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SUP 10.1 Application

General

SUP 10.1.1 R

This chapter applies to every firm.

SUP 10.1.2 G

This chapter is also relevant to every approved person.

SUP 10.1.3 G

The rules in this chapter specify descriptions of functions under section 59 of the Act (Approval for particular arrangements). The effect of these rules, and the provisions of Part V of the Act (Performance of Regulated Activities), is that every firm, except an overseas firm to which SUP 10.1.6 R applies, must apply to the FSA for the approval of one or more persons to perform a controlled function on its behalf.4

SUP 10.1.4 G

The directions in this chapter relate to the manner in which a firm must apply for the FSA's approval under section 59 of the Act and other procedures.

SUP 10.1.5 G

The list of controlled functions is at SUP 10.4.5 R.

Overseas firms: UK services

SUP 10.1.6 R

This chapter does not apply to an overseas firm in relation to regulated activities which are carried on in the United Kingdom other than from an establishment maintained by it or its appointed representative in the United Kingdom.

Overseas firms: UK establishments

SUP 10.1.7 R

Only the following controlled functions apply to an overseas firm which maintains an establishment in the United Kingdom from which regulated activities are carried on:

  1. (1)

    the chief executive function;

  2. (2)

    the required functions;

  3. (3)

    the significant management (designated investment business) function;

  4. (4)

    the significant management (settlements) function in so far as the activities relate to designated investment business; and

  5. (5)

    the customer functions.

Incoming EEA firms, incoming Treaty firms and UCITS qualifiers

SUP 10.1.9 R

This chapter does not apply to:

  1. (1)

    an incoming EEA firm; or

  2. (2)

    an incoming Treaty firm; or

  3. (3)

    a UCITS qualifier;

if and in so far as the question of whether a person is fit and proper to perform a particular function in relation to that firm is reserved, under any of the Single Market Directives, the Treaty or the UCITS Directive to an authority in a country or territory outside the United Kingdom.

SUP 10.1.10 G

SUP 10.1.9 R reflects the provisions of section 59(8) of the Act and, in relation to an incoming Treaty firm and a UCITS qualifier, the Treaty and the UCITS Directive. It preserves the principle of Home State prudential regulation. In relation to an incoming EEA firm exercising an EEA right, or an incoming Treaty firm exercising a Treaty right, the effect is to reserve to the Home State regulator the assessment of the fitness and propriety of a person performing a function in the exercise of that right. A member of the governing body, or the notified UKbranchmanager, of an incoming EEA firm, acting in that capacity, will not therefore have to be approved by the FSA under the Act.

SUP 10.1.11 G

But an incoming EEA firm, or incoming Treaty firm, will have had to consider the impact of the Host State rules with which it is required to comply when carrying on a passported activity or Treaty activity through a branch in the United Kingdom. An incoming EEA firm will have been notified of those provisions under Part II of Schedule 3 to the Act in the course of satisfying the conditions for authorisation in the United Kingdom.

SUP 10.1.12 G

An incoming EEA firm will have to consider, for example, the position of a branch manager based in the United Kingdom who may also be performing a function in relation to the carrying on of a regulated activity not covered by the EEA right of the firm. In so far as the function is within the description of a controlled function, the firm will need to seek approval for that person to perform that controlled function.

Incoming EEA firms: passported activities from a branch

SUP 10.1.13 R

Incoming EEA firms etc with top-up permission activities from a UK branch

SUP 10.1.14 R

In relation to the activities of a firm for which it has a top-up permission, only the following controlled functions apply:

  1. (1)

    the required functions, other than the apportionment and oversight function;

  2. (2)

    the significant management (designated investment business) function;

  3. (3)

    the significant management (settlements) function in so far as the activities relate to designated investment business; and

  4. (4)

    the customer functions.

SUP 10.1.15 G

5An incoming EEA firm may require a Part IV permission in respect, for example, of its commodities business. The list of controlled functions which apply mirror those which apply to overseas firms, without the chief executive function. In the case of a firm with top-up permission, the FSA anticipates that the equivalent responsibility of the chief executive for the relevant business would be assumed by the person performing the EEA investment business oversight function.

Appointed representatives

SUP 10.1.16 R

The descriptions of the following functionsapply to an appointed representative of a firm, except an introducer appointed representative, as they apply to a firm:

  1. (1)

    the governing functions, subject to SUP 10.1.16A R; and

    135
  2. (2)

    the customer functions other than the investment management function.

SUP 10.1.16A R
  1. (1)

    5SUP 10.1.16 R is modified in relation to an appointed representative meeting the conditions in (2) so that only one of the following governing functions:

    1. (a)

      director function; or

    2. (b)

      chief executive function; or

    3. (c)

      partner function; or

    4. (d)

      director of unincorporated association function;

    applies, as appropriate, to an individual within that appointed representative who will be required to be an approved person.

  2. (2)

    The conditions are that:

    1. (a)

      the scope of appointment of the appointed representative includes insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity, and

    2. (b)

      the principal purpose of the appointed representative is to carry on activities other than regulated activities.

SUP 10.1.17 G
  1. (1)

    The effect of SUP 10.1.16 R is that the directors (or their equivalent) and senior managers (or their equivalent) of an appointed representative must also be approved under section 59 of the Act for the performance of certain controlled functions.

  2. (2)

    SUP 10.1.16 R has a limited application to an appointed representative appointed by a firm to carry on insurance mediation activity or mortgage mediation activity. The description of the customer functions do not apply to such an appointed representative as these functions do not apply to a firm carrying on these regulated activities.5

  3. (3)

    The effect of SUP 10.1.16A R is that only one director (or equivalent) of an appointed representative to which that rule applies must be approved under section 59 of the Act for the performance of a governing function.5

Members of a profession

SUP 10.1.18

This chapter, except in respect of the required functions, does not apply to an authorised professional firm in respect of its non-mainstream regulated activities.

SUP 10.1.19 G

SUP 10.1.18 R is relevant to the person, such as a partner in a professional firm, whose only regulated activities are incidental to his professional services, and where the principal purpose of the firm is to carry on activities which are not regulated activities. Any regulated activities which that person carries on are not within the description of a controlled function (except with respect to the required functions).

SUP 10.1.20 G

For further guidance on the supervision and regulation of activities carried on by a member of a designated professional body, see PROF 5.

