SYSC Senior Management Arrangements, Systems and Controls sourcebook

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Used in

Export part as

SYSC 1

Application and purpose

SYSC 1.1

Application of SYSC 2 and SYSC 3

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Purpose of this section

SYSC 1.1.-2

handbook-guidance
This section sets out the application of SYSC 2 Senior management arrangements and SYSC 3 Systems and controls.
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Who?

SYSC 1.1.1

handbook-rule

SYSC 2 and SYSC 3 apply to every firm except that:

  1. (1) for an incoming EEA firm or an incoming Treaty firm:
    1. (a) SYSC 2.1.1 R and SYSC 2.1.2 G do not apply;
    2. (b) SYSC 2.1.3 R to SYSC 2.2.3 G apply, but only in relation to allocation of the function in SYSC 2.1.3 R (2) and only in so far as responsibility for the matter in question is not reserved by a European Community instrument to the firm's Home State regulator; and
    3. (c) SYSC 3 applies, but only in so far as responsibility for the matter in question is not reserved by a European Community instrument to the firm's Home State regulator;
  2. (2) for an incoming EEA firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom, SYSC 2 and SYSC 3 do not apply;
  3. (3) SYSC 2 does not apply to a sole trader as long as he does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements); and
  4. (4) for a UCITS qualifier:
    1. (a) SYSC 2.1.1 R and SYSC 2.1.2 G do not apply;
    2. (b) SYSC 2.1.3 R to SYSC 2.2.3 G apply, but only in relation to allocation of the function in SYSC 2.1.3 R (2) and only with respect to the activities in SYSC 1.1.4 R;
    3. (c) SYSC 3 applies, but only with respect to the activities in SYSC 1.1.4 R.;

SYSC 1.1.2

handbook-guidance
  1. (1) Question 12 in SYSC 2.1.6 G and SYSC App 1 contain guidance on SYSC 1.1.1 R (1)(b) and (c).
  2. (2) SYSC 1.1.7 R and SYSC 1.1.10 R further restrict the territorial application of SYSC 2 and SYSC 3 for an incoming EEA firm, incoming Treaty firm or UCITS qualifier.
  3. (3) SYSC 1.1.1 R (4) puts incoming EEA firm on an equal footing with unauthorised overseas persons who utilise the overseas persons exclusions in article 72 of the Regulated Activities Order.

What?

SYSC 1.1.3

handbook-rule

SYSC 2 and SYSC 3 apply with respect to the carrying on of:

  1. (1) regulated activities;
  2. (2) activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc); and
  3. (3) ancillary activities in relation to designated investment business, home finance activity and insurance mediation activity.;

except that SYSC 3.2.6A R to SYSC 3.2.6J G do not apply as described in SYSC 1.1.3A R.

SYSC 1.1.4

handbook-rule

SYSC 2 and SYSC 3 also apply with respect to the communication and approval of financial promotions which:

  1. (1) if communicated by an unauthorised person without approval would contravene section 21(1) of the Act (Restrictions on financial promotion); and
  2. (2) may be communicated by a firm without contravening section 238(1) of the Act (Restrictions on promotion of collective investment schemes).

SYSC 1.1.5

handbook-rule

SYSC 2 and SYSC 3 also:

  1. (1) apply with respect to the carrying on of unregulated activities in a prudential context; and
  2. (2) take into account any activity of other members of a group of which the firm is a member.

SYSC 1.1.6

handbook-guidance
SYSC 1.1.5 R (2) does not mean that inadequacy of a group member's systems and controls will automatically lead to a firm contravening, for example, SYSC 3.1.1 R. Rather, the potential impact of a group member's activities, including its systems and controls, and any systems and controls that operate on a group basis, will be relevant in determining the appropriateness of the firm's own systems and controls.
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Where?

SYSC 1.1.7

handbook-rule
SYSC 2 and SYSC 3 apply with respect to activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom unless another applicable rule which is relevant to the activity has a wider territorial scope, in which case SYSC 2 and SYSC 3 apply with that wider scope in relation to the activity described in that rule.

