ENFG App 2 Non-FSMA powers

The FCA has certain functions in relation to ‘registrant-only’ mutual societies including registered societies or registered friendly societies . These societies are not regulated or supervised under the Act . Instead, they are subject to the provisions of FSA74, FSA92, CCBSA14 and CCBSA(NI)69, which require them to register with the FCA and fulfil certain other obligations, such as the requirement to submit annual returns.

Key powers under this legislation are:

• to refuse registration under the acts;

• to prosecute registrant-only societies that fail to submit annual returns; and

• to petition for the society’s winding up.

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA general policy, including that:

• the decision as to whether to initiate criminal and other proceedings will be taken in accordance with ENFG 6 ; and

• the procedure for giving statutory notices under the FSA92 will be in accordance with DEPP 2.5.18G .

The CUA79 and CU(NI)O85 enable certain societies in Great Britain and Northern Ireland to be registered under CCBSA14 and CU(NI)O85, respectively. CUA79 and CU(NI)O85 also make provisions in respect of these societies, and give the FCA additional powers in respect of those credit unions which are authorised persons .

Powers under this legislation include the power to:

• require production of books, accounts and other documents in the exercise of certain functions;

• appoint an investigator or to call a special meeting of the credit union ;

• cancel the registration of the credit union ;

• petition the High Court to wind up the credit union in particular circumstances; and

• prosecute offences under the acts.

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy as explained in ENFG , including that the decision as to whether to initiate criminal and other proceedings will be taken in accordance with ENFG 6 .

Where the FCA decides to cancel or suspend a credit union’s registration, the credit union may appeal that decision to the High Court or, in Scotland, the Court of Session.

UNFCOG describes how the FCA will use the general powers under the Unfair Terms Regulations .

ENFG App 1.1 describes how the FCA will use its injunctive powers under these regulations.

RIPA and IPA provide methods of surveillance and information gathering from various sources to assist the FCA in the prevention and detection of crime, where the methods to be used potentially infringe individuals’ right to privacy.

Under these enactments, the FCA is able to:

• carry out directed surveillance;

• make use of covert human intelligence sources (CHIS);

• access ‘protected’ (encrypted) electronic information; and

• apply for access to communications data.

Authorisations under RIPA cover activity such as directed surveillance and the use of CHIS, as well as access to ‘protected’ (encrypted) electronic information. Where the FCA seeks to use the powers granted to it under RIPA, authorisation is sought from a trained head of department in Enforcement. Authorisation will only be given where the proposed action is justified, necessary and proportionate to the objective it seeks to meet in each circumstance. Consideration will be given to the actual or potential infringement of the privacy of individuals who are not the subjects of the investigation or operation (collateral intrusion), including steps taken to avoid or minimise any such intrusion. When considering whether the proposed action is necessary and proportionate, the following non-exhaustive list of factors is likely to be relevant:

• the seriousness of the offence;

• the amount of material that might be gathered;

• the nature of the material that might be gathered;

• whether there are other less intrusive ways of obtaining the same result;

• whether the proposed activity is likely to satisfy the objective; and

• where surveillance is proposed, the location of the surveillance operation.

The approach to applications for access to communications data under IPA is consistent with applications for use of the powers under RIPA and the same considerations are relevant. However, authorisation to access communications data under IPA is provided by the Investigatory Powers Commissioner’s Office (IPCO).

The FCA can use specific powers under RIPA to require:

• a person who holds ‘protected’ electronic information (that is, information which is encrypted) to put that information into an eligible format; and

• where the person has a key to the encrypted information, to require the person to disclose the key for this purpose.

These powers require the FCA to obtain written permission from an appropriate judicial authority. The FCA does not anticipate using powers under Part III of RIPA very often as it expects firms and individuals to provide information in intelligible format pursuant to requirements to provide information under the Act .

In exercising powers under RIPA and IPA, the FCA has regard to the relevant RIPA and IPA codes of practice. The Codes are available on the Home Office websites: www.gov.uk/government/collections/ripa-codes and www.gov.uk/government/collections/investigatory-powers-act-codes-of-practice .

