ENF 8
Prohibition of individuals
ENF 8.1
Application and Purpose
- 01/12/2004
Application
ENF 8.1.1
See Notes
- 01/12/2004
Purpose
ENF 8.1.2
See Notes
The power to prohibit individuals who
are not fit and proper from carrying out functions in relation to regulated activities helps
the FSA to
work towards its regulatory
objectives of protecting consumers,
promoting public awareness, maintaining confidence in the financial system and reducing financial crime. The FSA may exercise its power
to make a prohibition order where
it considers that , to achieve any of those objectives, it is necessary either
to prevent an individual from carrying out any function in relation to regulated activities or
from being employed by any firm,
or to restrict the functions which he may carry out or the type of firm by which he may be
employed.
- 01/02/2003
ENF 8.2
Introduction
- 01/12/2004
ENF 8.2.1
See Notes
This chapter contains guidance on:
(2) the FSA's procedure
for exercising this power;
(4) the FSA's policy
in relation to applications by individuals for the variation or revocation
of prohibition orders.
- 01/12/2004
ENF 8.3
The FSA's power to make a prohibition order
- 01/12/2004
ENF 8.3.1
See Notes
Under section 56(2) of the Act (Prohibition orders),
the FSA may
make a prohibition order if
it appears that an individual is not fit and proper to carry out functions
in relation to regulated
activities carried on by firms.
The FSA may
make an order prohibiting the individual from carrying out a specified function
in relation to regulated
activities, any function within a specified description, or
any function in relation to regulated
activities.
- 01/12/2004
ENF 8.3.2
See Notes
A prohibition
order may relate to:
(1) a specified regulated activity, any regulated activity falling within a specified
description or all regulated
activities;
- 01/12/2004
ENF 8.3.3
See Notes
Under section 56(4), an individual who
carries out or agrees to carry out a function in breach of a prohibition order is guilty
of an offence and liable, on summary conviction, to a fine not exceeding level
5 on the standard scale (section 37(1) of the Criminal Justice Act 1982 states
that a level 5 fine shall not exceed £5000). In proceedings for an offence
under section 56(4), it is a defence for the accused to show that he took
all reasonable precautions and exercised all due diligence to avoid committing
an offence.
- 01/12/2004
ENF 8.3.4
See Notes
Section 56(6) states that a firm must take reasonable
care to ensure that no function which relates to the carrying on of a regulated activity is
carried out by a person who
is prohibited from carrying out that function by a prohibition order (see ENF
8.11.2 G).
- 01/12/2004
ENF 8.3.5
See Notes
Section 56(8) states that the FSA's power to make a prohibition order applies
to the performance of functions in relation to regulated activities carried on by:
(2) a person to
whom, as a result of Part XX of the Act (Provision of financial services by
members of the professions), the general
prohibition does not apply in relation to that activity (see ENF 8.7);
as it applies
to the carrying out of functions in relation to a regulated activity carried on by a firm.- 01/12/2004
ENF 8.3.6
See Notes
Under section 57(1) of the Act (Prohibition orders:
procedure and right to refer to Tribunal), if the FSA proposes to make a prohibition order it must give the individual
concerned a warning notice setting
out the terms of the prohibition. The FSA's procedures
for issuing warning notices in
this area are the same as those set out in DEC 2.2 (Warning notice procedure).
- 01/12/2004
ENF 8.3.7
See Notes
Under section 57(3), if the FSA decides to make a prohibition order it must
give the individual concerned 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).
- 01/12/2004
ENF 8.3.8
See Notes
An individual who receives a decision notice making
a prohibition order may
refer the matter to the Tribunal.
Further information about referrals to the Tribunal is set out in DEC 5.1 (The Tribunal).
- 01/12/2004
ENF 8.4
The FSA's policy on making prohibition orders
- 01/12/2004
ENF 8.4.1
See Notes
ENF
8.5 to ENF 8.6 set out how the FSA will decide whether approved persons and other
individuals are fit and proper to perform functions in relation to regulated activities.
- 01/12/2004
ENF 8.4.2
See Notes
(1) The FSA will
have the power to make a range of prohibition
orders depending on the circumstances of each case and the range
of regulated activities to
which the individual's lack of fitness and propriety is relevant.
(2) Depending on the circumstances of each
case, the FSA may
seek to prohibit individuals from carrying out any class of relevantfunction
in relation to any class of regulated
activity, or it may limit the prohibition order to specific functions in
relation to specific regulated
activities. The FSA may
also make an order prohibiting an individual from being employed by a particular firm, type of firm or any firm.
