SYSC 1
Application and purpose
SYSC 1.1A
Application
- 01/04/2009
SYSC 1.1A.1
See Notes
Type of firm | Applicable chapters |
Insurer | Chapters 2, 3, to 18 |
Managing agent | Chapters 2, 3, 11, 12, 18 |
Society | Chapters 2, 3, 12, 18 |
Every other firm | Chapters 4 to 12, 18 |
- 01/04/2009
SYSC 1.2
Purpose
- 01/12/2004
SYSC 1.2.1
See Notes
The purposes of SYSC are:
- (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) 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;
- (3) to encourage firms to vest responsibility for effective and responsible organisation in specific directors and senior managers; and
- (4) to create a common platform of organisational and systems and controls requirements for all firms.
- (5) [deleted]
- 01/04/2009
SYSC 1.4
Application of SYSC 11 to SYSC 18
- 01/01/2007
What?
SYSC 1.4.1
See Notes
- 01/01/2007
Actions for damages
SYSC 1.4.2
See Notes
- 01/01/2007
SYSC 1 Annex 1
Detailed application of SYSC
- 01/04/2009
Part 1 | Application of SYSC 2 and SYSC 3 to an insurer, a managing agent and the Society | ||||
Who? | |||||
1.1 | R | SYSC 2 and SYSC 3 only apply to an insurer, a managing agent and the Society except that: | |||
(1) | for an incoming EEA firm or an incoming Treaty firm: | ||||
(a) | SYSC 2.1.1 R and SYSC 2.1.2 G do not apply; | ||||
(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 an EUinstrument to the firm'sHome State regulator; and | ||||
(c) | SYSC 3 applies, but only in so far as responsibility for the matter in question is not reserved by an EU instrument to the firm'sHome State regulator; | ||||
(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) | for an incoming Treaty firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom, SYSC 3.2.6A R to SYSC 3.2.6J G do not apply; | ||||
(4) | for a sole trader: | ||||
(a) | SYSC 2 applies but only if he employs any person who is required to be approved under section 59 of the Act (Approval for particular arrangements); | ||||
(b) | SYSC 3.2.6I R does not apply if he has no employees; and | ||||
(5) | SYSC 2 and SYSC 3 do not apply to an incoming ECA provider acting as such. | ||||
1.2 | G | (1) | Question 12 in SYSC 2.1.6 G contains guidance on SYSC 1 Annex 1.1.1R(1)(b) and SYSC 1 Annex 1.1.1R(1)(c). | ||
(2) | SYSC 1 Annex 1.1.8R further restricts the territorial application of SYSC 2 and SYSC 3 for an incoming EEA firm or an incoming Treaty firm. | ||||
(3) | SYSC 1 Annex 1.1.1R(3) puts an 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. | ||||
(4) | Further guidance on which matters are reserved to a firm'sHome State regulator can be found at SUP 13A Annex 2. | ||||
What? | |||||
1.3 | R | SYSC 2 and SYSC 3 apply with respect to the carrying on of: | |||
(1) | regulated activities; | ||||
(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) | 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 Annex 1.1.4R. | |||||
1.4 | R | SYSC 3.2.6A R to SYSC 3.2.6J G do not apply: | |||
(1) | with respect to the activities described in SYSC 1 Annex 1.1.3R(2) and SYSC 1 Annex 1.1.3R(3); or | ||||
(2) | in relation to the following regulated activities: | ||||
(a) | general insurance business; | ||||
(b) | insurance mediation activity in relation to a general insurance contract or pure protection contract; | ||||
(c) | long-term insurance business which is outside the Consolidated Life Directive (unless it is otherwise one of the regulated activities specified in this rule); | ||||
(d) | business relating to contracts which are within the Regulated Activities Order only because they fall within paragraph (e) of the definition of "contract of insurance" in article 3 of that Order; | ||||
(e) | (i) | arranging, by the Society, of deals in general insurance contracts written at Lloyd's; and | |||
(ii) | managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; | ||||
(f) | home finance mediation activity and administering a home finance transaction; and | ||||
(g) | reversion activity. | ||||
1.5 | R | SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G, also apply with respect to the communication and approval of financial promotions which: | |||
(1) | if communicated by an unauthorised person without approval would contravene section 21(1) of the Act (Restrictions on financial promotion); and | ||||
(2) | may be communicated by a firm without contravening section 238(1) of the Act (Restrictions on promotion of collective investment schemes). | ||||