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy, including:

• when the FCA gives the person a warning notice and a decision notice ;

• that the decision to give a warning notice or a decision notice will be taken under the executive procedures ; and

• referral to Tribunal by the person receiving a decision notice .

The OEIC Regulations set out requirements relating to the way in which collective investment management may be carried on by open-ended investment companies. Under the OEIC Regulations , the FCA has the power, among other things, to:

• revoke an open-ended investment company’s authorisation in several situations, including where the firm breaches relevant requirements or provides us with false or misleading information (regulation 23);

• give, vary and revoke certain directions, including that the affairs of the company be wound up (regulations 25 and 28);

• apply to court for an order that a depositary or director of a company be removed and replaced (regulation 26); and

• appoint one or more competent persons to investigate and report on the affairs of the company and specified others (regulation 30).

[ Note: See ENFG App 1.3 for Act powers in relation to AUTs and ACSs and ENFG App 1.4 for powers in relation to auditors and actuaries .]

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy as explained in ENFG , including:

• when the FCA gives the person a warning notice and a decision notice ;

• that the decision to give a warning notice or a decision notice will be taken under executive procedures ;

• referral to the Tribunal by the person receiving a decision notice ;

• adopting the approach in ENFG App 1.3 for AUTs or ACSs , and for ICVCs , having regard to the relevant conduct of the director or directors of the ICVC and its depositary ;

• taking disciplinary action against an ICVC as an authorised person ;

• that when choosing which powers to use, the FCA will adopt the approach in ENFG App 1.3 ; and

• that the FCA may use its disqualification powers against auditors who fail to comply with a duty imposed on them under FCA rules , as in ENFG App 1.4 .

The FCA has powers under Part 8 of the Enterprise Act to enforce breaches of consumer protection law. The Enterprise Act identifies 2 types of breach which trigger the Part 8 enforcement powers. These are referred to as:

• ‘domestic infringements’, which are breaches of particular UK enactments or of contractual or tortious duties, in each case if they occur in the course of a business and in relation to goods or services supplied or sought to be supplied:

◦ to or for a person in the UK ; or

◦ by a person with a place of business in the UK ; and

• ‘Schedule 13 infringements’, which are breaches of the legislation listed in Schedule 13 to the Enterprise Act.

In both cases the breach must, to trigger those powers, harm the collective interests of consumers .

The FCA has powers under Part 8 of the Enterprise Act both as a ‘designated enforcer’ in relation to domestic and Schedule 13 infringements and as a ‘Schedule 13 enforcer’ which gives the FCA additional powers in relation to Schedule 13 infringements under the CRA . The FCA’s investigative powers in support of its Enterprise Act enforcement powers are set out in Schedule 5 to the CRA .

Where a breach has been committed, the FCA will liaise with other authorities, particularly the Competition and Markets Authority (CMA), to determine which authority is best placed to take enforcement action. The FCA would generally expect to be the most appropriate authority to deal with breaches by authorised firms in relation to regulated activities .

The FCA anticipates that its powers under the Act will be adequate to address the majority of breaches which it would also be able to enforce under the Enterprise Act and that there will therefore be limited cases in which it would seek to use its powers as an Enterprise Act enforcer. Where the FCA does use its powers under the Enterprise Act, it will have regard to the enforcement guidelines which are published on the CMA’s website: www.gov.uk/government/organisations/competition-and-markets-authority .

POCA provides the legislative framework for the confiscation from criminals of the proceeds of their crime. Under POCA, the FCA can apply to the Crown Court for a restraint order when it is investigating or prosecuting criminal cases.

POCA also contains various powers of investigation which the FCA may use in specified circumstances.