Oil market participants, service companies, energy market participants, subsidiaries of local authorities or registered social landlords and insurance intermediaries.5

SUP 10.1.21 R

The descriptions of significant influence functions, other than the required functions, do not extend to activities carried on by a firm whose principal purpose is to carry on activities other than regulated activities and which is:

  1. (1)

    an oil market participant; or

  2. (2)

    a service company; or

  3. (3)

    an energy market participant; or 5

  4. (4)

    a wholly owned subsidiary of:5

    1. (a)

      a local authority; or5

    2. (b)

      a registered social landlord; or5

  5. (5)

    a firm with permission to carry on insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity.52

SUP 10.1.22 G

It will be a matter of fact in each case whether, having regard to all the circumstances, including in particular where the balance of the business lies, a firm's principal purpose is to carry on activities other than regulated activities. If a firm wishes to rely on SUP 10.1.21 R, it should be in a position to demonstrate that its principal purpose is to carry on activities other than regulated activities.

2

Committees of the Society of Lloyd's

SUP 10.1.23 R
  1. (1)

    For the purpose of SUP 10.6.4 R (the director function), "director" includes an executive member of a committee to which the Council of the Society of Lloyd's directly delegates authority to carry out the Society's regulatory functions.

    3
  2. (2)

    For the purpose of SUP 10.6.8 R (the non-executive director function), "non-executive director" includes a non-executive member of a committee to which the Council of the Society of Lloyd's directly delegates authority to carry out the Society's regulatory functions.

SUP 10.1.24 G

The effect of SUP 10.6.4 R is that the function of an executive member of the Council of the Society of Lloyd's comes within the description of the director function. SUP 10.1.23R (1) provides that the function of an executive member of certain committees of the Society of Lloyd's with regulatory functions also comes within the description of the director function. SUP 10.6.8 R and SUP 10.1.23R (2) are the equivalent provisions for the non-executive member of certain committees of the Society of Lloyd's with regulatory functions.

Insolvency practitioners

SUP 10.1.26 R

This chapter does not apply to a function performed by:

  1. (1)

    a person acting as an insolvency practitioner within the meaning of section 388 of the Insolvency Act 1986; or

  2. (2)

    a person acting as a nominee in relation to a voluntary arrangement under Parts I (Company Voluntary Arrangements) and VIII (Individual Voluntary Arrangements) of the Insolvency Act 1986; or

  3. (3)

    a person acting as an insolvency practitioner within the meaning of Article 3 of the Insolvency (Northern Ireland) Order 1989; or

  4. (4)

    a person acting as a nominee in relation to a voluntary arrangement under Parts II (Company Voluntary Arrangements) and VIII (Individual Voluntary Arrangements) of the Insolvency (Northern Ireland) Order 1989.

SUP 10.2 Purpose

SUP 10.2.1 G

The immediate purpose of SUP 10.3 to SUP 10.10 is to specify, under section 59 of the Act, descriptions of the 27controlled functions which are listed in SUP 10.4.5 R. The underlying purpose is to establish, and mark the boundaries of, the "approved persons regime". An approved person is a person, generally an individual, who is approved to perform a controlled function.

SUP 10.2.2 G

The controlled functions which have been specified in this chapter are those functions which the FSA sees as key to the operation of the provisions of Part V of the Act (Performance of Regulated Activities) and the provisions made under Part V. Those provisions include:

  1. (1)

    the Statements of Principle and Code of Practice for Approved Persons issued under section 64 of the Act (see APER); and

  2. (2)

    the fit and proper test referred to in section 61 of the Act (see FIT).

SUP 10.2.3 G

The purpose of the direct regulation of an individual (and in some cases a body corporate) is to complement the regulation of the authorised person, that is the firm for which the approved person performs the function.

SUP 10.2.4 G

SUP 10.11 to SUP 10.14 set out the procedures for applying for approval, changing the details held by the FSA concerning an approved person, and withdrawing from approval.

SUP 10.3 Provisions related to the act

Arrangements and regulated activities

SUP 10.3.1 R

A function is a controlled function only to the extent that it is performed under an arrangement entered into by:

  1. (1)

    a firm; or

  2. (2)

    a contractor of the firm;

in relation to the carrying on by the firm of a regulated activity.

SUP 10.3.2 G

Sections 59(1) and (2) of the Act provide that approval is necessary in respect of a controlled function which is performed under an arrangement entered into by a firm, or its contractor (typically an appointed representative), in relation to a regulated activity.

SUP 10.3.3 G

Arrangement is defined in section 59(10) of the Act as any kind of arrangement for the performance of a function which is entered into by a firm or any of its contractors with another person and includes the appointment of a person to an office, his becoming a partner, or his employment (whether under a contract of service or otherwise). For the provisions in this chapter relating to outsourcing, see SUP 10.12.3 G and SUP 10.12.4 G.

1
SUP 10.3.4 G

If, however, a firm is a member of a group, and the arrangements for the performance of a controlled function of the firm are made by, say, the holding company, the person performing the function will only require approval if there is an arrangement (under section 59(1)) or a contract (under section 59(2)) between the firm and holding company permitting this. This need not be a written contract but could arise, for example, by conduct, custom and practice.

SUP 10.3.5 G

The arrangement must be "in relation to" the carrying on of a regulated activity. Regulated activities are defined in the Glossary by reference to the Regulated Activities Order. This order prescribes the activities which are regulated activities for the purposes of the Act.

SUP 10.4 Specification of functions

SUP 10.4.1 R

Each of the functions described in SUP 10.4.5 R (the table of controlled functions) is a controlled function.

1
SUP 10.4.2 G

SUP 10.4.1 R , together with the table of controlled functions in SUP 10.4.5 R, specifies, in brief terms, the descriptions of the controlled functions. Other rules in this chapter contain the detail of the description for each function. Further rules in this chapter contain provisions which will apply to each description as indicated in those rules: see in particular 1SUP 10.1 for the application provisions.

SUP 10.4.3 G

The fact that a person may be approved for one purpose does not have the effect of bringing all his activities within that controlled function.

1
SUP 10.4.4 G

Certain controlled functions expressly include other controlled functions: see SUP 10.6.2 R in relation to governing functions; SUP 10.10.7 R in relation to the investment adviser function; and SUP 10.10.20 R in relation to the investment management function. In view of broad descriptions of the significant management functions (CF16 to CF20), these are expressed so as not to include other controlled functions.

SUP 10.5 Significant influence functions

What are the significant influence functions?

SUP 10.5.1 G

The first condition

SUP 10.5.2 R

Each significant influence function is one which is likely to result in the person responsible for its performance exercising a significant influence on the conduct of a firm's affairs, so far as relating to a regulated activity of the firm.

