Content Options

COND 1.1A Application1

To which threshold conditions does COND apply?

COND 1.1A.1 G RP
  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 "FCAthreshold 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.2 G RP
  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.3 G RP
  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 FCAthreshold 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 FCAthreshold conditions, regardless of whether or not a firm is, or is seeking to become, a PRA-authorised person. This is because the FCAthreshold 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'sthreshold conditions, but rather fall to be considered by the PRA under its threshold conditions.

  4. (4)

    Although some of the PRAthreshold conditions and FCAthreshold 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.4 G RP

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, FCAthreshold 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, FCAthreshold 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.5 G RP

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

COND 1.1A.5A G RP
  1. (1)

    2The FCAthreshold 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 FCAthreshold 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 FCAThreshold 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 FCAThreshold 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.6 G RP

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.7 G RP

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

COND 1.2 Purpose

COND 1.2.1 G RP

COND gives guidance on the threshold conditions. The FCA3threshold conditions represent the minimum conditions for which the FCA is responsible,3 which a firm is required to satisfy, and continue to satisfy, in order to be given and to retainPart 4A permission. A PRA-authorised person or, as appropriate, a firm seeking to become a PRA-authorised person must also satisfy, and continue to satisfy, the threshold conditions for which the PRA is responsible in order to be given and to retain Part 4A permission (these threshold conditions are not the subject of the guidance in COND).3

3 3

Applications for Part 4A permission or variation of Part 4A permission3

COND 1.2.2 G RP
  1. (1)

    Under section 55B(3) of the Act3, in giving or varying a Part 4A permission,3 imposing or varying any requirement or giving consent3, the FCA3 must ensure that the firm concerned will satisfy, and continue to satisfy, the FCA3threshold conditions in relation to all of the regulated activities for which it has or will have permission.

    333
  2. (2)

    If, however, the applicant for permission is an incoming firm seeking top-up permission, or variation of top-up permission, under Part 4A3 of the Act (Permission to carry on regulated activities), then under paragraphs 6A3 and 7A3 of Schedule 6 to the Act (Threshold conditions)3, the FCA3 will have regard only to satisfaction of the FCA3threshold conditions specified as applicable in COND 1.1A.4 G3, as relevant to the regulated activities for which the applicant has, or will have, Part 4A permission3.

    3333

Exercise of the FCA's own-initiative powers3

COND 1.2.3 G RP
  1. (1)

    If, among other things, a firm is failing to satisfy any of the FCA3threshold conditions, or is likely to fail to do so, the FCA3 may exercise its own-initiative powers under either section 55J (Variation or cancellation on initiative of regulator) or section 55L (Imposition of requirements by FCA) of the Act3. Use of the FCA'sown-initiative powers3 is explained in SUP 7 (Individual requirements), and EG 8 (Variation and cancellation of permission on the FCA's3 own initiative and intervention against incoming firms)1.

    33313
  2. (2)

    If, when exercising its own-initiative powers3 under section 55J or section 55L3 of the Act, the FCA3 varies a firm'spermission, or imposes or varies a requirement, then, under section 55B(3)3 of the Act, the FCA3 must ensure that the firm concerned will satisfy, and continue to satisfy, the FCA3threshold conditions in relation to all of the relevant3regulated activities for which it has or will have permission. However, section 55B(4)3 of the Act states that the duty imposed by section 55B(3)3 of the Act does not prevent the FCA3 taking such steps as it considers necessary in relation to a particular firm in order to advance any of its operational objectives.3

    33323323333
  3. (3)

    The FCA3 can also exercise its own-initiative powers3 under section 55J or section 55L3 of the Act in relation to the top-up permission of an incoming firm. But this is only on the grounds that the incoming firm is failing, or likely to fail, to satisfy3 the FCA3threshold conditions specified as applying to incoming firms under COND 1.1A.4 G.3

    3333
COND 1.2.4 G
  1. (1) 3

    [deleted]3

  2. (2)

    [deleted]3

    3

Approval of acquisitions or increases of control3

COND 1.2.5 G RP
  1. (1)

    Under section 185 of the Act (Assessment: general) the FCA may, subject to consultation with the PRA where the conditions in section 187B of the Act are satisfied, object to an acquisition of an FCA-authorised person if there are reasonable grounds to do so on the basis of the matters set out in section 186 of the Act (Assessment: criteria) or if the information provided by the section 178 notice giver is incomplete. Section 186(d) of the Act (Assessment: criteria) specifies one such criteria as whether an FCA-authorised person will be able to comply with its prudential requirements (including the threshold conditions in relation to all of the regulated activities for which it has, or will have, permission.)

  2. (2)

    Under section 191A of the Act (Objection to control), subject to consultation with the PRA in the circumstances specified in that provision, the FCA may object to a person's existing control of an FCA-authorised person on the grounds specified under section 186 of the Act.

COND 1.3 General

COND 1.3.1 G RP

The guidance in COND 2 explains each FCA1threshold condition in Schedule 6 (threshold conditions) to the Act and indicates1 how the FCA1 will interpret it in practice. This guidance is not, however, exhaustive and is written in very general terms. A firm will need to have regard to the obligation placed upon the FCA1 under section 55B (The threshold conditions) of the Act; that is, the FCA1 must ensure that the firm will satisfy, and continue to satisfy, the FCA1threshold conditions in relation to each regulated activity for which it has, or will have, permission.

