ENF 6
Injunctions
ENF 6.1
Application and purpose
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Application
ENF 6.1.1
See Notes
This
chapter applies to firms, approved persons, and other persons, whether or not
they are regulated by the FSA.
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Purpose
ENF 6.1.2
See Notes
This chapter explains the FSA's powers to apply
to court for injunctions and
gives guidance on
how the FSA intends
to use these powers. The FSA's effective
use of these powers will help it work towards its regulatory objectives of protecting consumers, maintaining
confidence in the financial
system and reducing financial
crime. This chapter does not explain the use of the FSA's power to seek injunctions under the Unfair Terms Regulations.
This is explained in ENF 20 (Unfair terms in consumer
contracts).
- 01/04/2003
ENF 6.2
Introduction
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ENF 6.2.1
See Notes
This chapter contains guidance on the use of the FSA's powers under the Act to apply to court for orders:
(1) in relation to the contravention of a
relevant requirement (section 380 of the Act (Injunctions));
(3) at the request of the Home State regulator of an incoming EEA firm (section 198 of the Act (Power to apply to
court for injunction in respect of certain overseas insurance companies)).
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ENF 6.2.2
See Notes
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ENF 6.2.4
See Notes
The orders the court may make following
an application by the FSA are
generally known in England and Wales and Northern Ireland as injunctions, and
in Scotland as interdicts.
In this chapter, the word 'injunction'
and the word 'order' also mean 'interdict'.
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ENF 6.2.5
See Notes
A person who
disobeys an injunction may
be in contempt of court and be liable to imprisonment, to a fine, and/or to
have his assets seized.
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ENF 6.2.6
See Notes
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ENF 6.3
Section 380: the power
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ENF 6.3.1
See Notes
Under section 380 of the Act (Injunctions), the FSA has power to apply
to court for an injunction against persons, whether authorised or not, in connection
with a contravention of a 'relevant requirement'. (The Secretary of State
for Trade and Industry may also apply for injunctions under this section of the Act).
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ENF 6.3.2
See Notes
Sections 380(6)(a) and (7)(a) state that
in relation to an application by the FSA,
'relevant requirement' means a requirement:
(1) 'which is imposed by or under the Act; or
(2) which is imposed by or under any other
Act and whose contravention constitutes an offence which the FSA has power to prosecute
under the Act (or
in the case of Scotland, which is imposed by or under any other Act and whose
contravention constitutes an offence under Part V of the Criminal Justice
Act 1993 (insider dealing)
or under prescribed regulations relating to money laundering)'.
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ENF 6.3.3
See Notes
Sections 380(1), (2) and (3) set out
the grounds on which the court may grant an injunction.
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ENF 6.3.4
See Notes
(1) Under section 380(1), the FSA may apply to court
for an injunction restraining
or prohibiting a contravention of a relevant requirement.
(2) Section 380(1) states, 'If, on the application
of the FSA or
the Secretary of State, the court is satisfied:
(a) that there is a reasonable likelihood
that any person will
contravene a relevant requirement; or
(b) that any person has contravened a relevant requirement
and that there is a reasonable likelihood that the contravention will continue
or be repeated,
the court may
make an order restraining (or in Scotland an interdict prohibiting) the contravention.'- 01/12/2004
ENF 6.3.5
See Notes
(1) Under section 380(2), the FSA may apply to court
for an injunction directing
a person to
remedy a contravention of a relevant requirement.
(2) Section 380(2) states, 'If on the application
of the FSA or
the Secretary of State the court is satisfied:
(a) that any person has contravened a relevant requirement;
and
(b) that there are steps which could be taken
for remedying the contravention,
the court may
make an order requiring that person,
and any other person who
appears to have been knowingly concerned in the contravention, to take such
steps as the court may direct to remedy it.'- 01/12/2004
ENF 6.3.6
See Notes
Under section 380(5), 'remedying a contravention'
(see ENF
6.3.5 G) includes mitigating the
effect of that contravention.
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ENF 6.3.7
See Notes
(2) Section 380(3) states, 'If, on the application
of the FSA or
the Secretary of State, the court is satisfied that any person may have:
(a) contravened a relevant requirement; or
(b) been knowingly concerned in the contravention
of such a requirement,
it may make
an order restraining (or in Scotland an interdict prohibiting)
him from disposing of, or otherwise dealing with, any assets of his which
it is satisfied he is reasonably likely to dispose of or otherwise deal with.'- 01/12/2004
ENF 6.4
Section 381: the power
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ENF 6.4.1
See Notes
Under section 381 of the Act (Injunctions in cases
of market abuse), the FSA has
power to apply to court for an injunction against persons, whether authorised or not, in cases
of market abuse.