1.6 | R | SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G, also: | |||
(1) | apply with respect to the carrying on of unregulated activities in a prudential context; and | ||||
(2) | take into account any activity of other members of a group of which the firm is a member. | ||||
1.7 | G | SYSC 1 Annex 1.1.6R(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. | |||
Where? | |||||
1.8 | R | SYSC 2 and SYSC 3 apply with respect to activities carried on from an establishment maintained by the firm (or its appointed representative or, where applicable, its tied agent) 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. | |||
1.9 | R | SYSC 2 and SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G, also apply in a prudential context to a UK domestic firm with respect to activities wherever they are carried on. | |||
1.10 | R | SYSC 3, except SYSC 3.2.6A R to SYSC 3.2.6J G, also applies in a prudential context to an overseas firm (other than an incoming EEA firm or an incoming Treaty firm) with respect to activities wherever they are carried on. | |||
1.11 | G | (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) | 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 SYSCrules are similarly limited in scope. | ||||
Actions for damages | |||||
1.12 | R | 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). |
Part 2 | Application of the common platform requirements (SYSC 4 to 10) | ||||
Who? | |||||
2.1 | R | The common platform requirements apply to every firm apart from an insurer, a managing agent and the Society unless provided otherwise in a specific rule. | |||
2.2 | R | For an incoming EEA firm or an incoming Treaty firm: | |||
(1) | the rule on responsibility of senior personnel (SYSC 4.3) does not apply; | ||||
(2) | the common platform requirements apply only in so far as responsibility for the matter in question is not reserved by an EU instrument to the firm'sHome State regulator; | ||||
(3) | 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, the common platform requirements do not apply; | ||||
(4) | for an incoming Treaty firm which has permission only for cross-border services and which does not carry on regulated activities in the United Kingdom, the common platform requirements on financial crime do not apply. | ||||
2.3 | R | For a sole trader: | |||
(1) | SYSC 4.3 and 4.4 do not apply 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); | ||||
(2) | SYSC 4.1.4 R and SYSC 6.3.9 R do not apply if he has no employees. | ||||
2.4 | R | For a UCITS qualifier: | |||
(1) | the rule on responsibility of senior personnel (SYSC 4.3) does not apply; and | ||||
(2) | the common platform requirements apply in relation to the communication and approval of financial promotions only as set out in SYSC 1 Annex 1.2.12R. | ||||
[Note: section 266 of the Act.] | |||||
2.5 | R | For an authorised professional firm when carrying on non-mainstream regulated activities, the common platform requirements on financial crime, conflicts of interest and Chinese walls do not apply. | |||
2.6 | R | The common platform requirements do not apply to an incoming ECA provider acting as such. | |||
2.7 | G | EEA MiFID investment firms are reminded in particular that they must comply with the common platform record-keeping requirements in relation to a branch in the United Kingdom. | |||
What? | |||||
2.8 | R | The common platform organisational requirements apply with respect to the carrying on of the following (unless provided otherwise within a specific rule): | |||
(1) | regulated activities; | ||||
(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); | ||||
(3) | ancillary activities; and | ||||
(4) | in relation to MiFID business, ancillary services. | ||||
2.9 | G | The application of the provisions on the conflicts of interest in SYSC 10 is set out in SYSC 10.1.1 R and SYSC 10.2.1 R | |||
2.10 | R | The provisions on record-keeping in SYSC 9 apply as set out in SYSC 1 Annex 1.2.8R, except that they only apply to the carrying on of ancillary activities that are performed in relation to: | |||
(1) | designated investment business; | ||||
(2) | home finance activity; and | ||||
(3) | insurance mediation activity . | ||||
2.11 | R | The common platform requirements on financial crime apply as set out in SYSC 1 Annex 1.2.8R, except that they do not apply: | |||
(1) | with respect to: | ||||
(a) | 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 | ||||
