COND 1.1A Application1

To which threshold conditions does COND apply?

COND 1.1A.1G
  1. (1)

    Section 55C of the Financial Services Act 2012 (Power to amend Schedule 6) gave HM Treasury the power to amend Schedule 6 of the Act. HM Treasury exercised this power by making The Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013 which entered into force on 1 April 2013 (the "TC Order"). The TC Order's main result is the creation of four sets of threshold conditions, namely:

    1. (i)

      conditions for firms authorised and regulated by the FCA only (paragraphs 2B to 2F of Schedule 6 to the Act)

    2. (ii)

      FCA specific conditions for firms authorised by the PRA and subject to dual regulation (paragraphs 3B to 3E of Schedule 6 to the Act);

    3. (iii)

      PRA-specific conditions for insurers (paragraphs 4A to 4F of Schedule 6 to the Act); and

    4. (iv)

      PRA-specific conditions for other PRA-authorised persons (paragraphs 5A to 5F of Schedule 6 to the Act).

  2. (2)

    The guidance in COND is only applicable to the threshold conditions listed in COND 1.1A.1G(1)(i) and (ii), above. These are the threshold conditions stated in paragraphs 2A and 3A of Schedule 6 to the Act as being relevant to the discharge by the FCA of its functions under the Act.

  3. (3)

    In respect of a person which does not carry on, or seek to carry on, any PRA-regulated activities, the threshold conditions that are relevant to the discharge by the FCA of its functions under the Act are those set out in paragraphs 2B to 2F of Schedule 6 to the Act, subject to COND 1.1A.4G (1), below.

  4. (4)

    In respect of a firm which does carry on, or seeks to carry on, a PRA-regulated activity, the threshold conditions that are relevant to the discharge by the FCA of its functions under the Act are those set out in paragraphs 3B to 3E of Schedule 6 to the Act, subject to COND 1.1A.4G (2), below.

  5. (5)

    A reference to "FCA threshold conditions" in COND means a reference to the threshold conditions referred to in (3) and (4) that apply to a particular firm.

To whom does COND apply?

COND 1.1A.2G
  1. (1)

    COND applies to all firms, except where stated otherwise in this guidance.

  2. (2)

    In COND, 'firm' includes an applicant for Part 4A permission unless the context otherwise requires.

To what extent does COND apply to firms authorised by the PRA (PRA-authorised persons) and subject to dual regulation?

COND 1.1A.3G
  1. (1)

    As a result of the new legal framework for threshold conditions described in COND 1.1A.1G (1), PRA-authorised persons and firms seeking to become PRA-authorised persons are subject to two sets of threshold conditions:

    1. (i)

      the FCA-specific conditions referred to in COND 1.1A.1G (1)(ii)and

    2. (ii)

      one of the two PRA-specific conditions referred to in COND 1.1A.1G (1)(iii) or (iv), depending on the PRA-regulated activities which the PRA-authorised person or firm carries on, or is seeking to carry on.

    The FCA threshold conditions set out in paragraphs 3B to 3E of the Act seek to reflect this. In particular, these threshold conditions do not contain a condition relating to adequate financial resources. This is a matter that falls to be considered by the PRA under its threshold conditions.

  2. (2)

    The majority of the guidance in COND is intended to assist all firms to understand how the FCA will approach its assessment of the applicable FCA threshold conditions, regardless of whether or not a firm is, or is seeking to become, a PRA-authorised person. This is because the FCA threshold conditions which apply to PRA-authorised persons and those which apply to firms authorised by the FCA only are, for the most part, the same.

  3. (3)

    However, where guidance in COND refers to an assessment of a firm's financial position or its compliance with prudential regulatory requirements, it is not intended to assist firms which are, or are seeking to become, PRA-authorised persons. This is because these are matters that are not covered by the FCA's threshold conditions, but rather fall to be considered by the PRA under its threshold conditions.