The FCA may apply for a restraint order under POCA where a criminal investigation has been started or where proceedings have started but not concluded; in either case there must be reasonable cause to believe that the defendant has benefited from criminal conduct. In this context, a person benefits from criminal conduct if they obtain property or a pecuniary advantage as a result of or in connection with conduct that would be an offence if it took place in England or Wales, regardless of whether they also obtain it in some other connection. The court is required to exercise its powers with a view to securing that the value of realisable assets is not diminished.

Where the powers in POCA overlap with powers under the Act , the FCA will in most cases consider it more appropriate to rely on its investigation powers under the Act .

These regulations implemented part of the Financial Conglomerates Directive (2002/87/EC), which imposed certain procedural requirements on the FCA as a competent authority under the Directive. These regulations also made specific provision about the exercise of certain supervisory powers in relation to financial conglomerates.

The FCA’s powers to vary a firm’s Part 4A permission or to impose requirements under sections 55J and 55L of the Act were extended under these regulations.

The FCA is able to use these powers where it is desirable to do so for the purpose of:

• supervision in accordance with the Financial Groups Directive Regulations ;

• acting in accordance with specified provisions of the Capital Requirements Regulations 2013 ; and

• acting in accordance with specified provisions that implemented or supplemented Solvency II Directive .

The duty imposed by section 55B(3) (The threshold conditions) of the Act does not prevent the FCA from exercising its own-initiative power for these purposes. But subject to that, when exercising this power under these regulations, the FCA will do so in a manner consistent with its approach generally to variation under the Act .

The FCA can enforce breaches of these regulations concerning ‘specified contracts’. Specified contracts are certain contracts for the provision of financial services which are made at a distance and do not require the simultaneous physical presence of the parties to the contract.

The FCA may apply to the courts for an injunction or interim injunction against a person who appears to it to be responsible for a breach of these regulations.

The FCA may also accept undertakings from the person who committed the breach that they will comply with these regulations.

The FCA may also prosecute offences under these regulations which relate to specified contracts.

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy as explained in ENFG .

The FCA must publish details of any applications it makes for injunctions, the terms of any orders that the court subsequently makes, and the terms of any undertakings given to it or to the court.

It will generally be appropriate for the FCA to seek to resolve the breach by obtaining an undertaking before it applies for an injunction or initiates a prosecution. Where a failure by a firm to meet the requirements of the regulations also amounts to a breach of the FCA’s rules , the FCA will consider all the circumstances of the case when deciding whether to take action for a breach of its rules or under the regulations. This will include, among other things, having regard to appropriate factors set out in DEPP 6 and the considerations in ENFG 6 .

The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the Counter-Terrorism Act 2008 (‘the Counter-Terrorism Act’). These powers are similar to those given to the FCA by the Money Laundering Regulations .

The FCA is responsible for monitoring and enforcing compliance with requirements imposed by the Treasury under the Counter-Terrorism Act by ‘credit institutions’ that are authorised persons and by ‘financial institutions’ (except money service businesses that are not authorised persons and consumer credit financial institutions). ‘Credit institutions’ and ‘financial institutions’ are defined in Part 2 of Schedule 7 to the Counter Terrorism Act.

The FCA’s policy for using the powers given to it by the RAP regulations is set out in REC .

This includes, for example, its policy in relation to the power to impose a financial penalty on or censure a RAP ( REC 2A.4 ) and its policy in relation to the power to give directions to a RAP ( REC 4.6 ).

The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the Money Laundering Regulations .

The FCA is responsible for monitoring and enforcing compliance with the Money Laundering Regulations not only by authorised firms who are within the scope of the Money Laundering Regulations , but also by what the regulations describe as ‘Annex 1 financial institutions’, and cryptoasset exchange providers and custodian wallet providers . These are businesses which are not otherwise authorised by us, but which carry out certain of the activities which were listed in Annex I of the Banking Consolidation Directive (2013/36/EU), then in Annex I of the Capital Requirements Directive, the relevant text of which is set out in Schedule 2 of the Money Laundering Regulations .

[ Note: Money service businesses are also outside the definition of ‘Annex 1 financial institution’, which is set out in Regulation 55(2) of the Money Laundering Regulations .]

