ENFG 5 Prohibition orders and withdrawal of approval

The FCA’s power under section 56 of the Act to prohibit individuals who are not fit and proper from carrying out functions in relation to regulated activities helps the FCA to work towards achieving its statutory objectives. The FCA may exercise this power to make a prohibition order where it considers that, to achieve any of those objectives, it is appropriate either to prevent an individual from performing any function in relation to regulated activities, or to restrict the functions which they may perform.

The FCA’s effective use of the power to withdraw approval from an approved person will also 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 they are not a fit and proper person to perform that function. Where it considers this is appropriate, the FCA may prohibit an approved person, in addition to withdrawing their approval.

In deciding whether to make a prohibition order and/or, in the case of an approved person, to withdraw its approval, the FCA will consider all the relevant circumstances, including whether other enforcement action should be taken or has been taken already against that individual by the FCA. The FCA will also consider whether enforcement action has been taken against the individual by other enforcement agencies or designated professional bodies.

In appropriate cases, the FCA will take other enforcement action against the individual in addition to seeking a prohibition order and/or withdrawing their approval, including the use of its powers to: impose a financial penalty or issue a public censure; apply for an injunction to prevent dissipation of assets; stop any continuing misconduct; order restitution; apply for an insolvency order or an order against debt avoidance; and/or prosecute certain criminal offences.

The FCA has 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. Depending on the circumstances of each case, the FCA may seek to prohibit individuals from performing any class of function 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 FCA may also make an order prohibiting an individual from being employed by a particular firm, type of firm or any firm.

The scope of a prohibition order will depend on the range of functions which the individual concerned performs in relation to regulated activities, the reasons why they are not fit and proper and the level of risk which they pose to consumers or the market generally.

Where the FCA issues a prohibition order, it may indicate in the decision notice or final notice that it would be minded to revoke the order on the application of the individual in the future, in the absence of new evidence that the individual is not fit and proper. If the FCA gives such an indication, it will specify the number of years after which it would be minded to revoke or vary the prohibition on an application. However, the FCA will only adopt this approach in cases where it considers it appropriate in all the circumstances. The FCA would not be obliged to revoke an order after the specified period even where it gave such an indication. Further, if an individual’s prohibition order is revoked, they would still have to satisfy the FCA as to their fitness for a particular role in relation to any future application for approval to perform a controlled function.

When the FCA has concerns about the fitness and propriety of an approved person, it may consider whether it should prohibit that person from performing functions in relation to regulated activities, withdraw its approval or both. In deciding whether to withdraw its approval and/or make a prohibition order, the FCA will consider in each case whether its statutory objectives can be achieved adequately by imposing disciplinary sanctions – for example, public censures or financial penalties.

When the FCA decides whether to make a prohibition order against an approved person and/or withdraw its approval, the FCA will consider all the relevant circumstances of the case. These may include, but are not limited to, those set out below:

1. (1)

   the matters set out in section 61(2) of the Act;

2. (2)

   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 set out in FIT 2.1 (Honesty, integrity and reputation), FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness);

3. (3)

   whether, and to what extent, the approved person has:

   1. (a)

      failed to comply with the Statements of Principle or COCON, as applicable, issued by the FCA with respect to the conduct of approved persons; or

   2. (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), the AIFMD UK regulation or any qualifying provision specified, or of a description specified, for the purpose of section 66(2) by the Treasury by order;

4. (4)

   whether the approved person has engaged in market abuse;

5. (5)

   the relevance and materiality of any matters indicating unfitness;

6. (6)

   the length of time since the occurrence of any matters indicating unfitness;

7. (7)

   the particular controlled function the approved person is (or was) performing, the nature and activities of the firm concerned and the markets in which they operate;

8. (8)

   the level of risk which the individual poses to consumers and to confidence in the UK financial system;

9. (9)

   the previous disciplinary record and general compliance history of the individual, including whether the FCA, any previous regulator, designated professional body or other domestic or international regulator has previously imposed a disciplinary sanction on the individual; and

10. (10)

    where the approved person is an SMF manager, whether they would be a fit and proper person to perform functions in relation to regulated activities if the FCA varied their approval by imposing one or more conditions and, if so, whether it is appropriate for the FCA to exercise its power to impose such conditions, instead of making a prohibition order or withdrawing the approved person’s approval.

