prosecutor makes a charging decision in accordance with the Threshold Test, the case must be reviewed in accordance with the Full Code Test as soon as reasonably practicable, taking into account the progress of the investigation. | |
| 4 | REVIEW | |
| 4.1 | Each case the Crown Prosecution Service receives from the police is reviewed to make sure that it is right to proceed with a prosecution. Unless the Threshold Test applies, the Crown Prosecution Service will only start or continue with a prosecution when the case has passed both stages of the Full Code Test. | |
| 4.2 | Review is a continuing process and Crown Prosecutors must take account of any change in circumstances. Wherever possible, they should talk to the police first if they are thinking about changing the charges or stopping the case. Crown Prosecutors should also tell the police if they believe that some additional evidence may strengthen the case. This gives the police the chance to provide more information that may affect the decision. | |
| 4.3 | The Crown Prosecution Service and the police work closely together, but the final responsibility for the decision whether or not a charge or a case should go ahead rests with the Crown Prosecution Service. | |
| 5 | THE FULL CODE TEST | |
| 5.1 | The Full Code Test has two stages. The first stage is consideration of the evidence. If the case does not pass the evidential stage it must not go ahead no matter how important or serious it may be. If the case does pass the evidential stage, Crown Prosecutors must proceed to the second stage and decide if a prosecution is needed in the public interest. The evidential and public interest stages are explained below. | |
| THE EVIDENTIAL STAGE | ||
| 5.2 | Crown Prosecutors must be satisfied that there is enough evidence to provide a 'realistic prospect of conviction' against each defendant on each charge. They must consider what the defence case may be, and how that is likely to affect the prosecution case. | |
| 5.3 | A realistic prospect of conviction is an objective test. It means that a jury or bench of magistrates or judge hearing a case alone, properly directed in accordance with the law, is more likely than not to convict the defendant of the charge alleged. This is a separate test from the one that the criminal courts themselves must apply. A court should only convict if satisfied so that it is sure of a defendant's guilt. | |
| 5.4 | When deciding whether there is enough evidence to prosecute, Crown Prosecutors must consider whether the evidence can be used and is reliable. There will be many cases in which the evidence does not give any cause for concern. But there will also be cases in which the evidence may not be as strong as it first appears. Crown Prosecutors must ask themselves the following questions: | |
| Can the evidence be used in court? | ||
| (a) | Is it likely that the evidence will be excluded by the court? There are certain legal rules which might mean that evidence which seems relevant cannot be given at a trial. For example, is it likely that the evidence will be excluded because of the way in which it was gathered? If so, is there enough other evidence for a realistic prospect of conviction? | |
| Is the evidence reliable? | ||
| (b) | Is there evidence which might support or detract from the reliability of a confession? Is the reliability affected by factors such as the defendant's age, intelligence or level of understanding? | |
| (c) | What explanation has the defendant given? Is a court likely to find it credible in the light of the evidence as a whole? Does it support an innocent explanation? | |
| (d) | If the identity of the defendant is likely to be questioned, is the evidence about this strong enough? | |
| (e) | Is the witness's background likely to weaken the prosecution case? For example, does the witness have any motive that may affect his or her attitude to the case, or a relevant previous conviction? | |
| (f) | Are there concerns over the accuracy or credibility of a witness? Are these concerns based on evidence or simply information with nothing to support it? Is there further evidence which the police should be asked to seek out which may support or detract from the account of the witness? | |
| 5.5 | Crown Prosecutors should not ignore evidence because they are not sure that it can be used or is reliable. But they should look closely at it when deciding if there is a realistic prospect of conviction. | |
| THE PUBLIC INTEREST STAGE | ||
| 5.6 | In 1951, Lord Shawcross, who was Attorney General, made the classic statement on public interest, which has been supported by Attorneys General ever since: "It has never been the rule in this country - I hope it never will be - that suspected criminal offences must automatically be the subject of prosecution". (House of Commons Debates, volume 483, column 681, 29 January 1951.) | |
| 5.7 | The public interest must be considered in each case where there is enough evidence to provide a realistic prospect of conviction. Although there may be public interest factors against prosecution in a particular case, often the prosecution should go ahead and those factors should be put to the court for consideration when sentence is being passed. A prosecution will usually take place unless there are public interest factors tending against prosecution which clearly outweigh those tending in favour, or it appears more appropriate in all the circumstances of the case to divert the person from prosecution (see section 8 below). | |
| 5.8 | Crown Prosecutors must balance factors for and against prosecution carefully and fairly. Public interest factors that can affect the decision to prosecute usually depend on the seriousness of the offence or the circumstances of the suspect. Some factors may increase the need to prosecute but others may suggest that another course of action would be better. | |
| The following lists of some common public interest factors, both for and against prosecution, are not exhaustive. The factors that apply will depend on the facts in each case. | ||
Some common public interest factors in favour of prosecution | ||
| 5.9 | The more serious the offence, the more likely it is that a prosecution will be needed in the public interest. A prosecution is likely to be needed if: | |
| (a) | a conviction is likely to result in a significant sentence; | |
| (b) | a conviction is likely to result in a confiscation or any other order; | |
| (c) | a weapon was used or violence was threatened during the commission of the offence; | |
| (d) | the offence was committed against a person serving the public (for example, a police or prison officer, or a nurse); | |
| (e) | the defendant was in a position of authority or trust; | |
| (f) | the evidence shows that the defendant was a ringleader or an organiser of the offence; | |
| (g) | there is evidence that the offence was premeditated; | |
| (h) | there is evidence that the offence was carried out by a group; | |
| (i) | the victim of the offence was vulnerable, has been put in considerable fear, or suffered personal attack, damage or disturbance; | |
| (j) | the offence was committed in the presence of, or in close proximity to, a child; | |
| (k) | the offence was motivated by any form of discrimination against the victim's ethnic or national origin, disability, sex, religious beliefs, political views or sexual orientation, or the suspect demonstrated hostility towards the victim based on any of those characteristics; | |
| (l) | there is a marked difference between the actual or mental ages of the defendant and the victim, or if there is any element of corruption; | |
| (m) | the defendant's previous convictions or cautions are relevant to the present offence; | |
| (n) | the defendant is alleged to have committed the offence while under an order of the court; | |
| (o) | there are grounds for believing that the offence is likely to be continued or repeated, for example, by a history of recurring conduct; | |
| (p) | the offence, although not serious in itself, is widespread in the area where it was committed; or | |
| (q) | a prosecution would have a significant positive impact on maintaining community confidence. | |
| Some common public interest factors against prosecution | ||
| 5.10 | A prosecution is less likely to be needed if: | |
| (a) | the court is likely to impose a nominal penalty; | |
| (b) | the defendant has already been made the subject of a sentence and any further conviction would be unlikely to result in the imposition of an additional sentence or order, unless the nature of the particular offence requires a prosecution or the defendant withdraws consent to have an offence taken into consideration during sentencing; | |
| (c) | the offence was committed as a result of a genuine mistake or misunderstanding (these factors must be balanced against the seriousness of the offence); | |
| (d) | the loss or harm can be described as minor and was the result of a single incident, particularly if it was caused by a misjudgement; | |
| (e) | there has been a long delay between the
offence taking place and the date of the trial, unless: • the offence is serious; • the delay has been caused in part by the defendant; • the offence has only recently come to light; or • the complexity of the offence has meant that there has been a long investigation; | |
| (f) | a prosecution is likely to have a bad effect on the victim's physical or mental health, always bearing in mind the seriousness of the offence; | |
| (g) | the defendant is elderly or is, or was at the time of the offence, suffering from significant mental or physical ill health, unless the offence is serious or there is real possibility that it may be repeated. The Crown Prosecution Service, where necessary, applies Home Office guidelines about how to deal with mentally disordered offenders. Crown Prosecutors must balance the desirability of diverting a defendant who is suffering from significant mental or physical ill health with the need to safeguard the general public; | |
| (h) | the defendant has put right the loss or harm that was caused (but defendants must not avoid prosecution or diversion solely because they pay compensation); or | |
| (i) | details may be made public that could harm sources of information, international relations or national security. | |
| 5.11 | Deciding on the public interest is not simply a matter of adding up the number of factors on each side. Crown Prosecutors must decide how important each factor is in the circumstances of each case and go on to make an overall assessment. | |
| The relationship between the victim and the public interest | ||
| 5.12 | The Crown Prosecution Service does not act for victims or the families of victims in the same way as solicitors act for their clients. Crown Prosecutors act on behalf of the public and not just in the interests of any particular individual. However, when considering the public interest, Crown Prosecutors should always take into account the consequences for the victim of whether or not to prosecute, and any views expressed by the victim or the victim's family. | |
| 5.13 | It is important that a victim is told about a decision which makes a significant difference to the case in which they are involved. Crown Prosecutors should ensure that they follow any agreed procedures. | |
| 6 | THE THRESHOLD TEST | |
| 6.1 | The Threshold Test requires Crown Prosecutors to decide whether there is at least a reasonable suspicion that the suspect has committed an offence, and if there is, whether it is in the public interest to charge that suspect. | |
| 6.2 | The Threshold Test is applied to those cases in which it would not be appropriate to release a suspect on bail after charge, but the evidence to apply the Full Code Test is not yet available. | |
| 6.3 | There are statutory limits that restrict the time a suspect may remain in police custody before a decision has to be made whether to charge or release the suspect. There will be cases where the suspect in custody presents a substantial bail risk if released, but much of the evidence may not be available at the time the charging decision has to be made. Crown Prosecutors will apply the Threshold Test to such cases for a limited period. | |
| 6.4 | The evidential decision in each case will require consideration
of a number of factors including: • the evidence available at the time; • the likelihood and nature of further evidence being obtained; • the reasonableness for believing that evidence will become available; • the time it will take to gather that evidence and the steps being taken to do so; • the impact the expected evidence will have on the case; • the charges that the evidence will support. | |
| 6.5 | The public interest means the same as under the Full Code Test, but will be based on the information available at the time of charge which will often be limited. | |
| 6.6 | The decision to charge and withhold bail must be kept under review. The evidence gathered must be regularly assessed to ensure the charge is still appropriate and that continued objection to bail is justified. The Full Code Test must be applied as soon as reasonably practicable. | |
| 7 | SELECTION OF CHARGES | |
| 7.1 | Crown Prosecutors should select charges which: | |
| (a) | reflect the seriousness and extent of the offending; | |
| (b) | give the court adequate powers to sentence and impose appropriate post-conviction orders; and | |
| (c) | enable the case to be presented in a clear and simple way. | |
| This means that Crown Prosecutors may not always choose or continue with the most serious charge where there is a choice. | ||
| 7.2 | Crown Prosecutors should never go ahead with more charges than are necessary just to encourage a defendant to plead guilty to a few. In the same way, they should never go ahead with a more serious charge just to encourage a defendant to plead guilty to a less serious one. | |
| 7.3 | Crown Prosecutors should not change the charge simply because of the decision made by the court or the defendant about where the case will be heard. | |
| 8 | DIVERSION FROM PROSECUTION | |
| ADULTS | ||
| 8.1 | When deciding whether a case should be prosecuted in the courts, Crown Prosecutors should consider the alternatives to prosecution. Where appropriate, the availability of suitable rehabilitative, reparative or restorative justice processes can be considered. | |
| 8.2 | Alternatives to prosecution for adult suspects include a simple caution and a conditional caution. | |
| Simple caution | ||
| 8.3 | A simple caution should only be given if the public interest justifies it and in accordance with Home Office guidelines. Where it is felt that such a caution is appropriate, Crown Prosecutors must inform the police so they can caution the suspect. If the caution is not administered, because the suspect refuses to accept it, a Crown Prosecutor may review the case again. | |
| Conditional caution | ||
| 8.4 | A conditional caution may be appropriate where a Crown Prosecutor considers that while the public interest justifies a prosecution, the interests of the suspect, victim and community may be better served by the suspect complying with suitable conditions aimed at rehabilitation or reparation. These may include restorative processes. | |
| 8.5 | Crown Prosecutors must be satisfied that there is sufficient evidence for a realistic prospect of conviction and that the public interest would justify a prosecution should the offer of a conditional caution be refused or the offender fail to comply with the agreed conditions of the caution. | |
| 8.6 | In reaching their decision, Crown Prosecutors should follow the Conditional Cautions Code of Practice and any guidance on conditional cautioning issued or approved by the Director of Public Prosecutions. | |
| 8.7 | Where Crown Prosecutors consider a conditional caution to be appropriate, they must inform the police, or other authority responsible for administering the conditional caution, as well as providing an indication of the appropriate conditions so that the conditional caution can be administered. | |
| YOUTHS | ||
| 8.8 | Crown Prosecutors must consider the interests of a youth when deciding whether it is in the public interest to prosecute. However Crown Prosecutors should not avoid prosecuting simply because of the defendant's age. The seriousness of the offence or the youth's past behaviour is very important. | |
| 8.9 | Cases involving youths are usually only referred to the Crown Prosecution Service for prosecution if the youth has already received a reprimand and final warning, unless the offence is so serious that neither of these were appropriate or the youth does not admit committing the offence. Reprimands and final warnings are intended to prevent re-offending and the fact that a further offence has occurred indicates that attempts to divert the youth from the court system have not been effective. So the public interest will usually require a prosecution in such cases, unless there are clear public interest factors against prosecution. | |
| 9 | MODE OF TRIAL | |
| 9.1 | The Crown Prosecution Service applies the current guidelines for magistrates who have to decide whether cases should be tried in the Crown Court when the offence gives the option and the defendant does not indicate a guilty plea. Crown Prosecutors should recommend Crown Court trial when they are satisfied that the guidelines require them to do so. | |
| 9.2 | Speed must never be the only reason for asking for a case to stay in the magistrates' courts. But Crown Prosecutors should consider the effect of any likely delay if they send a case to the Crown Court, and any possible stress on victims and witnesses if the case is delayed. | |
| 10 | ACCEPTING GUILTY PLEAS | |
| 10.1 | Defendants may want to plead guilty to some, but not all, of the charges. Alternatively, they may want to plead guilty to a different, possibly less serious, charge because they are admitting only part of the crime. Crown Prosecutors should only accept the defendant's plea if they think the court is able to pass a sentence that matches the seriousness of the offending, particularly where there are aggravating features. Crown Prosecutors must never accept a guilty plea just because it is convenient. | |
| 10.2 | In considering whether the pleas offered are acceptable, Crown Prosecutors should ensure that the interests of the victim and, where possible, any views expressed by the victim or victim's family, are taken into account when deciding whether it is in the public interest to accept the plea. However, the decision rests with the Crown Prosecutor. | |
| 10.3 | It must be made clear to the court on what basis any plea is advanced and accepted. In cases where a defendant pleads guilty to the charges but on the basis of facts that are different from the prosecution case, and where this may significantly affect sentence, the court should be invited to hear evidence to determine what happened, and then sentence on that basis. | |
| 10.4 | Where a defendant has previously indicated that he or she will ask the court to take an offence into consideration when sentencing, but then declines to admit that offence at court, Crown Prosecutors will consider whether a prosecution is required for that offence. Crown Prosecutors should explain to the defence advocate and the court that the prosecution of that offence may be subject to further review. | |
| 10.5 | Particular care must be taken when considering pleas which would enable the defendant to avoid the imposition of a mandatory minimum sentence. When pleas are offered, Crown Prosecutors must bear in mind the fact that ancillary orders can be made with some offences but not with others. | |
| 11 | PROSECUTORS' ROLE IN SENTENCING | |
| 11.1 | Crown
Prosecutors should draw the court's attention to: • any aggravating or mitigating factors disclosed by the prosecution case; • any victim's personal statement; • where appropriate, evidence of the impact of the offending on a community; • any statutory provisions or sentencing guidelines which may assist; • any relevant statutory provisions relating to ancillary orders (such as anti-social behaviour orders). | |
| 11.2 | The Crown Prosecutor should challenge any assertion made by the defence in mitigation that is inaccurate, misleading or derogatory. If the defence persist in the assertion, and it appears relevant to the sentence, the court should be invited to hear evidence to determine the facts and sentence accordingly. | |
| 12 | RE-STARTING A PROSECUTION | |
| 12.1 | People should be able to rely on decisions taken by the Crown Prosecution Service. Normally, if the Crown Prosecution Service tells a suspect or defendant that there will not be a prosecution, or that the prosecution has been stopped, that is the end of the matter and the case will not start again. But occasionally there are special reasons why the Crown Prosecution Service will re-start the prosecution, particularly if the case is serious. | |
| 12.2 | These reasons include: | |
| (a) | rare cases where a new look at the original decision shows that it was clearly wrong and should not be allowed to stand; | |
| (b) | cases which are stopped so that more evidence which is likely to become available in the fairly near future can be collected and prepared. In these cases, the Crown Prosecutor will tell the defendant that the prosecution may well start again; and | |
| (c) | cases which are stopped because of a lack of evidence but where more significant evidence is discovered later. | |
| 12.3 | There may also be exceptional cases in which, following an acquittal of a serious offence, the Crown Prosecutor may, with the written consent of the Director of Public Prosecutions, apply to the Court of Appeal for an order quashing the acquittal and requiring the defendant to be retried, in accordance with Part 10 of the Criminal Justice Act 2003. | |
| The Code is a public document. It is available on the CPS Website: | ||
| Further
copies may be obtained from: Crown Prosecution Service Communications Branch 50 Ludgate Hill London EC4M 7EX | ||
| Telephone:
020 7796 8442 Fax: 020 7796 8030 Email: policy.branch@cps.gov.uk | ||
| Translations into other languages are available and audio or braille copies are available. Please contact CPS Communications Branch (above) for details. | ||
- 16/06/2005
ENF 16
Collective investment schemes
ENF 16.1
Application and purpose
- 01/12/2004
Application
ENF 16.1.1
See Notes
This
chapter provides guidance on
the FSA's use
of its enforcement powers in relation to:
(1)
AUTs;
(2)
ICVCs;
and
(3)
recognised
schemes.