The FCA is also responsible for monitoring and enforcing compliance with the Funds Transfer Regulation by payment service providers specified under regulation 62(1) of the Money Laundering Regulations .

The Money Laundering Regulations add to the range of options available to the FCA for dealing with anti-money laundering and anti-terrorist financing failures. These options include:

• to prosecute a relevant person, including but not limited to an authorised firm or an Annex 1 financial institution or an auction platform , a cryptoasset exchange provider or a custodian wallet provider , as well as any responsible officer;

• to fine or censure a relevant person, including but not limited to an authorised firm or an Annex 1 financial institution or an auction platform , a cryptoasset exchange provider or a custodian wallet provider , as well as any officer knowingly concerned in the breach, under regulation 76 of the Money Laundering Regulations ;

• to cancel, suspend or impose limitations or other restrictions on the authorisation or registration of an authorised person or payment service provider, under regulation 77 of the Money Laundering Regulations ; and

• to impose a temporary or permanent prohibition on an officer knowingly concerned in a breach by a relevant person, including an authorised firm or Annex 1 financial institution, a payment service provider, a cryptoasset exchange provider or a custodian wallet provider under regulation 78 of the Money Laundering Regulations .

In addition to the powers available under the Money Laundering Regulations , the FCA will have the power to take regulatory action against authorised firms for failures which breach the FCA’s rules and requirements (for example, under Principle 3, SYSC 3.2.6R or SYSC 6.1.1R ). This means that there will be situations in which the FCA has powers to investigate and take action under both the Act and the Money Laundering Regulations .

The FCA also has powers under regulation 74C to impose a direction on a cryptoasset business or Annex 1 financial institution to:

• remedy a failure to comply with a requirement under the Money Laundering Regulations ;

• prevent a failure to comply, or continued non-compliance with a requirement under the Money Laundering Regulations ; or

• prevent the cryptoasset business or Annex 1 financial institution from being used for money laundering, terrorist financing or proliferation financing.

The FCA may impose a direction requiring or prohibiting the taking of specified action. Cryptoasset businesses or Annex 1 financial institutions can also apply for a direction to be imposed, varied or rescinded.

Under these regulations, the FCA has investigation powers that it can use when investigating whether breaches have taken place, including:

• the power to require information from, and attendance of, relevant persons, payment service providers and connected persons (regulation 66); and

• powers of entry and inspection without or under warrant (regulations 69 and 70).

The use of these powers will be limited to those cases in which the FCA is exercising functions under the Money Laundering Regulations . In addition, the FCA may use its powers to require information or attendance at the request of foreign authorities.

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy as explained in ENFG , including:

• conduct of an investigation under the Money Laundering Regulations ;

• when prosecuting Money Laundering Regulations offences – ENFG 6 ;

• when investigation and sanctioning powers should be used;

• when the FCA proposes or decides to censure a person, impose a penalty on a person, suspend, cancel or restrict an authorisation or registration or impose a prohibition on a person under the Money Laundering Regulations , it must give the person a warning notice or a decision notice ;

• when imposing or determining the level of a financial penalty under regulation 76 of the Money Laundering Regulations – DEPP 6.2.1G and DEPP 6.5 to DEPP 6.5D . The FCA may not impose a penalty where there are reasonable grounds for it to be satisfied that the subject of the proposed action took all reasonable steps and exercised all due diligence to ensure that the relevant requirements of the Money Laundering Regulations would be met. In deciding whether a person has failed to comply with a requirement of the Money Laundering Regulations , the FCA must consider whether they followed any relevant guidance which was issued by a European Supervisory Authority in accordance with articles 17, 18.4 or 48.10 of the Fourth Money Laundering Directive, with article 25 of the Funds Transfer Regulation, or with any relevant guidance which was issued at the time by a supervisory authority or other appropriate body, including the Joint Money Laundering Steering Group;

• when cancelling, suspending or restricting an authorisation or limitation under regulation 77 of the Money Laundering Regulations or determining the duration of any such suspension or restriction, and when imposing or determining the duration of a prohibition under regulation 78 of the Money Laundering Regulations – DEPP 6A ;

• the settlement discount scheme ( DEPP 6.7 ) which applies to penalties, suspensions, restrictions and temporary prohibitions imposed under regulations 76, 77 and 78 of the Money Laundering Regulations ; and

• when publicity provisions apply in regulation 84 of the Money Laundering Regulations – ENFG 4 .

