Checklist: Preparing an application to cancel a Part 4A permission at the request of a firm (UK)

Introduction

This checklist will assist in-house counsel, private practice lawyers and risk and compliance teams advising authorised persons (firms) considering whether to cancel a Part 4A permission under the Financial Services and Markets Act 2000 (as amended) (FSMA). It sets out considerations that apply when completing the application to the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) to cancel all permissions and cease regulatory activity.

This checklist addresses the following steps:

1. Pre-application considerations – is the firm ready to cancel?
2. Key checks when submitting the application
3. Timing and outcome of the application

The checklist is presented as a list of requirements that you can check off as they are addressed. There are explanatory notes to assist with drafting and which correspond with each step in the checklist.

This checklist can be used in conjunction with the following How-to guides: Introduction to the UK financial services regulators, The general prohibition – beware the consequences of breach, The appointed representatives regime explained – what it means in practice and Checklists: Preparing an application to the FCA or the PRA for a Part 4A permission, Preparing an application to vary a Part 4A permission at the request of a firm, When does a firm need to be authorised by the FCA or the PRA? and Pre-appointment checks to consider when selecting an appointed representative.

Step 1 – Pre-application considerations – is the firm ready to cancel?

Step 2 – Key checks when submitting the application

Step 3 – Timing and outcome of the application

Explanatory notes

Legal framework

A person granted a Part 4A permission is authorised by the FCA or the PRA to carry on one or more regulated activities in the UK. For more information on Part 4A permissions see Checklist: Preparing an application to the FCA or the PRA for a Part 4A permission.

Firms cannot suspend their authorised status. They will either need to cancel their Part 4A permission, vary their permission or continue trading. Cancellation applies to a firm’s entire Part 4A permission and where a firm has cancelled its authorisation but then wishes to carry out a regulated activity again, it will need to reapply for authorisation.

A Part 4A permission can be cancelled in one of two ways:

• at the request of a firm; or
• under the regulator’s own-initiative power.

An authorised firm may apply to the relevant regulator to cancel its Part 4A permission before it has ceased carrying on all regulated activities. If this is the case, and the firm makes the application to cancel, the relevant regulator will expect the firm to:

• cease carrying on regulated activities in the short-term (ie, within six months of the application); and
• have a plan for how the affairs of the business are to be wound down in an orderly manner.

In accordance with SUP 6.4.3G(2) the relevant regulator will not grant an application for cancellation of a Part 4A permission until the firm can demonstrate that it has ceased carrying on all regulated activities. If it considers it appropriate to the circumstances of the firm, the relevant regulator may also apply additional procedures or require additional information. See SUP 6.4.3G(3).

The regulator has own-initiative power. This means that the FCA or the PRA may decide to cancel a firm’s Part 4A permission or impose, vary or cancel a requirement on its own initiative (section 55J, FSMA). This checklist does not cover cancellation under this own-initiative regulatory power.

Step 1 – Pre-application considerations – is the firm ready to cancel?

1.1 Is an application to cancel appropriate for your business?

As the cancellation of a Part 4A permission refers to the removal of the firm’s entire Part 4A permission and not individual elements within it, it is critical that this is the appropriate course of action for the business. Firms should consider whether they may require permissions for regulated activities that they intend to conduct in the future, and if you do not plan to stop carrying on regulated activities within six months of applying, your application may not be accepted.

Where a firm requires a longer period in which to wind down (run off) its business, it is usually appropriate for the firm to apply to vary its permission before commencing the wind down. This will be the case for firms carrying on certain regulated activities eg, holding client money or customer assets.

Until the firm’s Part 4A permission is cancelled, it will remain subject to regulatory rules and be expected to comply with all relevant regulatory requirements. See Checklist: Preparing an application to the FCA or the PRA for a Part 4A permission. 

1.1.1 Is a variation of permission a more appropriate route?

If a firm wishes to add and/or remove certain elements of its Part 4A permission and not be removed totally from the Financial Services Register, then it should consider submitting a variation of permission request rather than an outright cancellation. See Checklist: Preparing an application to vary a Part 4A permission at the request of a firm.