- 01/12/2004
Purpose
ENF 16.1.2
See Notes
The purpose of this chapter is to explain
the FSA's powers
in relation to the collective
investment schemes listed at ENF 16.1.1 G (1) to ENF 16.1.1 G (3) and to provide guidance on how the FSA intends to exercise
these powers. The effective use of these powers will help the FSA in pursuing its regulatory objectives of
protecting consumers,
maintaining market confidence and reducing financial crime.
- 01/12/2004
ENF 16.2
Authorised unit trust schemes
- 01/12/2004
ENF 16.2.1
See Notes
- 01/12/2004
ENF 16.2.2
See Notes
While the grounds upon which the powers
under sections 254 and 257 may be used are broadly similar, there are certain
material differences. These provisions are therefore set out separately in ENF
16.2.3 G to ENF
16.2.4 G and ENF
16.2.5 G to ENF
16.2.7 G respectively.
- 01/12/2004
Section 254: the power
ENF 16.2.3
See Notes
(1) The FSA's power
to revoke authorisation of
an AUT otherwise
than by consent is in section 254 (Revocation of authorisation order otherwise
than by consent).
(2) Section 254(1) states that 'An authorisation order may
be revoked by an order made by the FSA if
it appears to the FSA that:
(a) one or more of the requirements for the
making of the order are no longer satisfied;
(b) the manager or trustee of the scheme concerned has
contravened a requirement imposed on him by or under this Act;
(c) the manager or trustee of the scheme has, in purported
compliance with any such requirement, knowingly or recklessly given the FSA information which
is false or misleading in a material particular;
(d) no regulated
activity is being carried on in relation to the scheme and the period
of that inactivity began at least twelve months earlier; or
(e) none of paragraphs (a) to (d) applies,
but it is desirable to revoke the authorisation
order in order to protect the interests of participants or potential participants in the scheme'.
- 01/12/2004
ENF 16.2.4
See Notes
For the purposes of section 254(1)(e),
the FSA may,
under subsection 254(2), take into account 'any matter relating to- (a) the scheme; (b) the manager or trustee; (c) any person employed by or
associated with the manager or trustee in connection
with the scheme;
(d) any director of
the manager or trustee; (e) any person exercising influence
over the manager or trustee; (f) any body corporate in the
same group as
the manager or trustee; (g) any director of any such body corporate; (h) any person exercising influence
over any such body corporate'.
- 01/12/2004
Section 257: the power
ENF 16.2.5
See Notes
(1) Section 257(1) (Directions) contains
a power for the FSA to
give directions to the manager and trustee of an AUT.
(2) Section 257(1) states that 'The FSA may give a direction
under this section if it appears to the FSA that:
(a) one or more of the requirements for the
making of an authorisation
order are no longer satisfied;
(b) the manager or trustee of an AUT has contravened, or
is likely to contravene, a requirement imposed on him by or under this Act;
(c) the manager or trustee of such a scheme has, in purported
compliance with any such requirement, knowingly or recklessly given the FSA information which
is false or misleading in a material particular; or
(d) none of paragraphs (a) to (c) applies,
but it is desirable to give a direction in order to protect the interests
of participants or
potential participants in
such a scheme'.
- 01/12/2004
ENF 16.2.6
See Notes
(1) The types of directions the FSA may give under section
257 are explained in section 257(2).
- 01/12/2004
ENF 16.2.7
See Notes
Subsection 257(6) states that 'The FSA may, either on its
own initiative or on the application of the manager or trustee of the scheme concerned, revoke or vary a direction
given under this section if it appears to the FSA: (a) in the case of revocation, that
it is no longer necessary for the direction to take effect or continue in
force; (b) in the case of variation, that the direction should take effect
or continue in force in a different form'.
- 01/12/2004
Section 258: the power
ENF 16.2.8
See Notes
(1) Section 258(1) (Applications to the court)
states that 'If the FSA could
give a direction under section 257, it may also apply to the court for an
order:
(2) The types of direction the FSA may give under section
257 are explained in section 257(2) (see ENF 16.2.6 G (2)).
- 01/12/2004
ENF 16.2.9
See Notes
Section 258(2) states that the FSA may nominate a person for the purposes
of section 258(1)(b) only if it is satisfied that, if the order was made,
the requirements of sections 243 (4) to (7) would be complied with (these
requirements include, for example, that the manager and trustee are bodies corporate which are independent of
each other). If it appears to the FSA that
there is no person it
can nominate for these purposes, it may apply to the court under section 258(3)
for an order:
- 01/12/2004
Sections 254, 257, and 258: the FSA's policy
ENF 16.2.10
See Notes
The FSA will
consider all the relevant circumstances of each case when it decides whether
it is appropriate to use one or more of its powers under these sections of
the Act. The FSA may take a number
of factors into account when it decides whether to use the powers. The following
list is not exhaustive; not all these factors may be relevant in a particular
case and there may be other factors that are relevant.
(1) The seriousness of the breach or likely
breach by a manager or trustee of a requirement
imposed by or under the Act.
The following may be relevant:
(a) the extent to which the breach was deliberate
or reckless;
(b) the extent of loss, or risk of loss,
caused to existing, past or potential participants in
the AUT as
a result of the breach;
(c) whether the breach highlights serious
or systemic weaknesses in the management or control of either the AUT or the property subject
to the scheme;
(d) whether there are grounds for believing
a breach is likely to be continued or repeated;
(e) the length of time over which the breach
happened; and
(f) whether existing and/or past participants in the AUT have been misled in
a material way, for example about the investment objectives or policy of the scheme or the level of
investment risk.
(2) The consequences of a failure to satisfy
a requirement for the making of an order authorising an AUT. The FSA will
expect the non-compliance to be resolved as soon as possible. Important factors
are likely to be whether existing and/or past participants have suffered loss due to the
non-compliance and whether remedial steps will be taken to satisfy all the
requirements of the order.
(3) Whether it is necessary to suspend the issue and redemption of units to protect the
interests of existing or potential participants in
the AUT. For
example, this may be necessary if:
(a) information suggests the current price
of units under
the AUT may
not accurately reflect the value of the property subject to the scheme; or
(b) the property subject to the scheme cannot be valued
accurately.
(4) The effect on the interests of participants within the scheme of the use of
either or both of its powers under sections 254 and 257. However, the FSA will also consider
the interests of past and potential participants.
(5) Whether the FSA's concerns can be resolved by taking
enforcement action against the manager and/or trustee of the AUT. In some instances,
the FSA may
consider it appropriate to deal with a breach by a manager or trustee by taking direct enforcement action
against the manager and/or trustee without using
its powers under sections 254, 257, or 258. In other instances, the FSA may combine direct
enforcement action against a trustee and/or manager with the use of
one or more of the powers under sections 254, 257 and 258.
(6) Whether there is information to suggest
that a trustee or manager has knowingly
or recklessly given the FSA false
information. Giving false information is likely to cause very serious concerns,
particularly if it shows there is a risk of loss to the property subject to
the scheme or
that participants' interests
have been or may be affected in some other way.
(7) The conduct of the manager or trustee in relation to, and following the
identification of, the issue, for example:
(a) whether the manager or trustee discovered the issue or problem
affecting the AUT and
brought it to the FSA's attention
promptly;
(b) the degree to which the manager or trustee is willing to
cooperate with the FSA's investigation
and to take protective steps, for example by suspending the issue and redemption of units in the AUT;
(c) whether the manager or trustee has compensated past and existing participants who have
suffered loss.
(8) The compliance history of the trustee or manager, including whether
the FSA has
previously taken disciplinary action against the trustee or manager in relation to the AUT or any other collective investment scheme.
(9) Whether there is information to suggest
that the AUT is
being used for criminal purposes and/or that the manager or trustee is itself involved in financial crime.
- 01/12/2004
Choice of powers
ENF 16.2.11
See Notes
- 01/12/2004
ENF 16.2.12
See Notes
Where the FSA has a concern about an AUT that must be dealt with urgently, it will
generally use its power to give directions under section 257 in the first
instance (see ENF
16.2.5 G to ENF
16.2.7 G).
- 01/12/2004
ENF 16.2.13
See Notes
The following are examples of situations
where the FSA may
consider it appropriate to seek a court order under section 258 (see ENF
16.2.8 G) to remove the manager or trustee:
(1) where there are grounds for concern over
the behaviour of
the manager or trustee in respect of
the management of the scheme or
of its assets;
(2) where a manager or trustee has breached a requirement imposed
on him under the Act or
has knowingly or recklessly given the FSA false
information.
The FSA appreciates the effect
this action may have on the reputation of a manager or trustee and will use the power only where
this is proportionate in all the circumstances of the case.- 01/12/2004
ENF 16.2.14
See Notes
The FSA recognises
that participants in
an AUT have
a direct financial interest in the property subject to the scheme. It follows that in cases where it
considers it appropriate to use its section 254 power to revoke an authorisation order, the FSA will generally first
require the manager or trustee to wind up the AUT (or seek a court order
for the appointment of a firm to
wind up the AUT).
- 01/12/2004
ENF 16.3
ICVCs
- 01/12/2004
ENF 16.3.1
See Notes
Regulations for setting up, running and
regulating ICVCs are
contained in The Open-endedInvestmentCompanies
Regulations 2001 (SI 2001/1228). The regulations include the following enforcement
powers:
(2) a power for the FSA to give directions (regulation 25); and
(3) a power for the FSA to apply to court for the removal of
any director of
an ICVC or
its depositary (regulation
26).
- 01/12/2004
ENF 16.3.2
See Notes
The grounds upon which the FSA may use its powers
under regulations 23, 25 and 26 respectively are broadly similar to those
upon which it may use its equivalent enforcement powers in relation to AUTs (see ENF
16.2.1 G to ENF
16.2.9 G).
- 01/12/2004
ENF 16.3.3
See Notes
- 01/12/2004
Regulations 23, 25 and 26: the FSA's policy
ENF 16.3.4
See Notes
The factors the FSA may take into account when it decides
whether to use one or more of these powers include, but are not limited to,
factors which are broadly similar to those in ENF
16.2.10 G in the context of AUTs.
However, the relevant conduct will, of course, be that of the ICVC, the director or directors of the ICVC and its depositary (another difference
is that the FSA is
also able to take disciplinary action against the ICVC itself - see ENF
16.3.3 G). When choosing which powers to use, the FSA will adopt an approach
which is broadly similar to that described in ENF
16.2.11 G to ENF
16.2.14 G.
- 01/12/2004
ENF 16.4
Recognised schemes
- 01/12/2004
ENF 16.4.1
See Notes
Sections 264 to 283 of the Act relate to recognised schemes. These
provisions contain the following enforcement powers:
(1) the FSA's power
under section 267 to suspend promotion of a scheme constituted in another EEA State and recognised
under section 264 (Schemes constituted in other EEA States);
(2) the FSA's power
under section 279 to revoke recognition of:
(a) a scheme recognised
under section 270 (Schemes authorised in designated countries or territories);
and
(b) a scheme individually
recognised under section 272 (Individually recognised overseas schemes);
(3) the FSA's power
under section 281 to give directions in respect of the schemes identified
in ENF 16.4.1 G (2).
- 01/12/2004
Section 267: the power
ENF 16.4.2
See Notes
The FSA has
power under section 267 of the Act (Power
of Authority to suspend promotion of scheme) to suspend promotion of a scheme that is constituted
in another EEA State and
recognised under section 264. The power applies if it appears to the FSA that the operator of that scheme has communicated an invitation
or inducement in relation to the scheme in
a manner contrary to the financial
promotion rules. Under section 267(3), the suspension may last
for a set period, until a certain event has happened or until certain conditions
have been met. Under sections 267(4) and (5) the FSA may, either on its own initiative or
on the application of the operator of
the scheme concerned,
vary or revoke a direction suspending the scheme.