(3) The scope of a prohibition order will depend on the range
of functions which the individual concerned carries out in relation to regulated activities,
the reasons why he is not fit and proper and the severity of risk which he
poses to consumers or
the market generally.
(4) The FSA may
also make an order prohibiting an individual from performing functions in
relation to the regulated
activities carried out by exempt
persons and persons covered
by an exemption under Part XX of the Act (provision
of financial services by members of the professions).
- 01/12/2004
ENF 8.4.3
See Notes
The FSA recognises
that its decision to make a prohibition
order will have a substantial impact on the individuals concerned
and, where relevant, their employers. When it decides whether to make a prohibition order the FSA will consider all
relevant circumstances including whether other enforcement action should be
taken or has already been taken against the individual by the FSA. The FSA will also consider
whether enforcement action has been taken against the individual by other
enforcement agencies or designated
professional bodies. Depending on the circumstances of the case,
it may be appropriate to prohibit the individual from performing only certain
functions in relation to regulated
activities carried on by certain firms. Alternatively, the FSA may consider it necessary to prevent
the individual concerned from performing any functions in relation to any regulated activities carried
on by any firm.
- 01/02/2003
ENF 8.5
Prohibition orders against approved persons
- 01/12/2004
ENF 8.5.1
See Notes
When the FSA has concerns about the fitness and propriety
of an approved person,
it may consider whether it should seek to withdraw his approval, prohibit
him from conducting regulated
activities, or both. ENF 7 (Withdrawal of approval)
sets out the FSA's approach
to the use of its power to withdraw approval in relation to individuals who
are approved persons.
The grounds on which the FSA may
withdraw approval are similar to the grounds on which the FSA may consider exercising its power to
make a prohibition order against
individuals who are approved
persons.
- 01/02/2003
ENF 8.5.1A
See Notes
The FSA will consider in each
case whether its regulatory
objectives of maintaining market confidence in the financial system, promoting
public awareness, protecting consumers and
reducing financial crime can
adequately be achieved by withdrawing approval or disciplinary sanctions,
for example, public censure or financial penalties, or by issuing a private
warning. The FSA considers
that a prohibition order generally
has more serious consequences than the withdrawal of approval because a prohibition order will
usually be wider in scope (see ENF
8.3.2 G).
It is therefore likely that the FSA will
consider making a prohibition
order against approved
persons only in the more serious cases of lack of fitness and
propriety where it considers that the other powers available to it are not
sufficient to achieve the FSA's regulatory objectives.
- 01/02/2003
ENF 8.5.2
See Notes
When it decides whether to exercise its
power to make a prohibition
order against an approved
person, the FSA will
consider the following factors:
(1) whether the individual is fit and proper
to perform functions in relation to regulated
activities. The criteria for assessing the fitness and propriety
of approved persons 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 requirements placed
on him by or under the Act as
well as with other legal and professional obligations and ethical standards;
(b) competence and capability; this includes
an assessment of the individual's 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 judgment debts or awards in the
United Kingdom or elsewhere that are continuing or were not satisfied within
a reasonable period;
(2) whether and to what extent, the approved person has:
(a) failed to comply with the Statements of Principle;
or
(b) been knowingly concerned in a contravention
by the relevant firm of
a requirement imposed on the firm by
or under the Act (including
the Principles and
other rules);
(3) the relevance, materiality and length
of time since the occurrence of any matters indicating unfitness;
(4) the particular controlled function the approved person is performing, the nature
and activities of the firm concerned
and the markets in which he operates;
(5) the severity of the risk which the individual
poses to consumers and
to confidence in the financial
system;
(6) the previous disciplinary record and
general compliance history of the individual including whether the FSA (or any previous regulator) has
previously imposed a disciplinary sanction on the individual.
- 01/12/2004
ENF 8.5.3
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 individual is fit and
proper to continue to carry out the controlled
function.
- 01/12/2004
ENF 8.5.4
See Notes
It is impossible to produce a definitive
list of matters which the FSA might
take into account when considering whether an individual is not a fit and
proper person to
carry out a particular, or any, controlled
function in relation to a particular, or any, firm. This is because of the diverse nature
of the activities and controlled
functions which the FSA regulates.
Therefore, certain matters that do not fit squarely, or at all, within the
matters referred to above may fall to be considered, for example, if an individual
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 individual's
fitness and propriety.
- 01/12/2004
ENF 8.5.5
See Notes
Where the FSA has withdrawn the approval of an individual
who is an approved person and
that individual has continued to carry out controlled functions in relation to regulated activities despite
the withdrawal of his approval in relation to those functions, the FSA will consider whether
it is appropriate to make a prohibition
order against him.
