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Flashcards in Section 7 Deck (10)
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1

Authorisation

Authorisation of Firms

•General prohibition
o Offence to carry out regulated activities unless authorised or exempt
•Authorised persons can only carry out the activities they have authorisation for
•Firms previously authorised under the Banking Act 1987, Insurance Companies Act 1982 and the Financial Services Act 1986 - automatically re-authorised firms
•Firms previously authorised by a recognised professional body (RPB) -not grandfathered, fresh authorisation needed
•New firms must apply, if authorisation refused can appeal to Upper Tribunal (Tax and Chancery Chamber)

Authorisation of Firms

•General prohibition - it is an offence to carry out activity unless person is authorised or exempt.

2

Regulated Activities:

•Banking activities: accepting deposits/issuing e-money
•Insurance activities: affecting/carrying/administering out contracts of insurance
•Investment activities: arranging, managing, dealing, safeguarding investments
•Home finance activities: advising or arranging home finance activities
•Scheme operator activities: establishing, operating or winding up collectives or stakeholder pension schemes
•Investment intermediary
•Insurance intermediary
•Investment management
•Credit-related

•Business test:
o For an activity to be regulated it must be carried on ‘by way of business’ i.e. degree of continuity, existence of commercial element, scale of activity

•Exempt status
o Where contracted to authorised person who is responsible their activities/appointed representatives or tied agents
o Designated Professional Bodies (DPB) e.g. accountancy or actuaries, don’t need authorisation for incidental regulated activities (exempt professional firms)
o If want to sell life insurance or arrange investments direct authorisation - Authorised Professional Firms (APFs)

•Applications
o Must apply to regulator for part 4A permission
o New insurance firms must apply to the PRA for authorisation
o Successful application - scope of FCA permission - the regulated activities a firm is permitted to do

•Change of legal status
o Cannot transfer authorisation - need to re-apply


Appointed Representative:
•Where a firm has exempt status as it has a contract with an authorised person who has accepted responsibility (in writing) for its activities
•Principal is authorised person Exempt professional firm:
•Professional firm who is a member of a Designated Professional Body (DPB)
•Authorisation not needed for regulated activities incidental to their professional services
Other exempt bodies:
•Bank of England
•European central bank
•Central banks of EEA states
•Local authorities
•Various government bodies

3

Responsibilities of Regulated Firms

•Authorised firms are responsible for conduct of all employees, agents and ARs
•Must have systems in place to manage risks (including capital adequacy)
•Must ensure all individuals carrying out senior manager functions / controlled functions are approved by FCA
•Responsible for advice given by representatives

4

Senior Managers and Certification Regime (SM&CR)

Replaced approved persons regime for FCA solo-regulated firms on 9 December 2019:

•Sometimes referred to as accountability regime
•Senior managers regime
o Have statement of responsibilities
o Firm responsibilities map ties statements together
o Require pre-approval
o Fit and proper assessed yearly
o Statutory duty to take reasonable steps to prevent regulatory breach – can be held personally accountable
o Directly authorised by PRA/FCA

•Certification regime applies to:
o Significant management functions
o Proprietary traders
o CASS operational oversight function
o Functions subject to qualification requirements (e.g. advisers and their supervisors)
o Client dealing function
o Supervisors of certified functions where they are not a senior manager
o Material risk takers
o Algorithmic trading
o Paraplanners, depending on the scope of their duties
o Do not require FCA approval – instead, assessed and certified by own firm
o Must be re-assessed annually
o Certificate provided each time
o Must be listed in the Directory


•Conduct rules
o Apply to senior managers, certified persons and most employees in authorised firms
o Two tiers
- First tier applies to all
- Second to senior managers only
o Firm’s responsibility to ensure everyone aware of rules and to take action if people don’t follow them

•3 tiers of firms:
o Core – comply with base line requirements
o Limited scope – small firms, exempt from some base line requirements Enhanced – very large firms, have to comply with additional requirements - additional senior management roles, extra prescribed responsibilities, an overall responsibility requirement, responsibilities maps and handover requirements

