HM Treasury Publishes Policy Statement on Intended Changes to FCA’s Cancellation of Authorization Process

On July 20, HM Treasury published a policy statement about changes it intends to make to the UK Financial Conduct Authority’s (FCA) process for cancelling firms’ authorizations.

The government explains that the current process for cancelling a firm’s authorization set out in the Financial Services and Markets Act 2000 (FSMA) is no longer sufficient to allow the FCA to quickly cancel such authorization where it suspects the firm is no longer carrying out authorized activity and to reflect this fact in the Financial Services Register.

The government therefore intends to provide an additional process through which the FCA can cancel the authorization of firms it suspects may no longer be carrying out FCA-regulated activities. This new process will sit alongside the existing cancellation process. The FCA will be entitled to start the new process in a range of situations, including when the firm has failed to pay its fees or file returns.

Where any of the grounds are met, the FCA will be able to serve a first notice on the firm. If the firm does not respond within 28 days, including after a second notice is sent, the FCA will publish a notice on its website and on the firm’s Register entry stating that action has been commenced. One month after this, the FCA will cancel the firm’s authorization.

At any stage of the procedure, until cancellation, the firm in question can notify the FCA in writing that it is carrying on a regulated activity. The FCA will then end the procedure and can remove any notice it has published. To mitigate any risk that a firm might unknowingly have its authorization cancelled through the new process, the process will allow for authorization to be restored where appropriate.

The government states that it intends to take forward the measure when Parliamentary time allows. It expects that the FCA will set out its detailed proposals on how it will implement the changes following Royal Assent. A related webpage notes that, while this is not a formal consultation, the government would welcome views on the proposed changes.

The policy statement is available here.

HM Treasury Consults on Reforms to Financial Promotion Approvals and Expanding Rules to Cover Cryptoasset Promotions

Also on July 20, HM Treasury published two separate consultation papers related to proposed reforms to the regulatory framework for the approval of financial promotions under the Financial Services and Markets Act 2000 (FSMA). While separate, the government recommends that they are read in conjunction with each other.

In the first of the consultation papers, the government proposes to establish a regulatory “gateway” that authorized firms must pass through before they are able to approve the financial promotions of unauthorized firms. Any firm wishing to approve unauthorized firms’ financial promotions would first need to obtain the UK Financial Conduct Authority’s (FCA) consent.

The paper considers, among other things, two policy options to deliver the gateway:

• Option 1 – restrict the approval of unauthorized firms’ financial promotions by imposing requirements on authorized firms.

• Option 2 – specify the approval of financial promotions communicated by unauthorized persons as a “regulated activity” under FSMA.

The second consultation outlines the government’s proposal to expand the perimeter of the financial promotion regime to include certain types of cryptoassets.

To bring the relevant cryptoasset activities into scope of the financial promotion regime, the government proposes to amend the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (FPO) to include certain unregulated cryptoassets in the list of controlled investments and amend a number of the current controlled activities. The government considers that applying the financial promotion regime to too wide a range of cryptoasset activity could stifle innovation without a proportionate benefit to consumer protection. Accordingly, the proposed definition of “qualifying cryptoassets” (that is, the unregulated cryptoassets to be covered by the FPO as controlled investments) includes only those cryptoassets that are both fungible and transferable.

The consultations each close to responses on October 25, 2020.

The financial promotions consultation is available here.

The cryptoasset consultation is available here.