- 01/12/2004
ENF 8.6
Prohibition orders against individuals employed or formerly employed by firms but who are not approved persons
- 01/12/2004
ENF 8.6.1
See Notes
Where the FSA considers making a prohibition order against an individual employed
or formerly employed by
a firm who
is not an approved person,
it may make an order only on the grounds that the individual is not fit and
proper to carry out functions in relation to regulated activities carried on by an authorised person.
- 01/02/2003
ENF 8.6.1A
See Notes
Where
the individual concerned is not an approved
person, the FSA will
not have the option of withdrawing approval, nor will it generally have the
option of
exercising its disciplinary powers in relation to the individual concerned
and therefore a prohibition
order may be the only appropriate action available. In these
cases, the FSA will
consider the severity of the risk posed by the individual. It may prohibit
the individual where it considers it necessary to achieve the FSA's
regulatory objectives of maintaining market confidence in
the financial system,
promoting public awareness, protecting consumers and
preventing financial crime.
- 01/03/2003
ENF 8.6.2
See Notes
When considering whether to exercise
its power to make a prohibition
order against an individual employed or formerly employed by a firm who is not an approved person, the FSA will consider those
factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and, if relevant, ENF 8.5.2 G (2) (in relation to conduct when an individual
was an approved person)
andENF 8.5.2 G (6).
- 01/03/2003
ENF 8.7
Prohibition orders against exempt persons and members of professional firms
- 01/12/2004
ENF 8.7.1
See Notes
The FSA may
exercise its power to make a prohibition
order against any individual, including individuals who carry
out regulated activities by
virtue of their status as exempt
persons or by virtue of an exemption from the general prohibition under Part XX of the Act (Provision of financial
services by members of the professions) (see ENF 18 (Disapplication orders
against members of the professions)).
- 01/12/2004
ENF 8.7.1A
See Notes
In
cases where it is considering whether to exercise its power to make a prohibition order against
an individual carrying on exempt
regulated activities by virtue of an exemption from the general prohibition under
Part XX of the Act,
the FSA will
consider whether the particular misconduct might be more appropriately dealt
with by making an order disapplying the exemption using its power under section
329 of the Act.
In most cases where the FSA is
concerned about the fitness and propriety of a specific individual engaged
in exempt regulated activities by
virtue of an exemption under Part XX, it will be more appropriate to consider
whether to make an order prohibiting the individual from performing functions
in relation to exempt regulated
activities than to make a disapplication order (see ENF
18.4.3 G ).
- 01/02/2003
ENF 8.7.2
See Notes
When considering whether to exercise
its power to make a prohibition
order against an exempt
person, the FSA will
consider those factors set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3), ENF 8.5.2 G (5) and ENF 8.5.2 G (6).
- 01/12/2004
ENF 8.8
Prohibition orders against other individuals
- 01/12/2004
ENF 8.8.1
See Notes
The guidance in ENF 8.8 applies to individuals, other
than individuals referred to in ENF
8.5 to ENF 8.7. The FSA will consider exercising its power to
make a prohibition order against
such individuals where they have shown themselves to be unfit to carry out
functions in relation to regulated
activities.
- 01/02/2003
ENF 8.8.2
See Notes
The FSA will
consider the individual's fitness or propriety where, for example, it appears
that:
(1) the individual has been involved in conducting regulated activities in
breach of the general prohibition;
or
(2) the individual has been involved in other
misconduct or offences under the Act which
call into question his honesty, integrity or competence; or
(3) he appears likely to pose a serious risk
to consumers or
confidence in the financial
system in the future.
- 01/12/2004
ENF 8.8.2A
See Notes
In
cases where it is considering whether to exercise its power to make a prohibition order against
individuals not referred to in ENF
8.5 to ENF 8.7 , the FSA will not have the option of considering
whether other enforcement action may adequately deal with the misconduct in
question. In these cases, the FSA will
consider the severity of the risk posed by the individual. It may prohibit
the individual where it considers this is necessary to achieve the FSA's
regulatory objectives of maintaining confidence in the financial system, promoting
public awareness, protecting consumers and
reducing financial crime.
- 01/02/2003
ENF 8.8.3
See Notes
When determining the fitness and propriety
of an individual, who is not an individual referred to in ENF
8.5to ENF 8.7, the FSA will consider the
criteria set out in ENF 8.5.2 G (1), ENF 8.5.2 G (3) and ENF 8.5.2 G (5).