(b) | ancillary activities; or | ||||
(2) | in relation to the following regulated activities: | ||||
(a) | general insurance business; | ||||
(b) | insurance mediation activity in relation to a general insurance contract or pure protection contract; | ||||
(c) | long-term insurance business which is outside the Consolidated Life Directive (unless it is otherwise one of the regulated activities specified in this rule); | ||||
(d) | business relating to contracts which are within the Regulated Activities Order only because they fall within paragraph (e) of the definition of "contract of insurance" in article 3 of that Order; | ||||
(e) | (i) | arranging by the Society of deals in general insurance contracts written at Lloyd's; and | |||
(ii) | managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; | ||||
(f) | home finance mediation activity and administering a home finance transaction; | ||||
(g) | reversion activity ; and | ||||
(h) | meeting of repayment claims and managing dormant account funds (including the investment of such funds). | ||||
2.12 | R | The common platform organisational requirements, except the common platform requirements on financial crime, also apply with respect to the communication and approval of financial promotions which: | |||
(1) | if communicated by an unauthorised person without approval would contravene section 21(1) of the Act (Restrictions on financial promotion); and | ||||
(2) | may be communicated by a firm without contravening section 238(1) of the Act (Restrictions on promotion of collective investment schemes). | ||||
2.13 | R | The common platform organisational requirements, except the common platform requirements on financial crime, also: | |||
(1) | apply with respect to the carrying on of unregulated activities in a prudential context; and | ||||
(2) | take into account any activity of other members of a group of which the firm is a member. | ||||
2.14 | G | SYSC 1 Annex 1.2.13R(2) does not mean that inadequacy of a group member's systems and controls will automatically lead to a firm contravening any of the common platform organisational requirements. 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. | |||
Where? | |||||
2.15 | R | The common platform requirements, except the common platform record-keeping requirements, apply to a firm in relation to activities carried on by it from an establishment in the United Kingdom. | |||
2.16 | R | The common platform requirements, except the common platform requirements on financial crime and the common platform record-keeping requirements, apply to a firm in relation to passported activities carried on by it from a branch in another EEA State. | |||
2.17 | R | The common platform record-keeping requirements apply to activities carried on by a firm from an establishment maintained in the United Kingdom, unless another applicable rule which is relevant to the activity has a wider territorial scope, in which case the common platform record-keeping requirements apply with that wider scope in relation to the activity described in that rule. | |||
[Note: article 13(9) of MiFID] | |||||
2.18 | R | The common platform organisational requirements, except the common platform requirements on financial crime, also apply in a prudential context to a UK domestic firm and to an overseas firm (other than an incoming EEA firm or an Incoming Treaty firm) with respect to activities wherever they are carried on. | |||
Actions for damages | |||||
2.19 | R | A contravention of a rule in the common platform requirements 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). |
Part 3 | Tables summarising the application of the common platform requirements to different types of firm | ||||
3.1 | G | The common platform requirements apply in the following two ways (subject to the provisions in Part 2 of this Annex). | |||
3.2 | G | For a common platform firm, they apply in accordance with Column A in the table below. | |||
3.3 | G | For all other firms apart from insurers, managing agentsand the Society, they apply in accordance with Column B in the table below. For these firms, where a rule is shown modified in Column B as 'Guidance', it should be read as guidance (as if "should" appeared in that rule instead of "must") and should be applied in a proportionate manner, taking into account the nature, scale and complexity of the firm's business. |
