FCA consults on rule changes related to its new cancellation and variation power

The UK Financial Conduct Authority (FCA) today published a Consultation Paper outlining proposed additional changes to its Handbook related to the new cancellation and variation power.

To reduce the risk of harm to consumers, only firms that continue to carry on FCA-regulated activities should generally remain FCA-authorised and appear as so authorised on its public Financial Services Register.

FCA-authorised firms that no longer intend to carry on any such activities can and should apply to the regulator to have their statutory permissions to do so cancelled. When they do so and the FCA agrees to cancel, the regulator updates the Register to show that they are no longer authorised. Unfortunately, many firms do not do this.

Since 2001, the FCA has had a power to cancel or vary these permissions without application by or consent from the relevant firm. The regulator can use this power in various situations, including where the firm has, for 12 months or more, not been conducting an activity covered by its permission.

The recent Financial Services Act 2021 (FS Act) has now given the FCA an additional power to cancel or vary permissions without such application or consent. The regulator can use this new power if it considers that a firm is currently carrying on none of the regulated activities it has permission for. The regulator no longer has to wait 12 months.

The FS Act also sets a more streamlined procedure for the FCA to follow when using this new power.

The FCA has already publicly warned that it will use the new power to reduce the risks of consumer harm described above and that firms should use or lose their permissions.

Schedule 6A also gives the FCA the ability to retrospectively reverse its decisions to use the new power, if firms apply for such reversal and it is just and reasonable that the FCA should do so.

Now, the FCA is consulting on some additional amendments to its rules.

  • Compensation sourcebook (COMP)

The FCA proposes to add guidance to COMP to make it clear that, if the FCA annuls a decision to cancel, the Financial Services Compensation Scheme (FSCS) may be able to pay compensation in respect of claims against the relevant firm that arose in the period between cancellation and annulment.

  • Dispute resolution: Complaints sourcebook (DISP)

The FCA proposes to add guidance to DISP to make it clear that, if the FCA annuls a decision to cancel, the Financial Ombudsman Service (Ombudsman Service) may be able to consider complaints that arose in the period between cancellation and annulment.

The FCA also proposes a rule that will delay the deadline for submitting the relevant firm’s complaints return if the due date was between the decision to vary or cancel taking effect and its annulment.

The FCA accepts comments by October 29, 2021.

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