The Secretary of State for Trade and Industry has no power to apply for injunctions under this
section of the Act.
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ENF 6.4.2
See Notes
Sections 381(1), (2), (3) and (4) set
out the grounds upon which the court may grant an injunction.
(1) Under section 381(1), the FSA may apply to court
for an injunction restraining
or prohibiting market
abuse.
(2) Section 381(1) states, 'If, on the application
of the FSA,
the court is satisfied:
(b) that any person is or has engaged in market abuse and that
there is a reasonable likelihood that the market abuse will continue or be repeated,
the court may
make an order restraining (or in Scotland an interdict prohibiting) the market abuse.'- 01/12/2004
ENF 6.4.3
See Notes
(1) Under section 381(2), the FSA may apply to court
for an injunction requiring
a person to
take steps to remedy market
abuse.
(2) Section 381(2) states, 'If on the application
of the FSA the
court is satisfied:
(b) that there are steps which could be taken
for remedying the market
abuse,
the court may
make an order requiring him to take such steps as the court may direct to
remedy it.'- 01/12/2004
ENF 6.4.4
See Notes
Under section 381(6), 'remedying the market abuse' (see ENF
6.4.3 G) includes mitigating the
effect of the market abuse.
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ENF 6.4.5
See Notes
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ENF 6.4.6
See Notes
Section 381(3) states that section 381(4)
(see ENF
6.4.4 G) applies if '...on the
application of the FSA,
the court is satisfied that any person (a)
may be engaged in market
abuse; or (b) may have been engaged in market abuse.'
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ENF 6.5
Asset-freezing injunctions
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ENF 6.5.1
See Notes
As an alternative to applying to the
court under section 380(3) (Injunctions) or sections 381(3) and (4) (Injunctions
in cases of market abuse) of the Act,
the FSA may
ask the court to exercise its inherent jurisdiction to grant a freezing order,
restraining a person from
disposing of, or otherwise dealing with, assets. To succeed in an application
for an asset-freezing injunction the FSA will have to show
a good arguable case for the granting of the injunction.
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ENF 6.5.2
See Notes
The FSA may
request the court to exercise its inherent jurisdiction in cases where it
has evidence showing that there is a reasonable likelihood that a person will contravene
a requirement of the Act and
that the contravention will result in the dissipation of assets belonging
to investors. Unlike an application under section 380(3) or 381(3) and (4),
the FSA will
not have to show that a contravention has already occurred or may have already
occurred.
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ENF 6.6
Section 380 and 381 injunctions: the FSA's policy
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ENF 6.6.1
See Notes
Sections 380 (Injunctions) and 381 (Injunctions
in cases of market abuse) of the Act enable
the court to make three types of order: to restrain a course of conduct, to
take steps to remedy a course of conduct and to secure assets (see ENF 6.3 and ENF 6.4). An application under the court's inherent jurisdiction will enable
the court to make an order freezing assets. In certain cases, the FSA may seek only one
type of order, although in others it may seek several.
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ENF 6.6.2
See Notes
The FSA recognises
that an application for an injunction under
sections 380 and/or 381 of the Act, or under
the court's inherent jurisdiction, will have serious consequences for those
concerned. The broad test the FSA will
apply when it decides whether to seek an injunction is
whether the application would be the most effective way to deal with the FSA's concerns. In deciding
whether an application for an injunction is
appropriate in a given case, the FSA will
consider all relevant circumstances and may take into account a wide range
of factors. The following list of factors is not exhaustive; not all the factors
will be relevant in a particular case and there may be other factors that
are relevant.
(1) The nature and seriousness of a contravention
or expected contravention of a relevant requirement (see ENF
6.3.2 G). The extent of loss, risk of loss, or other adverse effect on consumers, including the
extent to which client assets
may be at risk, may be relevant. The seriousness of a contravention or prospective
contravention will include considerations of:
(a) whether the losses suffered are substantial;
(b) whether the numbers of consumers who have suffered loss are significant;
(c) whether the assets at risk are substantial;
and
(d) whether the number of consumers at risk is significant.
(2) In cases of market abuse, the nature and seriousness
of the misconduct or expected misconduct in question. The following may be
relevant:
(a) the impact or potential impact on the financial system of the
conduct in question. This would include the extent to which it has resulted
in distortion or disruption of the markets, or would be likely to do so if
it was allowed to take place or to continue;
(b) the extent and nature of any losses or
other costs imposed, or likely to be imposed, on other users of the financial system, as a
result of the misconduct.