- 01/12/2004
Section 267: the FSA's policy
ENF 16.4.3
See Notes
When it decides whether a suspension
order under section 267 is appropriate, the FSA will consider all the relevant circumstances.
General factors that the FSA may
consider include, but are not limited to:
(1) the seriousness of the breach of financial promotion rules by
the operator (the
matters listed at ENF 16.2.10 G (1)(a) to ENF 16.2.10 G (1)(f) may be relevant in this context); and
(2) the conduct of the operator after the breach was discovered
including whether the operator has
compensated past and existing participants who
have suffered loss.
- 01/12/2004
ENF 16.4.4
See Notes
In addition to or instead of suspending
the promotion of a scheme recognised
under section 264, the FSA may
ask the competent authorities of
the EEA State in
which the scheme is
constituted who are responsible for the authorisation of collective investment schemes, to take such
action in respect of the scheme and/or
its operator as
will resolve the FSA's concerns.
Also, Schedule 5 to the Act (Persons
Concerned in Collective investment Schemes) states that a person who for the time being is an operator, trustee or depositary of a scheme recognised under
section 264 of the Act is
an authorised person.
So, it will also be open to the FSA to
take direct enforcement action against those persons.
- 01/12/2004
Section 279: the power
ENF 16.4.5
See Notes
(1) Section 279 of the Act (Revocation of recognition) relates to schemes recognised
under sections 270 and 272. Section 270 sets out the requirements for the
recognition of a collective
investment scheme which is not recognised under section 264
but which is managed and authorised in a country or territory designated for
the purposes of section 270. Section 272 sets out the requirements for the
recognition of a collective
investment scheme which is managed in a country or territory
outside the United Kingdom and
does not meet the requirements for recognition under section 264 or 270.
(2) Section 279 states that 'The FSA may direct that a scheme is to cease to
be recognised by virtue of section 270 or revoke an order under section 272
if it appears to the FSA:-
(a) that the operator, trustee or depositary of the scheme has contravened a requirement imposed
on him by or under this Act;
(b) that the operator, trustee or depositary of the scheme has, in purported compliance with
any such requirement, knowingly or recklessly given the FSA information which is false or misleading
in a material particular;
(c) in the case of an order under section
272, that one or more of the requirements for the making of the order are
no longer satisfied; or
(d) that none of paragraphs (a) to (c) applies,
but it is undesirable in the interests of the participants or potential participants that the scheme should continue to be recognised'.
- 01/12/2004
Section 281: the power
ENF 16.4.6
See Notes
Under section 281of the Act (Directions), the FSA can suspend the recognition
of a scheme recognised
under section 270 or section 272 for a set period, until a certain event happens
or until certain conditions are met. The grounds upon which the FSA may give a direction
under section 281 are broadly similar to those for the use of its power under
section 279 (see ENF
16.4.5 G).
The section 281 power may, however, also be used if it appears to the FSA that the operator, trustee or depositary of a scheme recognised under
section 270 or 272 is likely to breach a requirement imposed on him under
the Act.
- 01/12/2004
Sections 279 and 281: the FSA's policy
ENF 16.4.7
See Notes
The FSA will
consider all the relevant circumstances of each case when it decides whether
it is appropriate to use its powers under sections 279 and 281. The general
factors which the FSA may
consider include, but are not limited to, those set out in ENF 16.2.10 G (1) to ENF 16.2.10 G (9) (the
conduct of the operator of
the scheme and
of the trustee or depositary will also,
of course, be taken into account in relation to each of these factors).
- 01/12/2004
ENF 16.4.8
See Notes
As well as or instead of using these
powers, the FSA may
ask the relevant regulatory
body of the country or territory in which the scheme is authorised to take such action
in respect of the scheme and/or
its operator, trustee or depositary as will resolve
the FSA's concerns.
- 01/12/2004
ENF 16.5
Procedures and other relevant powers and provisions
- 01/12/2004
Procedures
ENF 16.5.1
See Notes
ENF
16 Annex 1 G lists
the procedures the FSA must
follow when using the powers discussed in this chapter.
- 01/12/2004
ENF 16.5.2
See Notes
More information on the procedures the FSA will follow when issuing statutory notices and
when deciding to use its powers to apply to court is contained in DEC
- 01/12/2004
Relevant powers and provisions other than those discussed in this chapter
ENF 16.5.3
See Notes
Section 238 of the Act (Restrictions on promotion) prohibits
a firm from
communicating an invitation or inducement to participate in a collective investment scheme unless
an exemption applies (the exemptions include the collective investment schemes listed in ENF 16.1.1 G (1) to ENF 16.1.1 G (3)). In addition, section 240 (Restriction
on approval of promotion) prohibits a firm from
approving the content of a communication relating
to a collective investment
scheme if the firm itself
would be prohibited from making the communication by
section 238. The FSA has
a range of powers for taking remedial, protective and disciplinary action
against a firm over
breaches of these prohibitions. These include the powers discussed in ENF 3 (Variation of Part IV permission
on the FSA's own-initiative), ENF 5 (Cancellation of Part IV permission on the FSA's own initiative), ENF 6 (Injunctions), ENF 9 (Restitution and redress), ENF 10 (Insolvency proceedings and orders against debt
avoidance), ENF 11 (Discipline of authorised firms
and approved persons: The FSA's general approach), ENF 12 (Discipline of authorised firms
and approved persons: Public censures and public
statements) and ENF 13 (Discipline of authorised firms
and approved persons: Financial penalties).
- 01/12/2004
ENF 16.5.4
See Notes
Unauthorised
persons are generally prohibited by sections 19 (The general
prohibition) and 21 (Restrictions on financial promotion) of the Act from being involved
in either the management or promotion of collective
investment schemes. The FSA's civil
and regulatory powers for dealing with breaches of these prohibitions include
those discussed in ENF 6, ENF 9 and ENF 10. An unauthorised person who breaches the prohibitions
in sections 19 or 21 will also be guilty of a criminal offence under the Act. The FSA's power to prosecute criminal offences
is discussed in ENF 15 (Prosecution of criminal
offences).
- 01/12/2004
ENF 16.5.5
See Notes
The FSA's investigation
powers in connection with AUTs, ICVCs, recognised schemes and other collective investment schemes are
discussed in ENF 2 (Information gathering
and investigation powers).
- 01/12/2004
ENF 16 Annex 1
Table of procedures for use of CIS powers (See ENF 16.5.1G)
- 01/12/2004
See Notes
| Power | Circumstance | Procedure |
| Section 254 | If the FSA is proposing to revoke a section 243 authorisation order under section 254(1) (see ENF 16.2.3 G and ENF 16.2.4 G) | Section 255 - Warning notice / decision notice (see DEC 3 and DEC 4) |
| Section 257 | If the FSA is proposing to give or vary on its own initiative a direction under section 257 (see ENF 16.2.5 G to ENF 16.2.7 G) | Section 259 - Supervisory notices (see DEC 4.6 and DEC 4.6). |
| Section 257 | If the FSA is proposing to refuse an application by a manager or trustee of a scheme under section 257(6) for a direction to be revoked or varied or to vary the direction otherwise than in accordance with the application (see ENF 16.2.7 G) | Section 260 - Warning notice / decision notice (see DEC 3 and DEC 4) |
| Section 257 | If the FSA decides on its own initiative to revoke a direction, or to revoke or vary a direction in accordance with a request by a manager or trustee under section 257(6) (see ENF 16.2.7 G) | Section 261 - Written notice |
| Section 258 | If the FSA is applying to the court for orders under section 258 (see ENF 16.2.8 G) | Section 258(6) Application and written notice (see DEC 4.6). |
| Section 267 | If the FSA is proposing to suspend promotion of a section 264 scheme under section 267 or to vary a direction suspending a scheme on its own initiative (see ENF 16.4.2 G) | Section 268 - Supervisory notices (see DEC 3 and DEC 4). |
| Section 267 | If the FSA is proposing to refuse an application by an operator under section 267(4) or (5) for a direction suspending a scheme to be varied or revoked or to vary the direction otherwise than in accordance with the application (see ENF 16.4.2 G) | Section 269(1) - (2) and (6) - Warning notice / decision notice (see DEC 2and DEC 4). |
| Section 267 | If the FSA decides on its own initiative to revoke a direction, or to revoke or vary a direction in accordance with a request by an operator (see ENF 16.4.2 G) | Section 269(4) - (6) - Written notice |
| Section 279 | If the FSA is proposing to direct that a section 270 scheme is no longer to be recognised or to revoke a section 272 order (see ENF 16.4.5 G) | Section 280 Warning notice / decision notice (see DEC 2 and DEC 4). |
| Section 281 | If the FSA is proposing to give or vary a direction under section 281 on its own initiative (see ENF 16.4.6 G) | Section 282 - Supervisory noticesDEC 3 and DEC 4 |
| Regulation 23 OEIC Regulations | If the FSA is proposing to revoke an authorisation order relating to an ICVC under regulation 23(1) (see ENF 16.3) | Regulation 24 - Warning notice / decision notice (see DEC 2DEC 4. |
| Regulation 25 OEIC Regulations | If the FSA is proposing to give or vary a direction under regulation 25 on its own initiative (see ENF 16.3) | Regulation 27- Supervisory notices (see DEC 3 and DEC 4). |
| Regulation 25 OEIC Regulations | If the FSA is proposing to refuse an application to revoke or vary a direction in accordance with a request under regulation 25(7) or to vary the direction otherwise than in accordance with the application. | Regulation 28 - Warning notice / decision notice (see DEC 2DEC 4 |
| Regulation 25 OEIC Regulations | If the FSA decides on its own initiative to revoke a direction, or to revoke or vary a direction in accordance with a request under regulation 25(7) | Regulation 29 - Written notice |
| Regulation 26 OEIC Regulations | If the FSA is applying to the court for an order under regulation 26 (see ENF 16.3) | Regulation 26(7) - Application and written notice (see DEC 4.6). |
- 01/12/2004
ENF 17
Disqualification
of auditors and actuaries
ENF 17.1
Application and purpose
- 01/12/2004
Application
ENF 17.1.1
See Notes
- 01/09/2003
Purpose
ENF 17.1.2
See Notes
Auditors and actuaries fulfil a vital role in the management
and conduct of firms and AUTs. Provision of the Act, rules made under the Act and the OEIC Regulations 2000 impose various duties
on auditors and actuaries.
These duties and the FSA's power
to disqualify auditors and actuaries if
they breach them will assist the FSA in
pursuing its regulatory
objectives. The FSA's power
to disqualify auditors in breach of duties imposed by trust scheme rules will also assist the FSA to achieve these regulatory objectives by
ensuring that auditors fulfil the duties imposed upon them by these rules.
- 01/09/2003
ENF 17.2
Introduction
- 01/12/2004
ENF 17.2.1
See Notes
This chapter outlines:
(1) the FSA's power
to disqualify auditors and actuaries under
section 345 of the Act (Disqualification);
(2) the FSA's power
to disqualify auditors under section 249 of the Act (Disqualification of auditor for breach
of trust scheme rules);
(3) the FSA's approach
to the exercise of its powers under section 345 and 249;
(4) the FSA's procedure
for exercising the powers; and
(5) the effect of the FSA's decision to exercise the powers.
- 01/12/2004
ENF 17.3
The FSA's power to disqualify auditors and actuaries
- 01/12/2004
ENF 17.3.1
See Notes
Under section 345 of the Act (Disqualification),
if it appears to the FSA that
an auditor or actuary to
whom section 342 of the Act applies
has failed to comply with a duty imposed on him under the Act, it may disqualify him from acting as
an auditor or actuary for
any firm or
any class of firm.
Section 342 of the Act applies
to those auditors and actuaries referred
to in ENF
17.1.1 G (1) and (2).
- 01/09/2003
ENF 17.3.2
See Notes
The duties imposed on the auditors and actuaries of firms under the Act are:
(1) the duties imposed by rules made under section 340(3) of the Act (Appointment) contained
in SUP
3 (Auditors) and SUP 4 (Actuaries)
and, in the case of firms which
are ICVCs,
contained in COLL 4 (Investor relations), COLL
7 (Suspension of dealings and termination of authorised
funds), CIS 10 (Report and accounts) and CIS 14 (Termination of authorised funds);
(2) the duties under sections 342(6) (Information
given by auditor or actuary to the FSA) and 343(6) (Information given by auditor
or actuary to the FSA: persons with close links) of the Act to communicate to the FSA any matter prescribed in The Financial
Services and Markets Act 2000 (Communications by Auditors) Regulations 2001
(SI 2001/2587) and The Financial Services and Markets Act 2000 (Communications
by Actuaries) Regulations 2003 (SI 2003/1294);
(3) a duty to notify the FSA (under section 344(2) of the Act (Duty
of auditor or actuary resigning etc to give notice)), if:
(a) they are removed from office by a firm;
(b) they resign before the expiry of their
term of office with a firm;
or
(c) they are not re-appointed by a firm;
(4) a duty under section 344(3), on ceasing
to be an auditor or an actuary of
a firm, to
notify the FSA without
delay:
(a) of any matter connected with their ceasing
to be an auditor or actuary for
that firm which
they think ought to be drawn to the FSA's attention;
or
(b) that there is no such matter; and
- 01/04/2004
ENF 17.3.3
See Notes
Under section 249 of the Act (Disqualification of
auditor for breach of trust scheme rules) if it appears to the FSA that an auditor has
failed to comply with the duties imposed on him by trust scheme rules it may disqualify him
from being the auditor for any AUT or ICVC. These duties are
set out in COLL 4 (Investor relations), COLL
7 (Suspension of dealings and termination of authorised
funds), CIS 10 (Report and accounts), and CIS 14 (Termination of authorised funds).
- 01/04/2004
ENF 17.3.4
See Notes
The FSA's powers
to disqualify auditors and actuaries under
section 345 and auditors under section 249 of the Act are separate powers. However, the procedures
for exercising the powers in each case are the same and are set out in section
345:
(1) if the FSA proposes to disqualify an auditor or actuary, it must give him
a warning notice (section
345(2): see DEC 2.2 (Warning notice procedure));
(2) if the FSA decides to disqualify an auditor or actuary, it must give him
a decision notice (section
345(3): see DEC 2.3 (Decision notice procedure));
- 01/12/2004
ENF 17.4
The FSA's policy on disqualification of auditors and actuaries
- 01/12/2004
ENF 17.4.1
See Notes
The FSA recognises
that the use of its powers to disqualify auditors and actuaries will have serious consequences for
the auditors or actuaries concerned
and their clients; it will therefore exercise
its power to impose a disqualification in a way that is proportionate to the
particular breach of duty concerned. The FSA will
consider the seriousness of the breach of duty when deciding whether to exercise
its power to disqualify and the scope of any disqualification.
