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EG 7.1 3The FCA’s use of sanctions

EG 7.1.1

3Financial penalties, suspensions, restrictions, conditions, limitations, disciplinary prohibitions,2 and public censures are important regulatory tools. However, they are not the only tools available to the FCA, and there will be many instances of non-compliance which the FCA considers it appropriate to address without the use of formal disciplinary sanctions. Still1, the effective and proportionate use of the FCA's powers to enforce the requirements of the Act, the rules, COCON1 and the Statements of Principle for Approved Persons (APER) will play an important role in the FCA’s pursuit of its statutory objectives. Imposing disciplinary sanctions1 shows that the FCA is upholding regulatory standards and helps to maintain market confidence and deter financial crime. An increased public awareness of regulatory standards also contributes to the protection of consumers.

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EG 7.1.2

3The FCA has the following powers to impose sanctions2.

  1. (1)

    It may publish a statement:

    1. (a)

      against an approved person or conduct rules staff1 under section 66 of the Act;

    2. (b)

      against an issuer under section 87M of the Act;

    3. (c)

      against a sponsor under section 88A of the Act;

    4. (ca)

      against a primary information provider under section 89Q of the Act;

    5. (d)

      where there has been a contravention of the Part 6 rules, under section 91 of the Act;

    6. (e)

      2against a person under section 123 of the Act;

    7. (ea)

      if a natural or legal person has contravened any provision of the short selling regulation, or any requirement imposed on that person under section 131E or 131F, under section 131G of the Act;

    8. (eb)

      against a qualifying parent undertaking under section 192K of the Act;

    9. (ec)

      against an auditor under section 249 of the Act;

    10. (ed)

      against a recognised investment exchange under section 312E of the Act;

    11. (ee)

      against an auditor and/or an actuary under section 345 of the Act; and

    12. (f)

      against a firm, or an unauthorised person to whom section 404C applies, under section 205 of the Act.

  2. (2)

    It may impose a financial penalty:

    1. (a)

      on a person that performs a controlled function without approval, under section 63A of the Act;

    2. (aa)

      on an approved person or conduct rules staff1, under section 66 of the Act;

    3. (ab)

      on a sponsor under section 88A of the Act;

    4. (ac)

      on a primary information provider under section 89Q of the Act;

    5. (b)

      where there has been a contravention of the Part 6 rules, under section 91 of the Act;

    6. (c)

      on a2person, under section 123 of the Act;

    7. (ca)

      on a natural or legal person who has contravened any provision of the short selling regulation, or any requirement imposed on that person under section 131E or 131F, or any natural or legal person who was knowingly concerned in the contravention, under section 131G of the Act;

    8. (cb)

      on a qualifying parent undertaking under section 192K of the Act;

    9. (d)

      on a firm, or an unauthorised person to whom section 404C applies, under section 206 of the Act;

    10. (da)

      on an auditor under section 249 of the Act;

    11. (db)

      on a recognised investment exchange under section 312F of the Act; and

    12. (dc)

      on an auditor and/or actuary under section 345 of the Act.

  3. (3)

    It may impose a suspension, limitation or other restriction:

    1. (a)

      [deleted]1

    2. (b)

      on a sponsor under section 88A of the Act;

    3. (c)

      on a primary information provider under section 89Q of the Act; and

    4. (d)

      on an authorised person2 under sections 123B or2 206A of the Act.

  4. (4)

    It may impose a suspension, condition or limitation on an approved person under section 66 of the Act.1

  5. (5)

    2It may impose a disciplinary prohibition on an individual under section 123A of the Act.

EG 7.1.3

3Section 415B of the Act requires the FCA to consult with the PRA before it takes certain enforcement action in relation to a PRA-authorised person or someone who has a qualifying relationship (as defined in section 415B(4) of the Act) with a PRA-authorised person. Further detail on when the FCA is required to consult the PRA, and when it has agreed to notify the PRA of certain matters, is set out in the Memorandum of Understanding between the PRA and the FCA.

EG 7.2 4Alternatives to sanctions

EG 7.2.1

4The FCA also has measures available to it where it considers it is appropriate to take protective or remedial action. These include:

  1. (1)

    where a firm's continuing ability to meet the threshold conditions or where an approved person's or other individual’s1 fitness and propriety1 are called into question:

    1. (a)

      varying and/or cancelling of permission and the withdrawal of a firm’s authorisation (see chapter 8); and

    2. (b)

      the withdrawal of an individual’s status as an approved person and/or the prohibition of an individual from performing a specified function in relation to a regulated activity (see chapter 9).

