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SUP App 1.1 Application

SUP App 1.1.1 G

This appendix applies to every firm.

SUP App 1.2 Purpose

SUP App 1.2.1 G

The purpose of this appendix is to give guidance on the prudential categories and sub-categories of firm used in the Interim Prudential sourcebooks and the Supervision manual. The prudential categories are defined in the Glossary, and some of the sub-categories are defined there and some in the glossaries of the Interim Prudential sourcebooks.

SUP App 1.2.2 G

Prudential requirements for firms are set out in the Prudential Standards part of the Handbook according to their prudential category. Certain reporting requirements and other prudential material are contained in the Supervision manual, for example SUP 16 (Reporting requirements).1

1
SUP App 1.2.3 G

If there is any doubt about prudential categorisation, a firm should seek individual guidance from its usual supervisory contact at the FSA and an applicant for authorisation should seek guidance from the Corporate Authorisation department.

SUP App 1.3 Prudential categories and sub-categories

SUP App 1.3.1 G

Prudential categories and sub-categories used in the 5Prudential sourcebooks and the Supervision manual

Prudential categories (Note 1)

Applicable prudential requirements (Note 2)

Prudential sub-categories

Authorised professional firm*

IPRU(INV) 1 and 2

Bank*

GENPRU, BIPRU and 5IPRU(BANK)

EEA bank Overseas bank UK bank

5 BIPRU investment firm

GENPRU and BIPRU

Full scope BIPRU investment firm

BIPRU limited licence firm

BIPRU limited activity firm

Building society*

GENPRU, BIPRU and5IPRU(BSOC)

Credit union

CRED 7, 8, 9, and 10

Version 1 credit union

Version 2 credit union 10

Friendly society

IPRU(FSOC)

Directive friendly society

Incorporated friendly society

Non-directive friendly society

Registered friendly society

Flat rate benefits business friendly society

8 Home finance administrator

MIPRU

8 Home finance intermediary

MIPRU

8 Home finance provider

MIPRU

ICVC*

None, but see COLL

9

Incoming EEA firm

GENPRU, BIPRU, INSPRU and IPRU(BANK)5

5

EEA bank 5

Incoming Treaty firm

None (unless another prudential category applies)

8 Insurance intermediary

MIPRU

Insurer*

IPRU(INS) or IPRU(FSOC), GENPRU,8INSPRU5 and MIPRU8

8

Long term insurer

General insurer

Friendly society (see above)

Investment management firm*

IPRU(INV) 1 and 5

Exempt CAD firm (see also IPRU(INV) 9)6

OPS firm

Non-OPS life office

Non-OPS local authority

Individuals admitted to authorisation collectively

Individual whose sole investment business is giving investment advice to institutional or corporate investors

Other

Lead regulated firm

None (unless another prudential category applies)

Media firm*

None

Members' adviser

IPRU(INV) 1 and 4

Personal investment firm*

IPRU(INV) 1 and 13

Category B firm

Category B1 firm

Category B2 firm

Category B3 firm

Exempt CAD firm 6

Low resource firm

Network

Small personal investment firm

6 6 6 6

Securities and futures firm*

IPRU(INV) 1 and either 3 or 96

There is a special transitional regime for ex-section 43 lead regulated firms - see transitional rules to IPRU(INV).

6

IPRU(INV) 3:

Adviser

Arranger

Broad scope firm

Corporate finance advisory firm

Dematerialised instruction transmitter

Derivative fund manager

Energy market participant

Exempt BIPRU commodities firm 7

Local

Oil market participant

Venture capital firm

Other

IPRU(INV) 9:6

Exempt CAD firm 6

6 6 6 6 6 6

Service company*

IPRU(INV) 1 and 6

Society of Lloyd's*

INSPRU and IPRU(INS)5

5

UCITS firm*5

5

UPRU 5

5
5

5 UCITS investment firm

GENPRU and BIPRU

UCITS qualifier

None (unless another prudential category applies)

4 UK ISPV

Underwriting agent

IPRU(INV) 1 and 4

Managing agent

Members' agent

Note 1 = It is possible for a firm to have more than one prudential category. But it cannot have more than one of the prudential categories marked with a '*'.

Note 2 = Only the requirements in the Prudential sourcebooks,5 and CRED are listed in the column. Requirements in other parts of the Handbook will also apply.321

5

SUP App 1.4 Relevance of prudential categories

SUP App 1.4.1 G

Many, but not all, of the categories are used only in the the Prudential Standards part of the Handbook1 and the Supervision manual. The prudential category of a firm will normally determine:

1
  1. (1)

    which module of the Prudential Standards part of the Handbook1 is applicable to the firm;

    1
  2. (2)

    if the firm is subject to the IPRU(INV), which chapter of that sourcebook is applicable to the firm;

  3. (3)

    whether particular chapters of the Supervision manual are applicable to the firm; and

  4. (4)

    if the firm is subject to SUP 3 (Auditors), SUP 16 (Reporting) or SUP 17 (Transaction reporting), which parts of those chapters apply to the firm.

SUP App 1.4.2 G

In some cases, a firm may also fall within a prudential sub-category. This will determine which provisions within a particular sourcebook or chapter apply to the firm.