  4. (4)

    Although some of the PRA threshold conditions and FCA threshold conditions that apply to firms which are, or are seeking to become, PRA-authorised persons may appear to address similar subject matter, the FCA will approach the assessment of its threshold conditions with its unique statutory objectives in mind and in the light of the functions which the FCA is required to discharge in relation to them.

  5. (5)

    For the avoidance of doubt, the guidance in COND is not intended to apply to the PRA's assessment of its own threshold conditions in respect of a PRA-authorised person. This is a matter for the PRA alone.

To what extent does COND apply to incoming EEA firms and incoming Treaty firms?

COND 1.1A.4G

COND applies to incoming EEA firms and incoming Treaty firms as set out below:

  1. (1)

    for an incoming EEA firm or an incoming Treaty firm which does not carry on any PRA-regulated activities, FCA threshold conditions 2C to 2F apply; and

  2. (2)

    for an incoming EEA firm or an incoming Treaty firm which carries on a PRA-regulated activity, FCA threshold conditions 3B to 3E apply.

FCA threshold conditions apply to incoming EEA firms and incoming Treaty firms only in as far as relevant to the discharge by the FCA of its relevant functions in relation to an application for, or the exercise of its own-initiative powers in relation to, a top-up permission or the functions relating to the FCA's consent or consultation rights relating to the exercise by the PRA of its powers in relation to an application for, or use of its own-initiative powers relating to, a top-up permission.

To what extent does COND apply to Swiss general insurance companies?

COND 1.1A.5G

To what extent does COND apply to credit firms with limited permission?

COND 1.1A.5AG
  1. (1)

    2The FCA threshold conditions apply to a person that carries on, or seeks to carry on, only relevant credit activities (within paragraph 2G of Schedule 6 to the Act) and which therefore has, or is applying for, limited permission with a number of modifications (see article 10(19) of the Regulated Activities Amendment Order). Regulated activities a person carries on in relation to which sections 20(1) and (1A) and 23(1A) of the Act do not apply as a result of section 39(1D) of the Act are disregarded for this purpose.

  2. (2)

    For a person within (1), the FCA threshold conditions are modified as follows:

    1. (a)

      in relation to paragraph 2C of Schedule 6 to the Act (Effective supervision), paragraphs (a), (b) and (e) of sub-paragraph (1) do not apply (see COND 2.3);

    2. (b)

      in relation to paragraph 2D of Schedule 6 to the Act (Appropriate resources), the person has adequate financial resources if it is capable of meeting its debts as they fall due (see COND 2.4);

    3. (c)

      paragraph 2F of Schedule 6 to the Act (Business model) does not apply (see COND 2.7).

  3. (3)

    Paragraph 2G of Schedule 6 to the Act defines relevant credit activity for the purposes of the FCA Threshold Conditions. The interpretation of some of the key expressions used in this specific context is as follows:

    1. (a)

      "borrower" includes any person providing a guarantee or indemnity under an agreement, and a person to whom the rights and duties of the borrower have passed by assignment or operation of law;

    2. (b)

      "supplier" means a person whose main business is to sell goods or supply services and not to carry on a regulated activity, other than entering into a regulated consumer hire agreement as owner or exercising, or having the right to exercise, the owner's rights and duties under a regulated consumer hire agreement;

    3. (c)

      "customer" means a person to whom a supplier sells goods or supplies services or agrees to do so;

    4. (d)

      "domestic premises supplier" means a supplier who sells goods, offers or agrees to sell goods, or offers or contracts to supply services,3 to customers who are individuals while the supplier or the supplier’s representative is3 physically present in the dwelling of the customer (though a supplier who does so only3 on an occasional basis is not to be treated as a "domestic premises supplier” unless the supplier indicates to the public at large, or a section of it, the supplier’s willingness to attend, in person or through a representative, the dwelling of a potential customer in order to do any of those things3).