1.2 Have you considered whether you need to take specialist legal or compliance advice?

If you are unsure of the best approach to take or the implications of making an application to cancel, it is not uncommon to obtain specialist legal or compliance advice.

1.3 Should you set up a meeting with the regulator?

It is helpful to discuss your prospective application with your usual supervisory contact at the appropriate regulator sooner rather than later. This is in keeping with compliance obligations for firms to deal with regulators in an open and cooperative way, and to disclose to the appropriate regulator anything relating to the firm of which that regulator would reasonably expect notice.

These discussions will help both the regulator and the firm understand how and on what basis the firm is proposing to cease carrying on regulated activities and identify the actions the firm is required to take. This will help to reduce delays in processing.

With more complex applications (eg, where firms have longer-term liabilities to customers or policyholders), discussions with the FCA or the PRA are especially relevant. This may be the case, for example, where the firm is an insurer or a bank. It will usually be necessary to wind down the business over a long-term period, which is normally more than six months.

See SUP 6.4.6G for contact details for the FCA cancellations team.

1.4 Who is the appropriate regulator for the application?

Applications to cancel Part 4A permissions are submitted to either the FCA or the PRA. When submitting the application to cancel, it is important to determine which regulator the firm should apply to.

1.4.1 FCA-authorised firms

FCA-authorised firms should apply to the FCA to cancel their Part 4A permission who make the determination to cancel.

The FCA is required to consult the PRA if the applicant is part of a group containing a PRA-authorised firm before making their decision on the cancellation (see section 55H(5), FSMA).

1.4.2 Dual-regulated firms

Where the authorised firm is a dual-regulated firm (ie, the PRA acts as prudential regulator and the FCA acts as conduct regulator), the first step for firms is to contact their PRA supervisory contact. The PRA will lead on the application but both the PRA and the FCA will assess the application against each of their own statutory objectives. The PRA will consult the FCA prior to cancelling a dual-regulated firm’s permission. For information on the statutory objectives of the FCA and the PRA see How-to guide: Introduction to the UK financial services regulators. 

Step 2 – Key checks when submitting the application

In completing the application to cancel, firms are expected to clearly set out the reasons for cancellation of the Part 4A permission and provide the regulators with the required supporting documents (either at the time of making the application or separately in support of the application). The examples set out as Step 2 provide a non-exhaustive list of factors to consider.

Before completing the form, you should check the sections of the FCA Handbook or PRA Rulebook that are relevant to your firm’s business model.

You should decide who the regulator point of contact will be (eg. if further information is required), and in some cases, a Director may be required to sign-off requested information.

Where the cancellation is subject to the completion of certain transactions eg, transfer of business, and/or the completion of a wind down strategy or plan, then the firm should consider what additional information the relevant regulator would expect to see. Consider too other types of information that may be supplied separately to show that the firm has ceased or will cease to carry on all regulated activities. If an application is incomplete, it may delay the decision-making process.

2.1 Have you considered what information you need to supply as part of the application?

The regulator will consider all factors relating to business carried on under the Part 4A permission, and an application is deemed complete where both regulators have all the necessary information to enable them to make a decision.

The information that the regulator may require differs according to the nature of the firm and the activities it has Part 4A permission to carry on (SUP 6.4.8G). As part of the application, the relevant regulator may require the firm to submit a report (signed by a director or authorised signatory) (see SUP 6.4.9G) which provides confirmations from the firm that it has:

• ceased carrying on all regulated activities;
• properly disbursed funds in its client bank accounts;
• discharged all insurance or deposit liabilities;
• properly transferred all investments, title documents and other property that it held on behalf of clients; and
• the firm may also have to provide a resolution from the firm’s governing body confirming that they have considered and support the application for cancellation, expressed to be irrevocable, and have given the signatory the authority to sign the formal report.

See SUP 6.4.12G and 6.4.13G.

2.2 Have you notified your clients of your intention to cancel your permission and discharged all obligations owing to them?

You should notify your clients regarding your intention to cancel your permission and keep a copy of this notification on file.

