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

SUP 10.6 Governing functions

Introduction

SUP 10.6.1G

Every firm will have one or more persons responsible for directing its affairs. These persons will be performing the governing functions and will be required to be approved persons unless the application provisions in SUP 10.1, or the particular description of a controlled function, provide otherwise. For example, each director of a company incorporated under the Companies Acts will perform the governing function in relation to that company.

What the governing functions include

SUP 10.6.2R
SUP 10.6.3G

The effect of SUP 10.6.2 R is that a person who is approved to perform a governing function (other than the non-executive function) will not have to be specifically approved to perform any of the systems and controls functions or the significant management functions. However, a firm may apply for the systems and controls function or significant management functions to be explicitly added for such persons, if it wishes. . A person who is approved to perform a governing function will have to be additionally approved before he can perform any of the required functions or customer functions.2

SUP 10.6.3AG

4PRU 9.1.3 R provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity.PRU 9.1.4 R provides that the firm may allocate this responsibility to one or more of the persons performing a governing function (other than the non-executive director function)5.

SUP 10.6.3BG

4Where a person performing a governing function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after the relevant controlled function (see PRU 9.1.7 G).

Director function (CF1)

SUP 10.6.4R

If a firm is a body corporate (other than a limited liability partnership), the director function is the function of acting in the capacity of a director (other than non-executive director) of that firm.

SUP 10.6.5G

The definition of director includes a person in accordance with whose directions or instructions the directors are accustomed to act. Such a person is defined in section 741 of the Companies Act 1985 as a "shadow director". The directors of a holding company would not, as such, be shadow directors. However, where, for example, a member of a holding company board frequently gives instructions to directors of a firm, either on his own or through a committee which takes frequent executive decisions, the firm should consider carefully whether he (and other members of the committee) should be approved to perform this function. An individual is not a shadow director (or director) because his job description included the word "director". Whether a person is a director within the definition is a question of fact in each case.2

SUP 10.6.6G

Similarly, the fact that a person may have "director" in his title does not of itself make him a director within the meaning of the definition. Whether a person is a director will depend on the facts in each case.

SUP 10.6.7G

A director can be a body corporate and may accordingly require approval as an approved person in the same way as a natural person may require approval.

Non-executive director function (CF2)

SUP 10.6.8R
  1. (1)

    If a firm is a body corporate, the non-executive director function is the function of acting in the capacity of a non-executive director of that firm.

  2. (2)

    If a firm is a long-term insurer, the non-executive director function is also the function of acting in the capacity of an individual (other than an individual performing the director function or the non-executive director function under (1)) who, as a member of a committee having the purpose of a With-profits Committee 3(see COB 6.11.6 G (1)), has responsibility in relation to governance arrangements for with-profits business under COB 6.11 (Reporting to with-profits policyholders on compliance with PPFM).

SUP 10.6.9G

Examples of responsibilities of a non-executive director may include:

  1. (1)

    playing his part, by providing an independent perspective to the overall running of the business, in setting and monitoring the firm's strategy;

  2. (2)

    scrutinising the approach of executive management, the firm's performance and its standards of conduct; and

  3. (3)

    carrying out other responsibilities as assigned by the firm: for example, as a member of a board committee on audit or remuneration or as a member of a committee having the purpose of a With-profits Committee (see COB 6.11.6 (1)).

SUP 10.6.10G

The extent of the responsibilities of a particular non-executive director will be a matter of fact in each case but they will not extend to executive responsibilities.

Chief executive function (CF3)

SUP 10.6.11R

The chief executive function is the function of acting in the capacity of a chief executive of a firm.

SUP 10.6.12G

The title given to a person performing the chief executive function is likely to be "Chief Executive Officer" or similar. However, the title, or absence of title, does not of itself determine whether the activities of a person amount to the chief executive function.

SUP 10.6.13G

This function is having the responsibility, alone or jointly with one or more others, under the immediate authority of the governing body, for the conduct of the whole of the business (or relevant activities); or, in the case of a branch in the United Kingdom of an overseas firm, for all of the activities subject to the UK regulatory system.

SUP 10.6.14G

For a branch in the United Kingdom of an overseas firm, the FSA would not normally expect the overseas chief executive of the firm as a whole to be approved for this function where there is a senior manager under him with specific responsibility for those activities of the branch which are subject to the UKregulatory system. In some circumstances, the person within the firm responsible for UK operations may, if the function is likely to enable him to exercise significant influence over the branch, also perform the chief executive function (see SUP 10.7.4 G). The senior manager may be called a Managing Director, UK Regional Head, Branch Manager, UK Country Head; or, in the case of a non-EEA insurer with a branch in the United Kingdom, UK chief executive.1

SUP 10.6.15G

A person performing the chief executive function may be a member of the governing body but need not be. If the chairman of the governing body is also the chief executive, he will be discharging this function. If the responsibility is divided between more than one person but not shared, there is no person exercising the chief executive function. But if that responsibility is discharged jointly by more than one person, each of those persons will be performing the chief executive function.