- 01/12/2004
ENF 17.4.2
See Notes
Actuaries appointed
by
firms
under SUP 4.3.1 R are approved persons and as such will be subject to
the Statements of Principle and Code of Practice for Approved Persons.
When deciding whether to exercise its power to disqualify an
actuary
who is an approved person, the FSA will consider whether
the particular breach of duty can be adequately addressed by the exercise
of its disciplinary powers in relation to approved persons. These powers and the factors
that the FSA will
take into account when deciding whether to exercise them are set out in ENF 11 (Discipline of authorised firms and approved persons:
the FSA's general approach), ENF 12 (Discipline of firms
and approved persons: public censures and public statements) and ENF 13 (Discipline of firms and approved persons: financial
penalties).
- 31/12/2004
ENF 17.4.2A
See Notes
In
cases where the nature of the breach of duties set out in ENF
17.3.2 G and ENF
17.3.3 G is
such that the FSA has
concerns about the fitness and propriety of an individual auditor or actuary, the FSA will consider whether
it is appropriate to make a prohibition
order instead of, or in addition to, disqualifying the individual
(see ENF
8 (Prohibition of individuals)).
- 01/09/2003
ENF 17.4.3
See Notes
(1) Under section 345(1) of the Act (Disqualification),
the FSA may
disqualify an auditor or actuary to
whom section 342 of the Act applies
(see ENF
17.3.1 G) from acting for a specific firm or a particular class
of firm.
Under section 249(1) of the Act (Disqualification
of auditor for breach of trust scheme rules), the FSA may disqualify an auditor appointed by
an AUT from
acting for any AUT or ICVC.
(2) A disqualification order will be made
against the person appointed
as auditor or actuary of
the firm.
In the case of actuaries, the
disqualification order will be made against the individual appointed by the firm. In the case of auditors,
the disqualification order will depend on the terms of the appointment. Where
the firm has
appointed a named individual as auditor the disqualification will be made
against that individual and this will be the case where the individual concerned
is a member of a firm of auditors. Where the firm has appointed a firm as auditor the
disqualification order will be against that firm. Where the person appointed is a limited liability partnership the disqualification
order will be against the limited
liability partnership rather
than its members.
- 01/09/2003
ENF 17.4.4
See Notes
When it decides whether to exercise its
power to disqualify an auditor or actuary under
section 345(1), and what the scope of any disqualification will be, the FSA will take into account
all the circumstances of the case. These may include, but are not limited
to, the following factors:
(1) the nature and seriousness of any breach
of rules and
the effect of that breach: the rules are
set out in SUP 3 (Auditors) and SUP
4 (Actuaries), and in the case of firms which are ICVCs, in COLL 4 (Investor
relations), COLL 7 (Suspension of dealings
and termination of authorised funds), CIS 10 (report and accounts)
and CIS 14 (Termination of authorised funds). The FSA will regard as particularly
serious any breach of rules which
has resulted in, or is likely to result in, loss to consumers or damage to confidence in the financial system or an
increased risk that a firm may
be used for the purposes of financial
crime;
(2) [deleted]
(a) [deleted]
(b) [deleted]
(c) [deleted]
(d) [deleted]
(e) [deleted]
(3) the nature and seriousness of any breach
of the duties imposed under the Act referred
to in ENF
17.3.2 G: the FSA will regard as particularly serious any
failure to disclose to it information which has resulted in, or is likely
to result in, loss to consumers or
damage to confidence in the financial
system or an increased risk that a firm may be used for the purposes of financial crime;
(4) action taken by the auditor or actuary to remedy the breach:
this may include whether the auditor or actuary brought
the breach to the attention of the FSA promptly,
the degree of cooperation with the FSA in
relation to any subsequent investigation, and whether remedial steps have
been taken to rectify the breach and whether reasonable steps have been taken
to prevent a similar breach from occurring;
(5) action taken by professional bodies:
the FSA will
consider whether any disciplinary action has been or will be taken against
the auditor or actuary by
a relevant professional body and whether that action adequately addresses
the particular breach of duty;
(6) the previous compliance record of the
auditor or actuary concerned:
whether the FSA (or
a previous regulator)
or professional body has imposed any previous disciplinary sanctions on the
firm or individual concerned.
- 01/04/2004
ENF 17.4.5
See Notes
When deciding whether or not to disqualify
an auditor under section 249(1) of the Act (Disqualification
of auditor for breach of trust scheme rules), and in setting the disqualification,
the FSA will
take into account all the circumstances of the case. These may include, but
are not limited to, the following circumstances:
(1) the effect of the auditor's breach of
a duty imposed by trust
scheme rules: the FSA will
regard as particularly serious a breach of a duty imposed by trust scheme rules (set
out in COLL
4 (Investor relations), COLL 7 (Suspension of dealings and termination of authorised funds), CIS 10 (Report and accounts) and CIS 14 (Termination of authorised funds)) which has resulted in, or is
likely to result in, loss to consumers or
damage to confidence in the financial
system or an increased risk that a firm may be used for the purposes of financial crime;
(2) action taken by the auditor to remedy
its breach of a duty imposed by trust
scheme rules: this may include any steps taken by the auditor
to bring the breach to the attention of the FSA promptly, the degree of co-operation
with the FSA in
relation to any subsequent investigation, and whether any steps have been
taken to rectify the breach or prevent a similar breach;
(3) action taken by a relevant professional
body:
The FSA will
consider whether any disciplinary action has or will be taken against the
auditor by a relevant professional body and
whether such action adequately addresses the particular breach of a duty imposed
by trust scheme rules;
(4) the previous compliance record of the
auditor concerned: whether the FSA (or
a previous regulator)
or professional body has
imposed any previous disciplinary sanctions on the firm or individual concerned.
- 01/04/2004
ENF 17.5
Removal of a disqualification
- 01/12/2004
ENF 17.5.1
See Notes
- 01/12/2004
ENF 17.5.2
See Notes
The FSA will
remove a disqualification if it is satisfied that the disqualified person will in future
comply with the duty in question (and other duties under the Act). When it considers
whether to grant or refuse a request that a disqualification be removed on
these grounds, the FSA will
take into account all the circumstances of a particular case. These circumstances
may include, but are not limited to:
(1) the seriousness of the breach of duty that resulted
in the disqualification;
(2) the amount of time since the original
disqualification; and
(3) any steps taken by the auditor or actuary after the disqualification
to remedy the factors which led to the disqualification and any steps taken
to prevent a similar breach of duty from
happening again.
- 01/09/2003
ENF 17.6
The effect of a disqualification
- 01/12/2004
ENF 17.6.1
See Notes
A disqualification will come into effect
on the date stated in the final
notice.
- 01/09/2003
ENF 17.6.2
See Notes
A firm must
not appoint as an auditor a person who
is the subject of an order disqualifying him from acting for that firm or that class of firm (see SUP 3.4.5 R5 (Disqualified auditors)). Similarly, an AUT or ICVC must
not appoint as auditor a person who
is the subject of an order disqualifying him from acting for that AUT or ICVC or any AUT or ICVC.
- 01/12/2004
ENF 17.7
Publication of disqualification
- 01/12/2004
ENF 17.7.1
See Notes
- 01/12/2004
ENF 17.7.2
See Notes
Under section 347 (1)(i) of the Act
(The record of authorised persons etc), the FSA must keep a record of every person falling within
such class as the FSA may
determine. To help it fulfil its regulatory
objectives of protecting consumers and
promoting public awareness, the FSA will
keep on the FSA Register a record of firms and individuals
who have been the subject of disqualification orders.
- 01/12/2004
ENF 17.7.3
See Notes
Once the decision to make a disqualification
order has been set out in a final
notice, the FSA will
consider what additional information about the circumstances of the order
to include on the FSA Register and will take
into account any possible prejudice to the auditor or actuary concerned. In general, the FSA considers that publication
of relevant information about orders to disqualify auditors or actuaries will be in the
interests of firms and consumers.
- 01/12/2004
ENF 17.7.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry on the
public record ceases to apply to a person,
it may remove the relevant entry from the record. Section 347(4) states that,
if the FSA decides
not to remove the entry in the record, it must make a note to that effect
on the FSA Register and
state why it believes the entry on the record no longer applies to the person.
- 01/12/2004
ENF 17.7.5
See Notes
While a disqualification order is effective,
the FSA will
keep a record of the order on the FSA Register. The FSA's policy in relation
to section 347(4) of the Act is
that where an application to revoke a disqualification order is granted, a
note will be made on the FSA Register giving reasons for the revocation. The availability of a record of action taken
by the FSA in
relation to action taken against auditors and actuaries will assist the FSA in furthering its regulatory objectives, in particular, the
maintenance of confidence in the financial system. For this reason, the FSA will keep the annotated
record of the revoked disapplication order for a period of six years from
the date of the revocation. The record will then be removed from the FSA Register.
- 01/12/2004
ENF 18
Disapplication orders against members of the professions
ENF 18.1
Application and purpose
- 01/12/2004
Application
ENF 18.1.1
See Notes
(1)
This
chapter applies to any person who
is, in relation to a profession, entitled to practise that profession and,
in practising it, is subject to the rules of the relevant designated professional body, whether or
not it is a member of that body ('members').
(2) A member is
exempt from the general
prohibition, under section 327 of the Act (Exemption from the general prohibition),
so long as the conditions set out in sections 327(2) to (7) are satisfied
and so long as there is not in force:
(a) a direction under section 328 of the Act ( Directions in relation
to the general prohibition) disapplying the prohibition in whole or in part;
or
(b) an order under section 329 of the Act (Orders in relation
to the general prohibition).
- 01/12/2004
Purpose
ENF 18.1.2
See Notes
This chapter describes the FSA's general approach
to the use of its power under section 329 of the Act (Orders in relation to the general prohibition)
to make an order disapplying an exemption from the general prohibition in relation to a person who is member.
- 01/12/2004
ENF 18.1.3
See Notes
The chapter outlines:
(1) the FSA's power
to make an order disapplying an exemption ('a disapplication order'), under
section 329;
(2) the FSA's general
approach to the exercise of that power;
(3) the FSA's procedure
for exercising its power to make a disapplication order;
(4) the effect of the FSA's decision to make a disapplication order;
and
- 01/12/2004
ENF 18.1.4
See Notes
The FSA's powers
to make a disapplication order on the grounds that a member is not a fit and proper person to conduct exempt regulated activities,
and to maintain a public record of disapplication orders, will assist the FSA in pursuing its regulatory objectives of
protecting consumers,
promoting public awareness and reducing financial
crime.
- 01/12/2004
ENF 18.2
The FSA's power to make a disapplication order
- 01/12/2004
ENF 18.2.1
See Notes
Under section 329(1) of the Act (Orders in relation
to the general prohibition) if it appears to the FSA that a person to whom (as a result of section 327(1)
of the Act (Exemption
from the general prohibition)) an exemption from the general prohibition applies, is not a fit
and proper person to
carry on exempt regulated activities, it may make an order
under section 329(2) disapplying the exemption to the extent set out in the
order.
- 01/12/2004
ENF 18.2.2
See Notes
Sections 329(5) and 329(6) are concerned
with the effect of disapplication orders on partnerships (including limited
liability partnerships). Section 329(5) provides that if a partnership (or limited liability
partnership) is named in a disapplication order, the order
is not affected by any change in its membership.
- 01/12/2004
ENF 18.2.3
See Notes
Under section 329(6) a partnership (or limited liability partnership) named in a
disapplication order is dissolved, the order continues to have effect in relation
to any partnership (or limited liability partnership)
that succeeds to the business of the dissolved partnership
(or limited liability partnership). Section 329(7) provides
that a partnership will
succeed to the business if:
(1) the members of the resulting partnership are substantially
the same as those of the former partnership;
and
(2) succession is to the whole or substantially
the whole of the business of the former partnership.
- 01/12/2004
ENF 18.2.4
See Notes
Section 331(1) (Procedure on making or
varying orders under section 329) provides that if the FSA proposes to make a disapplication order,
it must give the person concerned
a warning notice setting
out the terms of the proposed order. The FSA's procedures
in DEC 2.2 (Warning notice procedure) will apply.
- 01/12/2004
ENF 18.2.5
See Notes
Section 331(3) provides that if the FSA then decides to make
a disapplication order it must give the person concerned
a decision notice.
The FSA's procedures
in DEC 2.3 (Decision notice procedure) will apply.
- 01/12/2004
ENF 18.2.6
See Notes
- 01/12/2004
ENF 18.3
The FSA's general approach to making disapplication orders
- 01/12/2004
ENF 18.3.1
See Notes
ENF 18.4 sets
out how the FSA will
determine whether a member is
not a fit and proper to carry out exemptregulated activities in
accordance with section 327 of the Act (Exemption
from the general prohibition).
- 01/12/2004
ENF 18.3.2
See Notes
The FSA may
make a range of disapplication orders depending on the particular circumstances
of each case, including the range of exempt regulated activities undertaken
and the particular exempt regulated activities to which the person's lack of fitness
and propriety in that context is relevant.
- 01/12/2004
ENF 18.3.3
See Notes
The FSA recognises
that a decision to make a disapplication order may have serious consequences
for a member in
relation not only to the conduct by the member of exempt regulated activities, but also in relation
to the other business carried on by the member.
When it decides whether to exercise its power to make a disapplication order,
the FSA will
consider all relevant circumstances including whether other action, in particular
the making of a prohibition
order (see ENF
8 (Prohibition of individuals)),
would be more appropriate. In general, the FSA is likely to exercise its powers to make
an order disapplying an exemption where it considers that a member of a profession presents such a risk
to the FSA's regulatory objectives that
it is necessary to prevent the member from carrying out the exempt regulated activities.
The FSA will
also have regard to any disciplinary action taken, or to be taken, against
the person by
the relevant designated
professional body.
- 01/12/2004
ENF 18.4
Disapplication orders
- 01/12/2004
ENF 18.4.1
See Notes
The FSA may
be alerted to concerns in relation to the carrying out of exempt regulated activities by
a member,
by the relevant designated
professional body or by complaints from others such as employees or clients of the member.
- 01/12/2004
ENF 18.4.2
See Notes
When the FSA has concerns about the fitness and propriety
of a member to
carry out exempt regulated
activities, it will consider all the relevant circumstances
of the case, including whether those concerns arise from the fitness and propriety
of specific individuals engaged to perform the exempt regulated activities carried
out by the member or
whether its concerns arise from wider concerns about the member itself.
