Suspension, Withdrawal and Lapsing of an FSP Licence Explained

An FSP licence can stop authorising a business in three different ways. The RE1 expects you to tell them apart, because the process and the consequences differ.

Lapsing: by operation of law

A licence lapses when a specified event happens. Nobody decides it. Examples are the death of a sole proprietor, the final liquidation or sequestration of the licensee, and the licensee voluntarily surrendering the licence.

When a licence lapses, the Authority must be advised in writing, with reasons, by the licensee, any key individual, or another person in control of the licensee's affairs.

One special case: where a licence was issued on the strength of an accreditation under other legislation, such as the Medical Schemes Act, and that accreditation is suspended, withdrawn or lapses, the licence is deemed to follow it.

Suspension and withdrawal: a decision

The Authority may suspend or withdraw a licence on grounds such as:

• the licensee or a key individual no longer meets the fit and proper requirements;
• the licence was obtained through information that was false or misleading;
• the licensee failed to comply with the Act;
• the licensee failed to pay a levy or a penalty;
• the licensee failed to submit a required return.

Note the levy point. Non-payment is a ground for suspension. It does not cause lapsing.

The ordinary process

Before suspending or withdrawing, the Authority must:

1. Inform the licensee of its intention and the grounds.
2. Say what the intended period of suspension is and any terms. The Act specifically mentions a prohibition on concluding new business from the effective date, measures for unconcluded business so clients are protected, and terms designed to help the suspension be lifted.
3. Give the licensee a reasonable opportunity to respond.
4. Consider the response and decide.

Afterwards, the Authority must make the reasons and terms known by notice on its website, and may use other media.

The urgent route

If the Authority believes there is a risk of substantial prejudice to clients or the public, it may provisionally suspend or withdraw a licence first and hear the licensee second. The licensee is told the grounds and given a reasonable opportunity to respond.

Once the response arrives, the Authority must within a reasonable time either lift the provisional step or make it final, and tell the licensee.

What suspension means in practice

During any suspension the FSP is regarded as not authorised. It may not use the licence, or a copy, for business purposes. Signing "just one" new client during a suspension is unlicensed business.

A withdrawal is also followed by a period, set by the Authority, during which the person may not apply for a new licence.

Challenging the decision

A person aggrieved by the Authority's decision may apply to the Financial Services Tribunal for reconsideration. Two things to remember:

• The Ombud does not hear this. The Ombud deals with client complaints.
• Applying does not by itself suspend the decision. The suspension stays in force unless it is set aside or suspended pending the outcome.

Winding down and business rescue

Related rules protect clients when an FSP stops trading:

• A voluntary closure has no legal force unless notice has been lodged with the Authority and the Authority has declared that satisfactory arrangements exist to meet liabilities to clients, or that it may proceed on conditions. A board resolution alone is not enough.
• In business rescue, references to creditors are read as including the FSP's clients. An application by someone other than the Authority may not be heard unless the papers were lodged with the Authority first.

Quick comparison

	Lapsing	Suspension	Withdrawal
Cause	An event or surrender	A decision	A decision
Hearing first?	No	Yes, unless urgent	Yes, unless urgent
Effect	Licence ends	Not authorised for the period	Licence ends; bar on re-applying for a period
Published?	Authority is advised	Yes, on the website	Yes, on the website

The key individual's job

Most suspensions grow from small failures: a missed levy, a late set of financial statements, a compliance report nobody read. A key individual prevents them with a diary of dates, a monitored contact address and a habit of acting on findings. If a notice of intention arrives, respond in the time given, with facts, and stop any conduct the notice identifies.