SUP 10.5.3 G

SUP 10.5.2 R gives effect to section 59(5) of the Act (where this provision is referred to as the first condition).

SUP 10.5.4 G

Whether a functionis likely to result in the person responsible for its performance exercising significant influence on the conduct of the firm's affairs is a question of fact in each case. The FSA has identified the significant influence functions as satisfying this condition. What amounts to exercising significant influence in any particular case will depend on the circumstances. The person performing one of these functions is likely to play a part in ensuring that effective governance structures, systems and controls are developed and operated. In relation to a firm as a whole, this is expected to include setting the business strategy, regulatory climate and ethical standards of the firm. In relation to a branch, this will include ensuring that the firm's strategy (as it affects the branch) is appropriate in the context of the UK regulatory system, and setting the regulatory climate and ethical standards of the branch in the United Kingdom.

Periods of less than 12 weeks

SUP 10.5.5 R

If:

  1. (1)

    a firm appoints an individual to perform a function which, but for this rule, would be a significant influence function;

  2. (2)

    the appointment is to provide cover for an approved person whose absence is:

    1. (a)

      temporary; or

    2. (b)

      reasonably unforeseen; and

  3. (3)

    the appointment is for less than 12 weeks in a consecutive 12 month period;

the description of the relevant significant influence function does not relate to those activities of that individual.

SUP 10.5.6 G

SUP 10.5.5 R enables cover to be given for, say, holidays and emergencies and avoids the need for the precautionary approval of, for example, a deputy. However, as soon as it becomes apparent that a person will be performing a controlled function for more than 12 weeks, the firm should apply for approval.

SUP 10.6 Governing functions

Introduction

SUP 10.6.1 G

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.

SUP 10.6.1A G

10A sole trader does not fall within the description of the governing functions.

What the governing functions include

SUP 10.6.2 R
SUP 10.6.3 G

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 10.6.3A G

4 6 MIPRU 2.2.1 R 6 provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm'sinsurance mediation activity.6MIPRU 2.2.2 R (1)6 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 10.6.3B G

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 6MIPRU 2.2.5 G6).

Director function (CF1)

SUP 10.6.4 R

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 10.6.5 G

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 10.6.6 G

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 10.6.7 G

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 10.6.8 R
  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 10.6.9 G

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 10.6.10 G

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 10.6.11 R

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

SUP 10.6.12 G

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 10.6.13 G

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 10.6.14 G

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 10.6.15 G

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 10.6.16 G

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 10.6.17 R
  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 10.6.18 G

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 10.6.19 G

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 10.6.20 G

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 10.6.21 R

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 10.6.22 G

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 10.6.23 R

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 10.6.24 R

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 10.6.25 G

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 10.6.26 R
  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 10.6.27 G

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 10.6.28 R
  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 10.6.29 G
  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).

SUP 10.6.30 R
  1. (1)

    [deleted]

    10
  2. (2)

    [deleted]10

SUP 10.6.31 G

[deleted]10

10
SUP 10.6.32 G

[deleted]10

10

SUP 10.7 Required functions

Apportionment and oversight function (CF8)

SUP 10.7.1 R

The apportionment and oversight function is the function of acting in the capacity of a director or senior manager responsible for either or both of the apportionment function and the oversight function set out in SYSC 2.1.3 R.

SUP 10.7.2 G

SYSC 2.1.3 R provides that a firm must appropriately allocate to one or more individuals the functions of dealing with the apportionment of responsibilities under SYSC 2.1.1 R, and of overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R. Where there is a chief executive, he or she must be one of the individuals to whom the functions are allocated (unless the functions are allocated to someone of greater seniority): see SYSC 2.1.6 G.

SUP 10.7.3 G

The fact that 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 whether a manager who is based overseas will be performing a controlled function. It is a factor to take into account when assessing the likely influence of the overseas manager.

SUP 10.7.4 G

Generally, in relation to a UK establishment of an overseas firm or a firm which is part of an overseas group, where an overseas manager's responsibilities in relation to the United Kingdom are strategic only, he will not need to be an approved person. However, where, in accordance with SYSC 3, 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, such as, for example, the chief executive function.

SUP 10.7.4A G

4 9 MIPRU 2.2.1 R 9 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 activity9MIPRU 2.2.2 R (2)9 provides that the firm may allocate this responsibility to the person performing the apportionment and oversight function.

SUP 10.7.4B G

4Where the person performing the apportionment and oversight function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see 9MIPRU 2.2.5 G9).

SUP 10.7.5 G

See also SUP 10.9.5 G and SUP 10.9.6 G in relation to matrix management in the context of significant management functions.

EEA investment business oversight function (CF9)

SUP 10.7.6 R

The EEA investment business oversight function is the function of acting in the capacity of an individual who is responsible, in accordance withSYSC 2.1.3 R (2), for overseeing the establishment and maintenance of systems and controls in relation to designated investment business carried on from a branch in the United Kingdom of an incoming EEA firm.

SUP 10.7.7 G

Where an overseas individual has not delegated this function to a senior manager in the United Kingdom, he is likely to be performing this controlled function. However, the FSA anticipates that any individual carrying out this function will normally be located in the United Kingdom. He may be the local chief executive or one or more of the individuals approved to perform the significant management (designated investment business) function. If the local chief executive (or other individual) is approved for this function, this does not mean that all his responsibilities are the concern of the FSA. SUP 10.1.9 R preserves the principle of Home State prudential regulation whenever it applies and in respect of each controlled function.1

Compliance oversight function (CF10)

SUP 10.7.8 R

The compliance oversight function is the function of acting in the capacity of a director or senior manager who is allocated the function set out in SYSC 3.2.8 R.

SUP 10.7.9 G

SYSC 3.2.8 R provides that a firm which carries on designated investment business with or for customers must allocate to a director or senior manager the function of having responsibility for oversight of the firm's compliance and reporting to the governing body in respect of that responsibility.2

SUP 10.7.10 G

Compliance in SYSC 3.2.8 R means compliance with the rules in COB, COLL or CIS and CASS. The FSA anticipates that some firms will include oversight of compliance with PRIN, MAR, and other requirements and standards, within its compliance function. These other responsibilities would not, however, be brought within the compliance oversight function (see also 36SUP 10.4.3 G).