SYSC 1.1.8

handbook-guidance
An example of the type of rule referred to in SYSC 1.1.7 R with a different territorial scope is the rules in CASS 2 (Custody). CASS 2 applies, for certain UK firms, to activities carried on from branches in other EEA States as well as UK establishments (CASS 1.3.3 R (General application where?)). Therefore SYSC 2 and SYSC 3 apply to the custody activities described in CASS 2 carried on from such a branch by such a UK firm. The UK firm must, for example, take reasonable care to establish systems and controls under SYSC 3.1.1 R as are appropriate to those activities carried on from its EEA branches as well as from its UK establishments.

SYSC 1.1.9

handbook-rule
SYSC 2 and SYSC 3 also apply in a prudential context to a UK domestic firm with respect to activities wherever they are carried on.

SYSC 1.1.10

handbook-rule
SYSC 3 also applies in a prudential context to an overseas firm (other than an incoming EEA firm, incoming Treaty firm or UCITS qualifier) with respect to activities wherever they are carried on.

SYSC 1.1.11

handbook-guidance
  1. (1) In considering whether to take regulatory action under SYSC 2 or SYSC 3 in relation to activities carried on outside the United Kingdom, the FSA will take into account the standards expected in the market in which the firm is operating.
  2. (2) Most of the rules in SYSC 3 are linked to other requirements and standards under the regulatory system which have their own territorial limitations so that those SYSC rules are similarly limited in scope.
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SYSC 1.1.11A

handbook-guidance
ECO 1.1.6 R has the effect that SYSC does not apply to an incoming ECA provider acting as such.
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Actions for damages

SYSC 1.1.12

handbook-rule
A contravention of the rules in SYSC 2 and SYSC 3 does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action).
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SYSC 1.2

Purpose

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SYSC 1.2.1

handbook-guidance

The purposes of SYSC are:

  1. (1) to encourage firms' directors and senior managers to take appropriate practical responsibility for their firms' arrangements on matters likely to be of interest to the FSA because they impinge on the FSA's functions under the Act;
  2. (2) to increase certainty by amplifying Principle 3, under which a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems; and
  3. (3) to encourage firms to vest responsibility for effective and responsible organisation in specific directors and senior managers.

SYSC 1.2.2

handbook-guidance
The main matters, referred to in SYSC 1.2.1 G (1), which are likely to be of interest to the FSA are those which relate to confidence in the financial system; to the fair treatment of firms' customers; to the protection of consumers; and to the use of the financial system in connection with financial crime. The FSA is not primarily concerned with risks which threaten only the owners of a financial business except in so far as these risks may have an impact on those matters.
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Export chapter as

SYSC 2

Senior management arrangements

SYSC 2.1

Apportionment of Responsibilities

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SYSC 2.1.1

handbook-rule

A firm must take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among its directors and senior managers in such a way that:

  1. (1) it is clear who has which of those responsibilities; and
  2. (2) the business and affairs of the firm can be adequately monitored and controlled by the directors, relevant senior managers and governing body of the firm.

SYSC 2.1.2

handbook-guidance
The role undertaken by a non-executive director will vary from one firm to another. For example, the role of a non-executive director in a friendly society may be more extensive than in other firms. Where a non-executive director is an approved person, for example where the firm is a body corporate, his responsibility and therefore liability will be limited by the role that he undertakes. Provided that he has personally taken due care in his role, a non-executive director would not be held discipliniarily liable either for the failings of the firm or for those of individuals within the firm. The non-executive director function, for the purposes of the approved persons regime, is described in SUP 10.

SYSC 2.1.3

handbook-rule

A firm must appropriately allocate to one or more individuals, in accordance with SYSC 2.1.4 R, the functions of:

  1. (1) dealing with the apportionment of responsibilities under SYSC 2.1.1 R; and
  2. (2) overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R.

SYSC 2.1.4

handbook-rule

Allocation of functions

This table belongs to SYSC 2.1.3 R

SYSC 2.1.5

handbook-guidance
SYSC 2.1.3 R and SYSC 2.1.4 R give a firm some flexibility in the individuals to whom the functions may be allocated. It will be common for both the functions to be allocated solely to the firm's chief executive. SYSC 2.1.6 G contains further guidance on the requirements of SYSC 2.1.3 R and SYSC 2.1.4 R in a question and answer form.

