ENF 18
Disapplication orders against members of the professions
ENF 18.1
Application and purpose
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Application
ENF 18.1.1
See Notes
(1)
This
chapter applies to any person who
is, in relation to a profession, entitled to practise that profession and,
in practising it, is subject to the rules of the relevant designated professional body, whether or
not it is a member of that body ('members').
(2) A member is
exempt from the general
prohibition, under section 327 of the Act (Exemption from the general prohibition),
so long as the conditions set out in sections 327(2) to (7) are satisfied
and so long as there is not in force:
(a) a direction under section 328 of the Act ( Directions in relation
to the general prohibition) disapplying the prohibition in whole or in part;
or
(b) an order under section 329 of the Act (Orders in relation
to the general prohibition).
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Purpose
ENF 18.1.2
See Notes
This chapter describes the FSA's general approach
to the use of its power under section 329 of the Act (Orders in relation to the general prohibition)
to make an order disapplying an exemption from the general prohibition in relation to a person who is member.
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ENF 18.1.3
See Notes
The chapter outlines:
(1) the FSA's power
to make an order disapplying an exemption ('a disapplication order'), under
section 329;
(2) the FSA's general
approach to the exercise of that power;
(3) the FSA's procedure
for exercising its power to make a disapplication order;
(4) the effect of the FSA's decision to make a disapplication order;
and
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ENF 18.1.4
See Notes
The FSA's powers
to make a disapplication order on the grounds that a member is not a fit and proper person to conduct exempt regulated activities,
and to maintain a public record of disapplication orders, will assist the FSA in pursuing its regulatory objectives of
protecting consumers,
promoting public awareness and reducing financial
crime.
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ENF 18.2
The FSA's power to make a disapplication order
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ENF 18.2.1
See Notes
Under section 329(1) of the Act (Orders in relation
to the general prohibition) if it appears to the FSA that a person to whom (as a result of section 327(1)
of the Act (Exemption
from the general prohibition)) an exemption from the general prohibition applies, is not a fit
and proper person to
carry on exempt regulated activities, it may make an order
under section 329(2) disapplying the exemption to the extent set out in the
order.
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ENF 18.2.2
See Notes
Sections 329(5) and 329(6) are concerned
with the effect of disapplication orders on partnerships (including limited
liability partnerships). Section 329(5) provides that if a partnership (or limited liability
partnership) is named in a disapplication order, the order
is not affected by any change in its membership.
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ENF 18.2.3
See Notes
Under section 329(6) a partnership (or limited liability partnership) named in a
disapplication order is dissolved, the order continues to have effect in relation
to any partnership (or limited liability partnership)
that succeeds to the business of the dissolved partnership
(or limited liability partnership). Section 329(7) provides
that a partnership will
succeed to the business if:
(1) the members of the resulting partnership are substantially
the same as those of the former partnership;
and
(2) succession is to the whole or substantially
the whole of the business of the former partnership.
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ENF 18.2.4
See Notes
Section 331(1) (Procedure on making or
varying orders under section 329) provides that if the FSA proposes to make a disapplication order,
it must give the person concerned
a warning notice setting
out the terms of the proposed order. The FSA's procedures
in DEC 2.2 (Warning notice procedure) will apply.
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ENF 18.2.5
See Notes
Section 331(3) provides that if the FSA then decides to make
a disapplication order it must give the person concerned
a decision notice.
The FSA's procedures
in DEC 2.3 (Decision notice procedure) will apply.
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ENF 18.2.6
See Notes
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ENF 18.3
The FSA's general approach to making disapplication orders
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ENF 18.3.1
See Notes
ENF 18.4 sets
out how the FSA will
determine whether a member is
not a fit and proper to carry out exemptregulated activities in
accordance with section 327 of the Act (Exemption
from the general prohibition).
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ENF 18.3.2
See Notes
The FSA may
make a range of disapplication orders depending on the particular circumstances
of each case, including the range of exempt regulated activities undertaken
and the particular exempt regulated activities to which the person's lack of fitness
and propriety in that context is relevant.
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ENF 18.3.3
See Notes
The FSA recognises
that a decision to make a disapplication order may have serious consequences
for a member in
relation not only to the conduct by the member of exempt regulated activities, but also in relation
to the other business carried on by the member.
When it decides whether to exercise its power to make a disapplication order,
the FSA will
consider all relevant circumstances including whether other action, in particular
the making of a prohibition
order (see ENF
8 (Prohibition of individuals)),
would be more appropriate. In general, the FSA is likely to exercise its powers to make
an order disapplying an exemption where it considers that a member of a profession presents such a risk
to the FSA's regulatory objectives that
it is necessary to prevent the member from carrying out the exempt regulated activities.
