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Status: You are viewing the version of the handbook as on 2005-06-30.

SIFA 4.1 FSA Principles

SIFA 4.1.1G

The Principles set out in simple terms the high-level standards that all firms must meet. The rest of the Handbook contains more detailed requirements that expand on these standards.

SIFA 4.1.2G

If your firm breaches one or more of the Principles you could face enforcement action. For example, a serious breach may result in your firm's authorisation being removed and could also pose a risk to our statutory objectives.

Who do the Principles apply to and what is their purpose?

SIFA 4.1.3G

The application and purpose of the Principles is as follows:

  1. (1)

    The Principles apply to every firm. They are general statements of the fundamental obligations of firms under the regulatory system.

  2. (2)

    The Principles express what is meant by the fit and proper standard set for firms. Breaching the Principles may call into question whether a firm is still fit and proper.

  3. (3)

    The Principles require a firm to pay due regard to the interests of its customers and treat them fairly.

  4. (4)

    The Principles are also designed as a general statement of regulatory requirements that are to be applied in new or unforeseen situations (PRIN 1).

Where are the relevant rules in the Handbook?

SIFA 4.1.4G

The Principles are set out in the Principles for Businesses Sourcebook (PRIN). They can be found at Section 2.1 of PRIN and are also set out below:

SIFA 4.1.5G

THE PRINCIPLES

1.

A firm must conduct its business with integrity.

2.

A firm must conduct its business with due skill, care and diligence.

3.

A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

4.

A firm must maintain adequate financial resources.

5.

A firm must observe proper standards of market conduct.

6.

A firm must pay due regard to the interests of its customers and treat them fairly.

7.

A firm must pay due regard to the information needs of its clients, and communicate information to them in a way, which is clear, fair, and not misleading.

8.

A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

9.

A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.

10.

A firm must arrange adequate protection for client's assets when it is responsible for them.

11.

A firm must deal with its regulators in an open and co-operative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

Senior management arrangements, systems and controls

SIFA 4.1.6G

These are set out in the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC). This part of the Handbook expands the meaning of Principle 3.

SIFA 4.1.7G

This means that a firm must (in line with SYSC 2 and SYSC 3):

  1. (1)

    clearly apportion responsibilities amongst its directors and senior managers;

  2. (2)

    ensure the business and affairs of the firm can be adequately monitored;

  3. (3)

    allocate to the Managing Director or most senior person the functions of dealing with the apportionment of responsibilities and overseeing the establishment and maintenance of systems and controls;

  4. (4)

    make and keep updated a record of these arrangements, for example, by means of an organisation chart; and

  5. (5)

    take reasonable care to create and maintain such systems and controls as are appropriate to its business.

SIFA 4.1.8G

The rules and guidance in SYSC 3.2 cover some of the main issues which a firm is expected to consider in establishing and maintaining the systems and controls appropriate to its business. These include the size of the firm, the scale and complexity of its business, the need to counter the risk that the firm might be used to further financial crime, the need to establish and maintain compliance with regulatory requirements and record-keeping. We do not expect the same kind of systems and controls in both small and large firms. The important point is that they should be fit for purpose given the size and business of the firm. In the case of a sole practitioner, one person is responsible for all aspects of the firm but we expect there to be adequate systems that allow that person to adequately monitor and manage the firm.

Other requirements

SIFA 4.1.9G

When evaluating whether you meet the requirements of Principle 3 you should also consider:

  1. (1)

    Threshold Conditions;

  2. (2)

    Money Laundering Regulations (failure to comply is a criminal offence); and

  3. (3)

    The Money Laundering Sourcebook (ML)

SIFA 4.1.10G

Table:

The following sections of this Overview are also relevant:

• Threshold Conditions in 'Authorisation' - Chapter 5

•'Money Laundering' - Chapter 14