SYSC 2.1.6

handbook-guidance

Frequently asked questions about allocation of functions in SYSC 2.1.3 R

This table belongs to SYSC 2.1.5 G

SYSC 2.2

Recording the apportionment

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SYSC 2.2.1

handbook-rule
  1. (1) A firm must make a record of the arrangements it has made to satisfy SYSC 2.1.1 R (apportionment) and SYSC 2.1.3 R (allocation) and take reasonable care to keep this up to date.
  2. (2) This record must be retained for six years from the date on which it was superseded by a more up-to-date record.

SYSC 2.2.2

handbook-guidance
  1. (1) A firm will be able to comply with SYSC 2.2.1 R by means of records which it keeps for its own purposes provided these records satisfy the requirements of SYSC 2.2.1 R and provided the firm takes reasonable care to keep them up to date. Appropriate records might, for this purpose, include organisational charts and diagrams, project management documents, job descriptions, committee constitutions and terms of reference provided they show a clear description of the firm's major functions.
  2. (2) Firms should record any material change to the arrangements described in SYSC 2.2.1 R as soon as reasonably practicable after that change has been made.

SYSC 2.2.3

handbook-guidance
Where responsibilities have been allocated to more than one individual, the firm's record should show clearly how those responsibilities are shared or divided between the individuals concerned.

Export chapter as

SYSC 3

Systems and Controls

SYSC 3.1

Systems and Controls

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SYSC 3.1.1

handbook-rule
A firm must take reasonable care to establish and maintain such systems and controls as are appropriate to its business.

SYSC 3.1.2

handbook-guidance
  1. (1) The nature and extent of the systems and controls which a firm will need to maintain under SYSC 3.1.1 R will depend upon a variety of factors including:
    1. (a) the nature, scale and complexity of its business;
    2. (b) the diversity of its operations, including geographical diversity;
    3. (c) the volume and size of its transactions; and
    4. (d) the degree of risk associated with each area of its operation.
  2. (2) To enable it to comply with its obligation to maintain appropriate systems and controls, a firm should carry out a regular review of them.
  3. (3) The areas typically covered by the systems and controls referred to in SYSC 3.1.1 R are those identified in SYSC 3.2. Detailed requirements regarding systems and controls relevant to particular business areas or particular types of firm are covered elsewhere in the Handbook.

SYSC 3.1.3

handbook-guidance
Where the Combined Code developed by the Committee on Corporate Governance is relevant to a firm, the FSA, in considering whether the firm's obligations under SYSC 3.1.1 R have been met, will give it due credit for following corresponding provisions in the Code and related guidance.

SYSC 3.1.4

handbook-guidance
A firm has specific responsibilities regarding its appointed representatives (see SUP 12).

SYSC 3.1.5

handbook-guidance
SYSC 2.1.3 R (2) prescribes how a firm must allocate the function of overseeing the establishment and maintenance of systems and controls described in SYSC 3.1.1 R.

SYSC 3.2

Areas covered by systems and controls

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Introduction

SYSC 3.2.1

handbook-guidance
This section covers some of the main issues which a firm is expected to consider in establishing and maintaining the systems and controls appropriate to its business, as required by SYSC 3.1.1 R.

Organisation

SYSC 3.2.2

handbook-guidance
A firm's reporting lines should be clear and appropriate having regard to the nature, scale and complexity of its business. These reporting lines, together with clear management responsibilities, should be communicated as appropriate within the firm.

SYSC 3.2.3

handbook-guidance
  1. (1) A firm's governing body is likely to delegate many functions and tasks for the purpose of carrying out its business. When functions or tasks are delegated, either to employees or to appointed representatives, appropriate safeguards should be put in place.
  2. (2) When there is delegation, a firm should assess whether the recipient is suitable to carry out the delegated function or task, taking into account the degree of responsibility involved.
  3. (3) The extent and limits of any delegation should be made clear to those concerned.
  4. (4) There should be arrangements to supervise delegation, and to monitor the discharge of delegates functions or tasks.
  5. (5) If cause for concern arises through supervision and monitoring or otherwise, there should be appropriate follow-up action at an appropriate level of seniority within the firm.