SUP 10.6.16G

Note that a body corporate may be a chief executive. If so, it will need to be approved to perform the chief executive function.

Partner function (CF4)

SUP 10.6.17R
  1. (1)

    If a firm is a partnership, the partner function is the function of acting in the capacity of a partner in that firm.

  2. (2)

    If the principal purpose of the firm is to carry on one or more regulated activities, each partner performs the partner function.

  3. (3)

    If the principal purpose of the firm is other than to carry on regulated activities:

    1. (a)

      a partner performs the partner function to the extent only that he has responsibility for a regulated activity; and

    2. (b)

      a partner in a firm will be taken to have responsibility for each regulated activity except where the partnership has apportioned responsibility to another partner or group of partners.

SUP 10.6.18G

For the purpose of this chapter, the definition of partner has been extended to include a "shadow partner", that is, a person in accordance with whose directions or instructions the partners are accustomed to act. This brings the concept of a partner into line with the concept of a director.

SUP 10.6.19G

Any apportionment referred to in SUP 10.6.17 R (3)(b) will have taken place under SYSC 2.1.1 R. The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (see SYSC 2.2).

SUP 10.6.20G

The effect of SUP 10.1.18 R is that regulated activity in SUP 10.6.17 R (and elsewhere) is to be taken as not including an activity that is a non-mainstream exempt regulated activity. Therefore, a partner whose only regulated activities are incidental to his professional services, in a partnership whose principal purpose is to carry on other than regulated activities, need not be an approved person. What amounts to the principal purpose of the firm is a matter of fact in each case having regard to all the circumstances, including the activities of the firm as a whole. Any regulated activities which such a partner carries on are not within the description of the partner function.

SUP 10.6.21R

If a firm is a limited liability partnership, the partner function extends to the firm as if the firm were a partnership and a member of the firm were a partner.

SUP 10.6.22G

The Limited Liability Partnerships Act 2000 provides for a legal entity to be formed under which every member of the limited liability partnership is the agent of the limited liability partnership. The effect of SUP 10.6.21 R is to treat a limited liability partnership as a partnership for the purposes of the partner function.

SUP 10.6.23R

If a partnership is registered under the Limited Partnership Act 1907, the partnerfunction does not extend to any function performed by a limited partner.

Director of unincorporated association function (CF5)

SUP 10.6.24R

If a firm is an unincorporated association, the director of unincorporated association function is the function of acting in the capacity of a director of the unincorporated association.

SUP 10.6.25G

There are many kinds of unincorporated association. For example, it could be a committee of management of a property unit trust; or the board of trustees of an occupational pension scheme where the trustees themselves carry on regulated activities. The FSA would expect each member of the committee of management or board to be performing the director of unincorporated association function and therefore to need to be approved to do so.

Small friendly society function (CF6)

SUP 10.6.26R
  1. (1)

    If a firm is a non-directive friendly society, the small friendly society function is the function of directing its affairs, either alone or jointly with others.

  2. (2)

    If the principal purpose of the firm is to carry on regulated activities, each person with responsibility for directing its affairs performs the controlled function.

  3. (3)

    If the principal purpose of the firm is other than to carry on regulated activities, a person performs the small friendly society function only to the extent that he has responsibility for a regulated activity.

    1
SUP 10.6.27G

A friendly society that is not subject to the Insurance Directives is often referred to as a non-directive friendly society. For the purposes of SUP 10 it is referred to as a small friendly society.

SUP 10.6.28R
  1. (1)

    Each person on the non-directive friendly society's governing body will be taken to have responsibility for its regulated activities, unless the firm has apportioned this responsibility to one particular individual to whom it is reasonable to give this responsibility.

  2. (2)

    The individual need not be a member of the governing body.

SUP 10.6.29G
  1. (1)

    Typically a non-directive friendly Society will appoint a "committee of management" to direct its affairs. However, the governing arrangements may be informal and flexible. If this is the case, the FSA would expect the society to resolve to give responsibility for the carrying on of regulated activities to one individual who is appropriate in all the circumstances. That individual may, for example, have the title of chief executive or similar. The individual would have to be an approved person under SUP 10.6.26 R.

  2. (2)

    Any apportionment of responsibilities will have taken place under SYSC 2.1.1 R. The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (seeSYSC 2.2).

Sole trader function (CF7)

SUP 10.6.30R
  1. (1)

    If a firm is a sole trader, the sole trader function is the function of acting in the capacity of the sole trader.

  2. (2)

    The sole trader function applies only to a sole trader who employs one or more approved persons.

SUP 10.6.31G

Note that, in relation to a sole trader, governing body includes the sole trader.

SUP 10.6.32G

If a sole trader does not employ an approved person, the sole trader himself will not have to be an approved person unless he seeks to perform any of the customer functions.