FSA takes action against firms falling short of the mark
31/08/2004
Work by the Financial Services Authority over the past year to maintain standards among smaller financial firms has resulted in more than 100 firms making remedial changes to the way in which they operate in order to address serious failings and 19 firms losing their authorisation to do business.
The regulator's Threshold Conditions Team (TCT) deals mainly with small regulated firms that are not meeting the FSA's minimum requirements (or "threshold conditions"). The TCT generally takes action against such firms when co-operation has not been forthcoming.
In the year to 30 June 2004:
approximately 50 firms addressed breaches of the threshold conditions when presented by supervisors with the prospect of a referral to the TCT
59 other firms who were referred to the TCT took remedial steps when faced with imminent enforcement action;
a further 19 firms had their permission to conduct investment business cancelled for breaches of the threshold conditions, the action being taken in support of the FSAs consumer protection and market confidence objectives; and
two individuals with convictions for financial crime were prohibited.
Clive Briault, Managing Director of the Retail Markets Business Unit, said:
"Public confidence in the financial system relies partly on authorised firms meeting the FSA's minimum standards in terms of having adequate resources and being fit and proper to conduct investment business, whatever their size.
"We aim to work with firms to help them maintain the required standards, but the action taken over the last 12 months should send a message to all small businesses regulated by the FSA that we will not allow firms which fall significantly below the minimum standards to remain authorised."
There were a number of recurring threshold conditions breaches by firms, some of which are summarised below.
Threshold Condition 4 (Adequate resources)
Lack of Professional Indemnity Insurance: Despite efforts by the FSA to work with firms that have found it difficult to obtain PII, a small minority of firms have refused to obtain cover because of the premium costs, or they submitted waiver applications but could not satisfy the FSA that they had adequate capital to meet potential claims. FSA policy in such cases is to vary the firms permissions with immediate effect to stop them from conducting investment business, and also to cancel their permissions.
Financial resources: The FSA will take action to cancel firms permissions where, for example, they have been in financial deficit for sustained periods or where they appear to be insolvent and they will not cease trading voluntarily.
Threshold Condition 5 (Suitability)
Failure to comply with Ombudsman awards: Firms must co-operate with Ombudsman investigations and comply promptly with awards made by the Ombudsman. These are regulatory requirements. Where firms fail to meet these requirements, in the interest of consumer protection and to help maintain confidence in the Ombudsman scheme, the FSA will take action to cancel firms permissions.
Non co-operation with the FSA: For example, the FSA will take action against firms that fail to submit their quarterly, bi-annual or annual returns. These returns contain information from which important regulatory decisions may be taken. The FSA cannot regulate firms effectively if they fail to satisfy even the most basic reporting requirements.
Non payment of FSA fees: Prompt payment of FSA fees is a key element of a firms co-operation with the regulator, as it is important for consumer protection that the regulator is properly funded. These fees are a major source of that funding. A failure to pay fees will therefore result in action to cancel firms permissions to conduct regulated activities and debt recovery action.
Where to find details of action taken
Details of variations and cancellations of firms permissions (and withdrawal of authorisation) are published on the FSA's web site, in accordance with section 391 of the Financial Services and Markets Act 2000. Concerns that are resolved through dialogue with firms are not disclosed by the FSA.
Consumers can check:
the FSA Register to find out if a firm is no longer authorised, and
the Final Notices section of the FSAs publications web site to see which firms have been the subject of enforcement action, including cancellation action.
Notes for editors
Under Threshold Condition 4 (Adequate resources), the FSA must ensure that a firm has adequate resources in relation to the specified regulated activities which it seeks to carry on, or carries on. Adequate means sufficient in terms of quantity, quality and availability. Resources include all financial resources, non-financial resources and means of managing its resources (including capital, provisions against liabilities, human resources, holdings of or access to cash and other liquid assets and effective means by which to manage risks).
Under Threshold Condition 5 (Suitability), firms must satisfy the FSA that they are fit and proper to have permission to carry on regulated activities. The FSA will take into account relevant matters including whether a firm conducts, or will conduct, its business with integrity and in compliance with proper standards.
The FSAs power to vary and cancel firms permissions to carry on regulated activities is contained in section 45 of the Financial Services and Markets Act 2000.
The 19 firms whose permissions were cancelled are:
Oriental & African Strategic Investment Services Limited
Merton Securities Limited
Keith Taylor Financial Services
R A Logan & Co
Reynolds & Dodd
Eric Sweet
HPA Services
Harry Whitehouse
Homebuyers (West Country) Limited
M M Insurance Services
Birrell Financial Services Limited
Michael Harding & Partners
FT Investment & Insurance Consultants
Goldcrest Capital Limited
Croydon Branch Union of Communications Workers Credit Union Limited
Derek Craig
Anthony Reed Limited
MMD Corporate Finance Limited
Fleet Mortgage Insurance & Financial Services
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.