SYSC 3.2.4

handbook-guidance
  1. (1) The guidance relevant to delegation within the firm is also relevant to external delegation ('outsourcing'). A firm cannot contract out its regulatory obligations. So, for example, under Principle 3 a firm should take reasonable care to supervise the discharge of outsourced functions by its contractor.
  2. (2) A firm should take steps to obtain sufficient information from its contractor to enable it to assess the impact of outsourcing on its systems and controls.

SYSC 3.2.5

handbook-guidance
Where it is made possible and appropriate by the nature, scale and complexity of its business, a firm should segregate the duties of individuals and departments in such a way as to reduce opportunities for financial crime or contravention of requirements and standards under the regulatory system. For example, the duties of front-office and back-office staff should be segregated so as to prevent a single individual initiating, processing and controlling transactions.

Compliance

SYSC 3.2.6

handbook-rule
A firm must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system and for countering the risk that the firm might be used to further financial crime.
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SYSC 3.2.7

handbook-guidance
  1. (1) Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate compliance function. The organisation and responsibilities of a compliance function should be documented. A compliance function should be staffed by an appropriate number of competent staff who are sufficiently independent to perform their duties objectively. It should be adequately resourced and should have unrestricted access to the firm's relevant records as well as ultimate recourse to its governing body.
  2. (2) The regulatory objectives are defined in section 2 of the Act and include the reduction of financial crime. This objective is more fully described in section 6 of the Act. This describes financial crime as including any offence involving (a) fraud or dishonesty, (b) misconduct in, or misuse of information relating to, a financial market, or (c) handling the proceeds of crime.
  3. (3) In applying SYSC 3.2.6 R, where financial crime is concerned, firms must also comply with other Handbook requirements (in particular, ML) and their legal obligations under the Money Laundering Regulations and the Proceeds of Crime Act 2002.

SYSC 3.2.8

handbook-rule
  1. (1) A firm which carries on designated investment business with or for customers must allocate to a director or senior manager the function of:
    1. (a) having responsibility for oversight of the firm's compliance; and
    2. (b) reporting to the governing body in respect of that responsibility.
  2. (2) In SYSC 3.2.8 R (1) (1) "compliance" means compliance with the rules in:
    1. (a) COB COBS (Conduct of Business);
    2. (b) COLL (New Collective Investment Schemes) and CIS (Collective Investment Schemes) sourcebook); and
    3. (c) CASS (Client Assets)

SYSC 3.2.9

handbook-guidance
  1. (1) SUP 10.7.8 R uses SYSC 3.2.8 R to describe the controlled function, known as the compliance oversight function, of acting in the capacity of a director or senior manager to whom this function is allocated.
  2. (2) The rules referred to in SYSC 3.2.8 R (2) are the minimum area of focus for the firm's compliance oversight function. A firm is free to give additional responsibilities to a person performing this function if it wishes.
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Risk assessment

SYSC 3.2.10

handbook-guidance
  1. (1) Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate risk assessment function responsible for assessing the risks that the firm faces and advising the governing body and senior managers on them.
  2. (2) The organisation and responsibilities of a risk assessment function should be documented. The function should be adequately resourced and staffed by an appropriate number of competent staff who are sufficiently independent to perform their duties objectively.
  3. (3) The term 'risk assessment function' refers to the generally understood concept of risk assessment within a firm, that is, the function of setting and controlling risk exposure. The risk assessment function is not a controlled function itself, but is part of the systems and controls function (CF28).

Management information

SYSC 3.2.11

handbook-guidance
  1. (1) A firm's arrangements should be such as to furnish its governing body with the information it needs to play its part in identifying, measuring, managing and controlling risks of regulatory concern. Three factors will be the relevance, reliability and timeliness of that information.
  2. (2) Risks of regulatory concern are those risks which relate to the fair treatment of the firm's customers, to the protection of consumers, to confidence in the financial system, and to the use of that system in connection with financial crime.

