Content Options

View Options

Status: You are viewing the version of the handbook as on 2019-01-31.

SYSC 27.8 Definitions of the FCA certification functions

CASS oversight function

SYSC 27.8.1 R
  1. (1)

    1Each of the following is an FCA certification function:

    1. (a)

      in relation to a CASS medium firm and a CASS large firm (other than a CASS large debt management firm), the function of acting in the capacity of a person who is allocated the function in CASS 1A.3.1AR (oversight of operational effectiveness);

    2. (b)

      in relation to a CASS large debt management firm, the function of acting in the capacity of a person who is allocated the function in CASS 11.3.4R (oversight of operational effectiveness).

  2. (2)

    A function in (1) is not an FCA certification function for that firm if it is performed by an SMF manager of that firm.

SYSC 27.8.2 G

1 SYSC 27.8.1R(1) only applies to a firm to the extent that CASS applies to that firm.

Proprietary trader function

SYSC 27.8.3 R

1The function of acting as a proprietary trader whose activity involves, or might involve, a risk of significant harm to the firm or any of its customers is an FCA certification function.

Significant management function

SYSC 27.8.4 R
  1. (1)

    1The function of acting as a senior manager, with significant responsibility for a significant business unit, is an FCA certification function.

  2. (2)

    For an overseas SMCR firm’s branch in the United Kingdom, the significant management function is limited to business units of the branch.

SYSC 27.8.5 G

1A senior manager carrying on the significant management FCA certification function under SYSC 27.8.4R could, for example, be:

  1. (1)

    the head of a unit carrying on the activities of:

    1. (a)

      retail banking;

    2. (b)

      personal lending;

    3. (c)

      corporate lending;

    4. (d)

      salvage or loan recovery;

    5. (e)

      proprietary trading;

    6. (f)

      designated investment business;

    7. (g)

      effecting contracts of insurance;

    8. (h)

      credit-related regulated activity;

    9. (i)

      making material decisions on the commitment of the firm’s financial resources, its financial commitments, its assets acquisitions, its liability management or its overall cash and capital planning;

    10. (j)

      processing confirmations, payments, settlements, insurance claims, client money and similar matters;

    11. (k)

      administration of contracts of insurance;

    12. (l)

      complaints handling; or

    13. (m)

      determining whether an applicant should be accepted for credit (including lending) and on what terms; or

  2. (2)

    a member of a committee (that is, a person who, together with others, has authority to commit the firm) making decisions in these functions.

SYSC 27.8.6 G

1The examples in SYSC 27.8.5G are illustrative only. They are not intended to be exhaustive.

SYSC 27.8.7 G

1A business unit is not limited to one that carries on commercial activities with customers and third parties or that earns revenue. A business unit can be an internal support department that has no contact with people outside the firm. It may include, for example, human resources, operations or information technology.

SYSC 27.8.8 G

1For the purposes of the definition of the significant management FCA certification function, 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 certification employees (for example, in excess of 100 individuals); or a firm carrying on general insurance business may have gross written premiums in excess of £100m;

  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.

SYSC 27.8.9 G

1When considering whether a business unit is significant for the purposes of SYSC 27.8.4R, 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;

  2. (2)

    its use or commitment of the firm’s capital;

  3. (3)

    its contribution to the profit and loss account;

  4. (4)

    the number of employees, certification employees or SMF managers in the unit;

  5. (5)

    the number of customers of the unit; and

  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.

Functions requiring qualifications

SYSC 27.8.10 R
  1. (1)

    1Each function involving an activity for which there is a qualification requirement as specified in TC App 1.1.1R (Activities and Products/Sectors to which TC applies) is an FCA certification function.

  2. (2)

    For an overseas SMCR firm, each function involving an activity for which there would have been a qualification requirement, as specified in (1) if the firm had been a UK SMCR firm, is an FCA certification function.

  3. (3)

    A person performs the FCA certification function in this rule even if:

    1. (a)

      the time period within which the person must have obtained the qualification requirement has not yet expired; or

    2. (b)

      the person is exempt from the qualification requirement.