(3) Whether the conduct in question has stopped
or is likely to stop and whether steps have been taken or will be taken by
the person concerned
to ensure that the interests of consumers are
adequately protected. For example, an application for an injunction may be appropriate where the FSA has grounds for believing
that a contravention of a relevant requirement, market abuse or both may continue or be
repeated. It is likely to have grounds to believe this where, for example,
the Takeover Panel has
requested that a person stop
a particular course of conduct and that person has
not done so.
(4) Whether there are steps a person could take to remedy
a contravention of a relevant requirement or market abuse. The steps the FSA may require a person to take will vary
according to the circumstances but may include the withdrawal of a misleading financial promotion or
publishing a correction, writing to clients or
investors to notify them of FSA action,
providing financial redress and repatriating funds from an overseas jurisdiction.
An application by the FSA to
the court under section 380(2) or 381(2) for an order requiring a person to take such steps
may not be appropriate if, for example, that person has already taken or proposes to take
appropriate remedial steps at his own initiative or under a ruling imposed
by another regulatory authority (such as the Takeover Panel or a recognised investment exchange). If another
authority has identified the relevant steps and the person concerned has failed to take them,
the FSA will
take this into account and (subject to all other relevant factors and circumstances)
may consider it is appropriate to apply for an injunction. In those cases the FSA may consult with the
relevant regulatoryauthority before applying
for an injunction.
(5) Whether there is a danger of assets being
dissipated. The main purpose of an application under section 380(3) (see ENF
6.3.7 G), sections 381(3) and
(4) (see ENF
6.4.6 G) or pursuant to the court's
inherent jurisdiction (see ENF 6.5), is likely to be to safeguard funds containing client assets (ie client accounts) and/or funds and other assets
from which restitution may be made (see ENF 9 (Restitution
and redress)). The FSA may
seek an injunction to
secure assets while a suspected contravention is being investigated or where
it has information suggesting that a contravention is about to take place.
(6) The costs the FSA would incur in applying for and enforcing
an injunction and
the benefits that would result (although the FSA may be able to recover those costs: see ENF
6.2.6 G). There may be other cases
which require the FSA's attention
and take a higher priority, due to the nature and seriousness of the breaches
concerned. There may, therefore, be occasions on which the FSA considers that time and resources should
not be diverted from other cases in order to make an application for an injunction.
These factors reflect the FSA's duty
under the Act to
have regard to the need to use its resources in the most efficient and economic
way.
(7) The disciplinary record and general compliance
history of the person who
is the subject of the possible application. This includes whether the FSA (or a previous regulator) has
taken any previous disciplinary, remedial or protective action against the person. It may also be
relevant, for example, whether the person has
previously given any undertakings to the FSA (or
any previous regulator)
not to do a particular act or engage in particular behaviour and is in breach of those undertakings.
(8) Whether the conduct in question can be
adequately addressed by other disciplinary powers, for example public censure
or financial penalties.
(9) The extent to which another regulatory
authority can adequately address the matter. Certain circumstances may give
rise not only to possible enforcement action by the FSA, but also to action by other regulatory
authorities. The FSA will
examine the circumstances of each case, and consider whether it is appropriate
for the FSA to
take action to address the relevant concern. In most cases the FSA will consult with
other relevant regulatory authorities before making an application for an
order. The FSA's approach
to potential action involving other regulatory authorities is discussed in
detail, in the context of discipline of firms and approved persons, in ENF 11.8 (Action involving other regulatory authorities),
and in the context of sanctions for market
abuse, in ENF 14.9 (Action
involving other UK regulatory authorities).
(10) Whether there is information to suggest
that the person who
is the subject of the possible application is involved in financial crime.
(11) In any case where the FSA is of the opinion that any potential
exercise of its powers under section 381 may affect the timetable or the outcome
of a takeover bid,
the FSA will
consult the Takeover Panel before
taking any steps to exercise these powers and will give due weight to its
views.
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ENF 6.7
Other relevant powers
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ENF 6.7.1
See Notes
The FSA has
a range of powers it can use to take remedial, protective and disciplinary
action against a person who
has contravened a relevant requirement or engaged in market abuse, as well as its powers to seek injunctions under sections
380 (Injunctions) and 381 (Injunctions in cases of market abuse) of the Act or the courts' inherent jurisdiction.
Where appropriate, the FSA may
exercise these other powers before, at the same time as, or after it applies
for an injunction against
a person.
