The City regulator has launched a consultation on a new power that would allow it to move faster to remove regulatory permissions that are no longer being used by financial services firms.
The Financial Conduct Authority (FCA) said that the changes would help to prevent scams, as incorrect or outdated permissions on the financial services register can mislead consumers about the level of protection offered by a business or give credibility to a firm’s unregulated activities.
The new power would allow the regulator to start the cancellation process as soon as it considers permissions are not being used, by serving 14 days’ notice on a firm. It will then be able to vary or cancel permissions after one month.
The FCA said it has already undertaken a ‘use it or lose it’ exercise with firms, reminding them of their obligation to review regulatory permissions and ensure they are up to date or removed if not needed.
Firms that have not used their permissions for 12 months or more are at risk of having them cancelled via the existing cancellations process.
The FCA is clamping down on permissions as part of its response to Dame Elizabeth Gloster’s review into the regulation of London Capital & Finance (LC&F), which highlighted a number of regulatory failings which may have contributed to the mini-bond provider’s collapse.
The consultation on the FCA’s proposals will run until 29 October 2021.
Read more: New platform approvals reach three-year high
“We want to use this power to take quicker action to prevent consumers being misled,” said Mark Steward, executive director of enforcement and market oversight at the FCA.
“It is part of our transformation and drive to be more assertive, drawing on an innovative approach and using new streamlined processes to make important regulatory interventions.
“Firms can and should apply to have their permissions cancelled if they no longer plan to use them but many fail to do so.
“We understand that business models may evolve over time and there may be valid reasons why regulatory permissions are not being used, but unless firms notify us and keep their permissions up to date, they will risk losing market access.”
Read more: The top 10 things the FCA is focusing on
“This is an important housekeeping measure designed to hit two targets,” said Simon Morris, a financial services partner with law firm CMS.
“First, many firms’ FCA licences cover business they no longer do, or never did. The FCA wants to prune these so both it and customers can clearly see what the firm actually does. Second, a firm that is part or fully dormant should have its licence trimmed accordingly.
“This is to stop another LCF, where the firm remained FCA authorised but without any regulated business.”
In June, FCA chief executive Nikhil Rathi warned regulated firms that the watchdog is not afraid to remove their authorisations if it feels their permissions are being misused.