The FSA will
also have regard to any disciplinary action taken, or to be taken, against
the person by
the relevant designated
professional body.
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ENF 18.4
Disapplication orders
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ENF 18.4.1
See Notes
The FSA may
be alerted to concerns in relation to the carrying out of exempt regulated activities by
a member,
by the relevant designated
professional body or by complaints from others such as employees or clients of the member.
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ENF 18.4.2
See Notes
When the FSA has concerns about the fitness and propriety
of a member to
carry out exempt regulated
activities, it will consider all the relevant circumstances
of the case, including whether those concerns arise from the fitness and propriety
of specific individuals engaged to perform the exempt regulated activities carried
out by the member or
whether its concerns arise from wider concerns about the member itself.
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ENF 18.4.3
See Notes
In most cases, where the FSA is concerned about
the fitness and propriety of a specific individual, it may be more appropriate
for the FSA to
consider whether to make an order prohibiting the individual from performing
functions in relation to exemptregulated activities rather
than a disapplication order in relation to the member concerned. The criteria which the FSA will apply when determining
whether to make a prohibition
order against an individual who is not regulated by the FSA are set out in ENF 8.8 (Prohibition orders against other individuals).
In addition to the factors referred to in ENF 8.8, the FSA may also take into
consideration any disciplinary action that has been, or will be taken against
the individual concerned by the relevant designated
professional body, where that disciplinary action reflects on
the fitness and propriety of the individual concerned to perform exempt regulated activities.
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ENF 18.4.4
See Notes
The FSA will
also take into account the potentially more serious consequences that a disapplication
of an exemption will have for the member concerned
compared with the consequences of a prohibition of a particular individual
engaged in exempt regulated activities. However, the FSA may consider it appropriate
in some cases to disapply an exemption where it decides that the member concerned is not
fit and proper to carry out exempt regulated activities in
accordance with section 327 of the Act (Exemption
from the general prohibition).
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ENF 18.4.5
See Notes
As an alternative to making an order
to disapply an exemption, the FSA may
consider issuing a private warning. A private warning may be appropriate where
the FSA has
concerns in relation to a member's fitness
and propriety but feels that its concerns in relation to the conduct of exempt regulated activities can
be more appropriately addressed by a private warning than by a disapplication
of the member's exemption.
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ENF 18.4.6
See Notes
When it decides whether to exercise its
power to disapply an exemption from the general
prohibition in relation to a member, the FSA will take into account all relevant circumstances
which may include, but are not limited to, the following factors:
(1) disciplinary or other action taken by
the relevant designated
professional body, where that action relates to the fitness
and propriety of the member concerned:
where the FSA considers
that its concerns in relation to the fitness and propriety of the member concerned may be,
or have been adequately addressed by disciplinary or other action taken by
the relevant designated
professional body it may consider not making a disapplication
order in addition to such action; however, where the FSA considers that its concerns, and in particular,
any risks presented to the member's clients in respect of
its exemptregulated
activities, are not adequately addressed by that action, the FSA will consider making
a disapplication order;
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ENF 18.4.7
See Notes
Where the FSA is considering whether to exercise its
power to make a disapplication order in relation to a member, it will liaise closely with the relevant designated professional body.
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ENF 18.4.8
See Notes
Where the FSA is considering making a disapplication
order against a member as
a result of a breach of rules made
by the FSA under
section 323(1) of the Act, it will take into
account any proposed application by the member concerned
for authorisation under
the Act. The FSA may refrain from making
a disapplication order pending its consideration of the application for authorisation.
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ENF 18.5
Applications for variation or revocation of disapplication orders
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ENF 18.5.1
See Notes
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ENF 18.5.2
See Notes
When considering whether to grant or
refuse an application to vary or revoke a disapplication order, the FSA will take into account
all the relevant circumstances. These may include, but are not limited to:
(1) any steps taken by the person to rectify the circumstances which
gave rise to the original order;
(2) whether the person has ceased to present the risk to clients and consumers or to the FSA's regulatory objectives which gave rise to
the original order;
(3) the circumstances giving rise to the
original order and any additional information which, had it been known by
the FSA,
would have been relevant to the decision to make the order;
(4) the amount of time which has elapsed
since the order was made.