SYSC 3.2.12

handbook-guidance
It is the responsibility of the firm to decide what information is required, when, and for whom, so that it can organise and control its activities and can comply with its regulatory obligations. The detail and extent of information required will depend on the nature, scale and complexity of the business.

Employees and agents

SYSC 3.2.13

handbook-guidance
A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it.

SYSC 3.2.14

handbook-guidance
  1. (1) SYSC 3.2.13 G includes assessing an individual's honesty, and competence. This assessment should normally be made at the point of recruitment. An individual's honesty need not normally be revisited unless something happens to make a fresh look appropriate.
  2. (2) Any assessment of an individual's suitability should take into account the level of responsibility that the individual will assume within the firm. The nature of this 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.
  3. (3) The FSA's detailed requirements on firms with respect to the competence of individuals are in the Training and Competence sourcebook (TC).[deleted]
  4. (4) The requirements on firms with respect to approved persons are in Part V of the Act (Performance of regulated activities) and SUP 10.

Audit committee

SYSC 3.2.15

handbook-guidance
Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to form an audit committee. An audit committee could typically examine management's process for ensuring the appropriateness and effectiveness of systems and controls, examine the arrangements made by management to ensure compliance with requirements and standards under the regulatory system, oversee the functioning of the internal audit function (if applicable - see SYSC 3.2.16 G) and provide an interface between management and the external auditors. It should have an appropriate number of non-executive directors and it should have formal terms of reference.

Internal audit

SYSC 3.2.16

handbook-guidance

Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to delegate much of the task of monitoring the appropriateness and effectiveness of its systems and controls to an internal audit function. An internal audit function should have clear responsibilities and reporting lines to an audit committee or appropriate senior manager, be adequately resourced and staffed by competent individuals, be independent of the day-to-day activities of the firm and have appropriate access to a firm's records.

  1. (1) Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to delegate much of the task of monitoring the appropriateness and effectiveness of its systems and controls to an internal audit function. An internal audit function should have clear responsibilities and reporting lines to an audit committee or appropriate senior manager, be adequately resourced and staffed by competent individuals, be independent of the day-to-day activities of the firm and have appropriate access to a firm's records.
  2. (2) The term 'internal audit function' refers to the generally understood concept of internal audit within a firm, that is, the function of assessing adherence to and the effectiveness of internal systems and controls, procedures and policies. The internal audit function is not a controlled function itself, but is part of the systems and controls function (CF28).

Business strategy

SYSC 3.2.17

handbook-guidance

A firm should plan its business appropriately so that it is able to identify, measure, manage and control risks of regulatory concern (see SYSC 3.2.11 G (2)). In some firms, depending on the nature, scale and complexity of their business, it may be appropriate to have business plans or strategy plans documented and updated on a regular basis to take account of changes in the business environment.

Remuneration policies

SYSC 3.2.18

handbook-guidance

It is possible that firms' remuneration policies will from time to time lead to tensions between the ability of the firm to meet the requirements and standards under the regulatory system and the personal advantage of those who act for it. Where tensions exist, these should be appropriately managed.

Business continuity

SYSC 3.2.19

handbook-guidance

A firm should have in place appropriate arrangements, having regard to the nature, scale and complexity of its business, to ensure that it can continue to function and meet its regulatory obligations in the event of an unforeseen interruption. These arrangements should be regularly updated and tested to ensure their effectiveness.

Records

SYSC 3.2.20

handbook-rule
  1. (1) A firm must take reasonable care to make and retain adequate records of matters and dealings (including accounting records) which are the subject of requirements and standards under the regulatory system.
  2. (2) Subject to (3) and to any other record-keeping rule in the Handbook, the records required by (1) or by such other rule must be capable of being reproduced in the English language on paper.
  3. (3) If a firm's records relate to business carried on from an establishment in a country or territory outside the United Kingdom, an official language of that country or territory may be used instead of the English language as required by (2).

SYSC 3.2.21

handbook-guidance

A firm should have appropriate systems and controls in place to fulfil the firm's regulatory and statutory obligations with respect to adequacy, access, periods of retention and security of records. The general principle is that records should be retained for as long as is relevant for the purposes for which they are made.

