Date: 31/05/2022
Overview: In line with its ‘use it or lose it’ initiative, the FCA has obtained new powers to expedite the process of cancelling or changing what regulated firms are permitted to do; these are known as permissions. In brief, the initiative encourages firms to regularly audit their permissions to ensure they are up to date and removed where not needed. Businesses are now required to prove they are carrying out the regulated activities they are permitted to do or face losing these permissions. Failure to act following two warnings will lead to the cancellation of a given permission 28 days after the first warning was issued.
The FCA will use its new powers to more swiftly cancel or change the regulated activities (its permissions) a firm is permitted to perform. This new power is available following a change in the law under the Financial Services Act 2021, which allows the FCA to more quickly and efficiently vary or cancel a firm’s permissions. The FCA will use the regulatory reporting and returns it receives to identify firms that have not earned any income from their regulatory permissions in the previous 12 months. This will enable the FCA, in line with its ‘use it or lose it’ initiative, to provide a given firm with two warnings if it believes the firm has either been neglecting or wrongfully using its permissions.
In doing so, the FCA believes it will strengthen consumer protection by reducing the risk of customers being misled about their exposure to financial risk and how much protection they may have. The change will also enhance the FCA’s ability to uncover any firms that may be using their permissions to enhance their credibility to perform unregulated activities. The concern in this instance would be that a firm could draw attention to its FCA authorisation to create a façade of credibility, but it may not be clear to consumers that the products they are offered do not fall under this remit.
Where a firm fails to pay its regulatory fees, submit returns or complete annual declarations, the FCA may view these as indicators of a lack of regulated activity which may lead to permission being removed using this new power.
Since May 2021, under the ‘use it or lose it’ initiative, the FCA has carried out 1,090 assessments to see whether firms are performing regulated activities for which they have permissions. As a result, 264 firms have elected to cancel, and a further 47 to modify their permissions.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
‘Businesses with permissions they don’t need or use, risk misleading consumers. These new powers will enable us to take quicker action to cancel permissions that are not used or needed. Firms should regularly review their permissions, ensure they are correct, and they are acting in accordance with them. If they are not needed or used, they should seek to cancel them.’