SYSC 27.8.11 G
  1. (1)

    1SYSC 27.8.10R (Functions requiring qualifications) may still apply to an SMCR firm where one of the exclusions in TC App 3.1 (Circumstances in which TC does not apply) or elsewhere in TC applies.

  2. (2)

    SYSC 27.8.10R applies to an overseas SMCR firm irrespective of whether the function in TC App 1.1.1R (Activities and Products/Sectors to which TC applies) applies to incoming EEA firms or overseas firms for the purposes of TC.

  3. (3)

    The territorial scope of qualification requirements as specified in TC App 2.1.1R (Territorial Scope subject to the limitation in TC Appendix 3) does not apply to the FCA certification function in SYSC 27.8.10R. However SYSC 27.3.1R (Territorial scope) restricts the scope of this chapter outside the United Kingdom.

SYSC 27.8.12 G

1 SYSC 27.8.10R(3) means that a person performs the FCA certification function in SYSC 27.8.10R even if for example they are:

  1. (1)

    still in training and do not yet need to have the qualification; or

  2. (2)

    exempt under TC 2.1.9R (Exemption from appropriate qualification requirements).

Managers of certification employees

SYSC 27.8.13 R
  1. (1)

    1The function of managing or supervising a certification employee, directly or indirectly, is an FCA certification function.

  2. (2)

    A function in (1) is not an FCA certification function for that firm if it is performed by an SMF manager of that firm.

Material risk takers

SYSC 27.8.14 R

1Each function performed by a person in column (2) of the table in SYSC 27.8.15R is an FCA certification function with respect to a firm in the corresponding entry in column (1).

SYSC 27.8.15 R

1Table: Definition of material risk taker

Type of SMCR firm

Employees included

(1) A UK SMCR banking firm A third-country SMCR banking firm

Each member of the dual-regulated firms Remuneration Code staff of the firm in column (1) of this row (1).

This includes any person who meets any of the criteria set out in articles 3 to 5 of Commission Delegated Regulation (EU) No 604/2014 (criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile).

(2) An EEA SMCR banking firm

For these purposes, sub-paragraphs (i) and (ii) in SYSC 19D.1.1R(1)(d) (application of the dual-regulated firms Remuneration Code) do not apply.

In relation to a firm in column (1) of this row (2), the definition of dual-regulated firms Remuneration Code staff is extended so that it includes employees of this kind of firm in the same way as it includes employees of a third-country SMCR banking firm.

(3) A Solvency II firm

Persons referred to in articles 275.1(c) and (d) of Solvency II Regulation 2015/35 (key functions and staff with a material impact).

SYSC 27.8.16 G

1If the definitions or requirements in the ‘Employees included’ column of the table in SYSC 27.8.15R (as adjusted) do not apply to a firm in the corresponding entry in the ‘Type of SMCR firm’ column, that row of the table does not apply to the firm.

SYSC 27.8.17 G

1One example of SYSC 27.8.16G is that a credit union is excluded from the table in SYSC 27.8.15R. Therefore the material risk taker FCA certification function does not apply to a credit union. However, it is subject to equivalent PRA requirements.

Client-dealing function

SYSC 27.8.18 R

1A person (“P”) performs the client-dealing FCA certification function for a firm if:

  1. (1)

    P is carrying out any of the activities in the table in SYSC 27.8.19R; and

  2. (2)

    those activities will involve P dealing with:

    1. (a)

      a person with or for whom those activities are carried out; or

    2. (b)

      the property of any such person;

    in a manner substantially connected with the carrying on of regulated activities by the firm.

SYSC 27.8.19 R

1Table: Activities covered by the client-dealing FCA certification function

Activity

Comments

(1) The following activities:

(a) advising on investments other than a non-investment insurance contract; or

(b) performing other functions related to this, such as dealing and arranging.

(a) does not include advising on investments in the course of carrying on the activity of giving basic advice on a stakeholder product.

(2) The following activities:

(a) giving advice in connection with corporate finance business; or

(b) performing other functions related to this.

(3) If the firm does any of the following activities:

(a) dealing, as principal or as agent; or

(b) arranging (bringing about) deals in investments;

taking part in those activities is included.

(a) and (b) do not include dealing or arranging (bringing about) deals in investments in a non-investment insurance contract.

