The new regime under the Financial Services and Markets Act 2000 will come into force at midnight on November 30 2001 (N2). With this in mind, authorized firms and individuals will need to be familiar and prepare for the grandfathering and transitional provisions that will be effective as of that date.
From September 2001, authorized firms will receive a Scope of Permission Notice, which will set out the Financial Services Authority's (FSA) understanding of each authorized firm's permitted activities. Each authorized firm will have three months to state whether they accept or disagree with the Scope of Permission Notice. However, the FSA expects to receive all responses from authorized firms by the end of October 2001. Any dispute with the FSA over the Scope of Permission Notice may be settled by the Financial Services and Markets Tribunal.
Firms undertaking regulated activities in the UK by virtue of an EU directive will not receive Scope of Permission Notices. However, UK firms which undertake regulated activities in the European Economic Area under the passporting provisions of EU directives will receive Scope of Permission Notices.
Firms acting only as appointed representatives will be permitted to continue in that role, and will not receive a Scope of Permission Notice. However, the new regime does not permit firms to be both an authorized person for some activities and an exempt person for others (for example as an appointed representative). Therefore, if a firm is acting as an appointed representative and is also conducting other authorized activities, that firm will require permission to conduct these activities. A firm conducting these activities should receive a Scope of Permission Notice.
Any individual who performs a controlled function will be grandfathered: that individual will be approved automatically to perform the same role post N2. Therefore the individual will not need to apply for approval, regardless of whether or not the role in question is one which requires registration or approval under the existing regime. In September, the FSA will send all firms a draft list of those individuals who are registered or approved, along with a list of the controlled functions that they will be carrying out for the firm. The FSA will ask firms to verify the accuracy of this list and notify the FSA of any changes.
The grandfathering regime also applies to waivers, concessions and individual guidance given to authorized firms prior to N2. Generally speaking, written concessions will continue to apply after N2 if the provision to which the concession relates is substantially similar to a new handbook rule. Specific guidance or explanation that a regulator has given to an individual firm in relation to specific circumstances will remain effective after N2 provided the particular circumstances relating to the original guidance still apply and the rules or general guidance to which the individual guidance relates remain unchanged. Otherwise it will fall away. While qualifying guidance will continue to apply indefinitely after N2, qualifying concessions will apply only for 12 months from N2.
The FSA has decided to bring into force the entire Conduct of Business Sourcebook at N2 and consequently has provided for three types of transitional rules:
- extra time provisions (ETP) will provide a grace period for firms to make the necessary changes to comply fully with the Conduct of Business Sourcebook. This grace period will run until July 1 2002 for all firms except those regulated before N2 by registered professional bodies. These latter firms will have a grace period of 12 months through November 30 2002;
- technical timing provisions (TTP) will provide transitional relief for periodic obligations under the Conduct of Business Sourcebook where the obligation falls on or after N2, but relates to an event occurring before N2. In this case, the firm will not be in breach of the Conduct of Business Sourcebook if the firm complies with the rules of its previous regulator; and
- timeless (saving) provisions (TSP) will allow a firm to continue to use or rely upon documentation or compliance work undertaken in accordance with a previous regulator's rules for an indefinite period after N2.
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