  2. (1A)

    where it is desirable to do so in order to advance one or more of its operational objectives, the FCA may vary the approval of an SMF manager (see DEPP 8);1

  3. (2)

    where the smooth operation of the market is, or may be, temporarily jeopardised or where protecting investors so requires, the FCA may suspend, with effect from such time as it may determine, the listing of any securities at any time and in such circumstances as it thinks fit (whether or not at the request of the issuer or its sponsor on its behalf);

  4. (3)

    when the FCA is satisfied there are special circumstances which preclude normal regular dealings in any listed securities, it may cancel the listing of any security;

  5. (4)

    where the FCA considers it necessary for the purpose of the exercise by it of functions under the Market Abuse Regulation or any directly applicable EU regulation made under the Market Abuse Regulation, the FCA may suspend trading in a financial instrument under section 122I of the Act;3

  6. (4a)

    3where the FCA considers it necessary for the purpose of the exercise by it of functions under the auction regulation the FCA may suspend trading in emission auction products under section 122I of the Act;

    [Note: see Regulation 6 and Schedule 1 to the RAP Regulations for power in relation to emission auction products]

  7. (5)

    where there are reasonable grounds for suspecting that a provision of Part VI of the Act, a provision contained in the prospectus rules, or any other provision made in accordance with the Prospectus Directive has been infringed, the FCA may:

    1. (a)

      suspend or prohibit the offer to the public of transferable securities as set out in section 87K of the Act; or

    2. (b)

      suspend or prohibit admission of transferable securities to trading on a regulated market as set out in section 87L of the Act;3

  8. (6)

    3where the FCA considers it necessary for the purposes set out in section 122G of the Act the FCA may, by notice in writing, require an issuer to publish specified information or a specified statement as set out under section 122G of the Act; and

  9. (7)

    3where the FCA considers it necessary for the purposes set out in section 122H of the Act the FCA may, by notice in writing, require a person to publish corrective information or a corrective statement as set out under section 122H of the Act.

EG 7.2.2

2Where a person who is a shareholder has contravened one or more relevant transparency provisions (as defined in section 89NA(11) of the Act) in respect of shares in a company admitted to trading on a regulated market and the FCA considers the breach to be serious, the FCA may apply to the Court for an order suspending that person’s voting rights as set out in section 89NA of the Act.

EG 7.3 3FCA’s statements of policy

EG 7.3.1

3The FCA's statement of policy on1 the imposition of financial penalties is set out in DEPP 6.2 (Deciding whether to take action)2 and DEPP 6.4 (Financial penalty or public censure). The FCA's statement of policy on1 the amount of a financial penalty is set out in DEPP 6.5 to DEPP 6.5D. The FCA's statement of policy on1 financial penalties for late submission of reports is set out in DEPP 6.6. The FCA’s statement of policy on1 the imposition of suspensions,2 restrictions, conditions, limitations and disciplinary prohibitions2 is set out in DEPP 6A (The power to impose a suspension,2 restriction, condition, limitation or disciplinary prohibition2). The FCA’s statement of policy on the variation of an SMF manager’s approval on its own initiative is set out in DEPP 8.1

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EG 7.4 1Apportionment of financial penalties

EG 7.4.1

1In a case where the FCA is proposing to impose a financial penalty on a person for two or more separate and distinct areas of misconduct, the FCA will consider whether it is appropriate to identify in the decision notice and final notice how the penalty is apportioned between those separate and distinct areas. Apportionment will not however generally be appropriate in other cases.

EG 7.5 1Payment of financial penalties

EG 7.5.1

1Financial penalties must be paid within the period (usually 14 days) that is stated on the FCA'sfinal notice. The FCA's policy in relation to reducing a penalty because its payment may cause a person serious financial hardship is set out in DEPP 6.5D.

EG 7.5.2

1[deleted]

EG 7.5.3

1Chapter 6 of the General Provisions module of the FCA Handbook (GEN) contains rules prohibiting a firm or member from entering into, arranging, claiming on or making a payment under a contract of insurance that is intended to have, or has, the effect of indemnifying any person against a financial penalty.

EG 7.5.4

1Chapter 6 of the General Provisions of the FCA Handbook (GEN) also contains a rule prohibiting a firm, except a sole trader, from paying a financial penalty imposed by the FCA on a present or former employee, director or partner of the firm or of an affiliated company.

EG 7.5.5

1 Rule 1.5.33 in the FCA's Prudential Sourcebook for Insurers (INSPRU) prohibits a long- term insurer (including a firm qualifying for authorisation under Schedule 3 or 4 to the Act), which is not a mutual, from paying a financial penalty from a long-term insurance fund.

EG 7.6 2Private warnings

EG 7.6.1

2In certain cases, despite concerns about a person’s behaviour or evidence of a rule breach, the FCA may decide that it is not appropriate, having regard to all the circumstances of the case, to bring formal action for a financial penalty or public censure. This is consistent with the FCA's risk-based approach to enforcement. In such cases, the FCA may give a private warning to make the person aware that they came close to being subject to formal action.