- 01/12/2004
ENF 18.4.3
See Notes
In most cases, where the FSA is concerned about
the fitness and propriety of a specific individual, it may be more appropriate
for the FSA to
consider whether to make an order prohibiting the individual from performing
functions in relation to exemptregulated activities rather
than a disapplication order in relation to the member concerned. The criteria which the FSA will apply when determining
whether to make a prohibition
order against an individual who is not regulated by the FSA are set out in ENF 8.8 (Prohibition orders against other individuals).
In addition to the factors referred to in ENF 8.8, the FSA may also take into
consideration any disciplinary action that has been, or will be taken against
the individual concerned by the relevant designated
professional body, where that disciplinary action reflects on
the fitness and propriety of the individual concerned to perform exempt regulated activities.
- 01/12/2004
ENF 18.4.4
See Notes
The FSA will
also take into account the potentially more serious consequences that a disapplication
of an exemption will have for the member concerned
compared with the consequences of a prohibition of a particular individual
engaged in exempt regulated activities. However, the FSA may consider it appropriate
in some cases to disapply an exemption where it decides that the member concerned is not
fit and proper to carry out exempt regulated activities in
accordance with section 327 of the Act (Exemption
from the general prohibition).
- 01/12/2004
ENF 18.4.5
See Notes
As an alternative to making an order
to disapply an exemption, the FSA may
consider issuing a private warning. A private warning may be appropriate where
the FSA has
concerns in relation to a member's fitness
and propriety but feels that its concerns in relation to the conduct of exempt regulated activities can
be more appropriately addressed by a private warning than by a disapplication
of the member's exemption.
- 01/12/2004
ENF 18.4.6
See Notes
When it decides whether to exercise its
power to disapply an exemption from the general
prohibition in relation to a member, the FSA will take into account all relevant circumstances
which may include, but are not limited to, the following factors:
(1) disciplinary or other action taken by
the relevant designated
professional body, where that action relates to the fitness
and propriety of the member concerned:
where the FSA considers
that its concerns in relation to the fitness and propriety of the member concerned may be,
or have been adequately addressed by disciplinary or other action taken by
the relevant designated
professional body it may consider not making a disapplication
order in addition to such action; however, where the FSA considers that its concerns, and in particular,
any risks presented to the member's clients in respect of
its exemptregulated
activities, are not adequately addressed by that action, the FSA will consider making
a disapplication order;
- 01/12/2004
ENF 18.4.7
See Notes
Where the FSA is considering whether to exercise its
power to make a disapplication order in relation to a member, it will liaise closely with the relevant designated professional body.
- 01/12/2004
ENF 18.4.8
See Notes
Where the FSA is considering making a disapplication
order against a member as
a result of a breach of rules made
by the FSA under
section 323(1) of the Act, it will take into
account any proposed application by the member concerned
for authorisation under
the Act. The FSA may refrain from making
a disapplication order pending its consideration of the application for authorisation.
- 01/12/2004
ENF 18.5
Applications for variation or revocation of disapplication orders
- 01/12/2004
ENF 18.5.1
See Notes
- 01/12/2004
ENF 18.5.2
See Notes
When considering whether to grant or
refuse an application to vary or revoke a disapplication order, the FSA will take into account
all the relevant circumstances. These may include, but are not limited to:
(1) any steps taken by the person to rectify the circumstances which
gave rise to the original order;
(2) whether the person has ceased to present the risk to clients and consumers or to the FSA's regulatory objectives which gave rise to
the original order;
(3) the circumstances giving rise to the
original order and any additional information which, had it been known by
the FSA,
would have been relevant to the decision to make the order;
(4) the amount of time which has elapsed
since the order was made.
- 01/12/2004
ENF 18.5.3
See Notes
The FSA will
not generally grant an application to vary a disapplication order unless it
is satisfied that the proposed variation will not result in the person presenting the
same degree of risk to clients or consumers that originally
gave rise to the order to disapply the exemption. Similarly, the FSA will not revoke a
disapplication order unless and until it is satisfied that the person concerned is fit
and proper to carry out exempt regulated activities generally
or those specific exempt regulated activities in relation to which
the exemption has been disapplied.
- 01/12/2004
ENF 18.5.4
See Notes
Section 331(6) of the Act (procedure
on making or varying orders under section 329) provides that if the FSA proposes to refuse
an application for the variation or revocation of a disapplication order,
it must give the applicant a warning
notice. Section 331(7) provides that if the FSA then decides to refuse the application,
it must give the applicant a decision
notice. The FSA's approach
to the issue of warning
notices and of decision
notices is described in DEC 2.2 (Warning notice procedure)
and DEC 2.3 (Decision making procedure). A person whose application for variation or
revocation of a disapplication order has been refused, may refer the matter
to the Tribunal (see DEC 5.1 (The Tribunal)).
- 01/12/2004
ENF 18.6
Other powers that may be relevant
- 01/12/2004
ENF 18.6.1
See Notes
- 01/12/2004
ENF 18.6.2
See Notes
The FSA's powers
to appoint investigators are set out in ENF 2. In particular, under
section 168(4)(d) of the Act (Appointment
of persons to carry out investigations in particular cases) the FSA may appoint investigators
if there appear to be circumstances suggesting that an individual is not a
fit and proper person to
be involved in the discharge of any function in relation to exempt regulated activities.
- 01/12/2004
ENF 18.6.3
See Notes
Where the FSA considers that it may be more appropriate
to take action against particular individuals engaged in the carrying out
of exempt regulated
activities within the member of
a profession concerned (see ENF
18.4.3 G),
it may consider using its power to make prohibition
orders against the relevant individuals (see ENF
8 (Prohibition of individuals)).
- 01/12/2004
ENF 18.7
The effect of a disapplication order
- 01/12/2004
ENF 18.7.1
See Notes
When the FSA has made a disapplication order, the member against which it
has been made may not perform the exempt regulated activities to
which the order relates. If the member contravenes
the order, there will be a breach of the general
prohibition that may be prosecuted under section 23 of the Act (see ENF 15).
- 01/12/2004
ENF 18.7.2
See Notes
A disapplication order in relation to exempt regulated activities made
against a member will
be relevant should that member subsequently
apply for authorisation under
the Act. Whether
or not such an application for authorisation is
successful will depend on many factors, including the FSA's grounds for making the disapplication
order. For example, if the order for disapplication of the exemption was made
on the grounds of a breach of rules made
under 332(1) the FSA may
accept an application for authorisation notwithstanding
the disapplication order. If, however, the order was made on grounds of a
breach of the rules of a designated
professional body resulting in a significant risk to clients in relation to
the provision of exempt regulated activities, it
is unlikely that an application for approval made by the member would be accepted by the FSA before the revocation
of the disapplication order.
- 01/12/2004
ENF 18.8
Publication
- 01/12/2004
ENF 18.8.1
See Notes
- 01/12/2004
ENF 18.8.2
See Notes
Under section 347(1)(i) of the Act
(Record of authorised persons), the FSA is required to maintain a record of every person falling within
such class as the FSA may
determine. To help it fulfil its regulatory
objectives of protecting consumers and
promoting public awareness, the FSA will
maintain a record of persons who
have been the subject of disapplication orders on the FSA's Register.
- 01/12/2004
ENF 18.8.3
See Notes
The FSA will
consider what additional information about the circumstances of the order
to include on the record maintained on the FSA Register and
will take into account any possible prejudice to the person concerned as compared to the interests
of consumer protection.
In general, the FSA considers
that publication of relevantinformation about
orders to disapply an exemption will be in the interests of clients and consumers.
- 01/12/2004
ENF 18.8.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry in the FSA Register ceases to apply to a person, it may remove
the relevant entry from the record. Section 347(4) provides that, if the FSA decides not to remove
the entry in the record, it must make a note in the record to that effect
and state why it believes the entry in the record no longer applies to the person.
- 01/12/2004
ENF 18.8.5
See Notes
While a disapplication order is effective,
the FSA will
maintain a record of the order on the FSA Register. If the FSA grants an application
to vary the order, a note of the variation will be made against the relevant
entry on the FSA's Register. The FSA's policy in relation
to section 347(4) of the Act is
that where an application to revoke an order is granted, a note will be made
on the FSA Register to
the effect that the order has been revoked giving reasons for its revocation.
The availability of a full record of action taken by the FSA against persons granted an exemption under section
327 of the Act will
help the FSA to
fulfil its regulatory objectives of
protecting consumers and
maintaining confidence in the financial
system. For this reason, the FSA will maintain the annotated record of
the disapplication order for a period of six years from the date of the revocation
of the order after which period the record will be removed from the record
on the FSA Register.
- 01/12/2004
ENF 19
Directions against incoming ECA provider
ENF 19.1
Application and purpose
- 01/12/2004
Application
ENF 19.1.1
See Notes
This chapter applies to incoming ECA providers.
- 21/08/2002
Purpose
ENF 19.1.2
See Notes
This chapter outlines:
(1) the FSA's power under the ECD Regulations to direct that an incoming ECA provider, whether a firm or not, may no longer carry on a specified incoming electronic commerce activity, or may only carry it on subject to specified requirements;
- 21/08/2002
ENF 19.2
Introduction
- 01/12/2004
ENF 19.2.1
See Notes
A key element of the E-Commerce Directive is the freedom of electronic commerce activity providers from one EEA State to provide information society services freely into another EEA State. Consistent with this principle, and subject to certain rules in ECO 1, the Handbook enables an incoming ECA provider to provide services in that capacity to UK ECA recipients without the need to comply with FSA requirements which fall within the Directive's coordinated field.
- 21/08/2002
ENF 19.2.2
See Notes
However, the Directive contains a 'derogation' which allows an EEA State where the recipient is based to restrict the freedom to provide an electronic commerce activity from another EEA State where certain conditions are met. The derogation is implemented in the United Kingdom through provisions of the ECD Regulations. This chapter outlines the relevant provisions of the ECD Regulations and the FSA's policy on the use of the power to make directions against incoming ECA providers.
- 21/08/2002
ENF 19.3
The FSA's power to make an electronic commerce activity direction
- 01/12/2004
ENF 19.3.1
See Notes
Under regulation 6 of the ECD Regulations, provided certain policy and procedural conditions are met (see ENF 19.3.2 G to ENF 19.3.3 G), the FSA may direct that an incoming ECA provider may no longer carry on a specified incoming electronic commerce activity, or may only carry it on subject to specified requirements. The requirements may include a requirement that the provider must comply with one or more rules (with such modifications, if any, as may be specified) with respect to the carrying on of the activity. If an assets requirement of a kind mentioned in section 48(3) of the Act is specified in a direction, the requirement has the same effect in relation to the provider to whom the direction applies as if it had been imposed on that provider by the FSA acting under section 45 of the Act.
- 21/08/2002
Grounds for exercising the power
ENF 19.3.2
See Notes
The policy conditions for the making of an electronic commerce activity direction are that:
(1) the FSA considers:
(a) the making of the direction to be necessary for:
(i) the prevention, investigation, detection or prosecution of criminal conduct; or
(ii) the protection of consumers; or
(iii) other reasons of public policy relevant to the regulatory objectives; and
(b) that the carrying on of the incoming electronic commerce activity by the person to whom the direction is to apply prejudices, or presents a serious and grave risk of prejudice to, any of the objectives referred to in (a); and
(2) the direction appears to the FSA to be a proportionate means of achieving, or addressing the prejudice or risk of prejudice to, any of those objectives.
- 21/08/2002
ENF 19.3.3
See Notes
The procedural conditions are that:
(1) the FSA has requested the relevant EEA regulator to take measures to remedy the situation giving rise to the request;
(2) the relevant EEA regulator:
(a) has not, within what appears to the FSA to be a reasonable time, taken such measures; or
(b) has taken such measures, but the measures appear to the FSA to be inadequate in the circumstances;
(3) the FSA has notified the Commission and the relevant EEA regulator of its intention to make the direction; and
- 21/08/2002
ENF 19.3.4
See Notes
However, where the case appears to it to be one of urgency, the FSA may make a direction regardless of whether the procedural conditions in ENF 19.3.3 G are met provided it:
(1) notifies the Commission and the relevant EEA regulator as soon as possible of the direction; and
(2) gives each of these bodies a statement of its reasons for the urgency.
- 21/08/2002
Procedures
ENF 19.3.5
See Notes
Regulation 6(2) of the ECD Regulations states that an electronic commerce activity direction must be in writing.
- 21/08/2002
ENF 19.3.6
See Notes
The FSA may vary or revoke a direction on its own initiative, or on the application of the incoming ECA provider to whom the direction applies. Under regulation 10(4) of the ECD Regulations, the FSA must not vary a direction on its own initiative unless it has given the provider concerned the opportunity to make representations to the FSA in such manner, and within such period, as the FSA may determine. However, this requirement does not apply where the case appears to the FSA to be one of urgency.
- 21/08/2002
Right to refer to the Tribunal
ENF 19.3.7
See Notes
Where the FSA makes a direction, varies a direction on its own initiative, or refuses to vary or revoke a direction on the application of the incoming ECA provider, the incoming ECA provider to whom the direction applies may refer the matter to the Tribunal.
- 21/08/2002
ENF 19.4
The FSA's policy on the making of electronic commerce activity directions
- 01/12/2004
ENF 19.4.1
See Notes
The FSA will exercise the power to make an electronic commerce activity direction on a case-by-case basis. When deciding whether to make a direction, the FSA will undertake an assessment of whether the circumstances of the particular case meet the policy conditions set out in ENF 19.3.2 G.
- 21/08/2002
ENF 19.4.2
See Notes
The FSA envisages that its approach to the use of the direction power will be as follows. On obtaining information concerning possible financial crime facilitated through or involving an incoming ECA provider, or detriment to United Kingdom markets or UK ECA recipients caused by the activities of an incoming ECA provider, the FSA would contact the relevant EEA regulator of the incoming ECA provider. The FSA would expect the relevant EEA regulator to consider the matter, investigate it where appropriate and keep the FSA informed about what action, if any, was being taken. The FSA may not need to be involved further if the action by the relevant EEA regulator addresses the FSA's concerns.
- 21/08/2002
ENF 19.4.3
See Notes
However, there are likely to be circumstances in which the FSA will need to use the electronic commerce activity direction power. Examples could include where it was necessary to stop the behaviour complained of, or to make the continued provision of services by the incoming ECA provider conditional upon compliance with specified requirements. Overall, the FSA may use the direction power:
(1) where:
(a) the behaviour complained of was causing, or had the potential to cause, major detriment to consumers in the United Kingdom; or
(b) the incoming ECA provider's activities have been used, or have the potential to be used, to facilitate serious financial crime or to launder the proceeds of a crime; or
(c) the making of the direction is considered to be necessary for other reasons of public policy relevant to the regulatory objectives; and
(2) either:
(a) the relevant EEA regulator is unable to take action, or has not within a reasonable time taken action which appears to the FSA to be adequate; or
- 21/08/2002
ENF 19.4.4
See Notes
The question of whether the FSA decided to prevent or prohibit the incoming electronic commerce activity, or to make it subject to certain requirements (for example, compliance with specified rules), will depend on the overall circumstance of the case. A relevant consideration will be whether the FSA is satisfied that its concerns over the incoming electronic commerce activity can be adequately addressed through the imposition of a requirement, rather than a complete prohibition on the activity. Set out below (in (1) to (5)) is a list of factors the FSA may consider. The list is not exhaustive.