SUP 10.7.11 G

Some firms, particularly firms with complex structures or which are part of a group, may find it appropriate to seek approval for the group head of compliance and other persons to perform the compliance oversight function. Examples of other persons include the senior manager responsible for compliance in a firm which is a subsidiary within the group and a senior manager in a reporting line, where compliance is organised along product lines.1

SUP 10.7.12 G

Although a firm may choose to use the services of an external compliance consultant, the responsibility for the compliance oversight function must, in accordance with SYSC 3.2.8 R, rest with one or more directors or senior managers of the firm.

Money laundering reporting function (CF11)

SUP 10.7.13 R

The money laundering reporting function is the function of acting in the capacity of the money laundering reporting officer of a firm.

SUP 10.7.13A G

8A firm's obligations in respect of its money laundering reporting officer are set out in SYSC 3.2.6I R and the scope of application of that rule is set out in SYSC 1.1 and SYSC 6.3.9 R10.

SUP 10.7.14 G

[deleted]8

SUP 10.7.15 G

[deleted]8

8
SUP 10.7.16 G

[deleted]8

8

7Actuarial7 function (CF12) and with-profits actuary function (CF12A)7

SUP 10.7.17 R

The actuarial function is7 the function of acting in the capacity of an 7actuary appointed by a firm under SUP 4.3.1 R to perform the duties set out inSUP 4.3.13 R.7.

7 7 7
SUP 10.7.17A R

The with-profits actuary function is the function of acting in capacity of an actuary appointed by a firm under SUP 4.3.1 R to perform the duties set out in SUP 4.3.16A R.

7
SUP 10.7.18 G

The effect of SUP 4.1.1 R (Application) and SUP 4.3.1 R (Appointment of an actuary) is that a long-term insurer (unless it is a certain kind of friendly society) must appoint one or more actuaries to perform the actuarial function in respect of all classes of its long-term insurance business and the with-profits actuary function in respect of all classes of its with-profits business7. The kinds of friendly society to which the provisions do not apply are:

7
  1. (1)

    a registered friendly society which is a non-directive friendly society; and

  2. (2)

    an incorporated friendly society that is a flat rate benefits business friendly society.

SUP 10.7.19 G

The appointment of an actuary to perform either of these functions7 is personal , and the appointee is typically either an employee of the firm or a partner or employee in a firm of actuaries.7

7 7 7
SUP 10.7.20 G

The actuarial function and the with-profits actuary function 7 do not extend to the giving of actuarial advice to a firm by an actuary who has not been appointed to perform these functions7. A person who gives actuarial advice, whether occasionally or regularly, other than in his capacity 7as an actuary appointed to perform these functions would not be performing a controlled function7.

7 7 7 7 7
SUP 10.7.21 G

The rules and guidance concerning the rights and duties of an actuary appointed to perform either of these functions are set out in SUP 4.3.13 R to SUP 4.3.18 G.7

7

5Lloyd's actuary function (CF12B)

SUP 10.7.22 R

5The Lloyd's actuary function is the function of acting in the capacity of the actuary appointed under SUP 4.6.1 R to perform the duties set out in SUP 4.6.7 R.

SUP 10.7.23 G

5The effect of SUP 4.6.1 R is that the Society of Lloyd's must appoint an actuary (the "Lloyd's actuary").

SUP 10.8 Systems and control functions

Finance function (CF13)

SUP 10.8.1 R

The finance function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body of a firm in relation to its financial affairs.

SUP 10.8.2 G

This function is often performed by a senior manager who is given the title of Financial Controller, Chief Finance Officer or Finance Officer. The individual may also be given the title of Finance Director but, if he is a director of the company, he should be approved to perform the director function (and not the finance function). The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function.

Risk assessment function (CF14)

SUP 10.8.3 R

The risk assessment function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body of a firm in relation to setting and controlling its risk exposure.

SUP 10.8.4 G

Depending on the scale, nature and complexity of its business it may be appropriate for a firm to have a separate risk assessment function: see SYSC 3.2.10 G.

SUP 10.8.5 G

This function is often performed by a senior manager who is given the title of Head of Risk, or who is a member of a Risk Committee. Other examples of titles are Head of Credit Risk and Head of Market Risk (but the fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function).1

Internal audit function (CF15)

SUP 10.8.6 R

The internal audit function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body, or the audit committee (or its equivalent), of a firm in relation to its adherence to internal systems and controls, procedures and policies.

SUP 10.8.7 G

Depending on the scale, nature and complexity of its business it may be appropriate for a firm to have a separate internal audit function: see SYSC 3.2.16 G. If it does, this will not require the person performing the function to have any special obligation towards the FSA (such as reporting directly on matters to the FSA) nor will this cause the FSA to call for all internal audit reports as a matter of routine.

SUP 10.8.8 G

This function is often performed by a senior manager who is given the title of Head of Internal Audit or Internal Auditor (but the fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function).

SUP 10.9 Significant management functions

Application

SUP 10.9.1 R

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 10.9.2 G

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 10.9.3 G

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 10.9.4 G

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 10.9.5 G

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 10.9.6 G

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 10.9.7 G

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

SUP 10.9.8 R

[deleted]4

4
SUP 10.9.9 G

[deleted]4

4

Significant management (designated investment business) function (CF16)

SUP 10.9.10 R
  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 10.9.11 G

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 10.9.12 R
  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 10.9.13 G

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 10.9.13A G

3 5 MIPRU 2.2.1 R 5 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.5MIPRU 2.2.2 R (3))5 provides that the firm may allocate this responsibility to the person performing the significant management (other business operations) function.

SUP 10.9.13B G

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 5MIPRU 2.2.5 G5).

Significant management (insurance underwriting) function (CF18)

SUP 10.9.14 R
  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 10.9.15 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.

Significant management (financial resources) function (CF19)

SUP 10.9.16 R
  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 10.9.17 G

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 10.9.18 R
  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 10.9.19 G

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 10.9.20 G

SUP 10.10 Customer functions

SUP 10.10.1 R

SUP 10.10 (Customer functions) applies with respect to activities carried on from an establishment maintained by the firm (or by its appointed representative) in the United Kingdom.

SUP 10.10.2 G

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.

SUP 10.10.3 G

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.

The customer conditions (the second and third conditions)

SUP 10.10.4 R

Each customer function is one which will involve the person performing it in dealing with customers, (and for the corporate finance adviser function, clients), or dealing with property of customers, of a firm in a manner substantially connected with the carrying on of a regulated activity of the firm.

SUP 10.10.5 G

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).

SUP 10.10.6 G

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.

