Prudential Regulation Authority Rulebook

5.1

In the PRA’s view, a third country branch’s systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it. This includes assessing an individual’s honesty and competence.

5.2

Any assessment of an individual’s suitability should take into account the level of responsibility that the individual will assume within the third country branch. The nature of the assessment will generally differ depending upon whether it takes place at the start of the individual’s recruitment, at the end of the probationary period (if there is one) or subsequently.

5.3

The Certification Regime provides a framework for third country branches to assess and certify the fitness and propriety of certain employees on appointment and at least annually thereafter.

5.4

In the PRA’s view a third country branch should ensure that the performance of multiple functions by its relevant persons does not and is not likely to prevent those persons from discharging any particular functions soundly, honestly and professionally. The senior personnel within the third country branch should define arrangements concerning the segregation of duties within the branch and the prevention of conflicts.

5.5

The effective segregation of duties is an important element in the internal controls of a third country branch in the prudential context. In particular, it helps to ensure that no one individual is completely free to commit assets or incur liabilities. Segregation can also help to ensure that the firm’s governing body receives objective and accurate information on financial performance, the risks faced by the third country branch and the adequacy of its systems.

5.6

A third country branch should normally ensure that no single individual has unrestricted authority to do all of the following:

• initiate a transaction;
• bind the third country branch or the whole firm;
• make payments; and
• account for it.

5.7

Where a third country branch is unable to ensure the complete segregation of duties (for example, because the branch has a limited number of staff), it should ensure that there is adequate compensating controls in place (for example, frequent review of an area by relevant branch senior managers).

5.8

Where a third country branch outsources its internal audit function, it should take reasonable steps to ensure that every individual involved in the performance of this service is independent from the individuals who perform its external audit. This should not prevent services from being undertaken by a firm’s external auditors provided that:

• the work is carried out under supervision and management of the third country branch’s own internal staff; and
• potential conflicts of interest between the provision of external audit services and the provision of internal audit are properly managed.

5.9

A third country branch should ensure that its relevant persons are aware of the procedures which they are expected to follow for the proper discharge of their responsibilities, including compliance with PRA and FCA Rules.

5.10

A third country branch should monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with the Internal Governance of Third Country Branches 5.1 and section 5 of this supervisory statement and take appropriate measures to address any deficiencies.