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SUP 7.1 Application and purpose

Application

SUP 7.1.1 G

This chapter applies to every firm which has a Part 4A permission.2

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SUP 7.1.2 G

The application of this chapter to an incoming EEA firm, incoming Treaty firm or UCITS qualifier with a Part 4A permission2 (a "top-up permission") is limited as explained in SUP 7.2.4 G.

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Purpose

SUP 7.1.3 G

The Handbook primarily contains provisions which apply to all firms or to certain categories of firm. However, a firm may apply for a waiver or modification of rules in certain circumstances as set out in SUP 8; or it may receive individual guidance on the application of the rules, as set out in SUP 9.

SUP 7.1.4 G

The FCA2, in the course of its supervision of a firm, may sometimes judge it necessary or desirable to impose additional requirements on a firm or in some way amend or restrict the activities which the firm has permission to undertake. The guidance in this chapter describes when and how the FCA2 will seek to do this.

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SUP 7.1.5 G

By waiving or modifying the requirements of a rule or imposing an additional requirement or limitation, the FCA2 can ensure that the rules, and any other requirements or limitations imposed on a firm, take full account of the firm's individual circumstances, and so assist the FCA2 in meeting its2statutory objectives under the Act.2

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SUP 7.2 The FCA's powers to set individual requirements and limitations on its own initiative5

SUP 7.2.1 G

The FCA5 has the power under sections 55J and 55L5of the Act to vary a firm'sPart 4A permission and/or impose a requirement on a firm5 Varying a firm'sPart 4A permission5 includes imposing a limitation on that Part 4A permission.5

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SUP 7.2.2 G

The circumstances in which the FCA5 may vary a firm'sPart 4A permission5 on its own initiative or impose a requirement on a firm5 under sections 55J or 55L5 of the Act include where it appears to the FCA5 that:

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  1. (1)

    one or more of the threshold conditions for which the FCA is responsible5 is or is likely to be no longer satisfied; or

  2. (2)

    it is desirable to vary a firm's permission in order to meet any of the FCA's5 statutory objectives under the Act; or53

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  3. (3)

    a firm has not carried out a regulated activity to which its Part 4A permission applies for a period of at least 12 months.5

SUP 7.2.3 G

The FCA5 may also use its own-initiative powers5 for enforcement purposes. EG 82 sets out in detail the FCA's5 powers under sections 55J and 55L of the Act5 and the circumstances under which the FCA5 may use its own-initiative powers5 in this way, whether for enforcement purposes or as part of its day to day supervision of firms. This chapter provides additional guidance on when the FCA5 will use these powers for supervision purposes.

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SUP 7.2.4 G

The FCA5 may use its own-initiative powers5 only in respect of a firm's5Part 4A permission5; that is, a permission granted to a firm under sections 55E or 55F5 of the Act (Giving permission) or having effect as if so given. In respect of an incoming EEA firm, an incoming Treaty firm, or a UCITS qualifier, this power applies only in relation to any top-up permission that it has. There are similar but more limited powers under Part XIII of the Act in relation to the permission of an incoming EEA firm or incoming Treaty firm under Schedules 3 or 4 to the Act (see EG 8.26 to EG 8.27 ).2

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SUP 7.2.4A G

5The FCA will consult the PRA before using its own-initiative powers in relation to a PRA-authorised person, or a member of a group which includes a PRA-authorised person.

SUP 7.2.4B G

5In the case of a dual-regulatedPRA-authorised person, the FCA may exercise its own-initiative variation power to add a new regulated activity other than a PRA-regulated activity to those activities already included in the firm'sPart 4A permission, or to widen the description of a regulated activity, only after consulting with the PRA.

SUP 7.2.5 G

If the FCA5 exercises its own-initiative powers5, it will do so by issuing a supervisory notice. The procedure that will be followed is set out in DEPP 22.

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SUP 7.2.6 G

A firm has a right of referral to the Tribunal4 in respect of the FCA exercising its own-initiative powers on5 the firm'sPart 4A permission.5

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SUP 7.3 Criteria for varying a firm's permission or imposing, varying or cancelling requirements on the FCA's own initiative5

SUP 7.3.1 G

The FCA5 expects to maintain a close working relationship with certain types of firm and expects that routine supervisory matters arising can be resolved during the normal course of this relationship by, for example, issuing individual guidance where appropriate (see SUP 9.3). However, where the FCA deems it appropriate, it will exercise its own-initiative powers:5

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  1. (1)

    in circumstances where it considers it appropriate for the firm to be subject to a formal requirement, breach of which could attract enforcement action; or

  2. (2)

    if a variation is needed to enable the firm to comply with the requirement, due to agreements the firm may have with third parties. (For example a firm may be under a contractual obligation to do something, but only if it can do so lawfully. In this case, if the FCA5considers the firm must not do it, then the FCA5 would need to prevent it doing so through a variation in its Part 4A permission5 to enable the firm to avoid breaching the contractual obligation.)

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SUP 7.3.2 G

The FCA5may also5 seek to exercise its own-initiative powers in certain situations,5 including the following:

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  1. (1)

    If the FCA5 determines that a firm's management, business or internal controls give rise to material risks that are not fully addressed by existing requirements, the FCA5may seek to use its own-initiative powers.

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  2. (2)

    If a firm becomes or is to become involved with new products or selling practices which present risks not adequately addressed by existing requirements, the FCA5may seek to vary the firm'sPart 4A permission5 in respect of those risks.

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  3. (3)

    If there has been a change in a firm's structure, controllers, activities or strategy which generate material uncertainty or create unusual or exceptional risks, then the FCA5 may seek to use its own-initiative powers.5 (See also SUP 11.74 for a description of the FCA's5ability to impose a requirement5 on the acquisition of5 control of a firm under section 55O5 of the Act.)

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  4. (4)

    At the request of, or to assist an overseas regulator as set out in section 55Q of the Act.5

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SUP 7.3.3 G

Pursuant to sections 55L, 55N, 55O, 55P and 55Q of the Act, within the scope of its functions and powers, the FCA5may seek to impose requirements which include but are not restricted to:

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  1. (1)

    requiring a firm to submit regular reports covering, for example, trading results, management accounts, customer complaints, connected party transactions;

  2. (2)

    where appropriate, 5requiring a firm to maintain prudential limits, for example on large exposures, foreign currency exposures or liquidity gaps;

  3. (3)

    requiring a firm to submit a business plan;5

  4. (4)

    limiting the firm's activities;

  5. (5)

    requiring an FCA-authorised person5 to maintain a particular amount or type of financial resources.

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SUP 7.3.4 G

The FCA5 will seek to give a firm reasonable notice of an intent to vary its permission or impose a requirement5 and to agree with the firm an appropriate timescale. However, if the FCA5 considers that a delay may create a risk to any of the FCA's statutory objectives5,3 the FCA5 may need to act immediately using its powers under section 55J and/or 55L5 of the Act5 with immediate effect.

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