Investment adviser function (CF21)

SUP 10.10.7 R
  1. (1)

    The investment adviser function is the function of:

    1. (a)

      advising on investments other than a non-investment insurance contract; and1

    2. (b)

      performing functions within the customer trading function in connection with advising on investments other than non-investment insurance contracts.21

      2
  2. (2)

    This function does not include:

    1. (a)

      the investment adviser (trainee) function;

      2
    2. (b)

      the pension transfer specialist function; and2

      2
    3. (c)

      advising on investments in the course of carrying on the activity of giving basic advice on a stakeholder product.2

  3. (3)

    This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.

SUP 10.10.8 G

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).

SUP 10.10.9 G

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.

SUP 10.10.10 G

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)).

Investment adviser (trainee) function (CF22)

SUP 10.10.11 R

The investment adviser (trainee) function is the function of advising on investments other than a non-investment insurance contract where the individual performing the function has not yet been assessed as competent in accordance with the rules in the Training and Competence sourcebook (TC).1

SUP 10.10.12 G

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.

Corporate finance adviser function (CF23)

SUP 10.10.13 R
  1. (1)

    The corporate finance adviser function is the function of:

    1. (a)

      giving advice to clients solely in connection with corporate finance business; and

    2. (b)

      performing functions within the customer trading function in connection with giving that advice.

  2. (2)

    This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.

SUP 10.10.13A G

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)).

Pension transfer specialist function (CF24)

SUP 10.10.14 R

The pension transfer specialist function is the function of giving advice or performing related activities in connection with:

  1. (1)

    pension transfers; or

  2. (2)

    opt-outs;

for private customers.

Adviser on syndicate participation at Lloyds's function (CF25)

SUP 10.10.15 R

The adviser on syndicate participation at Lloyd's function is the function of giving advice to a person to become, or continue or cease to be, a member of a particular Lloyd's syndicate.

Customer trading function (CF26)

SUP 10.10.16 R
  1. (1)

    The customer trading function is the function of dealing, as principal or as agent, and arranging (bringing about) deals in investments other than a non-investment insurance contract with or for, or in connection with, private customers and intermediate customers where:1

    1. (a)

      the dealing or arranging deals is governed by COB 7 (Dealing and managing); and

    2. (b)

      the person performing the function is not advising on or managing investments unless approved to perform the investment adviser function or the investment management function.

  2. (2)

    This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.

SUP 10.10.17 G

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).

SUP 10.10.18 G

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.

SUP 10.10.19 G

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.

Investment management function (CF27)

SUP 10.10.20 R
  1. (1)

    The investment management function is the function of:

    1. (a)

      acting in the capacity of an investment manager; and

    2. (b)

      performing functions within:

      1. (i)

        the investment adviser function; and

      2. (ii)

        the customer trading function;

    in connection with acting as an investment manager.

  2. (2)

    This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.

SUP 10.10.21 G

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.

SUP 10.10.22 G

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)).

SUP 10.11 Procedures relating to approved persons

Forms

SUP 10.11.1 G

The forms listed in SUP 10.11.2 G are referred to in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions).

SUP 10.11.2 G

Approved persons forms

Form A

SUP 10 Ann 4D

Application to perform controlled functions under the approved persons regime

Form B

SUP 10 Ann 5R

Notice to withdraw an application to perform controlled functions under the approved persons regime

Form C

SUP 10 Ann 6R

Notice of ceasing to perform controlled functions

Form D

SUP 10 Ann 7R

Notification of changes in personal information or application details

Form E

SUP 10 Ann 8G

Internal transfer of an approved person

SUP 10.11.3 G

A summary of the forms and their purposes is in SUP 10 Annex 2 G. A summary of FSA procedures is in SUP 10 Annex 3. For the method of notification to the FSA, see SUP 15.7 (Form and method of notification).

SUP 10.11.4 G

Unless the context otherwise requires, in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions) where reference is made to a firm, this also includes an applicant for Part IV permission, and other persons seeking to carry on regulated activities as an authorised person.

SUP 10.11.5 G

Forms B, C, D and E can only be submitted in respect of an approved person by the firm that submitted an approved person's original application (that is, Form A).

SUP 10.11.6 G

Copies of Forms A, B, C, D and E may be obtained from the FSA website or from the Authorisation and Approvals Department. To contact the Authorisation and Approvals Department for general enquiries:

  1. (1)

    telephone 020 7066 0019; or

  2. (2)

    fax 020 7066 0017; or

  3. (3)

    write to:

    The Financial Services Authority25 The North ColonnadeCanary WharfLONDON E14 5HS; or
  4. (4)

    e-mail iva@fsa.gov.uk

SUP 10.12 Application for approval and withdrawing an application for approval

When to apply for approval

SUP 10.12.1 G

In accordance with section 59 of the Act (Approval for particular arrangements), where a candidate will be performing one or more controlled functions, a firm must take reasonable care to ensure that the candidate does not perform these functions unless he has prior approval from the FSA.

How to apply for approval

SUP 10.12.2 D

An application by a firm for the FSA's approval under section 59 of the Act (Approval for particular arrangements) must be made by completing Form A.

Who should make the application?

SUP 10.12.3 G

In accordance with section 60 of the Act (Applications for approval), applications must be submitted by, or on behalf of, the firm itself, not by the candidate. Usually this will be the firm that is employing the candidate to perform the controlled function. Where a firm has outsourced the performance of a controlled function, the details of the outsourcing determine where responsibility lies and whom the FSA anticipates will submit approved persons forms. SUP 10.12.4 G describes some common situations. The firm which is outsourcing is referred to as "A" and the person to whom the performance of the function has been outsourced, or which makes the arrangement for the function to be performed, is referred to as "B". In each situation, A must take reasonable care to ensure that, in accordance with section 59(2) of the Act, no person performs a controlled function under an arrangement entered into by its contractor in relation to the carrying on by A of a regulated activity, without approval from the FSA. See also SYSC 3.2.4 G and SYSC 8.1.1 R,35 and for insurersSYSC 13.93.1

1 4 3
SUP 10.12.4 G

Outsourcing arrangements

Outsourcing arrangements

Submitting form

Firm A to firm B

The FSA will consider A to have taken reasonable care if it enters into a contract with B under which B is responsible for ensuring that the relevant controlled functions are performed by approved persons, and that it is reasonable for A to rely on this

Firm B submits approved persons forms on behalf of firm A

Outsourcing by A to B (both being a member of the same United Kingdom group and each having its registered office in the United Kingdom)

See SUP 10.3.4 G

See SUP 15.7.8 G

(i) A to B, where B is a non-authorised person not part of the samegroup as A

(ii) A to B, where A is a branch of an overseas firm in the United Kingdom, and B is an overseas undertaking of the samegroup

(iii) A to B, where A is a UK authorised subsidiary of an overseas firm, and B is an overseas undertaking of the same group

Responsibility for (as opposed to the performance of) any activity outsourced to B will remain with A. See SYSC 3.2.4 G and SYSC 83

A ensures that an individual approved under one of the significant influence functions has responsibility for the outsourced arrangement and A submits a form in relation to that individual

SUP 10.12.4A G

Where the notification of an appointed representative (SUP 12.7.1 R) is linked to an application for approval (SUP 10.12 (Applications for approval and withdrawing an application for approval)), any delay in receiving the notification under SUP 12.7.1 R may delay the FSA's approval of the individuals employed by that appointed representative who will be performing controlled functions for the firm.

