UK FCA to Fight Fraud by Canceling Permissions

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The U.K. Financial Conduct Authority (FCA) announced on Thursday (May 19) that it will use new powers to more swiftly cancel or change what regulated activities firms are permitted to do. The regulator will be able to cancel any permission given to a regulated entity, or change it, 28 days after the first warning if the firm has not taken appropriate action. In essence, businesses will be required to prove they are carrying out the regulated activity they are permitted to or face losing this permission.

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According to the regulator, this swift action will “strengthen consumer protection by reducing the risk of consumers misunderstanding or being misled about their exposure to financial risk and how much consumer protection they have.”

Just in the last two days, the regulator has published 15 warnings about unauthorized companies that are targeting people in the U.K. Half of these firms provide cryptocurrency related services. But the other half, eight of them, were companies that are acting as clones of FCA authorized firms. These are companies that may use the name of the genuine firm, even the firm reference number, but are not the authorized or registered firm. If we look at the numbers for the whole month of May, the FCA has issued dozens of these warnings.

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As the regulator has publicly said before, criminals try to defraud consumers by impersonating or cloning authorized firms, including by cold-calling, fake websites and online advertising. This risk of impersonation or cloning can be reduced if the Register records that firms no longer conducting any FCA-regulated activities are no longer authorized, having had their statutory permissions to do so canceled, the regulator explains.

Firms that are not conducting activities can apply for cancellation themselves, but often they fail to do so, the regulator said. With these new powers, the regulator could start the process of cancellation without the intervention of the company, and if after two warnings the company hasn’t taken any action, it could cancel the permission. The new rule supports the FCA’s existing “use it or lose it” initiative, that the regulator has had in place since 2021 to assess whether firms are undertaking the financial activities for which they have permission.

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“Businesses with permissions they don’t need or use, risk misleading consumers. These new powers will enable us to take quicker action to cancel permissions that are not used or needed,” said FCA Executive Director of Enforcement and Market Oversight Mark Steward.

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As these are new powers, it is not yet clear the extent to which the regulator can use them to remove or cancel a permission. The FCA provided a couple of examples of situations when this could happen. The first is when a permission is being wrongfully used to market high-risk products that are not regulated by the FCA. In this situation, the regulator could swiftly respond and cancel the permission. The second example may not be so straightforward. According to the FCA, when a firm fails to pay its regulatory fees, submit returns or complete annual declarations, the regulator may view these as indicators of a lack of regulated activity “which may lead to permissions being removed through use of this new power.”

The FCA has been very active raising awareness of scams in the U.K. and urging consumers to beware of investment-related scams after seeing a steady increase in such claims last year. The FCA got about 16,400 inquiries about possible scams between April and September last year, up almost one-third from the same period in 2020. The agency also opened more than 300 cases related to potentially unregistered crypto businesses, many of which may be scams.

Read more: FCA Warns Public on Consumer Investments Fraud

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