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 outside the European Economic Area (EEA).
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.
- Significant management functions: the significant management functions will be merged into one generic controlled function.
- Compliance oversight: the Markets in Financial Instruments Directive (MiFID) imposes some additional responsibilities on persons performing this role and those additional responsibilities will be brought within the scope of this controlled function.
- 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 seniority.
- Apportionment and oversight: under MiFID it is the responsibility of the firm’s governing body to allocate functions internally. The FSA is considering the implications for its apportionment and oversight controlled function.
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.
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.
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 2007 to reflect this.
Compliance, risk assessment and internal audit
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 this person must have appropriate seniority and experience.
MiFID imposes various requirements regarding the compliance oversight function that go beyond those in the current FSA rules, and the FSA is copying these out in the new SYSC 6 and 7. The FSA is also adding these responsibilities to this controlled function.
Apportionment and oversight
The FSA requires firms to allocate responsibility for the internal apportionment of functions and for oversight of the firm’s systems and controls to one or more individual directors or senior managers. Under MiFID, the responsibility for apportionment of functions lies with the firm’s board of directors (or other governing body).
The FSA is reviewing its requirements in this area to ensure they reflect MiFID.