(1) The extent of any loss, or risk of loss, or other adverse effect on UK ECA recipients:The more serious the loss or potential loss or other adverse effect on them, the more likely it is that the FSA's exercise of its powers to prohibit the activity altogether will be appropriate, to protect the interests of UK ECA recipients.
(2) The extent to which customer assets appear to be at risk.
(3) The risk that the incoming ECA provider's activities may be used or have been used to facilitate financial crime or to launder the proceeds of a crime:Information available to the FSA, including information supplied by other law enforcement agencies, may suggest that the incoming ECA provider is being used for, or is itself involved in, financial crime. Where this appears to be the case, a direction that the incoming electronic commerce activity should cease may be appropriate.
(4) The risk that the incoming ECA provider's activities present to the financial system and to confidence in the financial system.
(5) The impact that a complete prohibition on the activity would have on UK ECA recipients.
- 21/08/2002
ENF 19.4.5
See Notes
The FSA may consider that a case is urgent, in particular, where:
(1) the information available to it indicates serious concerns about the incoming electronic commerce activity that need to be addressed immediately; and
(2) circumstances indicate that it is appropriate to use the direction power immediately to prohibit the incoming electronic commerce activity, or to make the carrying on of the activity subject to specified requirements.
- 21/08/2002
ENF 19.4.6
See Notes
The FSA will consider the full circumstances of the case when deciding whether exercising the direction power without first taking the procedural steps set out in ENF 19.3.3 G is an appropriate response to such concerns. The factors the FSA may consider include those listed in ENF 19.4.4 G (1) to (4). There may be other relevant factors.
- 21/08/2002
ENF 19.5
The FSA's powers where an incoming ECA provider fails to comply with a direction
- 01/12/2004
ENF 19.5.1
See Notes
An incoming ECA provider may have the status of an authorised person, for example, because that it passports into the United Kingdom in respect of other activities which are regulated activities. The enforcement powers available to the FSA where an incoming ECA provider who is an authorised person breaches an electronic commerce activity direction include powers to seek injunctions (see ENF 6), to require or apply to court for restitution (see ENF 9), and to impose public censures and financial penalties (see ENF 11 to ENF 13).
- 21/08/2002
ENF 19.5.2
See Notes
The enforcement powers available to the FSA where an unauthorised incoming ECA provider breaches an electronic commerce activity direction include powers to seek injunctions (see ENF 6) and to apply to court for restitution (see ENF 9).
- 21/08/2002
ENF 19.5.3
See Notes
The FSA may use the information gathering and investigation powers under sections 165 to 167 and section 168(4) and (5) of the Act where it considers an incoming ECA provider may have contravened an electronic commerce activity direction. These powers are discussed in ENF
2.
- 21/08/2002
ENF 19.6
Decision making
- 01/12/2004
ENF 19.6.1
See Notes
The FSA's decision to make, revoke or vary an electronic commerce activity direction will generally be taken by the RDC Chairman. However, this is subject to two exceptions.
(1) In an urgent case and if the Chairman is not available, the decision will be taken by an RDC Deputy Chairman and where possible, but subject to the need to act swiftly, one other RDC member.
(2) If a provider who has been notified of the FSA's intention to make a direction or to vary a direction on its own initiative makes representations within the period and in the manner required by the FSA, then those representations will be considered by the RDC, rather than by the RDC Chairman alone. Having taking into account the provider's representations, the RDC will then decide whether to make the direction, or to vary the existing direction.
- 21/08/2002
ENF 19.6.2
See Notes
Where a provider must be given the opportunity to make representations to the FSA in relation to a proposed direction or variation of a direction (see ENF 19.3.3 G and ENF 19.3.6 G), the RDC Chairman will determine in each case the manner and the period within which those representations should be made.
- 21/08/2002
ENF 19.7
Publicity
- 01/12/2004
ENF 19.7.1
See Notes
Regulation 10(8) of the ECD Regulations provides that if the FSA makes a direction, it may publish, in such manner as it considers appropriate, such information about the matter to which the direction relates as it considers appropriate in furtherance of any of the objectives referred to in ENF 19.3.2 G (1)(a). However, under regulation 10(9), the FSA may not publish information relating to a direction if publication would, in the FSA's opinion, be unfair to the provider to whom the direction applies or prejudicial to the interests of consumers.
- 21/08/2002
ENF 19.7.2
See Notes
When deciding what information, if any, to publish and the appropriate manner of publication, the FSA will consider the full circumstances of each case. The FSA anticipates that it will generally be appropriate to publish relevant details of a direction, in order to protect and inform consumers. However, in accordance with the regulation 10(9) prohibition, it will not publish information if it considers that publication would be unfair to the provider or prejudicial to the interests of consumers.
- 21/08/2002
ENF 20
Unfair terms in consumer contracts
ENF 20.1
Application and purpose
- 01/12/2004
ENF 20.1.1
See Notes
This chapter
explains the FSA's policy
on how it will use its powers under the Unfair
Terms Regulations.
- 21/08/2002
ENF 20.1.2
See Notes
The FSA has
agreed with the Office of Fair Trading that the FSA will consider the fairness within the
meaning of the Unfair
Terms Regulation of financial services contracts for carrying
on:
(1) any regulated
activity;
(2) general insurance, including broking;
(3) lending, administration, advising and
arranging in respect of mortgages where the lender takes a first legal charge
over property in the United
Kingdom and the property is at least 40% occupied by the borrower
or by a member of his immediate family
- 21/08/2002
ENF 20.1.3
See Notes
The Office of Fair Trading will consider
the fairness within the meaning of the Unfair
Terms Regulations of other financial services contracts involving
carrying on activities governed by the Consumer Credit Act 1974, including
second charge mortgage loans, buy to let mortgages, and non-mortgage personal
loans (including credit cards). Further, where the firm concerned is not a firm or an appointed representative,
the Office of Fair Trading may take enforcement action under the Unfair Terms Regulations in
respect of financial services contracts involving the carrying on of activities
within ENF
20.1.2 G (see ENF
20.4.6 G (5) and (6)).
- 21/08/2002
ENF 20.1.4
See Notes
This chapter therefore applies to:
(1)
firms;
(2)
appointed
representatives; and
(3) other persons, whether or not a person with permission, who are using, or recommending
the use of contracts, for carrying on the activities set out in ENF
20.1.2 G.
- 21/08/2002
ENF 20.1.5
See Notes
This chapter uses 'firm' to refer to
all persons covered
by ENF
20.1.4 G.
- 21/08/2002
ENF 20.2
Introduction
- 01/12/2004
ENF 20.2.1
See Notes
This chapter contains guidance on the FSA's formal powers under the Unfair Terms Regulations.
This chapter does not contain comprehensive guidance on the Regulations, and the reader
should refer to the Regulations themselves for further details.
- 21/08/2002
ENF 20.2.2
See Notes
This chapter also gives guidance on the approach
the FSA expects
to take before considering whether to exercise its formal powers under the Unfair Terms Regulations.
- 21/08/2002
ENF 20.2.3
See Notes
The FSA has
powers as a qualifying body under the Unfair
Terms Regulations. The Regulations are not made under the Act.
However, the Regulations say that the FSA's functions
under the Regulations are treated as functions under the Act. This:
(1) makes the regulatory objectives relevant to the formulation
of policy governing the discharge of the FSA's functions
under the Regulations;
(2) means that any complaints about the FSA's activities under
the Regulations can be referred to the Complaints
Commissioner;
(3) allows the FSA to make full use of its information disclosure
powers;
(5) protects the FSA against liability in damages in respect
of its activities under the Regulations; and
(6) allows the FSA to raise fees to fund its activities
under the Regulations.
- 21/08/2002
ENF 20.2.4
See Notes
The FSA will
publish on its Internet site details of cases that result, through either
an undertaking by a firm or injunction obtained from the courts, in a change
in the contract terms used by it. The name of the firm will be included. Additionally,
the Office of Fair Trading publishes similar details of cases that it and
other qualifying bodies have dealt with in accordance with their duties under
regulation 15 of the Unfair
Terms Regulations. The FSA may
therefore pass such details of cases to the Office of Fair Trading for publication
on the Office of Fair Trading Internet site.
- 21/08/2002
ENF 20.3
The Unfair Terms Regulations
- 01/12/2004
Terms to which the Unfair Terms Regulations Apply
ENF 20.3.1
See Notes
(1) The Unfair
Terms Regulations apply, with certain exceptions, to terms in
contracts concluded between a seller or supplier and a consumer which have not been individually
negotiated.
(2) Terms cannot be reviewed for fairness
within the meaning of the Unfair
Terms Regulations if they are terms which reflect:
(a) mandatory statutory or regulatory provisions;
or
(b) the provisions or principles of international
conventions to which the EEA
States or the European Community as a whole are party.
(3) Terms which are written in plain, intelligible
language also cannot be reviewed for fairness within the meaning of the Regulations
if they relate to the main subject matter of the contract or the adequacy
of the price or remuneration, as against the goods or services supplied in
exchange. However, the FSA can
review terms concerning these matters for fairness within the meaning of the
Regulations if they are not written in plain, intelligible language. The FSA does not consider
that it is enough that a lawyer could understand the term for the term to
be excluded from review for fairness within the meaning of the Regulations.
The term must be plain and intelligible to the consumer.
- 21/08/2002
When is a term "unfair" within the meaning of the Regulations?
ENF 20.3.2
See Notes
Terms to which the Unfair Terms Regulations apply are regarded
as unfair if, contrary to the requirement of good faith, they cause a significant
imbalance in the parties rights and obligations to the detriment of the consumer.
- 21/08/2002
The main powers of the courts and qualifying bodies under the Regulations
ENF 20.3.3
See Notes
(1) Regulation 12 of the Unfair Terms Regulations states that: '(1) The [Office
of Fair Trading] or [...] any qualifying body may apply for an injunction
(including an interim injunction) against any person appearing to them to
be using, or recommending the use of an unfair term drawn up for general use
in contracts concluded with consumers'.'(3) The court, on an application under this regulation, may grant
an injunction on such terms as it thinks fit.'
(2) The FSA is
a qualifying body for the purposes of regulation 12.
- 21/08/2002
ENF 20.3.4
See Notes
(1) In deciding whether to grant an injunction, the court
will decide whether the term in question is unfair within the meaning of the Unfair Terms Regulations (see ENF
20.3.2 G).
(2) If the court were to grant an injunction, the seller
or supplier or recommender would have to stop including the unfair term in
contracts it concluded with consumers from
the date of the injunction
(3) If the seller or supplier or recommender
fails to comply with the injunction,
it will be in contempt of court
- 21/08/2002
ENF 20.3.5
See Notes
The FSA also
has the power under regulation 13 of the Unfair
Terms Regulations to require for certain purposes that the seller
or supplier or recommender supply the FSA with
certain information or documents relating to pre-formulated standard contracts.
- 21/08/2002
ENF 20.3.6
See Notes
If the court finds that the term in question
is unfair, the seller or supplier or recommender would also have to stop relying
on the unfair term in existing contracts governed by the Unfair Terms Regulations. This is because
regulation 8 of the Regulations provides that an unfair term is not binding
on the consumer.
To the extent that it is possible, the existing contracts would continue in
effect without the unfair term.
- 21/08/2002
ENF 20.4
The Unfair Terms Regulations: the FSA's role and policy
- 01/12/2004
ENF 20.4.1
See Notes
The FSA may
consider the fairness of a contract within the meaning of the Unfair Terms Regulations following
a complaint from a consumer or
other person or on its own initiative if the contract is within its scope
according to ENF
20.1.2 G.
- 21/08/2002
ENF 20.4.2
See Notes
- 21/08/2002
ENF 20.4.3
See Notes
(1) The principal way in which the FSA would act on its own
initiative is to undertake a review of contracts in a particular area of business
on its own initiative. This might involve investigating the contract terms
used by several firms in a particular sector, rather than waiting for complaints
regarding a particular firm.
(2) The FSA will,
for example, consider launching such a review if multiple consumer contract complaints or other intelligence
lead it to believe that under the Unfair
Terms Regulations there may be a contractual issue of wider
significance to firms and consumers.
- 21/08/2002
ENF 20.4.4
See Notes
If, following either a complaint or an
own-initiative review, the FSA considers
that a term in a contract which is within its scope as described in ENF
20.1.2 G is unfair within the
meaning of the Unfair
Terms Regulations, it may challenge firms regarding their use
of the term, as described in ENF
20.4.6 G.
- 21/08/2002
Interaction with the FSA's powers under the Act
ENF 20.4.5
See Notes
(1) The FSA will
consider using its functions under the Unfair
Terms Regulations in the context of its wider regulatory powers
under the Act.
(2) In some cases, it might be appropriate
to use other powers to deal with issues identified under the Unfair Terms Regulations.
The powers available to the FSA under
the Act may
vary depending on the regulated
activities, if any, which the firm carries on (see ENF
20.1.2 G). For example, the use
of the unfair term might involve a breach of a rule in COB, and, if so, it would also be open to
the FSA to
address the issue as a rule breach.
(3) The FSA may,
in some circumstances, consider treating the matter under its powers in the Act and under the Unfair Terms Regulations.
- 21/08/2002
FSA policy on obtaining injunctions
ENF 20.4.6
See Notes
(1) If the FSA decides to address issues using its powers
under the Unfair Terms
Regulations, and the contract is within its scope as described
in ENF
20.1.2 G, it will, unless the
case is urgent, generally first write to a firm expressing its concerns about
the potential unfairness within the meaning of the Unfair Terms Regulations of a term or terms
in its contract and inviting the firm's comments on those concerns. If the FSA remains of the view
that the term is unfair within the meaning of the Unfair Terms Regulations, it will normally
ask the firm to undertake to stop including the term in new contracts and
stop relying on it in contracts which have been concluded.
