Integrated regulatory regime for key staff at financial firms

Responding to comments, the FSA has combined its work on the responsibilities that will be placed on a firm in respect of its senior management controls with parallel work on the regulation of key individuals (Approved Persons) within firms, to produce an integrated approach.

Key Points for Firms

• Key staff at regulated firms will need to be approved. Such staff will include senior management and also, for example, staff giving financial advice to consumers on pensions and other investment products.

• A firm will need to apportion responsibility for each area of the firm''s regulated activities to an appropriate member of senior management. One or more top individuals will have the role of apportioning responsibility in this way, and for overseeing the implementation of key systems of control within the firm.

• In recognition of the position of small businesses, specific exemptions will apply to small friendly societies.

Senior management and other Approved Persons

• Where a member of senior management is assigned responsibility for an area of the business, they will be required (by the Principles and Code) to take reasonable steps to ensure compliance with regulatory requirements. If they fail to do so then they may be held personally liable.

• Non-executive directors will not take on additional responsibilities under the new regime as they are only required to act with due care in relation to their own non-executive responsibilities. They will not be held responsible for the actions of other individuals.

• The FSA is specifying 28 functions for which persons will need to be Approved. They have only been specified where there is added value in terms of meeting the FSAs statutory objectives in approving individuals to perform these functions.

• As part of its commitment to an efficient regulatory regime, the FSA proposes tight response times for processing applications, and envisages, for example, taking just four days to process a routine, new application for a financial adviser or investment manager.

Consumers

• Obligations on both firms and the individuals within them mean added protection for consumers.

Responses to earlier consultation suggested concerns that the regime might be over-prescriptive. In response to this, changes have been made to the systems and controls material to clarify that the FSA is not imposing particular structures, and parts of the Code of Practice for Approved Persons have been recast as guidance to give greater flexibility.

Todays measures relate particularly to the FSAs future statutory responsibilities to protect consumers, maintain market confidence and fight financial crime. They will form part of the FSAs wider regulatory framework for achieving all its objectives.

Phillip Thorpe, FSA Managing Director, welcomed the regime:

The FSA has consulted very widely, through CPs and workshops, on the Senior Management arrangements and the Approved Persons Regime. In the course of this exercise we have had the benefit of substantial and constructive feedback and I believe our proposals have improved through this process.

Our proposals set requirements that reflect the pivotal role of senior management in determining whether their firms live up to regulatory requirements. Consumers will rightly expect those responsible to be brought to task if they seriously neglect those responsibilities. It should be recognised that in setting out these requirements we do not propose anything that firms should not already be doing, and we have made efforts to ensure that firms will remain free to devise business structures, including matrix management structures, that suit their own business.

Consumers have a right to expect high standards of honesty and competence from the advisers who are selling them products that may last until their retirement, or who advise them more generally on investing their income and savings. They should also be able to expect that when this relationship of trust is breached, the adviser can be brought to account.

Notes for editors

1. Over 400 industry practitioners attended an FSA workshop in September 1999 to discuss the consultation paper on The Regulation of Approved Persons, issued in July 1999. This provided valuable feedback on the paper. In addition, the FSA received some 179 written responses.

2. The consultation paper on Senior Management Arrangements, Systems and Controls was issued in November 1999. 110 replies were received in response and 150 industry practitioners attended a workshop to discuss the paper.

3. The integrated FSA response to the two consultation papers reflects industry demand for this. In addition, the FSA has published an overarching statement that sets out how the two regimes have been integrated.

4. Approximately 180,000 individuals are inside the various regimes run by existing regulators to cover the fitness and propriety, competence etc of individuals in key positions. Because some additional people will come into the new regime, while others will cease to be covered, the FSA does not expect a large change in the overall number.

5. The FSA is the independent body established by parliament to regulate financial services and protect consumers.

Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Policy/CP/2000/53.shtml as is the Policy statement http://www.fsa.gov.uk/pubs/policy/