SYSC 3.2.22

handbook-guidance

Detailed record-keeping requirements for different types of firm are to be found elsewhere in the Handbook. Schedule 1 to the Handbook is a consolidated schedule of these requirements.

Export chapter as

SYSC 3A

SYSC 3A

SYSC 3A.10.1

handbook-guidance

Whilst a firm may take out insurance with the aim of reducing the monetary impact of operational risk events, non-monetary impacts may remain (including impact on the firm's reputation). A firm should not assume that insurance alone can replace robust systems and controls.

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SYSC 3A.10.2

handbook-guidance

When considering utilising insurance, a firm should consider:

  1. (1) the time taken for the insurer to pay claims (including the potential time taken in disputing cover) and the firm's funding of operations whilst awaiting payment of claims;
  2. (2) the financial strength of the insurer, which may determine its ability to pay claims, particularly where large or numerous small claims are made at the same time; and
  3. (3) the effect of any limiting conditions and exclusion clauses that may restrict cover to a small number of specific operational losses and may exclude larger or hard to quantify indirect losses (such as lost business or reputational costs).
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Export chapter as

SYSC 4

Guidance on Public Interest Disclosure Act: Whistleblowing

SYSC 4.1

Application and purpose

SYSC 4.1.1

handbook-guidance

This chapter is relevant to every firm to the extent that the Public Interest Disclosure Act 1998 ("PIDA") applies to it.

Purpose

SYSC 4.1.2

handbook-guidance
  1. (1) The purposes of this chapter are:
    1. (a) to remind firms of the provisions of PIDA; and
    2. (b) to encourage firms to consider adopting and communicating to workers appropriate internal procedures for handling workers' concerns as part of an effective risk management system.
  2. (2) In this chapter "worker" includes, but is not limited to, an individual who has entered into a contract of employment.

SYSC 4.1.3

handbook-guidance

The guidance in this chapter concerns the effect of PIDA in the context of the relationship between firms and the FSA. It is not comprehensive guidance on PIDA itself.

SYSC 4.1.8A

handbook-rule

An operator of an electronic system in relation to lending must take reasonable steps to ensure that arrangements are in place to ensure that P2P agreements facilitated by it will continue to be managed and administered, in accordance with the contract terms, if at any time it ceases to carry on the activity of operating an electronic system in relation to lending

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SYSC 4.2

Practical measures

Effect of PIDA

SYSC 4.2.1

handbook-guidance
  1. (1) Under PIDA, any clause or term in an agreement between a worker and his employer is void in so far as it purports to preclude the worker from making a protected disclosure (that is, "blow the whistle").
  2. (2) In accordance with section 1 of PIDA:
    1. (a) a protected disclosure is a qualifying disclosure which meets the relevant requirements set out in that section;
    2. (b) a qualifying disclosure is a disclosure, made in good faith, of information which, in the reasonable belief of the worker making the disclosure, tends to show that one or more of the following (a "failure") has been, is being, or is likely to be, committed:
      1. (i) a criminal offence; or
      2. (ii) a failure to comply with any legal obligation; or
      3. (iii) a miscarriage of justice; or
      4. (iv) the putting of the health and safety of any individual in danger; or
      5. (v) damage to the environment; or
      6. (vi) deliberate concealment relating to any of (i) to (v);
it is immaterial whether the relevant failure occurred, occurs or would occur in the United Kingdom or elsewhere, and whether the law applying to it is that of the United Kingdom or of any other country or territory.