In accordance with SUP 6.4.11G, if the firm is carrying on designated investment business with retail clients, the FCA may request confirmation that the firm has written, or intends to write, to all retail clients with, or for whom, the firm has conducted regulated activities within a certain time period.

2.2.2 Consider your compliance obligations if you hold client money or control custody assets

All client money must be repaid and custody assets and any other property belonging to clients must be returned before an application to cancel can proceed.

In deciding whether to cancel a firm’s Part 4A permission, the relevant regulator will consider certain factors including whether the firm has:

• complied with the rules set out in the Client Assets sourcebook (CASS), see CASS 5.5.80R and CASS 7.11.34R (Discharge of fiduciary duty) and CASS 7.11.50R (Allocated but unclaimed client money) (if it has ceased to hold client money);
• the firm has repaid all client deposits (if it is ceasing to carry on regulated activities including accepting deposits); and
• ceased to hold or control custody assets in accordance with instructions received from clients and rule 6.1.7R of the Conduct of Business sourcebook (COBS).

See SUP 6.4.22G. 

2.3 Are your firm’s fees all paid and up to date?

You must have paid all outstanding PRA or FCA fees, preferably prior to the submission of an application to cancel.

2.4 Have you considered whether any other notifications apply?

Firms applying to cancel their Part 4A permission are required to notify the relevant regulator of persons ceasing to perform controlled functions including the effective date of withdrawal (if known). See SUP 6.4.18G. Approvals are required for persons in the firm holding controlled or senior management functions, and these are noted in the Financial Services Register.

Once the firm’s application to cancel is completed, the names of all persons performing controlled or senior manager functions for that firm will be removed from the Financial Services Register with respect to that firm. If they are performing a controlled function for another firm, they will remain so.

If a firm has Senior Manager applications under consideration and it is applying for a Part 4A cancellation, it must submit a signed Form B to the relevant regulator for each individual candidate to withdraw that application. Please refer to the guidance notes to complete Form B in this instance.

2.5 Can you confirm that there are no outstanding complaints against the firm?

If a firm is subject to the complaints rules in the Dispute Resolution: Complaints sourcebook (DISP), check all internal complaints records to ensure that there are no unresolved, unsatisfied or undischarged complaints lodged against the firm.

Any outstanding complaints should be lodged alongside the application, and the regulator may request additional information around how the complaints will be resolved, and any anticipated compensation. The FCA may also require the firm to provide an explanation of the arrangements made for the future consideration of such complaints – see SUP 6.4.10G.

Note that this will include any complaints under consideration with the Financial Ombudsman Service.

2.6 Do you need to provide any other supporting evidence with the application?

2.6.1 Consider what professional reports you may need to provide

Firms may also need to engage with experts to support their application and provide expert professional reports.

Professional reports that may be required include those from auditors or reporting accountants, and the table in SUP 6.4.16G and 6.4.17G provide examples of the type of reports which may be required according to the category of firm such as:

• A bank or building society;
• A securities or futures firm;
• An insurer; or
• A firm transferring its business.

2.6.2 Have you disclosed any current investigations or continuing enforcement action against the firm?

If there are matters pending (eg, regulator investigations, or any regulator enforcement action underway) these should also be notified to the relevant regulator with the application.

2.6.3 Consumer Duty 

Firms must ensure compliance with the Consumer Duty for products and services that remain on sale to new customers or are available for renewal by existing customers.  See How-to guide: The FCA’s Consumer Duty: putting the needs of customers first and Checklist: Embedding the Consumer Duty: practical considerations.  Firms will need to demonstrate that customers will not be negatively impacted by the decision to cancel permissions.  The FCA may ask for further information eg, an explanation of wind-down plans, or require some actions to be taken before the application is approved.  See FCA webpage - Cancelling an authorisation or registration. 

Step 3 – Timing and outcome of the application

3.1 How do you apply for a cancellation?

Firms (other than credit unions) must complete and submit the application to cancel using the Connect system. This system is owned and maintained by the FCA, but all applications will be directed to the appropriate regulator. Credit unions may apply by paper form.