(2) If the firm either declines to give an
undertaking described in (1), or gives such an undertaking and fails to follow
it, the FSA will
consider the need to apply to court for an injunction under regulation 12 of the Unfair Terms Regulations,
described in ENF
20.3.3 G.
(3) In determining whether to seek an injunction against a firm,
the FSA will
consider the full circumstances of each case. A number of factors may be relevant
for this purpose. The following list is not exhaustive; not all of the factors
may be relevant in a particular case, and there may be other factors that
are relevant:
(a) whether the FSA is satisfied that the contract term which
is the subject of the complaint may properly be regarded as unfair within
the meaning of the Unfair
Terms Regulations;
(b) the extent and nature of the detriment
to consumers resulting
from the term or the potential detriment which could result from the term;
(c) whether the firm has fully cooperated
with the FSA in
resolving the FSA's concerns
about the fairness of the particular contract term;
(d) the likelihood of success of an application
for an injunction;
(e) the costs the FSA would incur in applying for and enforcing
an injunction and
the benefits that would result from that action; the FSA is more likely to be satisfied that an
application is appropriate where an injunction would
not only prevent the continued use of the particular contract term, but would
also be likely to prevent the use or continued use of similar terms, or terms
having the same effect, used or recommended by other firms concluding contracts
with consumers.
(4) In an urgent case, the FSA may seek a temporary injunction, to prevent the continued use
of the term until the fairness of the term could be fully considered by the
court. An urgent case is one in which the FSA considers that the actual or potential
detriment is so serious that urgent action is necessary. In deciding whether
to apply for a temporary injunction,
the FSA may
take into account a number of factors, including one or more of the factors
set out in (3). In such an urgent case, the FSA may seek a temporary injunction without consulting with the firm
in the manner described in (1).
(5) When the FSA considers that a case requires enforcement
action under the Unfair
Terms Regulations, it will take the enforcement action itself
if the firm is
a firm or an appointed
representative.
(6) Where the firm is not a firm or an appointed representative (see ENF
20.1.4 G(3)), the FSA will pass the case
to the Office of Fair Trading, with a recommendation that it take the enforcement
action. The Office of Fair Trading may then decide whether or not to take
enforcement action.
- 21/08/2002
ENF 20.5
Risk Management
- 01/12/2004
ENF 20.5.1
See Notes
(1) Where a firm has given an undertaking
as described in ENF
20.4.6 G (1),
or a court has ruled the firm's term unfair, then the FSA considers it desirable that the firm
should notify promptly clients with whom it has already concluded contracts
of the effect on their contracts.
(2) The firm should also, as part of its
risk management, consider the effect on its own business, including whether
there are relevant risks requiring mitigation. This may involve the firm contacting
existing customers in due course to request that they agree to an amended
contract, though such amendments will themselves need to avoid unfairness
within the meaning of the Unfair
Terms Regulations and comply with the law of contract generally.
(3) As part of their risk management, firms
that have not themselves given an undertaking or been subject to a court decision
should remain alert to undertakings or court decisions concerning other firms,
since these will be of potential value in indicating the likely attitude of
the courts, the FSA,
the Office of Fair Trading or other qualifying bodies to similar terms or
terms with similar effects.
- 21/08/2002
ENF 20.6
Redress
- 01/12/2004
ENF 20.6.1
See Notes
(1) The FSA does
not have the power under the Unfair
Terms Regulations to grant redress to consumers who have suffered loss as a result
of an unfair term. Consumers may
choose to complain to the firm and to seek redress from it. If the firm does
not satisfy the consumer's complaint,
the consumer may
choose to refer the complaint to the Financial
Ombudsman Service, if appropriate.
(2) If the use of an unfair term also amounts
to a rule breach
(see ENF
20.4.5 G (2)) and that breach
causes loss to consumers,
the FSA can
apply to court for restitution or require restitution. The FSA will consider whether to use these powers
in accordance with the policy in ENF 9 (Restitution and redress).
- 21/08/2002
ENF 21
Official Listing - Investigation powers and discipline
ENF 21.1
Application and Purpose of this chapter
- 01/07/2005
Application
ENF 21.1.1
See Notes
- 01/07/2005
ENF 21.1.2
See Notes
- 01/07/2005
Purpose
ENF 21.1.3
See Notes
- 01/07/2005
ENF 21.1.4
See Notes
Section 93 of the Act (Statement of policy) requires the FSA to prepare and publish a statement of its policy with respect to the imposition and amount of penalties under section 91. ENF 21.6 to ENF 21.7 constitute the FSA's statement of policy under section 93. The FSA may at any time alter or replace this statement of policy after consultation. The FSA will have regard to this statement of policy in exercising, or deciding whether to exercise, its power under section 91 of the Act (Penalties for breach of Part 6 rules).
- 01/07/2005
ENF 21.2
The FSA's powers to appoint an investigator
- 01/07/2005
ENF 21.2.1
See Notes
Under section 97 of the Act (Appointment by competent authority of persons to carry out investigations), the FSA may appoint one or more competent persons to conduct an investigation on its behalf if it appears to the FSA that
there are circumstances suggesting that:
(1) there may have been a contravention of a provision of Part VI of the Act or of Part 6 rules or a provision otherwise made in accordance with the Prospectus Directive;
(2) a person who was at the material time a person mentioned in section 91(1) or (1A) of the Act has
been knowingly concerned in a contravention of a provision of Part VI of the Act or of Part 6 rules or a provision otherwise made in accordance with the Prospectus Directive by that person; or
(3) there may have been a breach of sections 85 or 87G of the Act.
- 01/07/2005
ENF 21.2.2
See Notes
- 01/07/2005
ENF 21.3
The FSA's policy on appointing an investigator, use of investigation powers and control of investigations
- 01/07/2005
Appointment of an investigator
ENF 21.3.1
See Notes
The FSA's primary aim when appointing an investigator will be to confirm whether a provision of Part VI of the Act (sections 85 and 87G) or Part 6 rules or a provision otherwise made in accordance
with the Prospectus Directive have been complied with and, if they have not, to determine the nature and extent of any breach. The FSA will usually appoint a member of FSA staff as an investigator, as allowed by section 170(5) of the Act.
- 01/07/2005
ENF 21.3.2
See Notes
The FSA may be alerted to possible breaches by complaints from the public or investors, by referrals from prosecuting authorities or through its information gathering activities. It will assess on a case by case basis whether to carry out a formal investigation, after considering all the available information. Factors it will
take into account are:
(1) the elements of the suspected breach;
(3) whether obligations of confidentiality inhibit individuals from providing information without the FSA having recourse to its formal powers;
(4) evidence and information needed to substantiate any suspected breach;
(5) availability and accessibility of related information or evidence; and
(6) any other factors (so far as the FSA considers them to be applicable).
- 01/07/2005
Use of investigation powers
ENF 21.3.3
See Notes
The FSA's policy on the use of powers by investigators appointed under section 97 is the same as that described in ENF
2.11.1 G to ENF
2.11.2 G in the context of investigators appointed by the FSA under powers contained
in other Parts of the Act.
- 01/07/2005
Control and direction of the investigation
ENF 21.3.4
See Notes
The FSA has powers under section 170 of the Act to control and direct investigators appointed under section 97 (see ENF
2.11.4 G and ENF
2.11.5 G for a summary of the powers under sections 170(7) and (8)).
- 01/07/2005
ENF 21.4
The FSA's obligations, powers and policy on various further matters related to investigations
- 01/07/2005
Notification to the person under investigation and other matters
ENF 21.4.1
See Notes
The FSA's obligations, powers and policy on various further matters related to investigations under section 97 broadly mirror those described in the following ENF
2 guidance:
(1)
ENF
2.12.1 G to ENF
2.12.3 G, ENF
2.12.6 G and ENF
2.12.7 G - Notification of the person under investigation.
(2)
ENF 2.10 - Provisions of the Act on protected items, banking confidentiality, and admissibility of statements to investigators.
(3)
ENF 2.14 - Interviews and interview procedures.
(4)
ENF 2.15 - Powers to enforce requirements and to co-operate with information gathering and investigation powers.
- 01/07/2005
Publicity during and following investigations
ENF 21.4.2
See Notes
The FSA will not normally make public that it is or is not investigating a particular matter under section 97, or the outcome of any such investigation. Its policy in this area is broadly the same as that described in ENF 2.13 in the context of investigations by the FSA under other provisions of the Act, subject to the fact that slightly different considerations to those listed at ENF
2.13.4 G will be applied. Specifically, where it is investigating any matter, the FSA will, in exceptional circumstances, make a public announcement that it is doing so if it considers such an announcement is desirable to:
(1) maintain public confidence in the market; or
(2) maintain the smooth operation of the marker; or
(3) protect investors; or
(4) prevent widespread malpractice; or
(5) help the investigation itself.
- 01/07/2005
The FSA's powers to disclose information gathered in investigations
ENF 21.4.3
See Notes
- 01/07/2005
ENF 21.5
Discipline
- 01/07/2005
Discipline: general
ENF 21.5.1
See Notes
- 01/07/2005
ENF 21.5.2
See Notes
Disciplinary sanctions are one of the regulatory tools available to the FSA. They are not the only tool, and it may be possible to address instances of non-compliance without recourse to disciplinary action. However, the effective and proportionate use of the FSA's powers
to enforce requirements imposed by or under Part VI of the Act (including the Part 6 rules) will play an important role in supporting the FSA's pursuit of its regulatory functions.
- 01/07/2005
ENF 21.5.3
See Notes
The imposition of financial penalties and the issuance of censures for breaches of the requirements imposed by or under Part VI of the Act help to promote high standards of conduct and ensure that regulatory standards are being upheld by deterring persons from
further breaching the requirements and by demonstrating generally the benefits of compliant behaviour. An increased public awareness of regulatory standards may also contribute to the protection of investors.
- 01/07/2005
Non-disciplinary measures
ENF 21.5.4
See Notes
Non-disciplinary measures are also available to the FSA where it considers that it is necessary to take protective or remedial action. These include the following.
(1) where the smooth operation of the market is, or may be, temporarily jeopardised or where the protection of investors so requires, the FSA may suspend, with effect from such time as it may determine, the listing of any securities at any time and in such circumstances as it thinks fit (whether or not at the request of the issuer or its sponsor on its behalf);
(2) when the FSA is satisfied that there are special circumstances which preclude normal regular dealings in any listed securities, it may cancel the listing of any security;
(3) where there are reasonable grounds to suspect non compliance with the disclosure rules and transparency rules, the FSA may require the suspension of trading of a financial instrument with effect from such time as it may determine; and
(4) where there are reasonable grounds for suspecting that a provision of Part VI of the Act, a provision contained in the prospectus rules, or any
other provision made in accordance with the Prospectus Directive has been infringed, the FSA may:
(a) suspend or prohibit the offer to the public of transferable securities as set out in section 87K of the Act; or
(b) suspend or prohibit admission of transferable securities to trading on a regulated market as set out in section 87L of the Act.
- 01/07/2005
Exercise of powers at request of competent authority of another EEA State
ENF 21.5.5
See Notes
Under section 87P of the Act (Exercise of powers at request of competent authority of another EEA State), the FSA may exercise its powers under sections 87K and 87L of the Act to assist a competent authority of an EEA
State in the performance of its functions under the law of that State in connection with the Prospectus Directive.
- 01/07/2005
Criminal prosecution powers and action for market abuse
ENF 21.5.6
See Notes
- 01/07/2005
ENF 21.5.7
See Notes
The FSA has criminal prosecution powers in relation to insider dealing and misleading statements and practices. Additional considerations apply in determining whether the FSA will take disciplinary action for cases of alleged market abuse (section 123 of the Act) (see ENF 14).
- 01/07/2005
Private Warnings
ENF 21.5.8
See Notes
In certain cases, despite having concerns regarding the behaviour of a person, the FSA may decide that it is not appropriate, having regard to all the circumstances of the case, to bring formal
disciplinary action. For example, the breach may be minor in nature or degree, or the person may have taken immediate and full remedial action (although these types of factor by themselves will not determine the course of action taken by the FSA). In these types of case, the FSA considers that it will be helpful for the person to be made aware that they came close to being subject to formal disciplinary action, and may to that end, if appropriate, give a private warning.
- 01/07/2005
ENF 21.5.9
See Notes
The FSA's general approach to the content of a private warning in this context and to the relevance of such a warning for disciplinary action in relation to future breaches of provisions imposed by or under Part VI of the Act will follow, in broad terms, the approach
described in ENF 11.3.4 G and ENF 11.3.6 G to ENF 11.3.9 G in the context of private warnings given to firms or approved
persons.
- 01/07/2005
ENF 21.6
Factors relevant to determining whether to take disciplinary action in Part VI cases
- 01/07/2005
ENF 21.6.1
See Notes
In determining whether to take disciplinary action, the FSA will consider the full circumstances of each case. A number of factors may be relevant for this purpose. The following list of factors is not exhaustive; not all of these factors may be relevant in a particular case, and there may be other factors that are relevant:
(1) whether the breach reveals serious or systemic weaknesses in all or part of the person's established procedures for compliance with provisions imposed by or under Part VI of the Act;
(3) whether the person has admitted the misconduct and provides full and immediate co-operation to the FSA;
(4) whether the person has previously given any undertakings to the FSA to do or not to do a particular act or engage or not to engage in particular behaviour;
(5) whether the FSA has previously requested the person to take remedial action, and the extent to which such action has been taken;
(6) whether the FSA has given any guidance on the conduct in question and the extent to which the person has
sought to follow the guidance (the FSA will not take action against a person for behaviour in line with current written guidance or binding oral guidance in the circumstances contemplated by
the guidance);
(7) where other regulatory authorities (including the FSA under other regulatory powers) propose to take action in respect of the same or similar breach which is under consideration by the FSA, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action.
- 01/07/2005
Action against directors, former directors and persons discharging managerial responsibilities
ENF 21.6.2
See Notes
The primary responsibility for ensuring compliance with Part VI of the Act, the Part 6 rules or the prospectus rules, or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision rests with the persons identified in section 91(1) and section 91(1A) of the Act respectively. Normally therefore, any disciplinary action taken by the FSA for contraventions of these obligations will in the first instance be against those persons.
- 01/07/2005
ENF 21.6.3
See Notes
However, in the case of a contravention by a person referred to in section 91(1)(a) or section 91(1)(b)(i) or section 91(1A) of the Act ("P"), where the FSA considers that another person who was at the material time a director of P was knowingly concerned in the contravention, the FSA may take disciplinary action that person. In circumstances where the FSA does not consider it appropriate to seek a
disciplinary sanction against P (notwithstanding a breach of relevant requirements by such person), the FSA may nonetheless seek a disciplinary sanction against any other person who was at the material time a director of P and was knowingly concerned in the contravention.
- 01/07/2005
ENF 21.6.4
See Notes
Persons discharging managerial responsibilities within an issuer and their connected persons, who has requested or approved the admission of a financial instrument to trading on a regulated market, and connected persons have their own responsibilities under the disclosure rules and transparency rules, as set out in DTR 3 for which they are primarily responsible. Accordingly, disciplinary action for a breach of the disclosure rules and transparency rules will not necessarily involve the issuer.
