Section 165: Use it or Lose it.

Posted on: 9 December 2021

Written by: John Burns

In its Business Plan 2021/22 in July 2021, the Financial Conduct Authority (FCA), reminded us of its intention to remove firms’ permissions that aren’t being used. In line with Nikhil Rathi's priorities and ambitious transformation plan, the FCA has become more risk-averse and there is no misreading of their intentions when it comes to permissions,   

We are undertaking a ‘use it or lose it’ exercise, piloting the removal of firms’ permissions where they aren’t carrying out regulated activities.”

We now have a number of clients who have been the subject of Section 165 letters from the FCA regarding the use of their permissions and this update provides a summary of the questions you can expect if indeed, you receive the said letter from the FCA.

Questions you can expect

From the sample that we have seen at Cosegic, across all industry sectors, the questions asked include:

  • Whether the firm has provided regulated activities in the 12 months since first authorisation or registration.

  • To provide documentary evidence relating to each of the regulated activities for which it has been granted permission.

  • To provide a detailed written explanation of the income the firm has earned from regulated activities during those 12 months and explain any differences between this income and that which you have disclosed to the Authority in your regulatory reporting.

  • If the firm has not provided regulated activites in the 12 months since authorisation or registration, confirmation that they intend to begin doing so within 3 months, with details of which activities will be provided.

  • If the firm does not intend to do so with 3 months, a request that they apply for voluntary cancellation or an explanation of why the firm does not intend to do so.

It is important to note that when you receive the letter you must respond within two weeks.

What's next?

It has always been the case that the FCA has the power to cancel a firm’s authorisation if it does not provide regulated activities within 12 months of it being granted permission, but this has not previously been strongly enforced.  It’s notable that, in considering applications for authorisation, case officers are now actively requiring applicant firms to show that they are ready and able to start doing business as soon as they are authorised (‘ready, willing and organised’ is the phrase used by the FCA). This is being reinforced by the relevant Supervision teams identifying firms not doing business from the returns submitted, and quickly following up with a Section 165 letter.

Going forward, the FCA’s soon to be launched “Early Oversight Unit” (they don’t seem to be calling it a “Nursery” any more) will presumably be monitoring whether firms coming under its remit are actually doing business, but in the interim, any firm which shows on its returns to the FCA that it is not active can expect a Section 165 letter in fairly short order thereafter.

If you are in that position, it is good sense to have your answers prepared so that you can respond to the FCA in time.  If you need any help or would like to discuss your situation, please get in contact with James Borley or me.

Contact Us


John B

John Burns

John is one of the UK’s foremost compliance experts in payment services, and he is Senior Advisor in our Payment Services Practice.

Contact John

Related resources

All resources
iStock 1420047248 Article

Change in Control – FCA licences are not for sale

iStock 1437539329 Article

The FCA’s anti-greenwashing rule and supporting guidance: what do firms need to do?

iStock 1174872671 Article

FCA introduces new Form A for Senior Manager and Controlled Function applications

iStock 1181983763 Event

Webinar: Immediate Consumer Duty priorities and how to achieve customer understanding