EG 7.6.2

2Private warnings are a non-statutory tool. Fundamentally they are no different to any other FCA communication which criticises or expresses concern about a person’s conduct. But private warnings are a more serious form of reprimand than would usually be made in the course of ongoing supervisory correspondence. A private warning requires that the FCA identifies and explains its concerns about a person's conduct and/or procedures, and tells the subject of the warning that the FCA has seriously considered formal steps to impose a penalty or censure. They are primarily used by the FCA as an enforcement tool, but they may also be used by other parts of the FCA.

EG 7.6.3

2Typically, the FCA might give a private warning rather than take formal action where the matter giving cause for concern is minor in nature or degree, or where the person has taken full and immediate remedial action. But there can be no exhaustive list of the conduct or the circumstances which are likely to lead to a private warning rather than more serious action. The FCA will take into account all the circumstances of the case before deciding whether a private warning is appropriate. Many of the criteria identified in DEPP 6 for determining whether the FCA should take formal action for a financial penalty or public censure will also be relevant to a decision about whether to give a private warning.

EG 7.6.4

2Generally, the FCA would expect to use private warnings in the context of firms, approved persons and conduct rules staff1. However, the FCA may also issue private warnings in circumstances where the persons involved may not necessarily be authorised or approved. For example, private warnings may be issued in potential cases of market abuse; cases where the FCA has considered making a prohibition order or a disapplication order; or cases involving breaches of provisions imposed by or under Part VI of the Act (Official Listing).

EG 7.6.5

2In each case, the FCA will consider the likely impact of a private warning on the recipient and whether any risk that person poses to the statutory objectives requires the FCA to take more serious action. Equally, where the FCA gives a private warning to an approved person or conduct rules staff1, the FCA will consider whether it would be desirable and appropriate to inform the person's1firm (or employer, if different) of the conduct giving rise to the warning and the FCA's response.

EG 7.6.6

2A private warning is not intended to be a determination by the FCA as to whether the recipient has breached the FCA'srules. However, private warnings, together with any comments received in response, will form part of the person's compliance history. In this sense they are no different to other FCA correspondence, but the weight the FCA attaches to a private warning is likely to be greater. They may therefore influence the FCA's decision whether to commence action for a penalty or censure in relation to future breaches. Where action is commenced in those circumstances, earlier private warnings will not be relied upon in determining whether a breach has taken place. However, if a person has previously been told about the FCA's concerns in relation to an issue, either by means of a private warning or in supervisory correspondence, then this can be an aggravating factor for the level of a penalty imposed in respect of a similar issue that is the subject of later FCA action.

EG 7.6.7

2Where the FCA is assessing the relevance of private warnings in determining whether to commence action for a financial penalty or a public censure, the age of a private warning will be taken into consideration. However, a long-standing private warning may still be relevant.

EG 7.6.8

2Private warnings may be considered cumulatively, although they relate to separate areas of a firm's or other person's business, where the concerns which gave rise to those warnings are considered to be indicative of a person's compliance culture. Similarly, private warnings issued to different subsidiaries of the same parent company may be considered cumulatively where the concerns which gave rise to those warnings relate to a common management team.

EG 7.7 1How a person will know they are receiving a private warning

EG 7.7.1

1It will be obvious from the terms of any letter written by the FCA whether it is intended to constitute a private warning. In particular, a warning letter will describe itself as a private warning and will refer to this chapter to explain the consequences of receiving it for the person.

EG 7.8 1The procedure for giving a private warning

EG 7.8.1

1The FCA's normal practice is to follow a "minded-to" procedure before deciding whether to give a private warning. This means that it will notify in writing the intended recipient of the warning that it has concerns about their conduct and inform them that the FCA proposes to give a private warning. The recipient will then have an opportunity to comment on our understanding of the circumstances giving rise to the FCA's concerns and whether a private warning is appropriate. The FCA will carefully consider any response to its initial letter before it decides whether to give the private warning. The decision will be taken by an FCA head of department or a more senior member of FCA staff.

EG 7.9 Suspensions of voting rights

EG 7.9.1

1Where a person who is a shareholder has contravened one or more relevant transparency provisions (as defined in section 89NA(11) of the Act) in respect of shares in a company admitted to trading on a regulated market and the FCA considers the breach to be serious, the FCA may apply to the Court for an order suspending that person’s voting rights as set out in section 89NA of the Act.

EG 7.9.2

1Decisions about whether to apply to the Court for a voting rights suspension order under the Act will be made by the RDC Chairman or, if the Chairman is not available, by an RDC Deputy Chairman.

EG 7.9.3

1In deciding whether to apply for a voting rights suspension order, the FCA will consider all the relevant circumstances of the case, and in particular will have regard to the factors listed in 89NA(4) of the Act.