- 01/02/2003
ENF 8.9
Applications for variation or revocation of prohibition orders
- 01/12/2004
ENF 8.9.1
See Notes
At any time after the FSA has made a prohibition order against an individual,
the individual may apply to the FSA to
have the order varied or revoked.
- 01/12/2004
ENF 8.9.2
See Notes
When considering whether to grant or
refuse an application to revoke or vary a prohibition order the FSA will consider all the relevant circumstances
of a case. These may include, but are not limited to:
(1) the seriousness of the misconduct that
resulted in the order;
(2) the amount of time since the original
order was made;
(3) any steps taken subsequently by the individual
to remedy the misconduct;
(4) any evidence which, had it been known
to the FSA at
the time, would have been relevant to the FSA's decision to make the prohibition order;
(5) all available information relating to
the individual's honesty, integrity or competence since the order was made,
including any repetition of the misconduct which resulted in the prohibition order being
made;
(6) where the FSA's finding of unfitness arose from incompetence
rather than from dishonesty or lack of integrity, evidence that this unfitness
has been or will be remedied; for example, this may be achieved by the satisfactory
completion of relevant training and obtaining relevant qualifications, or
by supervision of the individual by his employer;
(7) the financial soundness of the individual
concerned; and
(8) whether the individual will continue
to pose the level of risk to consumers or
confidence in the financial
system which resulted in the original prohibition if it is lifted.
- 01/12/2004
ENF 8.9.3
See Notes
If the individual applying for a revocation
or variation of a prohibition
order proposes to take up an offer of employment to carry out controlled functions,
the approved persons regime
will also apply to him. In these cases, the firm concerned will be required to apply
to the FSA for
approval of that individual's employment in that capacity. The FSA will assess the individual's
fitness and propriety to undertake controlled
functions on the basis of the criteria set out in FIT 2.1 (Honesty, integrity and reputation); FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness).
- 01/12/2004
ENF 8.9.4
See Notes
The FSA will
not generally grant an application to vary or revoke a prohibition order unless it is satisfied
that the proposed variation will not result in a reoccurrence of the risk
to consumers or
confidence in the financial
system that resulted in the order being made. Equally, the FSA will not revoke a prohibition order unless
it is satisfied that the individual is fit to carry out functions in relation
to regulated activities generally,
or to those specific regulated
activities in relation to which the individual has been prohibited.
- 01/12/2004
ENF 8.9.5
See Notes
If the FSA decides to grant an application to vary
or revoke a prohibition
order it must give the applicant written notice of its decision.
- 01/12/2004
ENF 8.9.6
See Notes
Where the FSA proposes to refuse an application for
revocation or variation, the FSA must
give the applicant a warning
notice setting out the reasons for its proposed refusal (see DEC 2.2 (Warning notice procedure)). If the FSA decides to refuse
an application for revocation or variation of an order it must give the applicant
a decision notice (see DEC 2.3 (Decision notice procedure)). If the FSA refuses an application,
the applicant may refer the matter to the Tribunal (see DEC 5.1 (The Tribunal)).
- 01/12/2004
ENF 8.10
Other powers that may be relevant
- 01/12/2004
ENF 8.10.1
See Notes
This section sets out the other powers
that may be relevant when the FSA considers
whether to exercise its power to make a prohibition
order.
- 01/12/2004
ENF 8.10.2
See Notes
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 fit and proper to
be involved in the carrying out of any function in relation to a regulated activity carried
on by an authorised or exempt
person (section 168(4)(d) of the Act (Appointment of persons to carry out investigations
in particular cases); or
- 01/12/2004
ENF 8.10.3
See Notes
Section 168(2) of the Act also permits the FSA to appoint investigators to investigate unauthorised persons if it appears that:
- (1) an offence has been committed under section 24(1) (False claims to be authorised or exempt) or section 397 (Misleading statements and practices) of the Act or under Part V of the Criminal Justice Act 1993 (section 168(2)(a) of the Act);
- (2) there may have been a breach of the general prohibition (section 168(2)(b) of the Act);
- (3) there may have been a contravention of section 21 in relation to financial promotion generally or section 238 in relation to promotion of collective investment schemes (section 168(2)(c) of the Act);
- (4) market abuse may have taken place (section 168(2)(d) of the Act).
- 01/12/2004
ENF 8.10.4
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 making a prohibition
order. Misconduct is defined in section 66 as a failure to comply
with a Statement of Principle 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 making a prohibition
order, the FSA will
be guided by the criteria set out in ENF 11.4 (Criteria for determining
whether to take disciplinary action) and ENF 11.5 (Action against approved
persons). 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 continuing. The FSA's approach to the
exercise of its power to apply for injunctions is
set out in ENF 6.