Internal procedures

SYSC 4.2.2

handbook-guidance
  1. (1) Firms are encouraged to consider adopting (and encouraged to invite their appointed representatives to consider adopting) appropriate internal procedures which will encourage workers with concerns to blow the whistle internally about matters which are relevant to the functions of the FSA.
  2. (2) Smaller firms may choose not to have as extensive procedures in place as larger firms. For example, smaller firms may not need written procedures. The following is a list of things that larger and smaller firms may want to do.
    1. (a) For larger firms, appropriate internal procedures may include:
      1. (i) a clear statement that the firm takes failures seriously (see SYSC 4.2.1 G (2)(b));
      2. (ii) an indication of what is regarded as a failure;
      3. (iii) respect for the confidentiality of workers who raise concerns, if they wish this;
      4. (iv) an assurance that, where a protected disclosure has been made, the firm will take all reasonable steps to ensure that no person under its control engages in victimisation;
      5. (v) the opportunity to raise concerns outside the line management structure, such as with the Compliance Director, Internal Auditor or Company Secretary;
      6. (vi) penalties for making false and malicious allegations;
      7. (vii) an indication of the proper way in which concerns may be raised outside the firm if necessary (see (3);
      8. (viii) providing access to an external body such as an independent charity for advice;
      9. (ix) making whistleblowing procedures accessible to staff of key contractors; and
      10. (x) written procedures.
    2. (b) For smaller firms, appropriate internal procedures may include:
      1. (i) telling workers that the firm takes failures seriously (see SYSC 4.2.1 G (2)(b)) and explaining how wrongdoing affects the organisation;
      2. (ii) telling workers what conduct is regarded as failure;
      3. (iii) telling workers who raise concerns that their confidentiality will be respected, if they wish this;
      4. (iv) making it clear that concerned workers will be supported and protected from reprisals;
      5. (v) nominating a senior officer as an alternative route to line management and telling workers how they can contact that individual in confidence;
      6. (vi) making it clear that false and malicious allegations will be penalised by the firm;
      7. (vii) telling workers how they can properly blow the whistle outside the firm if necessary (see (3);
      8. (viii) providing access to an external body for advice such as an independent charity for advice; and
      9. (ix) encouraging managers to be open to concerns.
  3. (3)
    1. (a) Firms should also consider telling workers (through the firm's internal procedures, or by means of an information sheet available from the FSA's website, or by some other means) that they can blow the whistle to the FSA, as the regulator prescribed in respect of financial services and markets matters under PIDA.
    2. (b) The FSA will give priority to live concerns or matters of recent history, and will emphasise that the worker's first port of call should ordinarily be the firm (see Frequently Asked Questions on www.fsa.gov.uk/whistle/).
    3. (c) For the FSA's treatment of confidential information, see SUP 2.2.4 G.

Links to fitness and propriety

SYSC 4.2.3

handbook-guidance

The FSA would regard as a serious matter any evidence that a firm had acted to the detriment of a worker because he had made a protected disclosure (see SYSC 4.2.1 G (2) about matters which are relevant to the functions of the FSA. Such evidence could call into question the fitness and propriety of the firm or relevant members of its staff, and could therefore, if relevant, affect the firm's continuing satisfaction of threshold condition 5 (Suitability) or, for an approved person, his status as such.

Export chapter as

SYSC App 1

Matters
reserved to a Home State regulator (see SYSC 1.1.1 R (1)(b) and SYSC 1.1.1
R (1)(c))

SYSC App 1.1

Matters reserved to a Home State regulator (see SYSC 1.1.1 R (1)(b) and SYSC 1.1.1 R (1)(c))

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SYSC App 1.1.1

handbook-guidance
The application of SYSC 2.1.3 R, SYSC 2.2.3 G and SYSC 3 to an incoming EEA firm or incoming Treaty firm depends on whether responsibility for the matter in question is reserved to the firm's Home State regulator. This appendix contains guidance designed to assist such firms in understanding the application of those provisions. This appendix is not concerned with the FSA's rights to take enforcement action against an incoming EEA firm or an incoming Treaty firm, which are covered in the Enforcement manual (ENF), or with the position of a firm with a top-up permission.

SYSC App 1.1.2

handbook-guidance

The Single Market Directives and the Treaty (as interpreted by the European Court of Justice) adopt broadly similar approaches to reserving responsibility to the Home State regulator. To summarise, the FSA, as Host State regulator, is entitled to impose requirements with respect to activities carried on within the United Kingdom if these can be justified in the interests of the "general good" and are imposed in a non-discriminatory way. This general proposition is subject to the following in relation to activities passported under the Single Market Directives:

  1. (1) the Single Market Directives expressly reserve responsibility for the prudential supervision of an ISD investment firm, BCD credit institution, UCITS management company or passporting insurance undertaking to the firm's Home State regulator. The IMD reaches the same position without expressly referring to the concept of prudential supervision. Accordingly, the FSA, as Host State regulator, is entitled to regulate only the conduct of the firm's business within the United Kingdom;
  2. (2) article 11 of the ISD sets out various rules of conduct which the FSA, as Host State regulator, is required to impose on an ISD investment firm (including a BCD credit institution which is an ISD investment firm) in relation to core investment services (and, where appropriate, to non-core investment services) provided within the United Kingdom;
  3. (3) for a BCD credit institution, the FSA, as Host State regulator, is jointly responsible with the Home State regulator under article 27 of the Banking Consolidation Directive for supervision of the liquidity of a branch in the United Kingdom;
  4. (4) for an ISD investment firm (including a BCD credit institution which is an ISD investment firm), the protection of clients' money and clients' assets is reserved to the Home State regulator under the ISD; and
  5. (5) responsibility for participation in compensation schemes for BCD credit institutions and ISD investment firms is reserved in most cases to the Home State regulator under the Deposit Guarantee Directive and the Investor Compensation Directive.

SYSC App 1.1.3

handbook-guidance
It is necessary to refer to the case law of the European Court of Justice to interpret the concept of the "general good". To summarise, to satisfy the general good test, Host State rules must come within a field which has not been harmonised at a Community level, satisfy the general requirements that they pursue an objective of the general good, be non-discriminatory, be objectively necessary, be proportionate to the objective pursued and not already be safeguarded by rules to which the firm is subject in its Home State.
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SYSC App 1.1.4

handbook-guidance
The FSA considers that it is entitled, in the interests of the general good, to impose the requirements in SYSC 2.1.3 R to SYSC 2.2.3 G (in relation to the allocation of the function in SYSC 2.1.3 R (2)) and SYSC 3 on an incoming EEA firm and an incoming Treaty firm; but only in so far as they relate to those categories of matter responsibility for which is not reserved to the firm's Home State regulator.
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SYSC App 1.1.5

handbook-guidance
Should the FSA become aware of anything relating to an incoming EEA firm or incoming Treaty firm (whether or not relevant to a matter for which responsibility is reserved to the Home State regulator), the FSA may disclose it to the Home State regulator in accordance with any applicable directive and the applicable restrictions in Part XXIII of the Act (Public Record, Disclosure of Information and Co-operation).
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SYSC App 1.1.6

handbook-guidance
This appendix represents the FSA's views, but a firm is also advised to consult the relevant European Community instrument and, where necessary, seek legal advice. The views of the European Commission in the banking and insurance sectors are contained in two Commission Interpretative Communications (Nos. 97/C209/04 and C(1999)5046).
  • 01/12/2001

SYSC App 1.1.7

handbook-guidance
AUTH 5 Annex 1 G summarises the application of the Handbook to an incoming EEA firm. That annex indicates in broad terms, and in relation to such firms, those categories of matter which are reserved to a Home State regulator and those which the FSA, as Host State regulator, is entitled to regulate when carried on within the United Kingdom.

SYSC App 1.1.9

handbook-guidance
See also Question 12 in SYSC 2.1.6 G for guidance on the application of SYSC 2.1.3 R (2).
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Export chapter as

Transitional Provisions and Schedules

SYSC TP 1

Transitional provisions

SYSC TP 1.1

SYSC Sch 1

Record keeping requirements

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SYSC Sch 1.1

handbook-guidance

SYSC Sch 1.2

handbook-guidance

SYSC Sch 2

Notification requirements

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SYSC Sch 2.1

handbook-guidance

SYSC Sch 3

Fees and other required payments

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SYSC Sch 3.1

handbook-guidance

SYSC Sch 4

Powers exercised

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SYSC Sch 4.1

handbook-guidance

SYSC Sch 5

Rights of action for damages

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SYSC Sch 5.1

handbook-guidance
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SYSC Sch 5.2

handbook-guidance
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SYSC Sch 5.3

handbook-guidance
  • 01/12/2004

SYSC Sch 5.4

handbook-guidance

SYSC Sch 6

Rules that can be waived

  • 01/12/2004

SYSC Sch 6.1

handbook-guidance

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