- 01/07/2005
Discipline for breaches of Listing Principles
ENF 21.6.5
See Notes
The Listing Principles are set out in LR 7. The Listing Principles are a general statement of the fundamental obligations of issuers of equities with a primary listing. The Listing Principles derive their authority from the FSA's rule
making powers set out in section 74(4) of the Act. A breach of a Listing Principle will make an issuer of equities with a primary listing liable to disciplinary action by the FSA.
- 01/07/2005
ENF 21.6.6
See Notes
In determining whether a Listing Principle has been broken, it is necessary to look to the standard of conduct required by the Listing Principle in question. Under each of the Listing Principles, the onus will be on the FSA to show
that an issuer has been at fault in some way. This requirement will differ depending upon the Listing Principle.
- 01/07/2005
ENF 21.6.7
See Notes
In certain cases, it may be appropriate to discipline an issuer on the basis of the Listing Principles alone. Examples include the following:
(1) where there is no detailed listing rule which prohibits the behaviour in question, but the behaviour clearly
contravenes a Listing Principle;
(2) where an issuer of equities with a primary listing has committed a number of breaches of detailed rules which individually may not merit disciplinary action, but the cumulative effect of which indicates the breach of a Listing Principle.
- 01/07/2005
ENF 21.7
Financial penalties in Part VI cases
- 01/07/2005
Powers to impose penalties
ENF 21.7.1
See Notes
Section 91(1) of the Act enables the FSA to impose a penalty of such amount as it considers appropriate, if it considers that:
has contravened any provision of the Part 6 rules.
| (a) | in relation to a listed security, an issuer of listed securities or applicant for listing; or | |
| (b) | in relation to a financial instrument: | |
| (i) | an issuer who has requested or approved the admission of the instrument to trading on a regulated market; | |
| (ii) | a person discharging managerial responsibilities within such an issuer; or | |
| (iii) | a person connected to such a person discharging managerial responsibilities; | |
- 01/07/2005
ENF 21.7.2
See Notes
Section 91(1A) of the Act enables the FSA to impose a penalty of such amount as it considers appropriate, if it considers that:
has contravened a provision of Part VI of the Act or of prospectus rules, or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed on him under such a provision.
| (a) | an issuer of transferable securities; or |
| (b) | a person offering transferable securities to the public or requesting their admission to a regulated market; or |
| (c) | an applicant for the approval of a prospectus in relation to transferable securities; or |
| (d) | a person on whom a requirement has been imposed under section 87K or 87L; or |
| (e) | any other person to whom the Prospectus Directive applies; |
- 01/07/2005
ENF 21.7.3
See Notes
The Act provides further that if in such a case the FSA considers that another person, who was at the material time a director of
a person referred to in section 91(1)(a), (1)(b)(i) or (1A) of the Act, was knowingly concerned in the contravention, it may impose on him a penalty of such amount as it considers appropriate (section 91(2)).
- 01/07/2005
Factors relevant to determining the appropriate level of financial penalty
ENF 21.7.4
See Notes
The FSA will consider all the relevant circumstances of a case when it determines the level of financial penalty (if any) that is appropriate and in proportion to the contravention in question. The FSA does not use a tariff of penalties for different kinds of
breach. This is because there are very few cases in which the circumstances are essentially the same and the FSA considers that, in general, the use of a tariff for particular kinds of breach would inhibit the flexible and proportionate approach it takes in this area.
- 01/07/2005
ENF 21.7.5
See Notes
Section 93(2) of the Act requires that the FSA's policy in determining the amount of a penalty must have regard to:
| (a) | the seriousness of the breach in question in relation to the nature of the requirement contravened; |
| (b) | the extent to which that contravention was deliberate or reckless; and |
| (c) | whether the person on whom the penalty is to be imposed is an individual. |
- 01/07/2005
ENF 21.7.6
See Notes
The FSA will consider any of the following factors that may be relevant to the circumstances of a case when it determines the amount of a penalty to be imposed on a person. The following list is not exhaustive; not all of these factors may be relevant in a particular
case, and there may be other factors that are relevant:
(1) (The seriousness of the misconduct) The FSA recognises the need for a financial penalty to be proportionate to the nature and seriousness of the breach in question and that, by their nature, some breaches may
be more serious than others. The following may be relevant:
(a) the duration and frequency of the breach;
(b) whether the breach revealed serious or systemic weaknesses in the person's procedures;
(c) the impact of the breach on the orderliness of capital markets, including whether public confidence in those markets has been damaged;
(d) the loss or risk of loss caused to investors or other market participants; and
(e) the extent to which the breach departs from current market practice.
(2) (The extent to which the breach was deliberate or reckless) In determining whether a breach was deliberate, the FSA may have regard to whether the behaviour of
the person was intentional; that is, whether the person intended or foresaw the consequences of their behaviour. The matters to which the FSA may have regard in determining whether a breach was reckless include, but are not limited to, whether the person:
(b) took decisions beyond their field of competence; and
(c) gave consideration to the consequences of the behaviour that constitutes the breach.
If the FSA decides that the conduct was deliberate or reckless, it is more likely to impose a higher penalty on the person than would otherwise be the case.(3) (Whether the person on whom the penalty is to be imposed is an individual) Individuals will not always have the resources of a body corporate and this will be taken into account when determining the amount
of a penalty. This will be of particular relevance when assessing any verifiable evidence of serious financial hardship or financial difficulties if the individual were to pay the level of penalty decided on in respect of the particular breach.
(4) (The circumstances of the person on whom the penalty is to be imposed) The FSA will have regard to the size, financial resources and other circumstances of the person,
and may take into account verifiable evidence of serious financial hardship or financial difficulties if the person were to pay the level of penalty associated with the particular breach. Size and resources may be relevant considerations for the following reasons:
(a) the degree of seriousness of a breach may be linked to the size of the issuer or of the applicant. For example, a systemic failure in a large issuer or large applicant could damage or threaten to damage
a much larger number of investors than would be the case with a small issuer or small applicant. In considering seriousness, the FSA will have regard to the length of time over which the breach occurred;
(b) the size and resources of the person may also be relevant in relation to mitigation, in particular what steps the person took after the
breach had been identified. The FSA will take into account what it is reasonable to expect from the person in relation to its size and resources and factors such as what proportion of a person's resources were used to resolve a problem; and
(c) the purpose of a penalty is not to render a person insolvent or threaten their solvency. Where this would be a material consideration, the FSA will
consider, having regard to all other factors, whether a lower penalty would be appropriate. This is most likely to be relevant to persons with less financial resource. However, if a person reduces their net worth with the purpose of reducing its ability to pay a financial penalty, for example by transferring assets to group companies or third parties, the FSA will take account of those transferred assets when determining the amount of a penalty.
(5) (The amount of profits accrued or loss avoided) The FSA may have regard to the amount of profits accrued or loss avoided as a result of the breach. For example:
(a) the FSA will propose a penalty which is consistent with the principle that a person should not benefit from their breach; and
(b) the penalty should also act as an incentive to the person (and others) to comply with regulatory standards.
(6) (Conduct before the breach) The FSA may have regard to any professional advice that was sought by the person before the breach occurred and whether
the person followed that professional advice.
(7) (Conduct following the breach) The FSA may also take into account the conduct of the person in bringing the breach to the FSA's attention, including:
(a) whether the person brought the breach to the attention of the FSA;
(c) the degree of co-operation the person showed during the investigation of the breach; and
(d) any remedial steps the person has taken since the breach was identified, including: identifying whether investors suffered loss, compensating them, taking disciplinary action against staff involved (if
appropriate) and ensuring that similar problems cannot arise in the future.
(8) (Disciplinary record and compliance history) The FSA may take into account the previous disciplinary record and general compliance history of the person,
including whether the FSA has taken any previous formal disciplinary action against the person. For example, the disciplinary record of the person could lead to the FSA increasing the penalty where that person has committed similar breaches in the past.
(9) (Previous action taken by the FSA) The FSA will seek to ensure consistency when it determines the appropriate level of penalty. If it has taken
disciplinary action previously in relation to a similar breach, this will clearly be a relevant factor.
(10) (Action by other regulatory authorities) Where action by other regulatory authorities relates to the person in question, this may be taken into consideration.
(11) (The timing of any agreement as to the amount of the penalty for the particular breach) The FSA and the person on whom a penalty is to be imposed
may seek to agree the amount of any financial penalty and other terms. In recognition of the benefits of such agreements in disciplinary actions, ENF 13.7 provides that the amount of the penalty which might otherwise have been payable will
be reduced to reflect the stage at which the FSA and the person concerned reach an agreement. The same regime is to apply to agreements as to the amount of the penalty in Part VI cases.
- 20/10/2005
ENF 21.8
Public statements of censure
- 01/07/2005
Censuring instead of imposing a penalty
ENF 21.8.1
See Notes
- 01/07/2005
Sponsors
ENF 21.8.2
See Notes
The FSA has no statutory power to impose a financial penalty on a sponsor. As such any references in ENF 21 to financial penalties being a disciplinary sanction, or an alternative disciplinary
sanction, do not apply to sponsors. However, the Act enables the FSA to publish a statement censuring a sponsor (under section 89 of the Act (Public censure of sponsor)) where it considers that the sponsor has contravened any requirement imposed on him by listing rules made as a result of section 88(3)(c) of the Act.
- 01/07/2005
Censuring for failure to comply with obligations under Part VI
ENF 21.8.3
See Notes
- 01/07/2005
Factors in determining whether to issue a public censure
ENF 21.8.4
See Notes
- 01/07/2005
ENF 21.8.5
See Notes
The criteria the FSA may take into account when determining whether it is appropriate to issue a public censure are similar to those for determining the level of financial penalty listed in ENF 21.7.6 G. The starting point is that the FSA will consider all the relevant circumstances of the breach. Some particular considerations may be relevant when the FSA determines whether to issue a public censure rather than (in the case only
of persons who may be the subject of a financial penalty under section 91(1) of the Act) impose a financial penalty. The following list is not exhaustive; not all of these factors may be relevant in a particular case, and there may be other factors that are relevant:
(1) if the person has made a profit or avoided a loss as a result of the misconduct, this may be a factor in favour of a financial penalty, on the basis that a person should
not be permitted to benefit from their misconduct;
(2) if the misconduct is more serious in nature or degree, this may be a factor in favour of a financial penalty, on the basis that the sanction should reflect the seriousness of the misconduct: other things being equal, the more serious the misconduct, the more likely the FSA is to impose a financial penalty;
(3) if the person has brought the misconduct to the attention of the FSA, this may be a factor in favour of a public censure, depending upon the
nature and seriousness of the misconduct;
(4) if the person has admitted the misconduct and provides full and immediate co-operation to the FSA, this may be a factor in favour of a public
censure, depending upon the nature and seriousness of the misconduct;
(5) if the person has a poor disciplinary record or compliance history (for example, where the FSA has previously brought disciplinary action in
relation to the same or similar behaviour) this may be a factor in favour of a financial penalty, on the basis that it may be particularly important to deter future cases;
(6) if the person has inadequate means (excluding any manipulation or attempted manipulation of their assets) to pay the level of financial penalty which their misconduct would otherwise attract, this may be a
factor in favour of a lower level of financial penalty or a public censure. However, it would be in an exceptional case that the FSA would be prepared to agree to impose a public statement rather than a financial penalty, if a financial penalty would otherwise be the appropriate sanction. Examples of such exceptional cases could include:
(a) verifiable evidence that a person would suffer serious financial hardship if the FSA imposed a financial penalty;
(b) the likelihood of a severe adverse impact on a person's shareholders or a consequential impact on market confidence or market stability if the FSA imposed
a financial penalty. However, this does not exclude the imposition of a financial penalty which will have an impact on a person's shareholders.
- 01/07/2005
ENF 21.9
Action involving other regulatory authorities
- 01/07/2005
ENF 21.9.1
See Notes
The FSA's policy on action involving other regulatory authorities mirrors that set out in ENF 11.8.1 G to ENF 11.8.5 G in this context.
- 01/07/2005
ENF 21.10
Cancellation of approval as a sponsor
- 01/07/2005
Cancellation of approval: general
ENF 21.10.1
See Notes
- 01/07/2005
ENF 21.10.2
See Notes
- 01/07/2005
Criteria the FSA will consider
ENF 21.10.3
See Notes
When considering whether to cancel a sponsor's approval, the FSA will take into account all relevant factors, including, but not limited to, the following:
(1) the competence of the sponsor;
(2) the adequacy of the sponsor's systems and controls;
- 01/07/2005
Transitional Provisions and Schedules
ENF TP1
Transitional provisions
ENF TP 1.1
Transitional provisions applying to the Enforcement manual
| (1) | (2) Material to which the transitional provision applies | (3) | (4) Transitional provision | (5) Transitional provision: Dates in force | (6) Handbook provision coming into force |
| 1 | ENF 13 Annex 1 G | G | Expired | ||
| 2 | ENF | G | GEN contains some transitional provisions that apply throughout the Handbook and which are designed to ensure a smooth transition at commencement | From commencement | (Various dates) |
| 3 | ENF 13.5, ENF 13 Annex 1 G. | G | Expired | ||
| 4 | ENF 13.3.3 G (9), ENF 13.5.9 G, ENF 13.7 (Discount for early settlement), ENF 14.7.4 G (9), and ENF 21.7.6G (11) | G | These provisions (in summary, relating to the discount scheme) apply only to cases where investigators are appointed on or after 20 October 2005. | From 20 October 2005 | 20 October 2005 |
- 20/10/2005
ENF Sch 1
Record keeping requirements
- 01/12/2004
ENF Sch 1.1
See Notes
| There are no record keeping requirements in ENF |
- 01/12/2004
ENF Sch 2
Notification requirements
- 01/12/2004
ENF Sch 2.1
See Notes
| There are no notification or reporting requirements in ENF |
- 01/12/2004
ENF Sch 3
Fees and other required payments
- 01/12/2004
ENF Sch 3.1
See Notes
| There are no requirements for fees or other payments in ENF |
- 01/12/2004
ENF Sch 4
Powers exercised
- 01/12/2004
ENF Sch 4.1
See Notes
| The following powers in the Act have been exercised by the FSA to issue the statements of policy in ENF : | |
| Section 69 (Statement of policy) | |
| Section 124 (Statement of policy) | |
| Section 169(9) (Investigations etc in support of overseas regulator) | |
| Section 210 (Statement of policy) | |
| The following powers in the Act have been exercised by the FSA to give the guidance in ENF | |
| Section 157(1) (Guidance) | |
- 01/12/2004
ENF Sch 5
Rights of actions for damages
- 01/12/2004
ENF Sch 6
Rules that can be waived
- 01/12/2004