Yesterday, the Financial Services Authority (FSA) issued a press release confirming the “extension of the approved persons regime for those that perform a ‘significant influence’ function at firms.” The FSA noted in its statement that under the framework of “its supervisory enhancement programme (SEP) it would place greater emphasis on the role of senior management, including non-executive directors (NEDs).” Previously, in March, the FSA issued a report entitled "The Turner Review - A regulatory response to the global banking crisis," prepared by Lord Adair Turner, Chairman of the Financial Services Authority, which focused on how the U.K. can "[c]reate a future banking system which is more stable and better able to serve the needs of businesses and households." The report also proposed major changes in the FSA's supervisory approach, including building upon the existing SEP framework with a "focus on business strategies and system wide risks, rather than internal processes and structures."
- Specifically, the FSA’s release outlines certain changes to the approved persons regime which seeks to improve the “FSA’s approach to ‘significant influence’ functions by ensuring that those likely to exert a significant influence on a firm fall within the scope of the approved persons regime.” Some of the changes including the following:
- broadening “the scope and application of CF1 (director function) and CF2 (Non- Executive Director) to include those persons employed by an unregulated parent undertaking or holding company, whose decisions or actions are regularly taken into account by the governing body of a regulated firm;”
- extending the present definition of “the significant management controlled function (CF29) to include all proprietary traders who are not senior managers but who are likely to exert significant influence on a firm;” and
- amending the current “application of the approved persons regime to UK branches of overseas firms based outside the EEA.”
The original proposals submitted to the FSA included changes seeking to “clarify the role of NEDs to make clear that the FSA will look at NEDs more closely where it believes they should have intervened more actively within a firm’s management.” Before making a final decision on this issue, however, the FSA will consider the relevant recommendations of the Walker Review and the Financial Reporting Council’s review of the Combined Code. The FSA will publish the results of this consideration in a future consultation paper on governance which its expects to issue during the fourth quarter.
Graeme Ashley-Fenn, the Director of the Permissions, Decisions and Reporting Division, stated that, “[i]t is important that directors and senior managers at firms understand their regulatory obligations and have the relevant competencies and experience to carry out their roles with integrity.” The Director also noted that “[s]ince October 2008, the FSA has carried out 115 interviews for ‘significant influence’ posts at high impact firms. Nine applications have been withdrawn as a result. Once in post, where individuals fail to meet the required standards the FSA will consider enforcement action.”
The proposed changes will come into effect August 6, 2009, however, a transitional period of six months will be imposed. The FSA recommends that firms begin “assessing which individuals require approval and submit timely applications to comply with the end of the transitional period.”