ENF 7
Withdrawal of approval
ENF 7.1
Application and purpose
- 01/12/2004
Application
ENF 7.1.1
See Notes
This chapter applies to approved persons and to firms.
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Purpose
ENF 7.1.2
See Notes
The power to withdraw approval from approved persons is one of various regulatory tools the FSA may use to help it achieve its regulatory objectives. The FSA's effective
use of this power will 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 he is not a fit and proper person to perform that function. It will also demonstrate generally to approved
persons the consequences of failing to comply with appropriate standards of conduct.
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ENF 7.2
Introduction
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ENF 7.2.1
See Notes
This chapter contains guidance on:
(1) the FSA's power to withdraw approval from an approved person, under section 63 of the Act (Withdrawal of approval);
(2) the procedure for exercising this power;
(3) the FSA's policy in relation to the exercise of this power;
(4) other powers that may be relevant when the FSA considers the exercise of the power; and
(5) the effect of the FSA's decision to withdraw approval.
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ENF 7.3
The FSA's power to withdraw approval
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ENF 7.3.1
See Notes
Under section 63(1) of the Act (Withdrawal ofapproval), the FSA may withdraw an approval given under section 59 of the Act (Approval for particular arrangements) if
it considers the person in respect of whom it was given is not a fit and proper person to perform the function to which the approval relates.
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ENF 7.3.2
See Notes
When considering whether to withdraw its approval, the FSA may, under section 63(2), consider any matter which it could take into account if it were considering an application made under section 60 of the Act (Applications for approval) in respect of the performance
of the function to which the approval relates.
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ENF 7.3.3
See Notes
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ENF 7.3.4
See Notes
Section 61(2) states that the FSA may: 'have regard (among other things) to whether the person, or any person who may perform a function on his behalf:
(1) has obtained a qualification;
(2) has undergone, or is undergoing, training; or
(3) possesses a level of competence,
required by general rules in relation to persons performing functions of the kind to which the approval relates.'- 01/12/2004
ENF 7.3.5
See Notes
Rules and guidance contained in the Training and Competence sourcebook (TC) apply to certain specific activities that may be carried out by some approved
persons.
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ENF 7.4
Procedure
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ENF 7.4.1
See Notes
Under section 63(3) of the Act (Withdrawal of approval), if the FSA proposes to withdraw its approval from an approved person under its section 63(1) power, it must give each of the interested parties a warning notice. The FSA's procedures for issuing warning notices in this area are those set out in DEC 2.2 (Warning notice procedure).
- 01/12/2004
ENF 7.4.2
See Notes
Under section 63(4), if the FSA decides to withdraw its approval, it must give each of the interested parties a decision notice. The FSA's procedures
in relation to decision notices in this area are the same as those set out in DEC 2.3 (Decision notice procedure).
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ENF 7.4.3
See Notes
If the FSA decides to withdraw its approval, each of the interested parties may refer the matter to the Tribunal. Further information about referrals to the Tribunal is
set out in DEC 5.1 (The Tribunal).
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ENF 7.5
The FSA's policy on withdrawal of approval
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ENF 7.5.1
See Notes
The FSA may withdraw its approval only if it considers that the person in respect of whom it was given is not a fit and proper person to perform the function to which the approval relates. Where
a person ceases to perform controlled functions for a firm for reasons unconnected with his fitness and propriety, the firm must notify the FSA through the procedure set out in SUP 10 (Approved persons). ENF 7.5.2 G to ENF 7.5.5 G set out how the FSA will approach the question of whether a person is
a fit and proper person to perform the function to which his approval relates.
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ENF 7.5.2
See Notes
The FSA recognises that its decisions to withdraw approval will often have a substantial impact on those concerned. When it considers whether to withdraw approval from a person it will take account of all relevant factors, including, but not limited to, the matters
set out below:
(1) the matters set out in section 61(2) of the Act (Determination of applications) (see ENF 7.3.4 G);
(2) the criteria for assessing the fitness and propriety of approved persons. These are contained in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence
and capability) and FIT 2.3 (Financial soundness). The criteria include:
(a) honesty, integrity and reputation; this includes an individual's openness and honesty in dealing with consumers, market participants and regulators, and ability and willingness
to comply with the requirements placed on him by or under the Act as well as with other legal and professional obligations and ethical standards (see ENF 7.5.2 G (3));
(b) competence and capability; this includes having the necessary skills to carry out the controlled function that he is performing; and
(c) financial soundness; this includes whether the individual has been the subject of any judgement debts or awards in the United Kingdom or elsewhere that are continuing or were not satisfied within a reasonable period;
(3) whether, and to what extent, the approved person has:
(a) failed to comply with the Statements of Principle; or
(4) the relevance, materiality and length of time since the occurrence of any matters indicating unfitness;
(5) the severity of risk which the person poses to consumers and confidence in the financial system; and
(6) the previous disciplinary record and general compliance history of the person including whether the FSA (or any previous regulator) has previously imposed a disciplinary sanction on the person.
- 01/12/2004
ENF 7.5.3
See Notes
The FSA may have regard to the cumulative effect of a number of factors which, when considered on their own, may not be sufficient to show that the person is not fit and proper to continue to carry out a controlled
function.
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ENF 7.5.4
See Notes
The FSA may also take account of the particular controlled function which an approved person is carrying out within a firm, the nature
and activities of the firm concerned and the markets within which it operates.