Processing an application

SUP 10.12.5 G

The Act allows the FSA three months from the time it receives a properly completed application to consider it and come to a decision. The FSA must either grant the application or, if it proposes not to grant an application, issue a warning notice (see DEC 2). The FSA will deal with cases more quickly than this whenever circumstances allow and will try to meet the standard response times published on the website and in its Annual Report. However, if an application is incomplete when received, or the FSA has knowledge that, or reason to believe that, the information is incomplete, then the processing time will be longer than the published standard response times.

SUP 10.12.6 G

Application forms must always be completed fully and honestly. Further notes on how to complete the form are contained in each form. If forms are not completed fully and honestly, applications will be delayed and, in some cases, possibly rejected.A person who provides information to the FSA that is false or misleading may commit a criminal offence.

2
SUP 10.12.7 G

If there is a delay in processing the application within the standard response time, the FSA will tell the firm making the application as soon as this becomes apparent.

SUP 10.12.8 G

Before making a decision to grant the application or give a warning notice, the FSA may ask the firm for more information about the candidate. If it does this, the three month period in which the FSA must determine a completed application:

  1. (1)

    will stop on the day the FSA requests the information; and

  2. (2)

    will start running again on the day on which the FSA finally receives all the requested information.

SUP 10.12.9 G

The FSA may grant an application only if it is satisfied that the candidate is a fit and proper person to perform the controlled function stated in the application form. Responsibility lies with the firm making the application to satisfy the FSA that the candidate is fit and proper to perform the controlled function applied for.

SUP 10.12.10 G

For further guidance on criteria for assessing whether a candidate is fit and proper, see FIT.

Decisions on applications

SUP 10.12.11 G

Whenever it grants an application, the FSA will confirm this in writing to all interested parties.

SUP 10.12.12 G

If the FSA proposes to refuse an application in relation to one or more controlled functions, it must follow the procedures for issuing warning and decision notices to all interested parties. The requirements relating to warning and decision notices and the process for referrals to the Financial Services and Markets Tribunal are in DEC 2 and DEC 5 respectively.

Withdrawing an application for approval

SUP 10.12.13 R

A firm applying to withdraw an application must notify the FSA, using Form B.

SUP 10.12.14 G

Under section 61(5) of the Act (Determination of applications), the firm may withdraw an application only if it also has the consent of the candidate and the person by whom the candidate is or would have been employed, if this is not the firm making the application.

SUP 10.13 Changes to an approved person's details

Moving within a firm

SUP 10.13.1 G

An approved person's job may change from time to time as a result, for instance, of a change in personal job responsibilities or a firm's regulated activities. Where the changes will involve the person performing one or more different controlled functions from those for which approval has already been granted, then an application must be made to the FSA for approval for the person to perform those controlled functions. The firm must take reasonable care to ensure that an individual does not begin performing a controlled function until the FSA has granted approved person status to that individual in respect of that controlled function. This applies to individuals seeking approval in respect of a controlled function within the firm for which they already perform controlled functions. If the approved person is ceasing to perform controlled functions, as well as applying for approval in respect of additional controlled functions, then refer to SUP 10.13.3 D.

SUP 10.13.2 G

Form A must be used to apply for an individual to perform further controlled functions for a firm for which he already performs a controlled function as an approved person (see SUP 10.12.2 D). It is not mandatory to complete all parts of the form. See the notes attachedto theform for full details.

SUP 10.13.3 D

A firm must use Form E where an approved person is both ceasing to perform one or more controlled functions and needs to be approved in relation to one or more new controlled functions within the same firm or group.1

Moving between firms

SUP 10.13.4 G

If it is proposed that an approved person will no longer be performing a controlled function under an arrangement entered into by one firm or one of its contractors, but will be performing the same or a different controlled function under an arrangement entered into by a new firm or one of its contractors (whether or not the new firm is in the same group as the old firm), the new firm will be required to make a fresh application for the performance of the controlled function by that person.

SUP 10.13.5 G

In certain circumstances, when the FSA already has the information it would usually require, a shortened version of Form A may be completed. See the notes attached to the form for full details.

Ceasing to perform a controlled function

SUP 10.13.6 R

A firm must submit to the FSA a completed Form C no later than seven business days after an approved person ceases to perform a controlled function.

SUP 10.13.7 R
  1. (1)

    A firm must notify the FSA as soon as practicable after it becomes aware, or has information which reasonably suggests, that it will submit a qualified Form C in respect of an approved person.

  2. (2)

    Form C is qualified if the information it contains:

    1. (a)

      relates to the fact that the firm has dismissed, or suspended, the approved person from its employment; or

    2. (b)

      relates to the resignation by the approved person while under investigation by the firm, the FSA or any other regulatory body; or

    3. (c)

      otherwise reasonably suggests that it may affect the FSA's assessment of the approved person's fitness and propriety.

SUP 10.13.8 G

Notification under SUP 10.13.7 R may be made by telephone, fax or email and should be made, where possible, within one business day of the firm becoming aware of the information. If the firm does not submit Form C, it should inform the FSA in due course of the reason. This could be done using Form D, if appropriate.

SUP 10.13.9 G

A firm is responsible for notifying the FSA if any approved person has ceased to perform a controlled function under an arrangement entered into by its appointed representative or former appointed representative

SUP 10.13.10 G

A firm can submit Form C or Form E to the FSA in advance of the cessation date. When a person ceases the arrangement under which he performs a controlled function, he will automatically cease to be an approved person in relation to that controlled function. A person can only be an approved person in relation to a specific controlled function. Therefore, a person is not an approved person during any period between ceasing to perform one controlled function (when he is performing no other controlled function) and being approved in respect of another controlled function.

SUP 10.13.11 G

Sending forms promptly will help to ensure that any fresh application can be processed within the standard response times.

