APER 4.5 Statement of Principle 5
The Statement of Principle 5 (see APER 2.1.2 P) is in the following terms: "An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively."
In the opinion of the FSA, conduct of the type described in APER 4.5.3 E, APER 4.5.4 E, APER 4.5.6 E or APER 4.5.8 E does not comply with Statement of Principle 5 (APER 2.1.2 P).
Failing to take reasonable steps to apportion responsibilities for all areas of the business under the approved person's control falls within APER 4.5.2 E (see APER 4.5.11 G).
Failing to take reasonable steps to apportion responsibilities clearly amongst those to whom responsibilities have been delegated falls within APER 4.5.2 E (see APER 4.5.11 G).
Behaviour of the type referred to in APER 4.5.4 E includes, but is not limited to:
- (1)
implementing confusing or uncertain reporting lines (see APER 4.5.12 G);
- (2)
implementing confusing or uncertain authorisation levels (see APER 4.5.13 G);
- (3)
implementing confusing or uncertain job descriptions and responsibilities (see APER 4.5.13 G).
In the case of an approved person who is responsible under SYSC 2.1.3 R (1) for dealing with the apportionment of responsibilities under SYSC 2.1.1 R, failing to take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among the firm's directors and senior managers falls within APER 4.5.2 E.
Behaviour of the type referred to in APER 4.5.6 E includes, but is not limited to:
- (1)
failing to review regularly the significant responsibilities which the firm is required to apportion under APER 2.1.1 G;
- (2)
failing to act where that review shows that those significant responsibilities have not been clearly apportioned.
Failing to take reasonable steps to ensure that suitable individuals are responsible for those aspects of the business under the control of the individual performing a significant influence function falls within APER 4.5.2 E (see APER 4.5.14 G).
Behaviour of the type referred to in APER 4.5.8 E includes, but is not limited to:
- (1)
failing to review the competence, knowledge, skills and performance of staff to assess their suitability to fulfil their duties, despite evidence that their performance is unacceptable (see APER 4.5.14 G);
- (2)
giving undue weight to financial performance when considering the suitability or continuing suitability of an individual for a particular role (see APER 4.5.14 G);
- (3)
allowing managerial vacancies which put at risk compliance with the requirements and standards of the regulatory system to remain, without arranging suitable cover for the responsibilities (see APER 4.5.15 G).
Strategy and plans will often dictate the risk which the business is prepared to take on and high level controls will dictate how the business is to be run. If the strategy of the business is to enter high-risk areas, then the degree of control and strength of monitoring reasonably required within the business will be high. In organising the business for which he is responsible, the approved person performing a significant influence function should bear this in mind.
Apportionment of responsibilities
In order to comply with the obligations of Statement of Principle 5 (having regard to APER 4.5.3 E and APER 4.5.4 E), the approved person performing a significant influence function may find it helpful to review whether each area of the business for which he is responsible has been clearly assigned to a particular individual or individuals.
Reporting lines
The organisation of the business and the responsibilities of those within it should be clearly defined (see APER 4.5.5 E (1)). Reporting lines should be clear to staff. Where staff have dual reporting lines there is a greater need to ensure that the responsibility and accountability of each individual line manager is clearly set out and understood.
Authorisation levels and job descriptions
Where members of staff have particular levels of authorisation (see APER 4.5.5 E (2) and APER 4.5.5 E (3)), these should be clearly set out and communicated to staff. It may be appropriate for each member of staff to have a job description of which he is aware.
Suitability of individuals
If an individual's performance is unsatisfactory, then the appropriate approved person (if any) performing a significant influence function should review carefully whether to allow that individual to continue in position. In particular, if he is aware of concerns relating to the compliance with requirements and standards of the regulatory system (or internal controls) of the individual concerned, or of staff reporting to that individual, the approved person performing a significant influence function should take care not to give undue weight to the financial performance of the individual or group concerned when considering whether any action should be taken. An adequate investigation of the concerns should be undertaken (including, where appropriate, adherence to internal controls). The approved person performing a significant influence function should satisfy himself, on reasonable grounds, that the investigation is appropriate, the results are accurate and that the concerns do not pose an unacceptable risk to compliance with the requirements and standards of the regulatory system (see in particular Statement of Principle 6 and APER 4.5.8 E and APER 4.5.9 E (1) and APER 4.5.9 E (2)).
Temporary vacancies
In organising the business, the approved person performing a significant influence function should pay attention to any temporary vacancies which exist (see APER 4.5.9 E (3)). He should take reasonable steps to ensure that suitable cover for responsibilities is arranged. This could include taking on temporary staff or external consultants. The approved person performing a significant influence function should assess the risk that is posed to compliance with the requirements and standards of the regulatory system as a result of the vacancy, and the higher the risk the greater the steps he should take to fill the vacancy. It may be appropriate to limit or suspend the activity if appropriate cover for responsibilities cannot be arranged. To the extent that those vacancies are in respect of one of the customer functions, they may only be filled by persons approved for that function.