SUP 10.9 Significant management functions

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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).

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.

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).

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.

The significant management (settlements) function does not include claims representatives.