FSA firms up Approved Persons regime

Phillip Thorpe, FSA Managing Director, said:

The FSA has consulted widely on the Approved Persons regime, and in response to comments received on CP 53 we have made a number of changes designed to improve the clarity and operation of the regime. The revised Rules for controlled functions published in todays policy statement are in final form and firms need to prepare now for implementation including establishing which personnel will be resonsible for the specified controlled functions.

The main changes to Approved Persons Rules and guidance following the consultation are:

• The links between the Approved Persons regime and the FSAs Rules for senior management arrangements, systems and controls are strengthened and highlighted;

• The scope of the Apportionment & Oversight function has been clarified and a specific function set out for passported branches of EEA firms within the United Kingdom:

• The compliance function is renamed the compliance oversight function and it has been narrowed to requirements directly linked to investment business, including collective investment schemes;

• The management functions are retitled the systems and controls function;

• Further guidance is given on the type of firm which will need to consider the significant management functions; and

• The customer functions have been simplified.

The FSA has begun planning for an online application process for future approval of individuals. The FSA will be discussing the technical aspects of this with firms and other interested parties with a view to bringing the process into operation in the period after the FSA acquires its full powers under the Financial Services and Markets Act. It is planned in the longer term to roll out the online facility to other notification and reporting requirements so that in due course the bulk of communications between firms and the regulator will be conducted in electronic format.

Also today the FSA published a Policy Statement, High Level Standards for firms and individuals, setting out final text of the Principles for Businesses, the rules on senior management arrangements, the Statement of Principles and Code of Practice for Approved Persons and The Fit and Proper criteria for Approved Persons.

Notes for editors

1. Response to CP 53: The Regulation of Approved Persons: Controlled Functions and the Policy Statement High Level Standards for firms and individuals are both available on the FSA Website www.fsa.gov.uk Together they give firms a full picture of the regulatory requirements that will operate for senior managers and Approved Persons after the FSA acquires its full powers a date known as N2.

2. Annexe A of Response to CP53 contains the near final Rules for controlled functions which will be integrated into Chapter 10 of the FSA Supervision Manual due to be published in the second quarter of 2001.

3. The FSA received over 70 written responses to CP 53 and the earlier Policy Statement High Level Standards for Firms and Individuals which were published together in June 2000. Further feedback came at seminars and meetings with firms, trade associations and professional advisers.

4. Part V of the Financial Services and Markets Act 2000 sets out that an individual cannot carry out controlled functions until approved by the FSA. There are 27 such functions specified in the Approved Person regime. Once the FSA has approved an individual, they must remain fit and proper to carry out their functions and must observe the standards of conduct set out in the Statement of Principles and Code for Approved Persons.

5. Individuals who are registered or approved by existing regulators to carry out the equivalent of controlled functions will be grandfathered at N2. This means that they will be able to perform these functions after N2 without the need to reapply for approval. Details of the grandfathering process are set out in an FSA briefing note Grandfathering of Firms, Individuals and Products which was published on 11 December 2000 and is available on the FSA Website.

6. Final text is material that has been approved by the FSA Board but still awaits to be finally made by the Board once the FSA acquires its rule-making powers under the Financial Services and Markets Act. There may in consequence be minor drafting changes to the final made text.

7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

8. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.