1 1 1 1 1
COND 1.3.2 G RP
  1. (1)

    The FCA1 will consider whether a firm satisfies, and will continue to satisfy, the FCA1threshold conditions in the context of the size, nature, scale and complexity of the business which the firm carries on or will carry on if the relevant application is granted.

    1
  2. (2)

    In relation to threshold conditions set out in paragraphs 2D to 2F of Schedule 6 to the Act in respect of firms which are not PRA-authorised persons and paragraphs 3C to 3E of Schedule 6 to the Act in respect of firms which are PRA-authorised persons1, the FCA1 will consider whether a firm is ready, willing and organised to comply, on a continuing basis, with the requirements and standards under the regulatory system which apply to the firm, or will apply to the firm, and for which the FCA is responsible,1 if it is granted Part 4A permission1, or a variation of its permission. These matters will also be considered if the FCA1 is exercising its own-initiative powers1 (see COND 1.2.3 G). Guidance to firms on the implications of this is given under each of those threshold conditions.

    11111
COND 1.3.3 G RP

Although the FCA1 may consider that a matter is relevant to its assessment of a firm, the fact that a matter is disclosed to the FCA1, for example in an application, does not necessarily mean that the firm will fail to satisfy the FCA1threshold conditions. The FCA1 will consider each matter in relation to the regulated activities for which the firm has, or will have, permission, having regard to its statutory objectives1. A firm should disclose each relevant matter but, if it is appropriate to do so, it is encouraged to discuss it with the FCA1. This will enable the FCA1 to consider fully how material or significant the matter is and how it affects the ability of the firm to satisfy, and continue to satisfy, the FCA1threshold conditions.

1 1 1 1 1 1 1
COND 1.3.3A G RP

1In determining the weight to be given to any relevant matter, the FCA will consider its significance in relation to the regulated activities for which the firm has, or will have, permission, in the context of its ability to supervise the firm adequately, having regard to the FCA'sstatutory objectives. In this context, a series of matters may be significant when taken together, even though each of them in isolation might not give serious cause for concern.

COND 1.3.3B G RP

1In determining whether the firm will satisfy, and continue to satisfy, the FCAthreshold conditions, the FCA will have regard to all relevant matters, whether arising in the United Kingdom or elsewhere.

COND 1.3.3C G RP

1When assessing the FCAthreshold conditions, the FCA may have regard to any person appearing to be, or likely to be, in a relevant relationship with the firm, in accordance with section 55R of the Act (Persons connected with an applicant). For example, a firm'scontrollers, its directors or partners, other persons with close links to the firm (see COND 2.3), and other persons that exert influence on the firm which might pose a risk to the firm's satisfaction of the FCAthreshold conditions, would be in a relevant relationship with the firm.

COND 1.3.3D G RP

1In making its assessment, the FCA will consider the individual circumstances of each firm on a case-by-case basis.

COND 1.3.3E G RP

1Notes on the contents of a business plan are given in the business plan section of the application pack for Part 4A permission on the FCA's website.

Statutory quotations

COND 1.3.4 G RP
  1. (1)

    For ease of reference, the FCA1threshold conditions in or under Schedule 6 to the Act have been quoted in full in COND 2.

  2. (1A)

    1Paragraphs 2A and 3A of Schedule 6 of the Act have not been quoted. These set out the application of the FCAthreshold conditions to firms which do not carry on, or are not seeking to carry on, a PRAregulated activity and firms which carry on, or are seeking to carry on, a PRAregulated activity respectively. This application is summarised in COND 1.1A.

  3. (2)

    As the FCAthreshold conditions1 impose obligations, they are printed in bold type. The use of bold type is not intended to indicate that these quotations are rules made by the FCA1.

    11
  4. (3)

    [deleted]1

    1
  5. (4)

    Paragraph 1A of Schedule 6 of the Act sets out interpretative provisions that apply to the threshold conditions. These are repeated in COND 1.3.5 G below for ease of reference.

COND 1.3.5 UK RP

1 Paragraph 1A of Schedule 6 to the Act

  1. (1)

    "assets" includes contingent assets;

    "consolidated supervision" has the same meaning as in section 3M(a);

    "consumer" has the meaning given by section 425A(b);

    "financial crime" is to be read with section 1H(3)(c);

    "functions", in relation to either the FCA or the PRA, means the functions conferred on that regulator by or under this Act;

    "liabilities" includes contingent liabilities;

    "relevant directives" has the same meaning as in section 3M;

    "Society" means the society incorporated by Lloyd's Act 1871(d) by the name of Lloyd's;

    "subsidiary undertaking" includes all the instances mentioned in Article 1(1) and (2) of the Seventh Company Law Directive in which an entity may be a subsidiary of an undertaking.

  2. (2)

    For the purposes of this Schedule, the "non-financial resources" of a person include any systems, controls, plans or policies that the person maintains and the human resources that the person has available.

  3. (3)

    In this Schedule, references to "integrity of the UK financial system" are to be read with section 1D(2)(e).

  4. (4)

    The reference to the failure of a person is to be read in accordance with section 2J(3) and (4)(f).