SUP App 1.4.3 G

If a firm is part of a group, each authorised member of the group will have its own prudential category. Firms should refer to the provisions of the relevant module of the Prudential Standards part of the Handbook1 to determine whether and, if so, how consolidated supervision applies.

1

SUP App 1.5 Determining the prudential categories of a firm

SUP App 1.5.1 G

This appendix includes flow diagrams (Figures 1 and 2) to assist in determining the prudential category of a firm.

SUP App 1.5.2 G

For a firm which became an authorised person after commencement, the FSA will have confirmed the applicable prudential category of the firm as part of the authorisation process.

SUP App 1.5.3 G

For a firm with automatic authorisation by passporting under the Single Market Directives, exercising rights under the Treaty or as a UCITS qualifier, the FSA will have notified the firm of its prudential category at the same time as the FSA notified it of the applicable provisions to which it is subject (see 1SUP 13A1 for further details on inward passporting). If it has a top-up permission, then SUP App 1.5.2 G may also apply.

SUP App 1.6 Changing prudential category after authorisation

SUP App 1.6.1 G

A firm's prudential category may change in the following circumstances:

  1. (1)

    A variation in the firm'spermission may, in some cases, lead to an automatic change in the firm's prudential category or sub-category because of the way those categories are defined. For example, if an investment management firm is granted permission to accept deposits, it may become a bank and cease to be an investment management firm. Figures 1 and 2 may be used, even if a firm'spermission is varied after commencement. They should enable a firm to determine whether any variation in its permission will lead to a change in prudential category.

  2. (2)

    The FSA may vary the firm'spermission and thereby require a firm to comply with the rules applicable to a different prudential category, either through using its own-initiative power or on the application of the firm.

SUP App 1.6.2 G

A firm should notify the FSA immediately if it believes that its prudential category or sub-category has changed (see SUP 15.3.8 G (1)(g)), or if there has been an expansion or reduction in its business that could be relevant to its prudential categorisation or sub-categorisation (see SUP 15.3.8 G).

SUP App 1.7 Prudential categories and sub-categories

SUP Fig App 1.7.1 G

Figure 1: Determination of a firm's prudential category - general

133_SUP_Appendix_1.7.1G
SUP Fig App 1.7.2 G

Figure 2: Determination of a firm's prudential category (cont'd)

SUP_Appendix_1.7.2G

SUP App 1.8 Notes to Figures 1 and 2

SUP App 1.8.1 G

Note 1

Chapter of IPRU(INV) that requirement on permission requires the firm to comply with

Firm's prudential category

Chapter 3

Securities and futures firm

Chapter 5

Investment management firm 1

Chapter 13

Personal investment firm

SUP App 1.8.2 G

Note 2

The table below shows how a firm's main regulated activities determine its prudential category. A firm's'main regulated activities' in this context are the regulated activities included in the firm'sPart IV permission from which the firm derives or is expected to derive the most substantial part of its gross income, including commissions. The aggregate gross income from all of the activities listed against each prudential category should be considered to determine which source is the most substantial.

The gross income is based on the business plan submitted as part of the firm's application for a Part IV permission (for a firm given a Part IV permission after commencement) or on the firm's financial year preceding its authorisation under the Act (for a firmauthorised under section 25 of the Financial Services Act 1986 prior to commencement).

If the firm's prudential categorisation is not clear, please consult the FSA for guidance.

Activities from which the most substantial part of the firm's gross income, (including commissions), from designated investment business3is derived

3

Firm's prudential category

(i) Managing investments other than for retail clients2 or if the assets managed are primarily derivatives;

(ii) OPS activity;

(iii) acting as the manager or trustee of an AUT;

(iv) acting as the ACD or depository of an ICVC;

(v) establishing, operating or winding up a collective investment scheme2other than an AUT or ICVC;

(va) establishing, operating or winding up a personal pension scheme; and2

(vi) safeguarding and administering investments.

2 2 2

Investment management firm

(i) Advising on investments, arranging (bringing about) deals in investments, or making arrangements with a view to transactions in investments3 in relation to packaged products; and

(ii) managing investments for private customers.

3

Personal investment firm

(i) An activity carried on as a member of an exchange;

(ii) making a market in securities or derivatives;

(iii) corporate finance business;

(iv) dealing (excluding, in the case of a home finance provider, dealing as principal in contractually based investments where this activity is carried out for risk management purposes and would have been excluded under article 16 of the Regulated Activities Order if the firm were an unauthorised person or under article 19 of the Regulated Activities Order),3arranging (bringing about) deals in investments, or making arrangements with a view to transactions in investments3 in securities or derivatives;

(v) the provision of clearing services as a clearing firm;

(vi) managing investments where the assets managed are primarily derivatives; and

(vi) activities relating to spread bets;

Securities and futures firm

SUP App 1.8.3 G

Note 3

Single SRO membership

Firm's prudential category

IMRO

Investment management firm

PIA

Personal investment firm

SFA

Securities and futures firm

SUP App 1.8.4 G

Note 4

SRO to whose Financial Supervision requirements the firm was subject

Firm's prudential category

IMRO

Investment management firm

PIA

Personal investment firm

SFA

Securities and futures firm

SUP App 1.8.5 G

Note 5

Only a small number of firms are expected to be authorised under section 25 of the Financial Services Act 1986 immediately prior to commencement and not be a member of one of the SROs. These firms are directly regulated by the FSA under the Financial Services Act 1986.