The Financial Services Authority (FSA) published Policy
Statement 07/3, ‘Reforming the Approved Persons
Regime’, on 26 January 2007. This briefing outlines the
principal changes of relevance to UK branches of firms
incorporated elsewhere in the European Economic Area

The main changes

  • Customer functions: these are being retained for both
    wholesale and retail business, but the FSA has
    proposed that they be merged into one generic
    controlled function
  • In relation to MiFID business only:

– the EEA investment business oversight function
and the compliance oversight function will be
disapplied; and

– the FSA will no longer vet the competence of
approved persons in relation to MiFID business.

  • Significant management functions: the significant
    management functions will be merged into one
    generic controlled function.
  • Compliance oversight: the compliance oversight
    function will remain applicable for a firm’s non-
    Markets in Financial Instruments Directive (MiFID)
    business (ie business done in reliance on a non-MiFID
    passport or under a top-up permission). It will no
    longer be necessary for a person performing this
    controlled function to be a senior manager, although
    they will need to have appropriate experience and

The above changes will take effect on 1 November 2007.
It is proposed that the merger of customer functions
would also take effect on that date.

Customer functions

The FSA has decided not to pursue its original proposal to
abolish the customer functions for persons dealing only
with non-retail customers. The scope of the activities for
which approved person status is required remains
unchanged. (The FSA is going to look again at whether
retention of the customer functions is justified, but that
review will not take place before 2009.)

The FSA is, however, proposing to simplify the regime by
merging all the customer functions (CF21-27) into a
single generic controlled function (CF30). This would
give much greater scope for a person’s role to change
without the need to apply to the FSA on Form A or E for a
change in FSA approved person status. The FSA
emphasises that firms remain responsible for ensuring
their approved persons are competent to perform their
particular roles. An FSA policy statement on this proposal
is expected in February 2007.

Changes in relation to MiFID business only
MiFID provides that the matters covered by the EEA
business oversight function and the compliance oversight
function are the responsibility of the firm’s home state
regulator. These functions will therefore be disapplied in relation to MiFID business, although they will remain
applicable to business done in reliance on a non-MiFID
passport or under a top-up permission.

MiFID also provides that the assessment of an employee’s
skills, knowledge and expertise is a matter for the firm’s
home state regulator. The FSA will therefore no longer
assess these matters for any approved persons, although it
will continue to assess their probity and financial
soundness. This will mean that the FSA’s assessment will
differ depending on whether the relevant person is to
carry on MiFID or non-MiFID business. If a person
carrying on MiFID business is to begin non-MiFID
business, the assessment would then need to be extended
to cover competence. The FSA is considering how best to
do this with minimum bureaucracy.

Significant management functions

The significant management functions (CF16-20) are also
being merged into a single function (CF29). The FSA will
automatically update its register on 1 November to reflect

Compliance oversight

The compliance oversight function will remain applicable
to a firm’s non-MiFID business (ie business done in
reliance on a non-MiFID passport under a top-up
permission). At present, a person who undertakes the
compliance oversight function (CF10) must be a director
or a senior manager – that is, a person who reports
directly to the board, the chief executive or the head of a
significant business unit. That requirement will no longer
apply. However, FSA guidance will indicate that these
persons must have appropriate seniority and experience.