The FCA may have regard to the cumulative effect of a number of factors which, when considered in isolation, may not be sufficient to show that the individual is not fit and proper to continue to perform a controlled function or other function in relation to regulated activities. It may also take account of the particular controlled function which an approved person is performing for a firm, the nature and activities of the firm concerned and the markets within which it operates.

Due to the diverse nature of the activities and functions which the FCA regulates, it is not possible to produce a definitive list of matters which the FCA might take into account when considering whether an individual is not a fit and proper person to perform a particular, or any, function in relation to a particular, or any, firm.

The following are examples of types of behaviour which have previously resulted in the FCA deciding to issue a prohibition order or withdraw the approval of an approved person:

1. (1)

   providing false or misleading information to the FCA, including information relating to identity, ability to work in the United Kingdom and business arrangements;

2. (2)

   failure to disclose material considerations on application forms, such as details of county court judgments, criminal convictions and dismissal from employment for regulatory or criminal breaches. The nature of the information not disclosed can also be relevant;

3. (3)

   acts of dishonesty;

4. (4)

   serious lack of competence; and

5. (5)

   serious breaches of APER or COCON, for approved persons, such as failing to make terms of business regarding fees clear or actively misleading clients about fees; acting without regard to instructions; providing misleading information to clients, consumers or third parties; giving clients poor or inaccurate advice; using intimidating or threatening behaviour towards clients and former clients; and failing to remedy breaches of the general prohibition or to ensure that a firm acted within the scope of its permissions.

Certain matters that do not fit squarely, or at all, within the matters referred to above may also fall to be considered. In these circumstances, the FCA will consider whether the conduct or matter in question is relevant to the individual’s fitness and propriety.

Where the FCA considers that it is appropriate to withdraw an individual’s approval to perform a controlled function within a particular firm, it will also consider, at the very least, whether it should prohibit the individual from performing that function more generally. Depending on the circumstances, it may consider that the individual should also be prohibited from performing other functions.

The FCA will consult the PRA before withdrawing an approval given by the PRA.

Where the FCA is considering making a prohibition order against an individual other than an individual referred to in ENFG 5.3.1G to ENFG 5.3.7G , the FCA will consider the level of the risk posed by the individual, and may prohibit the individual where it considers that this is appropriate to achieve one or more of its statutory objectives . For that, the FCA will consider all the relevant circumstances of the case, including the factors set out in ENFG 5.3.2G , if appropriate.

When considering whether to grant or refuse an application to revoke or vary a prohibition order, the FCA will consider all the relevant circumstances of a case. These may include, but are not limited to:

1. (1)

   the seriousness of the misconduct or other unfitness that resulted in the order;

2. (2)

   the amount of time since the original order was made;

3. (3)

   any steps taken subsequently by the individual to remedy the misconduct or other unfitness;

4. (4)

   any evidence which, had it been known to the FCA at the time, would have been relevant to the FCA’s decision to make the prohibition order;

5. (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. (6)

   where the FCA’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 their employer;

7. (7)

   the financial soundness of the individual concerned; and

8. (8)

   whether the individual will continue to pose the level of risk to consumers or confidence in the UK financial system which resulted in the original prohibition if it is lifted.

When considering whether to grant or refuse an application to revoke or vary a prohibition order , the FCA will take into account any indication given by the FCA in the final notice that it is minded to revoke or vary the prohibition order on application after a certain number of years (see ENFG 5.2.5G ).

If the individual applying for a revocation or variation of a prohibition order proposes to take up an offer of employment to perform a controlled function, the FCA will take this into account when considering whether to grant or refuse the application.

The FCA 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 UK financial system that resulted in the order being made; and the individual is fit to perform functions in relation to regulated activities generally, or to those specific regulated activities in relation to which the individual has been prohibited. The FCA will assess the individual’s fitness and propriety to perform these functions on the basis of the criteria in FIT 2.1 (Honesty, integrity and reputation), FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness).

The FCA will consult the PRA before varying or revoking a prohibition order if, as a result of the variation or revocation, an individual will either be prohibited from, or no longer be prohibited from, a function of interest to the PRA as defined in section 56(7B) of the Act.