What’s happening?

The FSA will extend the ‘common platform’ from 1 April 2009 to apply to most firms not currently subject to it.  SYSC chapters 2 and 3 will be no longer apply to them.

What is the ‘common platform’?

The ‘common platform’ refers to chapters 4-10 of the FSA's Senior Management Arrangements, Systems and Controls sourcebook (SYSC).

It covers:

• business structure and contingency planning;   
• training,  competence and expertise;
• compliance, internal audit and financial crime;
• risk control;
• outsourcing;
• record keeping; and
• conflicts of interest

Which firms will the common platform apply to and from when?

The common platform has applied to firms subject to the Markets in Financial Instruments Directive (MiFID) and Capital Requirements Directive (CRD) since 1 November 2007.  The changes that come into effect from 1 April 2009 will extend the common platform to virtually all other firms regulated by the FSA – we call these firms ‘non-MiFID/CRD firms’.  

Which firms will the common platform not apply to from 1 April 2009?

The only firms the common platform will not apply to from 1 April 2009 are insurers, managing agents and the Society of Lloyd’s. They will remain subject to SYSC 2 and 3 pending the outcome of the Solvency 2 directive. When this is known, we will consult on extending the common platform to them.

Where is the common platform text?

The text of the common platform as it will apply to non-MiFID/CRD firms from 1 April 2009 is in Appendix 1 to Policy Statement 08/09 (‘Organisational systems and controls extending the common platform – feedback on CP 07/23 and final rules’ - http://www.fsa.gov.uk/pages/Library/Policy/Policy/2008/08_09.shtml).
It is also available at http://fsahandbook.info/FSA/html/handbook/SYSC by setting the date to 1 April 2009, and viewing chapters 4 to 10 of the SYSC rules.

Since SYSC’s inception, all regulated firms have had to meet SYSC 2 (senior management arrangements) and 3 (systems and controls) unless they or their activities were exempt (see SYSC 1), but this changed when MiFID and CRD were introduced. 

These two directives included systems and controls and governance requirements that we implemented by creating the common platform and no longer applying SYSC  2 and 3 to those firms.  

By extending the common platform from 1 April 2009 to apply to non-MiFID/CRD firms, we will create one common set of high-level provisions for all firms which can be applied flexibly and proportionately, taking into account the nature, scale and complexity of their business.

How does the common platform differ from existing requirements in SYSC 2 and 3?

The common platform will apply to non-MiFID/CRD firms largely as guidance unless these firms are currently subject to broadly similar rules in SYSC chapters 2 and 3. There are three rules in SYSC 2 and six in SYSC 3 affected in this way (excluding the financial crime provisions, which have been copied across from SYSC 3 into SYSC 6.3 but have not been changed). In two areas, outsourcing and management of conflicts, the provisions are new.

Why have you introduced these new provisions for non-MiFID/CRD firms on outsourcing and management of conflicts of interest – are these the only ones or are there other new provisions?

Given the potential operational risk to firms arising from both ‘material outsourcing’ (outsourcing that is crucial to a firm’s business) and managing conflicts of interest, we consider all firms should be subject to the same standards in these areas in a proportionate manner. This is why we have extended the provisions in these areas to non-MiFID/CRD firms mainly as guidance. Currently non-MiFID/CRD firms are subject to few provisions in these areas. The rest of the common platform covers the same ground as SYSC chapters 2 and 3 though in places its guidance is more detailed.

Are existing material outsourcing contracts affected?

No, we have exempted non-MiFID/CRD firms’ existing material outsourcing arrangements. Non-MiFID/CRD firms need only take the outsourcing provisions in SYSC Chapter 8 into account from 1 April 2009 when entering into new material outsourcing arrangements or when existing material outsourcing arrangements are renegotiated.

What's this about control function 8?

Unlike SYSC chapter 2, the common platform does not require firms to allocate responsibility for apportionment and oversight (control function 8 - CF8) to an approved person. So from 1 April 2009, we will remove all relevant CF8s (with the limited exception of CF8s held by some authorised professional firms) from the Register automatically.  More detailed information concerning the disapplication of CF8 will be available via our approved persons pages closer to the time.

Firms whose FSA-regulated activities are not their main line of business will still be required to allocate responsibility for apportionment and oversight to an approved person and as such will retain CF8. These firms are mostly secondary insurance intermediaries (for example, a motor retailer who also sells insurance policies on the cars he sells) or members of a profession. These firms have no-one approved for the governing functions, so we intend to keep the relevant SYSC 2 and CF8 requirements in force for these firms. For convenience we will move the SYSC 2 provisions into SYSC 4.4 so that all requirements for these firms will be in the common platform.

What does the FSA expect firms to do?

By 1 April 2009 we expect non-MiFID/CRD firms to have familiarised themselves with the common platform and made any necessary changes to their firm.