- 01/12/2004
ENF 8.10.5
See Notes
Where the FSA has information that suggests an individual
has committed an offence under the Act,
or under relevant subordinate legislation, it may consider starting criminal
proceedings as well as making a prohibition
order against him. The FSA's policy
and procedures in relation to criminal prosecutions are set out in ENF 15 (Prosecution of criminal offences).
- 01/12/2004
ENF 8.11
The effect of the FSA's decision to make a prohibition order
- 01/12/2004
ENF 8.11.1
See Notes
When the FSA's decision to make a prohibition order has become effective, the
individual concerned may not carry out or agree to carry out any function
in breach of the prohibition
order. Under section 168(4)(e) of the Act (Appointment of persons to carry out investigations
in particularcircumstances), the FSA may appoint investigators
if it appears there are circumstances that suggest that an individual may
have carried out or agreed to carry out a function in breach of a prohibition order. An
individual who performs or agrees to perform a function in breach of a prohibition order is guilty
of an offence under section 56(4) of the Act (Prohibition
orders)(see ENF 15 (Prosecution of criminal
offences)).
- 01/12/2004
ENF 8.11.2
See Notes
The FSA may
consider taking disciplinary action against a firm that has breached the provision in section
56(6) (see ENF
8.3.4 G).
The FSA considers
that a search by a firm of
the FSA Register (see ENF
8.12.2 G) is an essential part
of the statutory duty to take reasonable care to ensure that firms do not employ prohibited
individuals to perform functions in relation to regulated activities. In addition, the FSA expects firms to check the FSARegister, when making applications for approval
under section 59 of the Act (Approval
for particular arrangements).
- 01/12/2004
ENF 8.11.3
See Notes
More generally, if a firm's search of the FSARegister reveals
no record of a prohibition
order, the FSA will
consider taking action for breach of section 56(6) only where the firm had access to other
information indicating that a prohibition
order had been made.
- 01/12/2004
ENF 8.11.4
See Notes
Section 71 of the Act (Actions for damages) gives a private person (and in
prescribed cases, a person who
is not a private person)
a right of action against firms for
losses resulting from a breach by the firm of
the statutory duty in section 56(6).
- 01/12/2004
ENF 8.12
Publication
- 01/12/2004
ENF 8.12.1
See Notes
DEC 5.2 (Publication) sets
out certain requirements of the Act in
relation to publication by the FSA of
its decisions. Once a final
notice relating to a prohibition
order has been issued, the FSA will
generally publicise the decision.
- 01/12/2004
ENF 8.12.2
See Notes
Under section 347(1)(g) of the Act (The record of authorised
persons etc) the FSA must
keep a public record of individuals against whom it has made a prohibition order. Section
347(2)(f) states the record must include the name of the individual and details
of the effect of the prohibition
order. The record of prohibition
orders will be maintained on the FSA Register. The FSA will not enter details of a prohibition order on to
the FSA Register until
a final notice has
been issued.
- 01/12/2004
ENF 8.12.3
See Notes
Once the decision to make a prohibition order is no
longer open to review, the FSA will
consider what additional information about the circumstances of the prohibition order to include
on the FSA Register.
The FSA will
balance any possible prejudice to the individual concerned against the interests
of consumer protection.
- 01/12/2004
ENF 8.12.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry on the FSA Register ceases to
apply to a person (in
the case of a prohibition
order, where that prohibition
order is varied or revoked) it may remove the relevant entry
from the FSA Register.
Section 347(4) provides that, if the FSA decides
not to remove the entry from the FSA Register, it must make
a note of this in the FSA Register and state why
it believes the entry on the FSA Register no longer applies
to the person.
- 01/12/2004
ENF 8.12.5
See Notes
(1) The FSA will
maintain an entry on the FSA
Register while a prohibition order is
in effect. If the FSA grants
an application to vary the order a note of the variation will be made on the FSA Register.
(2) The FSA's policy
in relation to section 347(4) of the Act is
that where an application to revoke a prohibition
order is granted, a note will be made on the FSA Register that
the order has been revoked giving reasons for the revocation. The availability
to firms and consumers of a full record
of FSA action
taken in relation to an individual's fitness and propriety will assist it
in furthering its regulatory objectives,
in particular, the protection of consumers and
the maintenance of confidence in the financial
system.
(3) The FSA will
maintain an annotated record of revoked prohibition
orders for six years from the date of the revocation after which
time the record will be removed from the FSA Register.
- 01/12/2004