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SUP 10.9 Significant management functions

Application

SUP 10.9.1R

SUP 10.9 applies only to a firm which, under SYSC 2.1.1 R, apportions a significant responsibility, within the description of asignificant management function, to a senior manager of a significant business unit.

SUP 10.9.2G

The FSA anticipates that there will be only a few firms needing to seek approval for an individual to perform asignificant management function. In most firms, those approved for the governing functions, required functions and, where appropriate, the systems and controls functions are likely to exercise all the significant influence at senior management level.

SUP 10.9.3G

However, the scale, nature and complexity of the firm's business may be such that a firm apportions under SYSC 2.1.1 R a significant responsibility to an individual who is not approved to perform the governing functions, required functions or, where appropriate, the systems and controls functions. If so,v the firm should consider whether the functions of that individual fall within asignificant management function. For the purposes of the description of the significant management functions, the following additional factors about the firm should be considered:

  1. (1)

    the size and significance of the firm's business in the United Kingdom; for example, a firm carrying on designated investment business may have a large number of approved persons (for example, in excess of 100 individuals); or a firm carrying on general insurance business may have gross written premiums in excess of £100mn;

  2. (2)

    the number of regulated activities carried on, or proposed to be carried on, by the firm and (if relevant) other members of the group;

  3. (3)

    its group structure (if it is a member of a group);

  4. (4)

    its management structure (for example matrix management); and

  5. (5)

    the size and significance of its international operations, if any.

SUP 10.9.4G

When considering whether a business unit is significant, the firm should take into account all relevant factors in the light of the firm's current circumstances and its plans for the future, including:

  1. (1)

    the risk profile of the unit; or

  2. (2)

    its use or commitment of a firm's capital; or

  3. (3)

    its contribution to the profit and loss account; or

  4. (4)

    the number of employees or approved persons in the unit; or

  5. (5)

    the number of customers of the unit; or

  6. (6)

    any other factor which makes the unit significant to the conduct of the firm's affairs so far as relating to the regulated activity.

SUP 10.9.5G

The question may arise whether a manager who is based overseas will be performing a controlled function (such as the significant management (designated investment business) function) and should therefore be an approved person. This is especially true where the firm operates matrix management. The fact there is a person performing the apportionment and oversight function, and who has responsibility for activities subject to regulation by the FSA, may have a bearing on this. It is a factor to take into account when assessing the likely influence of the overseas manager.

SUP 10.9.6G

Generally, in relation to a branch of a firm, or a firm which is part of an overseas group, where an overseas manager is responsible for strategy, he will not need to be an approved person. However, where he is responsible for implementing that strategy in the United Kingdom, and has not delegated that responsibility to a senior manager in the United Kingdom, he is likely to be performing a controlled function.

SUP 10.9.7G

See also SUP 10.7.3 G to SUP 10.7.5 G in relation to matrix management.

Reporting requirement

SUP 10.9.8R

A firm must, by no later than 31 July each year, provide the FSA with:

  1. (1)

    the name of every individual who is approved to perform any of its significant management functions; and

  2. (2)

    brief details of the job performed by that individual, as at 30 June of that year;

unless it has, within the 12 months preceding 30 June, already provided the FSA with that information.

SUP 10.9.9G

The broad description of each significant management function means that an individual may perform a different function within the significant management function without needing prior approval. However, the FSA does require a notification of the job performed by such people once a year. Typically, a firm will give this information to the FSA as a matter of routine during the year but, if not, SUP 10.9.8 R requires it to do so by 31 July. The rule requires the firm to provide a report only in respect of individuals performing a significant management function: if there are none, there is no need to provide a report.

Significant management (designated investment business) function (CF16)

SUP 10.9.10R
  1. (1)

    The significant management (designated investment business) function is the function of acting as a senior manager with significant responsibility for a significant business unit which carries on designated investment business other than dealing in investments as principal, disregarding article 15 of the Regulated Activities Order (Absence of holding out etc), (and agreeing to do so).1

  2. (2)

    This function does not include any of the activities described in any other controlled function.2

SUP 10.9.11G

Where SUP 10.9.1 R and SUP 10.9.10 R apply, the FSA would expect the senior manager of a significant trading department, such as equities in a large international firm, possibly with the title of Chief InvestmentOfficer, to be performing this function. Other examples are senior managers with responsibility for investment banking, fixed income, derivatives, commodities, trading, custody, asset management, marketing and sales. The Regional Heads of Sales of an insurer are also likely to be performing this function. The senior manager may, for example, be responsible for about 100 individuals approved to perform the investment adviser function. The FSA would not expect an individual below this level to need to be approved to perform the significant management (designated investment business) function. The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function. Whether he does so depends on the circumstances of the firm and the application of SUP 10.9.1 R. For the position in relation to proprietary traders, see SUP 10.9.13 G1.

