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SYSC 1.1 Application of SYSC 2 and SYSC 3

Purpose of this section

SYSC 1.1.-2G

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SYSC 1.1.-1G

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Who?

SYSC 1.1.1R

SYSC 2 and SYSC 3 apply to every firm except that:1

  1. (1)

    for an incoming EEA firm or an incoming Treaty firm:

    1. (a)

      SYSC 2.1.1 R and SYSC 2.1.2 G do not apply;

    2. (b)

      SYSC 2.1.3 R to SYSC 2.2.3 G apply, but only in relation to allocation of the function in SYSC 2.1.3 R (2) and only in so far as responsibility for the matter in question is not reserved by a European Community instrument to the firm's Home State regulator; and

    3. (c)

      SYSC 3 applies, but only in so far as responsibility for the matter in question is not reserved by a European Community instrument to the firm's Home State regulator;

  2. (2)

    for an incoming EEA firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom, SYSC 2 and SYSC 3 do not apply;1

  3. (2A)

    for an incoming Treaty firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom, SYSC 3.2.6A R to SYSC 3.2.6J G do not apply;6

  4. (3)

    for a sole trader:6

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    1. (a)

      SYSC 2 does not apply as long as he does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements);6

    2. (b)

      SYSC 3.2.6I R does not apply if he has no employees;6

  5. (4)

    for a UCITS qualifier:

    1. (a)

      SYSC 2.1.1 R and SYSC 2.1.2 G do not apply;

    2. (b)

      SYSC 2.1.3 R to SYSC 2.2.3 G apply, but only in relation to allocation of the function in SYSC 2.1.3 R (2) and only with respect to the activities in SYSC 1.1.4 R;

    3. (c)

      SYSC 3 applies, but only with respect to the activities in SYSC 1.1.4 R;6

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  6. (5)

    for an authorised professional firm when carrying on non-mainstream regulated activities, SYSC 3.2.6A R to SYSC 3.2.6J G do not apply;86

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  7. (6)

    for a common platform firm, SYSC 2 and SYSC 3 do not apply8; and108

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  8. (7)

    SYSC 2 and SYSC 3 do not apply to an incoming ECA provider acting as such.10

SYSC 1.1.2G
  1. (1)

    Question 12 in SYSC 2.1.6 G contains10 guidance on SYSC 1.1.1 R (1)(b) and (c).4

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  2. (2)

    SYSC 1.1.7 R and SYSC 1.1.10 R further restrict the territorial application of SYSC 2 and SYSC 3 for an incoming EEA firm, incoming Treaty firm or UCITS qualifier. 1

  3. (3)

    SYSC 1.1.1 R (4) puts incoming EEA firm on an equal footing with unauthorised overseas persons who utilise the overseas persons exclusions in article 72 of the Regulated Activities Order.

  4. (4)

    Further guidance on which matters are reserved to a firm's Home state regulator can be found at SUP 13A Annex 2. 10

What?

SYSC 1.1.3R

SYSC 2 and SYSC 3 apply with respect to the carrying on of:1

  1. (1)

    regulated activities;

  2. (2)

    activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc); and

  3. (3)

    ancillary activities in relation to designated investment business, home finance activity 7and insurance mediation activity;64

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except that SYSC 3.2.6A R to SYSC 3.2.6J G do not apply as described in SYSC 1.1.3A R.6

SYSC 1.1.3AR

6SYSC 3.2.6A R to SYSC 3.2.6J G do not apply:

  1. (1)

    with respect to the activities described in SYSC 1.1.3 R (2) and (3); or

  2. (2)

    in relation to the following regulated activities:

    1. (a)

      general insurance business;

    2. (b)

      insurance mediation activity in relation to a general insurance contract or pure protection contract;

    3. (c)

      long-term insurance business which is outside the Consolidated Life Directive (unless it is otherwise one of the regulated activities specified in this rule);

    4. (d)

      business relating to contracts which are within the Regulated Activities Order only because they fall within paragraph (e) of the definition of "contract of insurance" in article 3 of that Order;

    5. (e)
      1. (i)

        arranging, by the Society of Lloyd's, of deals in general insurance contracts written at Lloyd's; and

      2. (ii)

        managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's;

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    6. (f)

      mortgage mediation activity and administering a regulated mortgage contract;7

    7. (g)

      7home purchase mediation activity and administering a home purchase plan; and

    8. (h)

      7reversion activity.

SYSC 1.1.4R

SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G,6 also apply with respect to the communication and approval of financial promotions which:1

  1. (1)

    if communicated by an unauthorised person without approval would contravene section 21(1) of the Act (Restrictions on financial promotion); and

  2. (2)

    may be communicated by a firm without contravening section 238(1) of the Act (Restrictions on promotion of collective investment schemes).

SYSC 1.1.5R

SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G,6 also:

  1. (1)

    apply with respect to the carrying on of unregulated activities in a prudential context; and

  2. (2)

    take into account any activity of other members of a group of which the firm is a member.3

SYSC 1.1.6G

SYSC 1.1.5 R (2) does not mean that inadequacy of a group member's systems and controls will automatically lead to a firm contravening, for example, SYSC 3.1.1 R. Rather, the potential impact of a group member's activities, including its systems and controls, and any systems and controls that operate on a group basis, will be relevant in determining the appropriateness of the firm's own systems and controls.

Where?

SYSC 1.1.7R

SYSC 2 and SYSC 3 apply with respect to activities carried on from an establishment maintained by the firm (or its appointed representative or, where applicable, its tied agent) in the United Kingdom unless another applicable rule which is relevant to the activity has a wider territorial scope, in which case SYSC 2 and SYSC 3 apply with that wider scope in relation to the activity described in that rule.1

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SYSC 1.1.8G

An example of the type of rule referred to in SYSC 1.1.7 R with a different territorial scope is the custody rules in the non-directive custody chapter9. These rules apply9, for certain UK firms, to activities carried on from branches in other EEA States as well as UK establishments (CASS 1.3.3 R (General application where?)). Therefore SYSC 2 and SYSC 3 apply to the custody activities described in the non-directive custody chapter9 carried on from such a branch by such a UK firm. The UK firm must, for example, take reasonable care to establish systems and controls under SYSC 3.1.1 R as are appropriate to those activities carried on from its EEA branches as well as from its UK establishments.1

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SYSC 1.1.9R

SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G,6 also apply in a prudential context to a UK domestic firm with respect to activities wherever they are carried on.1

SYSC 1.1.10R

SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G,6 also applies in a prudential context to an overseas firm (other than an incoming EEA firm, incoming Treaty firm or UCITS qualifier) with respect to activities wherever they are carried on.

SYSC 1.1.11G
  1. (1)

    In considering whether to take regulatory action under SYSC 2 or SYSC 3 in relation to activities carried on outside the United Kingdom, the FSA will take into account the standards expected in the market in which the firm is operating.1

  2. (2)

    Most of the rules in SYSC 3 are linked to other requirements and standards under the regulatory system which have their own territorial limitations so that those SYSC rules are similarly limited in scope.

SYSC 1.1.11AG

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Actions for damages

SYSC 1.1.12R

A contravention of the rules in SYSC 2 and SYSC 3 does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action).1