SUP 10.13.12 R
  1. (1)

    If a firm (A):

    1. (a)

      is considering appointing a person to perform any of the customer functions;

    2. (b)

      requests another firm (B), as a former employer of that person, for a reference or other information in connection with that appointment; and

    3. (c)

      indicates to B the purpose of the request;

    B must, as soon as reasonably practicable, give to A all relevant information of which it is aware.

  2. (2)

    When giving the information to A under (1), B must have regard to the purpose of the request and in particular to:

    1. (a)

      any outstanding liabilities of that person from commission payments;

    2. (b)

      any relevant outstanding or upheld complaint from an eligible complainant against that person;

    3. (c)

      section 5 of Form A in SUP 10 Annex 4 (Application to perform controlled functions under approved persons regime);

    4. (d)

      FIT 2 (Main assessment criteria); and

    5. (e)

      if SUP 16.8.1 G (1) (Persistency reports from insurers) applies to B, the persistency of any life policies sold by that person.

SUP 10.13.13 G

A firm supplying a reference in accordance with SUP 10.13.12 R owes a duty to its former employee and the recipient firm to exercise due skill and care in the preparation of the reference. The reference should be accurate and based on documented fact. The firm may give frank and honest views, but only after taking reasonable care both as to factual content, and as to the opinions expressed, and verifying the information upon which they are based.

Changes to an approved person's personal details

SUP 10.13.14 R

If an approved person's title, name or national insurance number changes, the firm for which the person performs a controlled function must notify the FSA on Form D of that change within seven business days of the firm becoming aware of the matter.

SUP 10.13.15 G

The duty to notify in SUP 10.13.14 R does not apply to changes to an approved person's private address.

SUP 10.13.16 R

If a firm becomes aware of information which would reasonably be material to the assessment of an approved person's, or a candidate's, fitness and propriety (see FIT), it must inform the FSA on Form D as soon as practicable.

SUP 10.13.17 G

The duty to notify in SUP 10.13.16 R extends to any circumstances that would normally be declared when giving the information required for section 5 of Form A or matters considered in FIT 2.

SUP 10.13.18 R
  1. (1)

    If, in relation to a firm which has completed Form A (SUP 10 Annex 4), any of the details in section 3.01 (Arrangements and controlled functions) are to change, the firm must notify the FSA on Form D .

  2. (2)

    The notification must be made as soon as reasonably practicable after the firm becomes aware of the proposed change.

  3. (3)

    Paragraphs (1) and (2) also apply to a firm in respect of an approved person, to whom the grandfathering arrangements applied as if the firm had completed a Form A for that person.

SUP 10.13.19 G

An example of where a firm should use Form D is when an individual who is appointed by one appointed representative becomes employed by another appointed representative but continues to perform the investment adviser function for the firm. The firm should notify the FSA by completing Section 1.07 of Form D.

SUP 10.13.20 G

The grandfathering arrangements applying to an approved person referred to in SUP 10.13.18 R are contained in Part VI (Approved persons) of the Financial Services and Markets Act (Transitional Provisions) (Authorised Persons etc.) Order 2001 (SI 2001/2636). Article 72 of that Order provides, in general terms, that, where a person was performing a function at the beginning of 1 December 2001 which became a controlled function under the Act, the continued performance of that function by that person was taken to be approved by the FSA. That person therefore became an approved person without the need for a Form A.

SUP 10.14 Further questions

SUP 10.14.1 G

A list of frequently asked questions and answers is at SUP 10 Annex 1.

SUP 10.14.2 G

If the firm or its advisers have further questions, they should contact the FSA's Individual Vetting and Approval department(see SUP 10.11.6 G).

SUP 10 Annex 1 Frequently asked questions

G

Question

Answer

Requirements of the regime

1

Does pre-approval apply to individuals taking up a new controlled function within the same firm?

Yes. Pre-approval applies in all circumstances (see section 59 of the Act (Approval for particular arrangements)) except under the temporary ('12 weeks') provision. See SUP 10.5.5 R and question 2.

2

What are the procedures for 'emergency situations'?

Individuals may perform significant influence function for up to 12 weeks in any consecutive 12 month period without requiring approval. When it becomes clear that a person will be performing the function on a permanent basis, then an application for approval should be made. However, there is no provision for individuals to perform the customer functions on a continuing basis without approval. See SUP 10.5.5 R.

3

Can a person be approved for more than one controlled function?

Yes. A firm will need to seek approval in respect of each controlled function a person is to perform.

4

Do the controlled functions apply to an incoming EEA firm that is providing cross border services into the United Kingdom?

No. The approved persons regime does not apply to cross border services. See SUP 10.1.6 R.

5

May any activity be outsourced by a firm?

Yes. But if that activity constitutes a regulated activity, the person to whom it is outsourced will itself need permission.

6

Can a significant influence function be outsourced?

It is a question of fact in each case who is performing a significant influence function. These functions are mostly described at a high level of responsibility, that is, for example, the director of a company or a partner in a partnership. The persons performing these functions cannot avoid their ultimate responsibility and therefore the need for approval. However, some of the significant influence functions may be performed by a person who is specifically brought in to do the job, for example the chief executive function (where it is to be performed by a body corporate) and the actuarial and with-profits actuary functions.1

1

7

Do Lloyd's underwriting agents still require registration with Lloyd's?

Yes. Approval for a controlled function is not sufficient.

8

What should a firm do if it is unsure whether an individual needs approval?

The firm should contact the Authorisation and Approvals Department. See SUP 10.11.6 G.

Submitting an application

9

Who applies for approval?

The firm. See section 60 of the Act (Applications for approval).

10

What is the role of the candidate in the application process?

Before the firm submits Form A it must verify the information contained in it. As part of this verification, the Form provides for the candidate to confirm the accuracy of the information given by the firm so far as it relates to him.

11

What checks musta firm make on a candidate before submitting an application for approval from the FSA?

The FSA expects firms to perform due and diligent enquiries into their candidates. Note also the requirements of ENF 8.12.2 Gand TC 2.2.1 R.

11A

Should these checks include a check of criminal records?

It is for senior management to decide what checks should be made. By virtue of the Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975 (see Articles 3 and 4 of the Order), the FSA and the industry also have a right to ask about spent, as well as unspent, criminal convictions for employment purposes about candidates for approved person status (see Question 5.01a of Form A (Application to perform controlled functions under the approved persons regime)). Note also the provisions of ENF 8.12.2 G (Publication) and TC 2.2.1 R (Recruitment).

