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An authorised firm may voluntarily decide to apply to the FCA for requirements to be imposed on it (a “VREQ”), for instance to prevent it from undertaking certain activities or dealing with certain categories of client.
Whilst this is most likely to occur following supervisory engagement with the FCA, during which the FCA may have raised concerns about certain aspects of a firm’s business such as its compliance with rules or offering of particular investments, the FCA should never tell a firm that it has to apply for a VREQ (even if it suggests a form of words to be considered) and should draw the firm’s attention to its right to seek independent legal or compliance advice.
Where a firm applies for a VREQ, and this is accepted by the FCA, in most cases the requirements will appear publicly on the firm’s FCA register entry and the firm will need to comply in full on an on-going basis until such time that the FCA agrees to its discharge. This may cause significant difficulties for the firm and should not be entered into without careful consideration and legal advice.
Your lawyer can advise you on scope of any VREQ, including whether it is necessary and proportionate, and whether alternatives solutions may be more appropriate. We can engage with the regulator to explore these options on your behalf.
Under the Financial Services and Markets Act 2000 the FCA has the power to require any regulated firm to provide a report, prepared by an independent skilled person (such as an accountant, compliance consultant or other professional service provider), on aspects of the firm’s activities. In most cases this will be where the FCA has concerns about a firm and its operations and firms are generally required to appoint, and pay the costs of the skilled person themselves.
Such reports can involve significant costs for firms and may lead to further supervisory engagement or, depending on the skilled person’s findings, a referral to the Enforcement division for investigation.
In some cases the FCA’s concerns about a firm may lead it to impose requirements, including freezing its assets (“OIREQ”), or vary or remove a firm’s permissions (“OIVOP”) on its own initiative. This may be following supervisory engagement with a firm or without any prior notice to the firm, for instance if the FCA considers that to put the firm on notice may prompt it to dispose of assets.
The FCA imposes OIREQs and OIVOPs through the issuance of a First Supervisory Notice. A First Supervisory Notice will generally be accompanied by an explanatory memorandum together with supporting bundle of evidence that has been considered by the decision maker.
As a First Supervisory Notice will often have immediate effect, firms will need to act urgently to assess its impact and to ensure the terms of it can be complied with. This may, for example, include notifying customers of the effect of it, closing open positions or terminating certain business relationships. It may also be necessary to engage with the FCA to understand the precise scope and terms of the requirement and to agree next steps with the regulator. Your lawyer can assist you with this process.
A First Supervisory Notice can have a devastating impact on a firm, and recipients will need to respond quickly to minimise harms to their business and customers.
In all cases when served with a First Supervisory Notice, a firm will have the right to challenge it. This can be through written representations to the internal FCA decision maker (and in “exceptional circumstances” the FCA may agree to hear oral representations) who may vary or rescind it.
Firms also have a right to refer a First Supervisory Notice to the Upper Tribunal (Tax and Chancery Chamber) which is entirely independent of the FCA and which has the power to suspend the effect of a First Supervisory Notice and to consider the case afresh, which may result in it being quashed.
Your lawyer can advise of you the likelihood of success of any potential challenge, as well as advising you of the most appropriate route to take and preparing the challenge, including representations, on your behalf.
The FCA considers the issuance of a First Supervisory Notice to be a matter of the utmost seriousness, and will treat a breach of one equally seriously.
The consequences of a breach can include the cancellation of a firm, additional requirements being imposed on it, action being taken against senior individuals, injunctions being imposed by the High Court as well as a potential referral to the Enforcement division for investigation.
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