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ENF 7.5.5
See Notes
It is impossible to produce a definitive list of matters which the FSA might take into account when considering whether an approved person is not a fit and proper person to continue to carry out
a particular controlled function in a particular firm. This is because of the diverse nature of the activities and controlled functions which the FSA regulates. Accordingly, certain matters that do not fall squarely, or at all, within the matters referred
to above may also be considered, for example, if a person has been convicted of, or dismissed or suspended from employment for abuse of drugs or other substances, or has convictions for serious assault. In these circumstances, the FSA will consider whether the conduct or matter in question is relevant to the person's fitness
and propriety for the particular controlled function.
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ENF 7.6
Other powers that may be relevant
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ENF 7.6.1
See Notes
This section refers to other powers that may be relevant when the FSA is considering whether to withdraw approval from an approved person.
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ENF 7.6.2
See Notes
The FSA may use its investigation powers in relation to approved persons. The FSA's powers to appoint investigators are set out in ENF 2 (Information gathering and investigation powers). In particular, the FSA may appoint investigators if there appear to be circumstances suggesting that:
(1) an individual is not a fit and proper person to be involved in the carrying out of any function in relation to a regulated
activity carried on by an authorised or exempt person (see section 168(4)(d) of the Act (Appointment of persons to carry out investigations in particularcases));
(2) a person in relation to whom the FSA has given its approval under section 59 of the Act (Approval for particular arrangements) may not be a fit and proper person to carry out the function to which the approval relates (see section 168(4)(h) of the Act); or
(3) a person may be guilty of misconduct for the purposes of section 66 of the Act (Disciplinary powers) (see ENF 7.7.3 G and section 168(4)(i) of the Act).
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ENF 7.6.3
See Notes
(1) Where it appears to the FSA that an approved person has been guilty of misconduct, it may consider taking disciplinary
action against him under section 66 of the Act (Disciplinary powers), as well as withdrawing his approval. Misconduct is defined in section 66 as a failure to comply with a Statement of Principle issued by the FSA under section 64 of the Act (Conduct: statements
and codes), or being knowingly concerned in a contravention by a firm of a requirement imposed on that firm by or under the Act.
(2) When deciding whether to take disciplinary action as well as withdrawing approval, the FSA will be guided by the criteria set out in ENF 11.4 and ENF 11.5.
The FSA's approach to the discipline of approved persons is set out in ENF 11 (Discipline of authorised firms and
approved persons: the FSA's general approach), ENF 12 (Discipline of firms and approved persons: public censures and public statements) and ENF 13 (Discipline of firms and approved persons: financial penalties).
(3) If it appears to the FSA that the misconduct is likely to continue or that client assets are at risk as a result
of the misconduct, it may consider applying for an injunction to prevent dissipation of those assets and/or to stop the misconduct from continuing. The FSA's approach to the exercise of its power to apply for injunctions is set out in ENF 6 (Injunctions).
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ENF 7.6.4
See Notes
Where the information available to the FSA casts doubt on the fitness and propriety of an approved person to be involved in regulated activity conducted by firms generally,
the FSA may consider making a prohibition order against him, as well as withdrawing its approval from him. The scope and effect of a prohibition order may be wider than withdrawal of approval and can extend to a general prohibition on performing any function
in relation to regulated activities of firms generally. The FSA's approach to making prohibition orders is set out in ENF
8 (Prohibition of individuals).
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ENF 7.7
The effect of the FSA's decision to withdraw approval
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ENF 7.7.1
See Notes
Unless the decision has been referred to the Tribunal, the FSA's decision to withdraw its approval from an approved person will come into effect on the date specified in the final notice (seeDEC 2.3.11 G). Where the decision has been referred to the Tribunal, the FSA is not permitted (under section 133(9) of the Act (Proceedings: general provisions) to take the action specified in the decision notice until that reference, and any appeal against the Tribunal's decision, has been finally disposed of.
- 01/12/2004
ENF 7.7.2
See Notes
When the FSA's decision to withdraw an approval has become effective, the position of the firm on whose application the approval was granted differs depending on whether it directly employs the person concerned,
or whether the person is employed by one of its contractors.
(1) If the firm directly employs the person concerned:
(a) Under section 59(1) of the Act (Approval for particular arrangements), a firm ('A') must take reasonable
care to ensure that: 'no person performs a controlled function under an arrangement entered into by A in relation to carrying on by A of a regulated activity, unless the FSA approves the performance
by that person of the controlled function to which the arrangement relates.'
(b) Therefore, if the firm continues to employ the person concerned to carry out a controlled function, it will be in breach of section 59(1) and the FSA may take enforcement action against it.
(2) If the person concerned is employed by a contractor of the firm.
(a) Under section 59(2), a firm ('A') must: 'take reasonable care to ensure that no person performs a controlled function under an arrangement entered into by a contractor of A in relation to the carrying on by A of a regulated activity, unless the FSA approves the performance by that person of the controlled function to which the arrangement relates.'
(b) Therefore, if a contractor of the firm employs the person concerned, and the contractor continues to employ
the person to carry out a controlled function, the firm itself will be in breach of section 59(2) unless it has taken reasonable care to ensure that this does not happen. The FSA may take enforcement action against a firm that
breaches this requirement.
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ENF 7.7.3
See Notes
Firms should be aware of the potential effect that these provisions may have on their contractual relationships with approved persons employed by them and with contractors engaged by them, and their obligations under these contracts.
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ENF 7.7.4
See Notes
As stated in ENF 7.4.2 G, the FSA is
required to give a copy of its decision notice to the firm that applied for the approval, and also to a contractor of the firm if the person concerned is employed by the contractor.
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ENF 7.8
Publication
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ENF 7.8.1
See Notes
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