ENF 11.5 Action against approved persons

The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. Normally, therefore, the FSA's main focus, in considering whether disciplinary action is appropriate, will be on the firm rather than on approved persons.

However, in some cases, it will not be appropriate to take disciplinary measures against a firm for the actions of an approved person (for example, if the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FSA to take action against both the firm and the approved person. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are appropriate to its business SYSC 3.1.1 R), and an approved person may have taken advantage of those deficiencies to front run orders or misappropriate assets.

The FSA will, however, only take disciplinary action against an approved person where there is evidence of personal culpability on the part of that approved person. Personal culpability arises where the behaviour was deliberate or where the approved person's standard of behaviour was below that which would be reasonable in all the circumstances.

Section 66 of the Act (Disciplinary powers) contains specific provisions stating when the FSA may take action against an approved person (see ENF 11.5.7 G and ENF 11.5.8 G). In accordance with section 64 of the Act (Conduct: statements and codes), the FSA has issued Statements of PrincipleAPER 2) about the conduct it expects of approved persons and a Code of Practice for Approved PersonsAPER 3 and APER 4) to help determine whether an approved person's conduct complies with the Statements of Principle.

The Code of Practice for Approved Persons sets out descriptions of conduct which, in the FSA's opinion, do not comply with the relevant Statements of Principle. Account will be taken of the context in which a course of conduct was undertaken, including the precise circumstances of the individual case, the characteristics of the particular controlled function and the behaviour to be expected in that function (see APER 3.1).

1. (1)

   The FSA will consider whether disciplinary action against an approved person, rather than action against the firm, would be appropriate, taking into account the responsibility of those exercising significant influence functions in the firm for the conduct of the firm. The FSA will also consider whether to take disciplinary action against an approved person for an act of misconduct, if he was knowingly concerned in a breach of a rule by the firm, or if he has failed to comply with one of the Statements of Principle.

2. (2)

   However, the FSA will not discipline approved persons on the basis of vicarious liability (that is, holding them responsible for the acts of others), provided appropriate delegation has taken place (see APER 4.6.13 G and APER 4.6.14 G). In particular, disciplinary action will not be taken against an approved person performing a significant influence function simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA will consider that an approved person performing a significant influence function may have breached Statements of Principle 5 to 7 (see ENF 11.5.10 G) only if his conduct was below the standard which would be reasonable in all the circumstances (see also APER 3.1.8 G).

3. (3)

   An approved person will not be in breach if he has exercised due and reasonable care when assessing information, has reached a reasonable conclusion and has acted on it.

Section 66(1) of the Act provides that the FSA may take action against an approved person where it appears to the FSA that he is guilty of misconduct and if the FSA is satisfied in all the circumstances that it is appropriate to take action against him.

Section 66(2) of the Act provides that a person is guilty of misconduct if, while an approved person:

1. (1)

   he has failed to comply with a Statement of Principle issued under section 64; or

2. (2)

   he has been knowingly concerned in a contravention by the relevant firm of a requirement imposed on it by or under the Act.

In determining whether an approved person's conduct complies with a Statement of Principle, the FSA will take into account in particular the extent to which the approved person has complied with the Code of Practice for Approved Persons.

The Statements of Principle and the Code of Practice for Approved Persons are set out in APER 2, APER 3 and APER 4. They are divided into two sections:

1. (1)

   Statements of Principle 1 to 4 apply to the conduct of all approved persons; and

2. (2)

   Statements of Principle 5 to 7 apply only to the conduct of those approved persons performing a significant influence function.

In assessing whether it is appropriate to take disciplinary action against an approved person, the FSA may consider the following, amongst other factors:

1. (1)

   whether action against the firm rather than the approved person would be a more appropriate regulatory response; and

2. (2)

   whether disciplinary action would be a proportionate response to the nature and seriousness of the breach by the approved person.

Where disciplinary action is taken against an approved person the onus will be on the FSA to show that the approved person has been guilty of misconduct.