FS Enforcement
UK Financial Services Enforcement and Discipline
The regulators have wide-ranging powers under financial services legislation to enforce financial services regulations. They may require authorised persons, representatives, and other individuals to provide information, reports, and documents. They require the information to be verified and documents to be authenticated. They may request a minister to appoint accountants, actuaries, and professionals to carry out investigations and report to the regulator through skilled persons’ reports. The firm may be obliged to cover the costs.
Regulatory terms are required, which must include details related to a range of matters, such as accounts, financial resources, professional indemnity, and advisor charging structures.
The regulators may appoint investigators to deal with possible breaches. This applies to firms, crew persons, representatives, in cases of breaches such as market breaches and money laundering. In the latter cases, the regulator shares competence with other bodies such as the Department of Business, Innovation, and Skills.
The regulation may require connected persons to attend for questioning and to produce documents. They are obliged to answer, but their answers are not admissible in criminal proceedings. They have the right to enter premises on demand.
There are a range of criminal offenses associated with frustrating, destroying, or concealing documents, providing misleading information, or frustrating the regulator’s investigations.
The regulator must generally give notice of the investigation unless giving notice might prejudice a third party.
No person may carry on a regulated activity by way of business unless they are authorized or exempt from authorization. Breach of this prohibition is an offense, subject to conviction and indictment, with an unlimited fine and up to 2 years imprisonment. There is a defense of taking all reasonable precautions to avoid committing the offense.
Agreements made by a person who is not authorized are not enforceable against the other party. The court may decide it is just and equitable to allow the innocent party to enforce the agreement against the other party, even if performance would be an offense. The innocent party is entitled to recover damages for losses sustained due to the agreement becoming enforceable.
The regulator may seek mandatory injunctions and orders to restrain contraventions and effect restitution of assets wrongfully obtained.
It is an offense for a person to act outside the scope of their authorizations. It may give rise to civil rights for customers and lead to disciplinary proceedings. The Perimeter Guidance Manual sets out circumstances for which authorized actions are available and exemptions apply.
An authorization may be revoked or varied by the regulator. This may be done if the firm fails to continue to comply with the relevant threshold conditions, the regulator has concerns in relation to its activities, if it has not carried out activities for 10 months, or in order to protect consumers.
The variation may prohibit the regulator from undertaking particular activities or seeking certain specific products or marketing to particular clients.
The regulator may vary or withdraw approvals of controlled functions by individuals within the firms. Due process applies, and a warning notice must be given. The individual may appeal to the Upper Tribunal.
The regulator takes a range of criteria or matters into account, including fitness and proper criteria, qualifications, training capability, and breaches. The sanction will take into account the individual’s record but also the risk for the financial system.
The regulator may prohibit individuals from carrying out functions. A prohibition order may be issued in respect of any person, whether or not approved. It is an offense to practice in breach of a prohibition order. The regulator keeps a register of prohibited individuals.
The regulators may apply to court to require persons who have breached rules to compensate or provide restitution to persons who have suffered loss. The regulator will have regard to the circumstances and whether alternative redress might be available. To deal with issues of cost and effectiveness, generally, consumers will be expected to pursue their own redress through the Financial Services Ombudsman or court.
In certain circumstances, the regulator may require a firm to provide compensation or restitution without a court order.
The regulator may apply for an injunction to prohibit a person from making original requirements of the financial services legislation.
Firms and approved persons may be disciplined for misconduct. General fair procedures apply in respect of disciplinary measures. Formal disciplinary proceedings are subject to more formal due diligence.
In the case of minor breaches where immediate action may be taken, it may not be appropriate to bring forth formal proceedings. Private warnings may be issued. The warning may remain on the individual’s record and may be relevant in future proceedings. The individuals have the right to comment on the warning.
A public statement of misconduct or dissent may be made in more serious cases, together with a fine. There is no financial limit on the fine the regulator can impose.