  4. (3A)

    Questions may arise over whether a supplier who visits a customer’s dwelling to take measurements or give an estimate is a “domestic premises supplier”. For example:3

    1. (a)

      if the supplier, or the supplier’s representative, gives a quote or estimate to the customer during the visit that is sufficiently specific as to be capable of being accepted in a way that is binding on the supplier, then the quote or estimate is an offer; on that basis, the supplier falls within the definition of “domestic premises supplier”, irrespective of whether the customer accepts the offer during the visit;3

    2. (b)

      where the supplier, or the supplier’s representative, gives only a rough estimate or quote during the visit, with a view to submitting a refined estimate or a firm quote at a later time when the supplier is not at the customer’s dwelling, that rough estimate will not be an offer; on that basis, the supplier will not fall within the definition of “domestic premises supplier”, unless the customer and the supplier, or the supplier’s representative, do reach an agreement during the visit; and3

    3. (c)

      where an agreement is reached, the supplier will have sold, or agreed to sell, goods or contracted to supply services, and will therefore be a “domestic premises supplier”; this may be the case even if the agreement is subject to later specification of the price, the goods or the services.3

    It is immaterial whether the supplier carries on any credit broking (or other regulated activity) during the visit.3

  5. (4)

    In summary, the following credit-related regulated activities are relevant credit activities for the purposes of the FCA Threshold Conditions:

    1. (a)

      credit broking when carried on:

      1. (i)

        by a supplier (other than a domestic premises supplier) for the purposes of or in connection with the sale of goods or supply of services by the supplier to a customer (who need not be the borrower under the credit agreement or the hirer under the consumer hire agreement); or

      2. (ii)

        in relation to a green deal plan; or

      3. (iii)

        in relation to a consumer hire agreement or a hire-purchase agreement3;

      although, other than where the credit broking is carried on by a not-for-profit body, the credit broking will not be a relevant credit activity where it relates to an agreement under which the obligation of the borrower to repay or the hirer to pay is secured, or is to be secured, by a legal mortgage on land;

    2. (b)

      consumer credit lending if carried on by a local authority or if:

      1. (i)

        it is carried on by a supplier;

      2. (ii)

        no charge (by way of interest or otherwise) is payable by the borrower in connection with the provision of credit (this includes a charge payable in connection with a breach of the agreement or on the occurrence of a specified event; consumer credit lending under an agreement that contains such a charge is not a relevant credit activity)3; and

      3. (iii)

        the regulated credit agreement is not a hire purchase agreement or a conditional sale agreement;

      although, other than where the consumer credit lending is carried on by a not-for-profit body, the consumer credit lending will not be a relevant credit activity if it relates to an agreement under which the obligation of the borrower to repay is secured, or is to be secured, by a legal mortgage on land;

    3. (c)

      entering into a regulated consumer hire agreement as owner or exercising, or having the right to exercise, the owner's rights and duties under a regulated consumer hire agreement although, other than where these activities are carried on by a not-for-profit body, entering into a regulated consumer hire agreement as owner or exercising, or having the right to exercise, the owner's rights and duties under a regulated consumer hire agreement will not be a relevant credit activity if the obligation of the hirer to pay under the agreement is secured, or is to be secured, by a legal mortgage on land;

    4. (d)

      debt adjusting or debt counselling when carried on:

      1. (i)

        by a supplier who also carries on credit broking within (a)(i);

      2. (ii)

        by a person in connection with an activity within (b) or (c) which the person also carries on;

      3. (iii)

        by a not-for-profit body;

      although, other than where the debt adjusting or debt counselling is carried on by a not-for-profit body, the debt adjusting or debt counselling will not be a relevant credit activity if it relates to an agreement under which the obligation of the borrower to repay or the hirer to pay is secured, or is to be secured, by a legal mortgage on land;

    5. (e)

      providing credit information services where carried on by a person in connection with an activity within (a) to (d) which the person also carries on;

    6. (f)

      agreeing to carry on an activity within (a) to (e).

To which regulated activities does COND apply?

COND 1.1A.6G

Subject to the limitations referred to above, COND applies in relation to all of the regulated activities for which a firm has, or will have, permission.

Where does COND apply?

COND 1.1A.7G

COND applies in relation to all of the regulated activities wherever they are carried on, except as stated in COND 1.1A.4 G.