•Main senior management functions
o Governing – including chief executive, executive director, group entity senior manager, chairs of governing body, risk, audit, remuneration and nominations committees, senior independent director, head of 3rd country branch, partner
o Systems and control – chiefs of finance, risk and operations, head of internal audit
o Required – compliance oversight, money laundering reporting officer, other overall responsibility, limited scope function

•Disciplinary powers
o FCA/PRA can remove approval, fine, make a prohibition order
o Individuals are held accountable for breaches if don’t take reasonable care to prevent them

•Authorised person:
o Business carrying on regulated activities (can be company, partnership or sole trader)

•Approved person (appointed reps and non-SM&CR firms):
o Individual approved to carry out controlled function

•Controlled functions are those which involve:
o Significant influence on conduct of authorised person’s affairs
o Dealing with customers in regulated activity
o Dealing with property of customers in connection with regulated activity

•Significant influence function (you need to be an approved person to perform a significant function):
o Governing function
o Required function
o Systems and controls function
o Significant management function
o Customer function (CF30), includes financial advisers Appointed representatives (ARs):

•Has contract with authorised person – their principal – who takes responsibility for their action in writing

•Full ‘AR’ – gives advice
•Introducer AR – makes introductions and distributes adverts
•Cannot be both an AR and authorised


•Cannot hold client assets for longer than necessary to deal with them (max 28 days) and cannot hold client money

•Appointment
o Firm appointing AR must ensure appointment does not mean breach of threshold condition, that AR is solvent, has no close links and that firm has adequate controls and will comply with requirements

• Multi-principals
o Investment business can only be AR of one firm
o Mortgage business can have separate principals for different classes of business
o Insurance business can have number of principals
o If AR has more than on principal, needs multi-principal agreement with all firms

•Termination
o If principal terminates, must advise AR in writing
o Notify FCA within 10 days

5

Record Keeping

•Indefinitely - pensions transfers, pension opt-outs and FSAVCs
•5 years - life and pension contracts (financial promotions 6 years)
•5 years – most other cases, non MiFID - 3-year requirement

6

Reporting Rules

•FCA requires regular returns and to be informed of developments on:
o Shareholdings (10%)
o Close business links (20%) e.g. subsidiaries
o Financial resources
o Complaints
o Electronic reporting on GABRIEL system

7

Persistency

•Product providers must report annually on figures over first 4 years of a contract

8

Complaints

•Firms must submit reports twice yearly split by product type

9

Notification requirements

•Must deal with regulator in open and cooperative way
•Tell FCA immediately of regulatory issues
•Tell FCA in advance of changes to core info, e.g. address, legal status
•If give wrong info and discover this, tell FCA

10

Training and Compliance

•Rules apply to retail business only
•Rules no longer apply to non-UK domiciled firms
•Applies to specific employees, including advisers, their supervisors and overseers of key administration functions


•Recruitment
o Must take into account existing knowledge and skills plus qualifications
•Competence
o Employees cannot engage in activities unless assessed as competent in that area or are supervised
o Cannot deal with retail clients unless passed approved exams and have adequate knowledge/skills
o 35 hours appropriate CPD a year, including 21 hours structured
•Training records
o Keep at least 3 years (non-MiFID) or 5 years (MiFID) or indefinitely in the case of pension transfer specialists
•Exams
o List of appropriate exams for various authorised activities
o Specific exams for various specialised activities
o New entrants have 48 months to complete exams
•Supervision
o Supervisors need an appropriate qualification
o Should have technical knowledge, assessment & coaching skills
o High intensity of supervision for pre-competent advisers
•Reporting
•A firm must notify FCA if any of its advisers:
o assessed as competent is no longer competent
o failed to attain qualification within prescribed time
o perform a regulated activity without being competent and without supervision