In the majority of cases where both the Money Laundering Regulations and the FCA rules apply and regulatory action, as opposed to criminal proceedings, is appropriate, the FCA generally expects to continue to discipline authorised firms under the Act .

The FCA will adopt a risk-based approach to its enforcement under the Money Laundering Regulations . Failures in anti-money laundering or counter-terrorist financing controls will not automatically result in disciplinary sanctions, although enforcement action is more likely where a firm has not taken adequate steps to identify its risks or put in place appropriate controls to mitigate those risks, and failed to take steps to ensure that controls are being effectively implemented.

The FCA will exercise powers under regulation 74C of the Money Laundering Regulations , to impose a direction on a cryptoasset business or Annex 1 financial institution, where:

• it has serious concerns about its compliance with the Money Laundering Regulations ;

• it is concerned that a failure of the cryptoasset business or Annex 1 financial institution to take the desired steps may result in a breach of the Money Laundering Regulations ;

• the imposition of a direction reflects the importance the FCA attaches to the need for the cryptoasset business or Annex 1 financial institution to address its concerns; and

• the imposition of a direction may assist the cryptoasset business or Annex 1 financial institution to take steps which would otherwise be difficult because of legal obligations owed to third parties.

The FCA will also exercise its powers to:

• vary a direction; or

• cancel a direction,

where it considers it appropriate to do so.

The FCA may impose a direction so that it takes effect immediately or on a specified date if it reasonably considers it necessary to do so, having regard to the ground on which it is exercising this power.

The FCA will consider imposing a direction as a matter of urgency where:

• the information available to it indicates serious concerns about the cryptoasset business or Annex 1 financial institution that need to be addressed immediately; and

• circumstances indicate that it is appropriate to impose a direction immediately to require and/or prohibit certain actions by the cryptoasset business or Annex 1 financial institution to ensure the cryptoasset business or Annex 1 financial institution addresses these concerns.

The FCA will consider the full circumstances of each case when it decides whether an urgent imposition of a direction is appropriate.

The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the Payment Services Regulations .

The regulatory powers which the Payment Services Regulations provide to the FCA include:

• the power to require information;

• powers of entry and inspection;

• power of public censure;

• the power to impose financial penalties;

• the power to prosecute or fine unauthorised providers; and

• the power to vary an authorisation on its own initiative.

[ Note: ENFG App 2.1 identifies the FCA’s statements of policy in relation to financial penalties, and conduct of interviews in response to overseas regulators’ requests, which the FCA is required to make under the Payment Services Regulations .]

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and the FCA’s general policy as explained in ENFG .

The Payment Service Regulations do not require the FCA to have published procedures to launch criminal prosecutions. However, in these situations, the FCA expects that it will normally follow its decision-making procedures for the equivalent decisions under the Act .

Regulations 28 and 34 of the EU Exit Passport Regulations make provision for certain qualifying persons to be treated as having Part 4A permission . The EU Exit Passport Regulations provide a supervised run-off regime, which enables such persons to run off existing UK contracts and conduct an orderly exit from the UK market.

The FCA has power under the EU Exit Passport Regulations to direct that the regime should not apply to a particular person . The effect of such a direction would be to remove that person’s deemed permission to conduct regulated activities in the UK .

The FCA’s approach to the exercise of these powers is consistent with the use of powers under the Act and FCA’s general policy as explained in ENFG , including:

• the approach to enforcement and cancellation under the Act ; and

• the approach to making decisions under executive procedures .