The Financial Services Authority's (FSA) work over the past year to maintain standards among smaller financial firms saw more than 130 firms take corrective action to the way they operate to address serious failings and 30 firms lose or have their authorisation to do business changed.
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 when firms fail to co-operate with the FSA. The first option is usually to work with firms to correct problems.
Clive Briault, Managing Director of the Retail Markets Business Unit, said:
"The financial system relies on FSA-regulated firms, whatever their size, having the resources to meet their obligations to customers.
"We work with firms to help them keep to the required standards but we take action when we find serious problems that could result in consumers losing out."
In the year to 30 June 2005:
- approximately 63 firms addressed serious failings and breaches of the threshold conditions when presented by FSA supervisors with the prospect of a referral to the TCT;
- there were 69 other firms referred to the TCT who took corrective action to address serious failings when faced with imminent enforcement action;
- a further 30 firms had their permission to conduct regulated business cancelled or changed by the FSA for breaches of the threshold conditions, action taken in support of the FSA's consumer protection and market confidence objectives; and
- three individuals were prohibited for not meeting the FSA's fit and proper requirements.
Background
- 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.
- 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 refused to obtain cover, usually because of the premium costs. Some firms 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 firm's permissions with immediate effect to stop them from conducting investment business, or to cancel their permissions.
Financial resources: The FSA will take action to cancel a firm's permissions where, for example, they have been in financial deficit for sustained periods or where they appear to be insolvent and will not cease trading voluntarily.
Threshold Condition 5 (Suitability)
Non co-operation with the FSA: The FSA will take action against firms that fail, for example, to submit their quarterly, bi-annual or annual returns. These returns contain the information which important regulatory decisions may be based on. The FSA cannot regulate firms effectively if they fail to satisfy these most basic reporting requirements.
Non payment of FSA fees: Prompt payment of FSA fees is a key element of a firm's co-operation with the regulator. A failure to pay fees will therefore result in action to cancel a firm's 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 website, 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.
- The FSA's 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.
- Consumers can check:
- the FSA Register on the FSA website to find out if a firm is no longer authorised, and
- the Final Notices section on the FSA website to see which firms have been the subject of enforcement action, including cancellation action.
- The 17 firms whose permissions were cancelled are:
John Sutton Partnership
Insensia Capital Limited
Allied Capital (UK) Limited
John Calland trading as Calland Insurance and Mortgage Services
Philip Gibson trading as Philip Gibson & Co.
Meredith Sykes trading as M G Sykes & Co.
Kensington Financial Management Limited
Christopher Albrow trading as Egerton Court Consultants
Evers Associates (Life & Pensions) Limited
John Thompson, Esq.
Charles Pemberton Limited
Harikrishna Patel trading as H M Patel & Company
Cultactual Limited
Thomas McGuigan trading as BMG Financial Services
Compere Associates Limited
David Kennedy-McGregor trading as Ridgeway Insurance Services
Higgins Morrison & ReidThe 11 firms who had a variation of permission and whose permissions were cancelled are:
Alan Stuart Webb trading as A. & P.W. Consultants
Oaktree Financial Services Limited
Financial Matters
Teare Rose Independent Financial Advisers
Stuart Watt trading as Solihull Financial Services
Meredith Alan Beattie trading as M A Beattie Assurance
Anthony Knight Associates Limited
John Henshall Financial Services Limited
Network 300 Limited
Harvey Simon trading as Harvey Simon Medical Insurance Services
Peter Hamilton-Lesser trading as Hamilton-Lesser & CompanyThe three individuals prohibited are:
Anthony John Fitt
John Edward Rourke
George Kenneth Davenport Gregg
- 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 for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness
