ENFG App 1 FSMA and other powers

The FCA has powers under the Act to seek injunctions for breaches of a relevant requirement or in cases of market abuse. It also has powers under the courts’ inherent jurisdiction – for example, to apply for asset freezing injunctions. The broad test the FCA will apply when it decides whether to seek an injunction is whether the application would be the most effective way to deal with the FCA’s concerns.

The FCA also has powers under Schedule 3 to the CRA to seek an injunction if it considers that a term or notice in a consumer contract is unfair, purportedly restrictive or exclusionary or non-transparent within the meaning of the CRA. Schedule 3 to the CRA provides the process the FCA should follow in these circumstances.

For contracts entered into before 1 October 2015, the Unfair Terms Regulations still apply. The pre-1 October 2015 version of the Enforcement Guide contains the FCA’s approach and policy relating to its powers under the Unfair Terms Regulations.

The FCA has specific rights and powers under the Act to apply to the court for orders under existing insolvency legislation and to participate in proceedings under that legislation. The FCA also has powers under other legislation in relation to insolvency, including under the Payment and Electronic Money Institution Insolvency Regulations 2021, the Investment Bank Special Administration Regulations 2011 and the Corporate Insolvency and Governance Act 2020. The FCA’s effective use of its powers and rights in insolvency proceedings in order to meet its operational objectives enables it to apply to court to:

1. (1)

   stop firms and unauthorised persons carrying on insolvent or unlawful business; and

2. (2)

   ensure the orderly realisation and distribution of their assets.

The FCA has powers in respect of authorised unit trust schemes (AUT) and authorised contractual schemes (ACS) under relevant sections of the Act. These are sections 254 (Revocation of authorisation order otherwise than by consent), 257 (Directions), 258 (Applications to the court) in relation to an AUT; and sections 261U (Revocation of authorisation order otherwise than by consent), 261X (Directions) and 261Y (Applications to the court) in relation to an ACS.

The FCA may use its powers individually or together, and in addition to direct enforcement action against a depositary or authorised fund manager in their capacity as firms.

Where the FCA has a concern about an AUT or ACS that must be dealt with urgently, it will generally use its power to give directions in the first instance.

The FCA also has powers in respect of recognised schemes under sections 271L, 271N and 271R of the Act in relation to schemes recognised under section 271A, and sections 279, 281 and 282B of the Act in relation to schemes recognised under section 272. These powers allow the FCA to suspend or revoke a scheme’s recognition or to issue the operators of such schemes with a public censure .

[ Note: The table in ENFG App 2.2 sets out the FCA’s general policy on the exercise of powers in relation to OEICs under the OEIC Regulations .]

Auditors and actuaries fulfil a vital role in the management and conduct of firms, AUTs and ACSs. Provisions of the Act, rules made under the Act and the OEIC Regulations impose various duties on auditors and actuaries. The FCA has powers to disqualify auditors and actuaries that breach their duties under these provisions. The FCA also has powers to disqualify auditors in breach of duties imposed by trust scheme rules, contractual scheme rules or the similar FCA rules that apply to ICVCs.

Additionally, the FCA has the power under section 345 of the Act to impose a financial penalty and a public censure on an auditor or actuary in respect of a failure to comply with a duty imposed on the auditor or actuary by rules made by the FCA (ie, SUP 3 , SUP 4 , for ICVCs in COLL 4 , COLL 7 ), or a failure to comply with a duty imposed under the Act to communicate information to the FCA . Actuaries carrying out a designated senior management function as specified in PRA rules will be subject to COCON , and other actuaries that are conduct rules staff will also be subject to parts of COCON applicable to conduct rules staff .

The FCA has the power under sections 249 and 261K of the Act to impose a financial penalty and a public censure on an auditor in respect of a failure to comply with a duty imposed on them by trust scheme rules and contractual scheme rules . The FCA has similar powers under Schedule 5 of the OEIC Regulations for breaches of those FCA rules that apply to ICVCs .

[ Note: The table in ENFG App 2.2 sets out the FCA’s general policy on the exercise of powers in relation to OEICs under the OEIC Regulations .]

The FCA’s statement of policy in relation to the imposition of financial penalties is set out in DEPP 6.2 (Deciding whether to take action) and DEPP 6.4 (Financial penalty or public censure). The FCA’s statement of policy in relation to determining the amount of a financial penalty is set out in DEPP 6.5 to DEPP 6.5D.

The FCA has the power under section 329 of the Act to make an order disapplying an exemption from the general prohibition in relation to a person who is a member of the professions on the grounds that the member is not a fit and proper person to conduct exempt regulated activities. Additionally, the FCA has powers to maintain a public record of disapplication orders.

When exercising the power to make a disapplication order, the FCA will consider whether other action would be more appropriate – in particular, whether to make a prohibition order. The FCA will also have regard to any disciplinary action taken, or to be taken, against the person by the relevant designated professional body.

In cases where the FCA considers making an order prohibiting the individual from performing functions in relation to exempt regulated activities , it will consider all the relevant circumstances of the case, including the factors set out in ENFG 5.3.2G .

The FCA has powers to cancel a sponsor’s approval under section 88 of the Act if it considers that a sponsor has failed to meet the criteria for approval as a sponsor as set out in UKLR 24.4.5R.

The FCA may also cancel a primary information provider’s approval under section 89P of the Act if it considers that a primary information provider has failed to meet the criteria for approval as a primary information provider as set out in DTR 8.3.

Under sections 122D and 176 of the Act, the FCA has the power to apply to a justice of the peace for a warrant to enter premises where documents or information is held. The circumstances under which the FCA may apply for a search warrant include:

1. (1)

   where a person on whom an information requirement has been imposed fails (wholly or in part) to comply with it; or

2. (2)

   where there are reasonable grounds for believing that if an information requirement were to be imposed, it would not be complied with, or that the documents or information to which the information requirement relates would be removed, tampered with or destroyed.

A warrant obtained pursuant to sections 122D and 176 of the Act authorises a police constable or an FCA investigator in the company, and under the supervision of, a police constable, to do the following, among other things: to enter and search the premises specified in the warrant and take possession of any documents or information appearing to be documents or information of a kind in respect of which the warrant was issued or to take, in relation to any such documents or information, any other steps which may appear to be necessary for preserving them or preventing interference with them.

The FCA has power to apply to the court for a restitution order under section 382 of the Act and (in the case of market abuse) under section 383 of the Act. It also has an administrative power to require restitution under section 384 of the Act.

In deciding whether to exercise its powers to seek or require restitution, the FCA will consider all the circumstances of the case, including, but not limited to:

1. (1)

   whether quantifiable profits have been made;

2. (2)

   whether there are indefinable losses;

3. (3)

   the number of persons affected;

4. (4)

   FCA costs;

5. (5)

   whether redress is available through the Financial Ombudsman Service or the compensation scheme;

6. (6)

   whether redress is available through another regulator, such as the Takeover Panel;

7. (7)

   whether persons who have suffered losses are able to bring their own civil proceedings;

8. (8)

   whether the firm or unauthorised persons concerned are solvent;

9. (9)

   what other powers are available to the FCA, including to obtain a compulsory insolvency order against the firm or unauthorised person concerned, to apply to the court for the appointment of a receiver, 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; and

10. (10)

    the behaviour of the persons suffering loss.

In cases where it is appropriate to exercise its powers to obtain restitution from firms, the FCA will first consider using its own administrative powers under section 384 of the Act before considering taking court action.