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ENF 18.5.3
See Notes
The FSA will
not generally grant an application to vary a disapplication order unless it
is satisfied that the proposed variation will not result in the person presenting the
same degree of risk to clients or consumers that originally
gave rise to the order to disapply the exemption. Similarly, the FSA will not revoke a
disapplication order unless and until it is satisfied that the person concerned is fit
and proper to carry out exempt regulated activities generally
or those specific exempt regulated activities in relation to which
the exemption has been disapplied.
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ENF 18.5.4
See Notes
Section 331(6) of the Act (procedure
on making or varying orders under section 329) provides that if the FSA proposes to refuse
an application for the variation or revocation of a disapplication order,
it must give the applicant a warning
notice. Section 331(7) provides that if the FSA then decides to refuse the application,
it must give the applicant a decision
notice. The FSA's approach
to the issue of warning
notices and of decision
notices is described in DEC 2.2 (Warning notice procedure)
and DEC 2.3 (Decision making procedure). A person whose application for variation or
revocation of a disapplication order has been refused, may refer the matter
to the Tribunal (see DEC 5.1 (The Tribunal)).
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ENF 18.6
Other powers that may be relevant
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ENF 18.6.1
See Notes
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ENF 18.6.2
See Notes
The FSA's powers
to appoint investigators are set out in ENF 2. In particular, under
section 168(4)(d) of the Act (Appointment
of persons to carry out investigations in particular cases) the FSA may appoint investigators
if there appear to be circumstances suggesting that an individual is not a
fit and proper person to
be involved in the discharge of any function in relation to exempt regulated activities.
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ENF 18.6.3
See Notes
Where the FSA considers that it may be more appropriate
to take action against particular individuals engaged in the carrying out
of exempt regulated
activities within the member of
a profession concerned (see ENF
18.4.3 G),
it may consider using its power to make prohibition
orders against the relevant individuals (see ENF
8 (Prohibition of individuals)).
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ENF 18.7
The effect of a disapplication order
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ENF 18.7.1
See Notes
When the FSA has made a disapplication order, the member against which it
has been made may not perform the exempt regulated activities to
which the order relates. If the member contravenes
the order, there will be a breach of the general
prohibition that may be prosecuted under section 23 of the Act (see ENF 15).
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ENF 18.7.2
See Notes
A disapplication order in relation to exempt regulated activities made
against a member will
be relevant should that member subsequently
apply for authorisation under
the Act. Whether
or not such an application for authorisation is
successful will depend on many factors, including the FSA's grounds for making the disapplication
order. For example, if the order for disapplication of the exemption was made
on the grounds of a breach of rules made
under 332(1) the FSA may
accept an application for authorisation notwithstanding
the disapplication order. If, however, the order was made on grounds of a
breach of the rules of a designated
professional body resulting in a significant risk to clients in relation to
the provision of exempt regulated activities, it
is unlikely that an application for approval made by the member would be accepted by the FSA before the revocation
of the disapplication order.
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ENF 18.8
Publication
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ENF 18.8.1
See Notes
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ENF 18.8.2
See Notes
Under section 347(1)(i) of the Act
(Record of authorised persons), the FSA is required to maintain a record of every person falling within
such class as the FSA may
determine. To help it fulfil its regulatory
objectives of protecting consumers and
promoting public awareness, the FSA will
maintain a record of persons who
have been the subject of disapplication orders on the FSA's Register.
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ENF 18.8.3
See Notes
The FSA will
consider what additional information about the circumstances of the order
to include on the record maintained on the FSA Register and
will take into account any possible prejudice to the person concerned as compared to the interests
of consumer protection.
In general, the FSA considers
that publication of relevantinformation about
orders to disapply an exemption will be in the interests of clients and consumers.
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ENF 18.8.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry in the FSA Register ceases to apply to a person, it may remove
the relevant entry from the record. Section 347(4) provides that, if the FSA decides not to remove
the entry in the record, it must make a note in the record to that effect
and state why it believes the entry in the record no longer applies to the person.
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ENF 18.8.5
See Notes
While a disapplication order is effective,
the FSA will
maintain a record of the order on the FSA Register. If the FSA grants an application
to vary the order, a note of the variation will be made against the relevant
entry on the FSA's Register. The FSA's policy in relation
to section 347(4) of the Act is
that where an application to revoke an order is granted, a note will be made
on the FSA Register to
the effect that the order has been revoked giving reasons for its revocation.
The availability of a full record of action taken by the FSA against persons granted an exemption under section
327 of the Act will
help the FSA to
fulfil its regulatory objectives of
protecting consumers and
maintaining confidence in the financial
system. For this reason, the FSA will maintain the annotated record of
the disapplication order for a period of six years from the date of the revocation
of the order after which period the record will be removed from the record
on the FSA Register.
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