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ENF 6.7.2
See Notes
When, in relation to firms, the FSA applies the broad test outlined in ENF
6.6.2 G, it will consider the
relative effectiveness of the other powers available to it, compared with
injunctive relief. For example, where the FSA has concerns about whether a firm will comply with
restrictions that the FSA could
impose by exercising its own initiative powers (see ENF 3 (Variation of Part IV permission on the FSA's own initiative),
it may decide it would be more appropriate to seek an injunction. This is because breaching any
requirement imposed by the court could be punishable for contempt (see ENF
6.2.5 G). Alternatively, where,
for example, the FSA has
already imposed requirements on a firm by
exercising its own-initiative
powers and these requirements have not been met, the FSA may seek an injunction to enforce
those requirements.
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ENF 6.7.3
See Notes
The FSA's own-initiative powers do
not apply to unauthorised
persons. This means that an application for an injunction is the only
power by which the FSA may
seek directly to prevent unauthorised
persons from actual or threatened breaches or market abuse. The FSA will decide whether an application against
an unauthorised person is
appropriate, in accordance with the approach discussed in ENF 6.6. The FSA may
also seek an injunction to
secure assets where it intends to use its insolvency powers (see ENF 10 (Insolvency proceedings and orders against debt
avoidance)) against an unauthorised
person.
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ENF 6.7.4
See Notes
In certain cases, conduct that may be
the subject of an injunction application
will also be an offence which the FSA has
power to prosecute under the Act.
In those cases, the FSA will
consider whether it is appropriate to prosecute the offence in question, as
well as applying for injunctions under
section 380, section 381, or both. ENF 15 (Prosecution of criminal
offences) sets out the offences the FSA has
power to prosecute, and the FSA's policy
and procedure for prosecution of these offences.
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ENF 6.7.5
See Notes
Where the FSA exercises its powers under section 380,
section 381 or invokes the court's inherent jurisdiction to obtain an order
restraining the disposal of assets, it may also apply to the court for a restitution
order for the distribution of those assets. The FSA's policy and procedure in relation to
restitution orders is set out in ENF 9 (Restitution and redress).
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ENF 6.8
Section 198
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ENF 6.8.1
See Notes
Under section 198 of the Act (Power to apply to
court for injunction in respect of certain overseas insurance companies) the FSA has power to apply
to court on behalf of the Home
State regulator of certain incoming
EEA firms for an injunction restraining
the incoming EEA firm from
disposing of, or otherwise dealing with, any of its assets.
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ENF 6.8.2
See Notes
(1) Section 198(1) sets out the circumstances
in which the FSA may
exercise the power referred to in ENF
6.8.1 G.
(2) Section 198(1) states, 'This section
applies if the FSA has
received a request made in respect of an incoming
EEA firm in accordance with:
- 01/12/2004
ENF 6.8.3
See Notes
The FSA's power
under section 198 is intended to implement article 20.5 of the First Non-Life Directive,
on general insurance, and article 24.5 of the First Life Directive,
on long-term insurance. Section 198(1) limits use of the power to where it
is in accordance with those articles, which means that it can be exercised
only where the Home State
regulator concerned has asked the FSA to prohibit the free disposal of the incoming EEA firm's assets
and has confirmed that:
(1) the incoming
EEA firm has failed to comply with the requirements of article
15 of the First Non-LifeDirective,
or article 17 of the First
LifeDirective; or
(2) the solvency margin of the incoming EEA firm has
fallen below the minimum required by article 16.3 of the First Non-Life Directive,
or article 19 of the First
Life Directive; or
(3) the solvency margin of the incoming EEA firm has
fallen below the guaranteefund as defined in
article 17 of the First
Non-Life Directive, or article
20 of the First Life Directive.
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ENF 6.8.4
See Notes
The FSA will
therefore consider exercising this power only where a request from a Home State regulator satisfies
the requirements of section 198(1).
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ENF 6.11
Publication
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ENF 6.11.1
See Notes
(1) The FSA considers
it generally appropriate to publish details of its successful applications
to the court for injunctions.
For example, where the court has ordered an injunction to prohibit further illegal activity,
it will normally be appropriate to publicise this to inform consumers of the position and help them avoid
dealing with the person who
is the subject of the injunction.
However, there may be circumstances when the FSA decides not to publicise, or not to do
this immediately. These circumstances might, for example, be where publication
could damage confidence in the financial system or
undermine market integrity in a way that would be prejudicial to the interests
of consumers.
(2) Where the behaviour to which the injunction relates has occurred in the context
of a takeover bid,
the FSA will
consult the Takeover Panel over
the timing of publication if the FSA believes
that publication may affect the timetable or outcome of that bid, and will
give due weight to the Takeover
Panel's views.
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