Part Xiii: Incoming Firms: Intervention by Authority
393.This Part confers power on the Authority and, in certain cases, the DGFT to intervene in the business of EEA and Treaty firms who are, or have been, authorised by virtue of Schedules 3 and 4. These firms are referred to in the Part as “incoming firms”. This power, which is referred to as the power of intervention, does not apply in respect of persons who are authorised solely by virtue of having a permission under Part IV. Nor does it apply in respect of the additional Part IV permissions that may be held by incoming firms. The Part sets out the grounds on which the power is exercisable and the procedures for exercising it.
Section 194: General grounds on which power of intervention is exercisable
394.This section sets out the grounds on which the Authority may exercise its power of intervention. The 4 grounds are:
where it appears to the Authority that there has been, or is likely to be, some contravention of a rule or other requirement imposed by the Authority in accordance with the division of responsibility between home and host State under the appropriate single market directive;
where it appears to the Authority that the authorised person has knowingly or recklessly misled the Authority;
where it appears to the Authority that it is desirable to exercise the powers in order to protect customers or potential customers; or
where the incoming EEA firm is carrying on consumer credit business in the United Kingdom under their passport and the DGFT has informed the Authority that the person has done any of the things listed in section 25(2) of the CCA 1974. These are factors to be taken into account by the DGFT in deciding whether a person is fit and proper to hold a consumer credit licence, and they cover contraventions of that Act, offences involving fraud, dishonesty or violence, practising racial or other forms of discrimination, and engaging in deceitful, oppressive, unfair or improper business practices.
Section 195: Exercise of power in support of overseas regulator
395.This section enables the Authority to exercise its intervention power at the request of, or for the purpose of assisting, an overseas regulatory authority (“ORA”). The Authority may exercise its powers under this section whether or not the grounds set out in the previous section are met. Authorities in other EEA States who are competent authorities under the single market directives are automatically ORAs. Other overseas authorities, from the EEA or elsewhere, which have functions equivalent to those set out in subsection (4) are also ORAs.
396.When the Authority receives a request from an EEA competent authority, it must consider whether it is obliged to exercise the powers under the relevant directive. In other cases, the Authority may exercise its discretion, taking account of the factors listed in subsection (6).
397.Undersubsection (7) the Authority may make its use of its powers conditional on the ORA making an appropriate contribution toward the cost of taking the action.
Section 196: The power of intervention
398.This section provides that the nature and extent of the Authority’s power of intervention are the same as the power to vary a permission or impose a requirement under Part IV.
Section 197: Procedure on exercise of power of intervention
399.This section sets out the procedure the Authority must follow when it proposes to exercise its power of intervention against incoming firms under this Part. This is the same written notice procedure as described in relation to section 53.
Section 198: Power to apply to the court for injunction in respect of certain overseas insurance companies
400.Under this section the Authority may act on behalf of an insurance authority in another EEA member State by applying to the courts for an injunction, or in Scotland an interdict, to freeze assets held in the United Kingdom by an insurer from that member State.
401.The power implements article 20(5) of the 1st Non-Life Directive, relating to general insurance, and article 24(5) of the 1st Life Directive, relating to long-term insurance. Subsection (1) limits use of the power to where it is in accordance with those provisions, which means that it is exercisable where the firm’s home State authority has asked the Authority to prohibit the free disposal of assets of that firm and has confirmed that:
the firm has failed to comply with the requirements of article 15 of the 1st Non-Life Directive or article 17 of the 1st Life Directive;
the solvency margin of the firm has fallen below the minimum required by article 16(3) of the 1st Non-Life Directive or article 19 of the 1st Life Directive; or
the solvency margin of the firm has fallen below the guarantee fund as defined in article 17 of the 1st Non-Life Directive or article 20 of the 1st Life Directive.
Section 199: Additional procedure for EEA firms in certain cases
402.This section imposes an additional procedure to be followed in some circumstances where the Authority proposes to use its intervention power against an EEA firm. This procedure applies where the EEA firm has contravened a requirement imposed by the Authority pursuant to host State functions under the relevant single market directive.
403.First, the Authority must require the firm to remedy the situation. If the firm fails to do so, the Authority must request the firm’s home State regulator to take appropriate measures to ensure the firm remedies the situation and inform the Authority of the measures it proposes to take (or why it does not propose to take any measures). Only if the Authority considers that the measures that the home State regulator has taken are inadequate, or if no action has been taken by that regulator, may it exercise its powers.
404.However, where the Authority decides it needs to act urgently it may do so before it has required the firm to remedy the situation and either before it requests the home State regulator to act or, having already made a request, before it is satisfied that the home State regulator is not going to take adequate action. But if the Authority takes urgent action in this way, it must inform the European Commission and must comply with any direction from the Commission to rescind or vary the requirements imposed.
Section 200: Rescission and variation of requirements
405.Either on its own initiative or at the request of the authorised person who is subject to a requirement under this Part, the Authority may rescind or vary such a requirement. The procedure under section 197 applies to a variation on the Authority’s own initiative. The warning notice and decision notice procedure applies where the Authority proposes to refuse to rescind or vary a requirement on request. Agreement to a request for rescission or variation can be granted by written notice as with the grant of other forms of application under the Act.
Section 201: Effect of certain requirements on other persons
406.Where the power of intervention is used to impose a restriction on the type mentioned in section 48 (an assets requirement), the restriction has the same effect as if it had been imposed under Part IV. This means that the provisions of section 48 apply, including the provisions about assets held by a third party such as a bank, and about the transfer of assets to a trustee approved by the Authority.
Section 202: Contravention of a requirement imposed under this Part
407.This section makes clear that a contravention of a requirement imposed under this Part does not constitute an offence or result in any transaction being void or unenforceable. It also confers on the Treasury a power to prescribe in regulations the circumstances in which a person may have a right of action as a result of a breach of a requirement imposed under this Part. Otherwise no such right of action will result from a contravention.
Section 203: Powers to prohibit the carrying on of Consumer Credit Act business
408.Under the Act, EEA firms may, on the basis of their home State authorisation, be automatically authorised to carry on the types of activity covered by the passport under the various single market directives. Two of these directives include lending in their listed activities, which encompasses consumer credit business regulated in the United Kingdom under the CCA 1974. This means that EEA firms may carry on consumer credit business without having to apply to the DGFT for a consumer credit licence and they are therefore not subject to the DGFT’s powers under the CCA 1974.
409.This section, along with section 204, confers on the DGFT separate powers to restrict or prohibit the carrying on, or the purported carrying on, of consumer credit business in the United Kingdom under the relevant directives if the firm or any of its employees has done any of the things listed in section 25(2)(a) to (d) of the CCA 1974. That is, if they have:
committed any offence involving fraud, dishonesty or violence;
contravened any provision made by or under the CCA 1974, or by or under any other enactment regulating the provision of credit to individuals or other transactions with individuals;
practised discrimination on grounds of sex, colour, race or ethnic or national origins in, or in connection with, the carrying on of any business; or
engaged in business practices appearing to the DGFT to be deceitful or oppressive, or otherwise unfair or improper (whether unlawful or not).
410.Contravention of a restriction or prohibition is a criminal offence and contravention of a restriction is also grounds for imposing a prohibition. Schedule 16 sets out the procedure the DGFT must follow when imposing prohibitions or restrictions. This procedure follows that generally applicable in the CCA 1974 rather than in the other provisions of this Act.
