SUP 10.10 Customer functions

Without SUP 10.10.1 R the description of the customer functions would extend to functions wherever they are performed. The effect of SUP 10.10.1 R is that the descriptions arelimited, in relation to regulated activities with an overseas element, in a manner which is broadly consistent with the scope of conduct of business regulation.

The customer functions haveto do with giving advice on, dealing and arranging deals in and managing investments; they haveno application to banking business such as deposit taking and lending, nor to general insurance business.

SUP 10.10.4 R gives effect to sub-sections (6) and (7) of section 59 of the Act (referred to in that section as the second and third conditions). Customer is given the meaning in the Glossary (which is not the same as the definition given in section 59 (11) of the Act).

The FSA interprets the phrase "dealing with" as including having contact with customers and extending beyond "dealing" as used in the phrase "dealing in investments". "Dealing in" is used in Schedule 2 to the Act to describe in general terms the regulated activities which are specified in Part II of the Regulated Activities Order.

The function of advising on investments would include, for example, giving advice to clients in connection with corporate finance business. It does not include managing investments (see the investment management function) or advising on syndicate participation at Lloyd's (see the adviser on syndicate participation at Lloyd's function).

When considering an application for approval in relation to this controlled function, the FSA may ask for evidence of the individual's competence. TC 2.4.1 R provides that a firm must ensure that an employee is not allowed to engage in an activity unless the employee has been assessed as competent in that activity, in accordance with TC 2.4.5 R, or is appropriately supervised. TC 2.4.5 R provides that a firm must, before an employee can be assessed as competent, ensure that the employee has been assessed as able to apply the knowledge and skills necessary to engage without supervision in the relevant activity and has passed an appropriate examination.

The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances (except for an individual who gives advice to private customers on packaged products or is a broker fund adviser). The effect of this is that the individual who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (see TC 2.5.5 R (3) and TC 2.5.5 R (4)).

If a firm notifies the FSA that an individual who is performing the investment adviser (trainee) function has passed the appropriate examination, and has been assessed as competent, the FSA will treat this as an application for the individual to perform the investment adviser function. A Form E (SUP 10 Annex 8 G) may be used for this purpose.

The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances. The effect of this is that the individual, who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (seeTC 2.5.5 R (3) and (4)).

A person who advises on or manages investments must be approved to perform the investment adviser function or the investment management function (see SUP 10.10.7 R and SUP 10.10.20 R) and does not need to be separately approved for the customer trading function (see SUP 10.10.16 R).

COB 7 applies to a firm conducting designated investment business. Where a firm's proprietary trader may deal with a private or intermediate customer, the firm should ensure that the trader is approved under the customer trading function.

The customer trading function does not extend to the individual who, on the instructions of the customer, simply inputs the customer's instructions into an automatic execution system where no discretion is or may be exercised by the individual carrying out the activity. Nor does it extend to merely introducing a customer to a firm or distributing advertisements.

Note that the definition of investment manager is a person who, in summary, manages designated investments on a discretionary or non-discretionary basis under the terms of a discretionary or non-discretionary management agreement. If a person seeks to perform the controlled function of advising on investments outside of the agreement, he will need to be approved for the investment adviser function.

The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances. The effect of this is that the individual, who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (see TC 2.5.5 R (3) and (4)).