For the activity in this row (3), SYSC 27.8.18R(2)(a) and (b) are expanded to cover also:

(a) a person in connection with whom the activities in the first column of this row are carried out; and

(b) the property of any such person.

(4) If the firm is acting in the capacity of an investment manager the following are included:

(a) taking part in that activity; and

(b) carrying on functions connected to this.

(5) Acting as a ‘bidder’s representative’ in relation to bidding in emissions auctions.

Acting as a ‘bidder’s representative’ has the meaning in sub-paragraph 3 of article 6(3) of the auction regulation.

SYSC 27.8.20 G

1 SYSC 27.3.2G (the FCA interprets the phrase ‘dealing with’ as including having contact with and extending beyond ‘dealing’ as used in ‘dealing in investments’) applies to SYSC 27.8.18R.

SYSC 27.8.21 G

1The client-dealing FCA certification function generally involves dealing with any person with or for whom the activities in the table in SYSC 27.8.19R are carried out (or their property). That person need not be a client of the firm.

SYSC 27.8.22 G

1The restrictions in SYSC 27.7.1R (FCA certification function should require the person performing it to be involved in one or more aspects of the firm’s affairs so far as they relate to regulated activities) also applies to the client-dealing FCA certification function.

Algorithmic trading function

SYSC 27.8.23 R
  1. (1)

    1Each of the following is an FCA certification function:

    1. (a)

      approving the deployment of:

      1. (i)

        a trading algorithm or a part of one; or

      2. (ii)

        an amendment to a trading algorithm or a part of one; or

      3. (iii)

        a combination of trading algorithms; and

    2. (b)

      each of the following functions:

      1. (i)

        having significant responsibility for the management of monitoring whether or not a trading algorithm; and

      2. (ii)

        deciding whether or not a trading algorithm;

      is, or remains, compliant with the firm’s obligations.

  2. (2)

    The firm’s obligations in (1)(b) include:

    1. (a)

      the firm’s regulatory obligations; and

    2. (b)

      the rules and requirements of the trading venues to which the firm’s trading systems are connected.

SYSC 27.8.24 R

1A trading algorithm means a computer algorithm used in algorithmic trading.

SYSC 27.8.25 G

1 Algorithmic trading is not limited to high-frequency algorithmic trading.

SYSC 27.8.26 G

1Deploying a trading algorithm includes deploying one on a trading venue on which the firm has not traded before where the firm is already using that trading algorithm on another trading venue.

SYSC 27.8.27 G

1 SYSC 27.8.23R(1)(b) (monitoring or deciding whether or not a trading algorithm is compliant) includes testing, such as validation and stress testing.

SYSC 27.8.28 G
  1. (1)

    1Sometimes an approval or a decision involves sign-off from different people about different aspects of the decision or approval.

  2. (2)

    If this is the case, all will have given the approval or decision for the purposes of SYSC 27.8.23R.

SYSC 27.8.29 G
  1. (1)

    1Sometimes an approval or decision involves sign-off by a number of people of different levels of seniority about the same aspects of the decision.

  2. (2)

    If this is the case, only the most senior decision-taker gives the approval or decision for the purposes of SYSC 27.8.23R.

  3. (3)

    Where the firm’s procedures do not require the more senior person to carry out a detailed review of the decision of the more junior, both the junior and the senior person will give the approval or decision.

SYSC 27.8.30 G

1A firm may have deployed an algorithm even though:

  1. (1)

    it has not yet actually been used in the generation or acceptance of orders; or

  2. (2)

    it is not actually being used in the generation or acceptance of orders at the moment; or

  3. (3)

    it is not currently being used in the generation or acceptance of orders because the circumstances have not arisen for it to start doing so.

SYSC 27.8.31 G

1In the examples in SYSC 27.8.30G the algorithm is capable of being used in the generation or acceptance of orders but is not actually generating or accepting them at the moment. However, a firm does not deploy an algorithm if the algorithm is not yet capable of generating or accepting orders because, for example, it is still in development.

SYSC 27.8.32 G

1The algorithmic trading FCA certification function applies whether the firm develops the algorithm itself or buys one from a third party.