Chapter 6 – Own-Initiative Action
Introduction6.1 The purpose of this Chapter is to set out the Registration Authority’s policy on the exercise of its powers to take action on its own-initiative.6.2 The CLR 2015 enables the Registration Authority to take the following actions on its own-initiative:a. vary a license to carry on controlled activities;b. cancel a license to carry on controlled activities; orc. impose requirements on a licence to carry on controlled activities.6.3 Circumstances may arise as part of the Registration Authority’s supervision of a licensed person, or issues may arise during an enforcement investigation, which prompt the Registration Authority to consider taking own-initiative action.6.4 Additionally, where a licensed person applies for a variation of a licence, the Registrar may impose on that person such requirements, taking effect on the variation of the licence, as the Registration Authority considers appropriate.6.5 The Registration Authority exercises its power to take own-initiative action when it considers it appropriate to do so in pursuit of one or more of its statutory objectives. The decision whether to take own-initiative action is based on the information available to the Registration Authority at the time the decision is made on a case by case basis.
Variation or cancellation of licence6.6 Section 13 of CLR 2015 details the power of the Registrar to vary or cancel a licence to conduct controlled activities on its own-initiative, which is collectively referred to as own-initiative variation power.6.7 The Registration Authority’s power under this section is the power to:a. vary the licence by:i. adding a controlled activity to those to which the licence relates;ii. removing a controlled activity from those to which the licence relates; oriii. varying the description of a controlled activity to which the licence relates; orb. to cancel the licence.
Grounds for taking own-initiative variation power6.8 Section 13(1) of CLR 2015 sets out the grounds for the Registration Authority to exercise own-initiative variation power. The grounds are as follows:a. the person is failing, or is likely to fail, to satisfy the conditions of licence applicable to him;b. that person has failed, during a period of at least 12 months, to carry on a controlled activity to which the licence relates; orc. it is desirable to exercise the power in the interests of the ADGM.6.9 The Registration Authority may exercise own-initiative variation power if it is satisfied that the grounds in section 13(1) apply.6.10 In circumstances where a licensed person has ceased carrying on controlled activities for a significant period of time (at least 12 months) and in particular, where the person is non-responsive, it may be a relatively routine matter for the Registration Authority to cancel that person’s licence, along with own-initiative de-registration considerations.6.11 In other cases, where a licensed person is carrying on controlled activities, then to vary, impose restrictions or cancel a licence may have serious consequences for that person. In such cases, the Registration Authority takes own-initiative action, particularly in respect of cancelling a licence, only where it has serious concerns regarding a licensed person.6.12 Having regard to the grounds specified under CLR 2015, examples of circumstances where the Registration Authority might consider it appropriate to cancel a licensed person’s licence include:a. if it is found that a licensed person provided false or misleading information to the Registration Authority during the licensing process;b. if a licensed person appears to be failing, or is likely to fail to satisfy, relevant licensing criteria under ADGM’s commercial legislation;c. if a licensed person carrying on a controlled activity repeatedly fails to lodge filings with the Registration Authority as and when it is required to do so;d. if a licensed person knowingly provides misleading or false information in any filings lodged with the Registration Authority; ore. if a licensed person fails to pay fees to the Registration Authority as required, or renew its licence on or before its expiry.6.13 Depending on the circumstances, the Registration Authority may initially vary a licensed persons’ scope of licence or impose requirements. However, where that action does not resolve the Registration Authority’s concerns, the Registration Authority may then decide to cancel the licence.
Requirements6.14 Section 14 of CLR 2015 details the power of the Registrar to impose requirements on a licensed person on its own-initiative, which is referred to as own-initiative requirement power.6.15 The Registration Authority’s power under this section is the power to impose on a licensed person such requirements as the Registration Authority considers appropriate, where a person has applied for a variation of a licence. The own-initiative requirement power is a power to:a. impose a new requirement;b. vary a requirement imposed by the Registration Authority; orc. cancel a requirement.6.16 A requirement may be imposed so as to require the person concerned to take specified action or so as to require the person concerned to refrain from taking specified action. A requirement may also extend to activities which are not controlled activities.6.17 Under section 15(5) of CLR 2015, a requirement may be expressed to expire at the end of such period as the Registration Authority may specify, but the imposition of a requirement that expires at the end of the specified period does not effect the Registration Authority’s power to impose a new requirement.
Grounds for taking own-initiative requirement power6.18 Section 14(2) sets out the grounds for the Registration Authority to exercise own-initiative requirement power. The grounds are as follows:a. the person is failing, or is likely to fail, to satisfy the conditions of licence applicable to him;b. that person has failed, during a period of at least 12 months, to carry on a controlled activity to which the licence relates; orc. it is desirable to exercise the power in the interests of the ADGM.6.19 The Registration Authority may exercise own-initiative requirement power if it is satisfied that the grounds in section 14(2) apply.6.20 When deciding whether to take own-initiative requirement power on a licensed person, the Registration Authority takes into account the effect of the powers exercised and seeks to ensure that any requirement imposed is proportionate to the objective the Registration Authority is seeking to achieve by taking action.6.21 In the course of monitoring of licensed persons or during the enforcement process, the Registration Authority might consider it appropriate to agree formally or informally with a licensed person on certain steps required to resolve the Registration Authority’s concerns.6.22 However, in some cases the Registration Authority forms the view that it is appropriate to take own initiative action to ensure that its concerns are satisfied. Such action is likely to be necessary where the Registration Authority:a. has serious concerns about a licensed person or about the way its business is being conducted;b. is concerned that there will be serious consequences if the licensed person fails to take the steps required by the Registration Authority; orc. considers that the action will demonstrate the importance that the Registration Authority attaches to the need for the firm to satisfy the Registration Authority’s concerns.
Own-initiative power procedure6.23 Where the Registration Authority decides to take own initiative action, it informs the licensed person of that action by written notice. That written notice is called a first supervisory notice.6.24 The Registration Authority will also generally give a licensed person an opportunity to make representations before the action is taken.6.25 The Registration Authority may extend the period allowed under the notice for making representations. After having considered any representations made by a licensed person, regardless of whether the Registration Authority decides to proceed or not proceed with the exercise of own-initiative power, it must give the licensed person a written notice. That written notice is called a second supervisory notice.6.26 Details on the Registration Authority’s decision making process is set out in Chapter 3 of this Manual.6.27 In some circumstances, a variation of a licence or the imposition or variation of a requirement, may be expressed to take effect immediately if the Registration Authority reasonably considers that it is necessary to do so. In these circumstances, the licensed person will not have the opportunity to make representations.6.28 A decision to exercise own-initiative action on an immediate basis depends on the circumstances of the matter. However, examples of the circumstances where the Registration Authority may consider such action include:a. where there is information to suggest that clients or customers of a licensed person have been harmed or are at significant risk of harm;b. where there are serious problems regarding the licensed person and/or its controllers, which raise concerns about the licensed person’s ability to continue its operations or meet its conditions of licence; orc. where a licensed person has provided false or misleading information to the Registration Authority in a material way.6.29 Where the Registration Authority decides to take immediate own-initiative action, it provides an opportunity for the licensed person to make representations promptly after the power has been exercised.