Grandfathering relief

It was never seriously in doubt that the Financial Services Authority would waive its new authorisation requirements for firms and certain individuals (those who will need approval post-N2) that already carry out regulated activities under the existing regime. That said, until the Treasury published it proposals for transitional grandfathering arrangements a nagging doubt remained. The briefing note issued in January by the Authority should put the residual fears to rest since, in the main, it will be business as usual for existing participants after N2. Three months before N2 the regulator intends to send a grandfathering “anticipatory notice” to firms that will set out its view of the scope of their permitted regulated activity: “Firms will be required to signify their agreement with the notice or to give reasons for not agreeing.” The FSA says it will discuss any differences but if it proves impossible to resolve the matter with the issue of a “final view notice” the firm may apply to the Financial Services and Markets Tribunal (FSMT) for independent adjudication. Around N2-3 the FSA will also send regulated firms a listing of their approved persons and the associated controlled functions. The firms will be asked to assent or discuss any queries and if there is no final agreement an appeal to the FSMT is also available. The FSA expects approximately 180,000 individuals to be grandfathered into controlled functions after N2. In the run-up to N2 the current procedures and regulators will operate and grandfathering will cover any new application decisions and withdrawals from authorisation before that date. Prohibitions under section 59 of the Financial Services Act 1986 will still apply after N2. Firms that currently operate only as appointed representatives of other authorised firms will continue to be exempt under the Financial Services and Markets Act. They will not need to be grandfathered. However, FSMA does not permit a firm to act as an appointed representative and be authorised in its own right. If such firms wish to continue with the activities that they carry out as appointed representatives, they will be grandfathered with a permission that covers all the activities that they perform. Those who undertake controlled functions at a firm in this class will feature on the list of approved persons sent to the firm. If a firm opts to continue in the role of an appointed representative, individuals who perform controlled functions will appear on the approved persons list sent to their authorised principal for agreement. Grandfathering will also apply to regulated collective investment schemes.