12

What is the "fit and proper" test for approval?

Section 61(1) of the Act (Determination of applications) provides that the FSA may grant an application only if it is satisfied that the candidate is a fit and proper person to perform the relevant function. In determining this question, the Act sets out the matters to which the FSA may have regard (section 61(2)) and the FSA has given guidance on this in FIT.

13

If a firm is unsure whether or not something may have an impact upon an individual's fitness and propriety, should it be disclosed?

Yes, always. The deliberate non-disclosure of material facts is taken very seriously by the FSA as it is seen as possible evidence of current dishonesty. Therefore, if in doubt, disclose.

14

What happens if adverse information comes to light after the application form has been submitted or after the individual has been approved?

The firm must inform the FSA at the earliest opportunity. See SUP 10.13.16 R.

15

Will the FSA consider an application in respect of a candidate who has not yet signed a contract with the firm?

Yes, as the FSA will consider the arrangement under which the candidate will perform the function. However, the FSA will not consider speculative or provisional applications - such as for the candidates in an election to a mutual society Board.The FSA must be informed immediately of any material changes to the information provided on the application form which arises before the application has been determined. All changes must be communicated to the FSA by the firm making the application (seeSUP 15.6.4 R). Failure to notify the FSA may result in a delay in processing or rejection or both.

16

How can we get a supply of application forms (Form A)?

These can either be ordered through the Authorisation and Approvals Departmentor obtained from the FSA website at www.fsa.gov.uk. There is no charge for an application form.

17

Is there a separate fee for making an application for approved person status?

No.

18

Must all gaps in previous employment be explained?

Yes.

FSA procedures

19

Does the FSA verify the information provided to it?

Yes, as far as possible, information is verified.

20

Will the FSA handle information confidentially?

Yes. The FSA is obliged to handle all information confidentially and is subject to the provisions of the Data Protection Act 1998.

21

How long will the FSA take to process an application for approved person status?

Generally the FSA will handle this within seven business days for significant influence functions and four business days for customer functions. However, if information is missing, or the information provided gives the FSA cause for concern, processing time will almost always be longer. In each case, the FSA will notify the firm of any extension to the processing times.

22

Will the firm and individual be notified if there is a delay in processing the application form?

Yes. The FSA will contact the firm explaining the position and, where appropriate, giving the reasons for delay. It will then be the responsibility of the firm to keep the candidate and any other interested party informed.

23

How are non-routine cases handled?

Refer to DEC 2 Annex 2.

24

Can the FSA apply conditions to an approved person?

No. The application can either be granted or refused. The Act provides no equivalent to the limitations or requirements which may be included in permissions. If the application is refused, the firm may re-apply in respect of the same individual but a different controlled function. If it is considering doing this, the firm is encouraged to discuss the matter with the FSA.Where there are reasonable grounds for doing so, the FSA may require a firm to provide information about an approved person (see section 165 of the Act (Power to require information)).

25

Will the firm be issued with confirmation of approval?

Yes. The firm will be sent a letter setting out the effective date of approval together with the controlled function for which the individual has been approved. It will then be the firm's responsibility to inform the individual and any other interested party, for example any appointed representative.

Withdrawing an application

26

Can a firm withdraw its application?

Yes, but only with the consent of the candidate. See section 61(5) of the Act (Determination of applications).

27

What happens if the individual refuses to consent to the withdrawal of the application?

The FSA will consider with all interested parties what to do. If it proposes to refuse the application, it will give a warning notice to all interested parties. See section 62 of the Act (Applications for approval: procedure and right to refer to the Tribunal).

28

Can the firm withdraw only part of an application - say, in relation to a specific controlled function?

The FSA will allow the firm to amend its application at any time before determination with the consent of all other interested parties. Whether the amendment will have the effect of amounting to a fresh application will be considered on a case by case basis.

Conduct of approved persons

29

How and when must the firm report to the FSA potentially adverse information about an approved person's fitness and propriety?

Normally, the firm should report such matters to the FSA on Form D once it is reasonably satisfied as to the information's validity. See SUP 10.13.16 R. See also, Principle for Businesses 11 (PRIN) and Statements of Principle 4 (APER). However, if an approved person is dismissed, is suspended, or resigns while under investigation by the firm, the FSA or another regulatory body, or there are any other matters that might affect the individual's fitness and propriety to perform a controlled function, the firm should inform the FSA (SUP 10.13.7 R) that it will be submitting a Form C containing adverse information. Full details must then be provided within seven business days, on the Form C. See SUP 10.13.6 R.

30

For how long are individuals accountable to the FSA after ceasing to be an approved person?

A person is guilty of misconduct if, while an approved person, he fails to comply with a Statement of Principle or is knowingly concerned in the contravention by a firm of a requirement in the Act or the Handbook. But the FSA may not bring proceedings after two years from when it first knew of the misconduct.

Activity

Paragraph 1 of the table in TC 2.1.4R

Controlled Function

SUP

Advising and dealing

(a) - (c), (d) and (e), (f) - (o)

investment adviser function (CF21)

investment adviser (trainee) function (CF22)

10.10.7R

10.10.11R

Managing

(d) and (e)

investment management function (CF27)

10.10.20R

Advising (without dealing)

(f) - (h)

investment adviser function (CF21)

10.10.7R

investment adviser (trainee) function (CF22)

10.10.11R

(i)

corporate finance adviser function (CF23)

10.10.13R

(j) - (m)

investment adviser function (CF21)

10.10.7R

investment adviser (trainee) function (CF22)

10.10.11R

(n)

adviser on syndicate participation at Lloyd's function (CF25)

10.10.15R

(o)

pension transfer specialist function (CF24)

10.10.14R

SUP 10 Annex 2 Approved person regime: summary of forms and their use

Approved person regime: summary of forms and their use

G
SUP_10_Annex_2G

SUP 10 Annex 3 Summary of procedures on applications for approved status

G
SUP_10_Annex_3G

SUP 10 Annex 4 Form A: Application to perform controlled functions under the approved person regime

D

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - Notes from direction in SUP 10.121

SUP 10 Annex 5 Form B: Notice to withdraw an application to perform controlled functions under the approved persons regime

R

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - SUP 10 Annex 5

SUP 10 Annex 6 Form C: Notice of ceasing to perform controlled functions

R

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - SUP 10 Annex 6

SUP 10 Annex 7 Form D: Notification of changes in personal information or application details

R

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - SUP 10 Annex 7

SUP 10 Annex 8 Form E: Internal transfer of an approved person

G

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - SUP 10 Annex 8