[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]
Applicable rule or guidance
Competent employees rule, knowledge and competence and segregation11 of functions
A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it. This includes assessing an individual's honesty and competence. This assessment should normally be made at the point of recruitment. An individual's honesty need not normally be revisited unless something happens to make a fresh look appropriate.
Any assessment of an individual's suitability should take into account the level of responsibility that the individual will assume within the firm. The nature of this assessment will generally differ depending upon whether it takes place at the start of the individual's recruitment, at the end of the probationary period (if there is one) or subsequently.
2If a firm requires employees who are not subject to a qualification7 requirement in TC to pass a relevant examination from the list of appropriate qualifications11 maintained by the FCA, or for the purposes of meeting its obligations under SYSC 5.1.5ABR11, the FCA10 will take that into account when assessing whether the firm has ensured that the employee satisfies the knowledge component of the competent employees rule.7 7 7 7
in relation to its MiFID or equivalent third country business;
in respect of any natural persons (“relevant individuals”) who, on behalf of the firm:
who are otherwise responsible for the supervision of a relevant individual who has not acquired the necessary knowledge and competence to act in a capacity prescribed in (a) or (b).
[Note: article 25(1) of MiFID]
11A firm must ensure, and be able to demonstrate to the FCA, at the FCA’s request, that any relevant individuals possess the necessary knowledge and competence so as to ensure that the firm is able to meet its obligations under:
related provisions of the MiFID Org Regulation.
[Note: article 25(1) of MiFID]
The FCA is required to publish various information on its website in relation to firms’ assessment of relevant individuals’ knowledge and competence. That information can be found at https://www.fca.org.uk/firms/training-competence
A firm to which the Training and Competence sourcebook (TC) applies may satisfy its knowledge and competence obligations under SYSC 5.1.5ABR in relation to a relevant individual by way of compliance with its obligations in TC.
The effective segregation of duties is an important element in the internal controls of a firm in the prudential context. In particular, it helps to ensure that no one individual is completely free to commit a firm's assets or incur liabilities on its behalf. Segregation can also help to ensure that a firm'sgoverning body receives objective and accurate information on financial performance, the risks faced by the firm and the adequacy of its systems.
Where a firm10 outsources its internal audit function, it should take reasonable steps to ensure that every individual involved in the performance of this service is independent from the individuals who perform its external audit. This should not prevent services from being undertaken by a firm's external auditors provided that:
the work is carried out under the supervision and management of the firm's own internal staff; and
potential conflicts of interest between the provision of external audit services and the provision of internal audit are properly managed.
The systems, internal control mechanisms and arrangements established by a firm (other than a common platform firm) 10in accordance with this chapter must take into account the nature, scale and complexity of its business and the nature and range of financial services and activities 3undertaken in the course of that business.6
A 10management company6 must monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with this chapter, and take appropriate measures to address any deficiencies.