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Status: You are viewing the version of the handbook as on 2009-03-31.

ELM 5.3 Business to be directed by at least two individuals

ELM 5.3.1R

A firm must ensure that at least two individuals effectively direct its business.

ELM 5.3.2G

ELM 5.3.1 R, sometimes known as the 'four eyes requirement', provides that at least two individuals must effectively direct the business of a firm. Compliance with the rule would help to establish a firm's compliance with Principle 3 ('Management and control') and its continued meeting of the threshold condition 5 ('Suitability'). It also reflects the requirement in Article 111(1) of the Banking Consolidation Directive.

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ELM 5.3.3G

In the case of a body corporate, the FSA expects that the individuals concerned are either executive directors or persons granted executive powers by, and reporting immediately to, the board; and, in the case of a partnership, the FSA looks for at least two general or active partners.

ELM 5.3.4G

Compliance with ELM 5.3.1 R is also in particular relevant to whether a firm complies with the rules covering senior management arrangements, systems and controls (see SYSC).

ELM 5.3.5G

At least two independent minds should be applied to both the formulation and implementation of the policies of the firm. Where the firm nominates just two individuals to direct its business, the FSA will not regard them as both effectively directing the business where one of them makes some, albeit significant, decisions relating only to a few aspects of the business. Each should play a part in the decision-making process on all significant decisions. Both should demonstrate the qualities and application to influence strategy, day-to-day policy and their implementation. This does not require their day-to-day involvement in the execution and implementation of policy. It does, however, require involvement in strategy and general direction, as well as knowledge of, and influence on, the way in which strategy is being implemented through day-to-day policy.

ELM 5.3.6G

The four eyes requirement applies to the firm a whole. Thus, in the case of an overseas firm, the FSA assesses whether at least two individuals effectively direct the business of the firm and not just the business of the branch(es) in the United Kingdom. The FSA also takes into account the manner in which management decisions are taken in the UK branch(es) in assessing the adequacy of the firm's systems and controls.