3.2 Is there a fee for cancelling permissions?

There is no charge to apply to cancel a firm’s Part 4A permission, but firms must ensure they have paid all the relevant PRA or FCA fees due to date, preferably prior to the submission of the application to cancel. To ensure firms are not liable for fees for the following year, they must submit their application to cancel before the start of the next fee year.

The PRA’s fee year is from 1 March until end of February the following calendar year. The FCA’s fee year is from 1 April until 31 March the following calendar year. For example, if you submit your application to cancel to the FCA before 31 March (or before the last day in February, if you are also regulated by the PRA), you will not have to pay the annual fee for the following financial year.  See here for more information about payment of outstanding fees. 

3.3 What happens when the form is submitted?

After a firm applies to cancel, it will be assigned a case officer from the relevant regulator. The case officer will continually keep the firm updated.

If your application is submitted correctly and considered complete, the relevant regulator has six months to determine the application. If your application is incomplete the decision may take up to 12 months to process. Where the firm is dual regulated, both regulators will work together to ascertain what information is required to assess the application against its own respective objectives. The PRA will consult the FCA prior to determining the application. Within this timeframe, the length of the process will relate to the complexity of the matters under consideration in the application, and whether the firm has fully wound down all activities at the time it applies – see SUP 6.4.27G.

If at any time during the cancellation process the applicant wishes to withdraw its application, it may do so by contacting the regulator. The firm is not required to submit a form, and there is no fee charged for withdrawing an application.

3.4 What happens if something changes in relation to the application after it has been submitted?

Until the application has been determined, a firm which submits an application for cancellation of Part 4A permission must inform the relevant regulator immediately if it becomes aware of any significant change to the information given in the application – see SUP 6.4.5D(4).

3.5 How do you know if the application has been successful?

The regulator will advise you in writing that your application to cancel has been granted and the firm’s authorised status including all permissions and approvals will automatically be revoked. The entry in the Financial Services Register will be updated to show the firm is no longer authorised.

3.6 What happens if the application is not successful?

If a firm does not meet the conditions for cancellation, the regulator may refuse the application. This might occur where the regulator thinks that cancellation may not be in the best interests of the firm’s customers. The regulator will send the firm a warning notice (in writing) that they are planning to reject the application. The decision can be challenged in accordance with the regulator’s formal decision-making process. See SUP 6.4.28G.

3.6.1 FCA – can I challenge the decision?

Guidance to firms on the FCA decision-making procedures, including refusal of an application for cancellation of a Part 4A permission is set out in the Decision Making and Procedures Manual (DEPP). DEPP is relevant to all regulated firms who are subject to FCA oversight, including banks, insurance companies and other financial institutions. If the FCA propose to refuse an application, they will outline the various options open to the firm for challenging the decision.

3.6.2 PRA – can I challenge the decision?

The PRA will likely advise the firm that they are ‘minded to refuse’ the application to cancel and the firm will receive a warning notice. The PRA will outline the various options available to the firm, and the firm should then consider their options, and work with the regulator when doing so eg, making appropriate representations or considering their right to appeal.

Additional resources

FCA – Cancelling an authorisation or registration
FCA – Guide for completing your application to cancel
PRA – Cancelling a firm’s permissions
PRA – Frequently asked questions

Related Lexology Pro content

How-to guides:

Introduction to the UK financial services regulators
The general prohibition – beware the consequences of breach
The appointed representatives regime explained – what it means in practice

Checklist:

Preparing an application to the FCA or the PRA for a Part 4A permission
Preparing an application to vary a Part 4A permission at the request of a firm
When does a firm need to be authorised by the FCA or the PRA?
Pre-appointment checks to consider when selecting an appointed representative

Reliance on information posted:

While we use reasonable endeavours to provide up to date and relevant materials, the materials posted on our site are not intended to amount to advice on which reliance should be placed. They may not reflect recent changes in the law and are not intended to constitute a definitive or complete statement of the law. You may use them to stay up to date with legal developments but you should not use them for transactions or legal advice and you should carry out your own research. We therefore disclaim all liability and responsibility arising from any reliance placed on such materials by any visitor to our site, or by anyone who may be informed of any of its contents.