Significant management (other business operations) function (CF17)

SUP 10.9.12R
  1. (1)

    The significant management (other business operations) function is the function of acting as a senior manager with significant responsibility for a significant business unit which carries on: 1

    1. (a)

      dealing in investments as principal, disregarding article 15 of the Regulated Activities Order (Absence of holding out etc), (or agreeing to do so); or

    2. (b)

      an activity which is not designated investment business.2

  2. (2)

    A person may be a senior manager for the purposes of this rule even if he is not managing any or any substantial number of staff, provided he has responsibility for managing all, or a very substantial proportion, of the assets or exposures or decision making of the unit.

  3. (3)

    This function does not include any of the activities described in any other controlled function.

SUP 10.9.13G

Where SUP 10.9.1 R and SUP 10.9.12 R apply, the senior manager could, for example, be the head of a unit carrying on the activities of: retail banking, personal lending, corporate lending; leasing assets, issuing credit cards, trade finance, loan syndicates or debt, salvage or loan recovery, or proprietary trading; or a member of a committee (that is, a person who, together with others, has authority to commit the firm) making decisions in these functions. The senior manager could also be a proprietary trader whose trading limits are such that he may put, or potentially put, his firm at significant risk. This function would not extend to every proprietary trader.

SUP 10.9.13AG

3PRU 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 the person performing the significant management (other business operations) function.

SUP 10.9.13BG

3Where the person performing the significant management (other business operations) function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see PRU 9.1.7 G).

Significant management (insurance underwriting) function (CF18)

SUP 10.9.14R
  1. (1)

    The insurance underwriting function is the function of acting in the capacity of a senior manager with significant responsibility for the effecting by an insurer, or by a managing agent on behalf of a member of the Society of Lloyd's, of contracts of insurance other than contractually based investments.

  2. (2)

    This function does not include any of the activities described in any other controlled function.

SUP 10.9.15G

Where SUP 10.9.1 R and SUP 10.9.14 R apply, the FSA would expect the senior manager with responsibility for a significant underwriting unit such as marine underwriting in a large insurer to be performing this function. Other examples are senior managers with underwriting responsibility for aviation, motor, property, third party liability, term insurance and health care.

Significant management (financial resources) function (CF19)

SUP 10.9.16R
  1. (1)

    The significant management (financial resources) function is the function of acting in the capacity of a senior manager with significant responsibility for the making of material decisions on the commitment of a firm's financial resources, its financial commitments, its asset acquisitions, its liability management and its overall cash and capital planning.

  2. (2)

    This function does not include any of the activities described in any other controlled function, including, in particular, the finance function.

SUP 10.9.17G

Where SUP 10.9.1 R and SUP 10.9.16 R apply, the individual performing this function would typically be the Chief Treasurer, or a member of a high level committee (that is, a person who, together with others, has authority to commit the firm) such as an Asset and Liability Committee or an Executive Committee or Credit Committee. In the case of the Society of Lloyd's, it would include being a member of the Market Board (or a successor committee performing the functions of the Market Board).

Significant management (settlements) function (CF20)

SUP 10.9.18R
  1. (1)

    The significant management (settlements) function is the function of acting in the capacity of a senior manager with significant responsibility for processing confirmations, payments, settlements, insurance claims, client money and similar matters.

  2. (2)

    This function does not include any of the activities described in any other controlled function, including, in particular, the significant management (financial resources) function.

SUP 10.9.19G

The tasks within this controlled function are often referred to as the back office functions. Where SUP 10.9.1 R and SUP 10.9.18 R apply, the person performing this function may be known, for example, as the Head of Payments, Head of Settlements, or Head of Claims. The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function. Whether he does so depends on the circumstances of the firm and the application of SUP 10.9.1 R.

SUP 10.9.20G