The regulator has the power to apply sanctions in relation to market abuse. It may issue statements regarding persons who engage in abuse. It may impose unlimited fines.
The regulator may order as powers to require or qualifying bodies to consider the fairness of national services contracts under the Unfair Contract Terms legislation. The authority may make recommendations to firms. It may apply for an injunction to prohibit unfair terms.
The regulator has the power to impose suspensions and restrictions on authorised persons. It may impose penalties on persons that perform control functions without approval.
The regulator may suspend permissions held or impose restrictions on the carrying out of activities. It applies to firms under control functions. Suspensions can be for upwards of 12 months for an unauthorised person and after 2 years in the case of approved persons. This is an alternative to a financial penalty and may be imposed if the regulator considers it to be more dissuasive.
The regulator may impose a penalty on a person in the manner in which it considers appropriate, if a person has carried out a control function without approval and could reasonably be expected to have known that they have done so.
Firms may be disciplined for breaches of rules and principles. All approved persons are personally culpable and may also be disciplined. They may be disciplined if they have breached statements of principle for approved persons or have been normally concerned in breaches of rules by that firm.
When deciding whether to impose disciplinary sanctions, it will consider the nature and seriousness of the breach, previous faculty records, and the conduct of the person or firm after the breach.
In 2010, the authority adopted a new approach to financial penalties as part of its credible returns approach. It consists of a number of steps. It seeks to disgorge and remove any profits made from misconduct. It seeks to discipline persons to reflect the seriousness of the breach using lines of the order mentioned below.
There are mitigating and aggravating factors, although the amounts imposed as fines may be reduced or increased. It considers demands required to affect the terms. It allows for discounts under executive settlement schemes.
Fines have to be closely related to income and vary with reference to the firm’s revenue from the business or product related to the breach. In the case of individuals, a series of fixed percentages of salary of up to 40 percent on benefits, including bonuses, from the job relating to the breach or known market cases if there is a minimum starting point of £100,000 for individuals in serious market abuse cases.
The penalty will be reduced for reasons varying from financial hardship only if fair applicable evidence is available and the person makes a full, frank, and timely disclosure of evidence and cooperates.
The Decisions Procedure and Penalties Manual sets out powers the regulator may exercise. It also sets out procedure fees to ensure that powers are used fairly and accountably in accordance with human rights legislation.
Where enforcement action is appropriate, the matter is passed to a Regulatory Decisions Committee (RDC). The RDC decides whether or not to take actions and is appointed by the board, which is independent. Its membership consists of a chairman appointed by the authority and other practitioners with financial service and other individuals representing the public.
If the RDC determines to take action, it will send a warning with details of proposed action. A person subjected to the procedure is entitled to have access to material on which the regulator is relying and make written representations.
Ultimately, the RDC issues a decision notice stating the reasons for its decision, proposed sanctions, and the right to refer the matter to the Upper Tribunal. The Upper Tribunal undertakes a complete rehearing. Once the matter is determined, the RDC issues a final notice and sets the sanction.
Sanctions and decisions are usually published.
The regulator may issue a private warning and close the investigation. It may seek to settle the matter through mediation. If there is no case to answer, it may close the investigation at any stage.
After receiving a warning notice, the person concerned may attempt to settle the matter. Settlement decisions are made with the regulator, seeking to maintain the consistency of approach.
The Financial Conduct Authority may publish warning notices after consulting individuals to announce that disciplinary proceedings have been commenced against a former individual. They may contain sufficient information to identify the firm and enable customers to understand.
Consumers, whether individuals or corporations, may take legal action in cases of breach of contract, negligence, misrepresentation, or fraud. Additionally, there is a special statutory right under the Financial Services Act for damages on the part of a private person who suffers loss due to certain regulatory breaches. This is in addition to common law, and a right of action does not necessarily require proving negligence.
A private person has a right to damages if they suffer loss as a consequence.
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