Provision SYSC 4 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 4.1.1 R | Rule | Rule |
SYSC 4.1.2 R | Rule | Guidance |
SYSC 4.1.2A G | Not applicable | Guidance |
SYSC 4.1.3 R | Rule applies only to a BIPRU firm | Not applicable |
SYSC 4.1.4 R | Rule | (1) and (3) Guidance (2) Rule |
SYSC 4.1.4A G | Not applicable | Guidance |
SYSC 4.1.5 R | Rule applies only to a MiFID investment firm | Not applicable |
SYSC 4.1.6 R | Rule | Guidance |
SYSC 4.1.7 R | Rule | Guidance |
SYSC 4.1.7A G | Not applicable | Guidance |
SYSC 4.1.8 G | Guidance | Guidance |
SYSC 4.1.9 R | Rule | Not applicable |
SYSC 4.1.10 R | Rule | Guidance - except reference to SYSC 4.1.9 R which does not apply to these firms |
SYSC 4.1.10A G | Not applicable | Guidance |
SYSC 4.1.11 G | Guidance | Guidance |
SYSC 4.2.1 R | Rule | |
SYSC 4.2.1A G | Not applicable |
-Guidance
|
SYSC 4.2.2 R | Rule | |
SYSC 4.2.3 G - 4.2.5 G | Guidance | |
SYSC 4.2.6 R | Rule | |
SYSC 4.3.1 R | Rule | Rule (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) |
SYSC 4.3.2 R | Rule | Guidance (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) |
SYSC 4.3.2A G | Not applicable | Guidance (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) |
SYSC 4.3.3 G | Guidance | Guidance (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) |
SYSC 4.4.1 R | Not applicable | Rule applies this section only to: (1) an authorised professional firm in respect of its non-mainstream regulated activities unless the firm is also conducting other regulated activities and has appointed approved persons to perform the governing functions with equivalent responsibilities for the firm'snon-mainstream regulated activities and other regulated activities; (2) activities carried on by a firm whose principal purpose is to carry on activities other than regulated activities and which is: (a) an oil market participant; (b) a service company; (c) an energy market participant (d) a wholly-owned subsidiary of: (i) a local authority (ii) a registered social landlord;
(e) a firm with permission to carry on insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity;(3) an incoming Treaty firm, an incoming EEA firm and a UCITS qualifier, (but only SYSC 4.4.5R (2) applies for these firms); and (4) a sole trader, but only if he employs any person who is required to be approved under section 59 of the Act (Approval for particular arrangements). |
SYSC 4.4.2 G | Not applicable | Guidance only applying to the firms specified in SYSC 4.4.1 R |
SYSC 4.4.3 R | Not applicable | Rule only applying to the firms specified in SYSC 4.4.1 R |
SYSC 4.4.4 G | Not applicable | Guidance only applying to the firms specified in SYSC 4.4.1 R |
SYSC 4.4.5 R | Not applicable | Rule only applying to the firms specified in SYSC 4.4.1 R |
Provision SYSC 5 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 5.1.1 R | Rule | Rule |
SYSC 5.1.2 G | Guidance | Guidance |
SYSC 5.1.3 G | Guidance | Guidance |
SYSC 5.1.4 G | Guidance | Guidance |
SYSC 5.1.4A G | Guidance | Guidance |
SYSC 5.1.5 G | Guidance | Guidance |
SYSC 5.1.5A G | Guidance | Guidance |
SYSC 5.1.6 R | Rule | Guidance |
SYSC 5.1.7 R | Rule | Guidance |
SYSC 5.1.7A G | Not applicable | Guidance |
SYSC 5.1.8 G | Guidance | Guidance |
SYSC 5.1.9 G | Guidance | Guidance |
SYSC 5.1.10 G | Guidance | Guidance |
SYSC 5.1.11 G | Guidance | Guidance |
SYSC 5.1.12 R | Rule | Guidance |
SYSC 5.1.12A G | Not applicable | Guidance |
SYSC 5.1.13 R | Rule | Rule |
SYSC 5.1.14 R | Rule | Guidance |
SYSC 5.1.15 G | Not applicable | Guidance |
Provision SYSC 6 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 6.1.1 R | Rule | Rule |
SYSC 6.1.2 R | Rule | Guidance |
SYSC 6.1.2A G | Not applicable | Guidance |
SYSC 6.1.3 R | Rule |
-Guidance-This provision shall be read with the following additional sentence at the start.
"Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate compliance function. Where a firm has a separate compliance function, the firm should also take into account 6.1.3 R and 6.1.4 R as guidance." |
SYSC 6.1.3A G | Not applicable | Guidance |
SYSC 6.1.4 R | Rule | (1) (3) and (4) Guidance (2) -Rule for firms which carry on designated investment business with or for retail clients or professional clients.-Guidance for all other firms.
|
SYSC 6.1.5 R | Rule | |
SYSC 6.1.6 R | Not applicable | Guidance |
SYSC 6.2.1 R | Rule | Guidance |
SYSC 6.2.1A G | Not applicable | Guidance |
SYSC 6.2.2 G | Guidance | Guidance |
SYSC 6.3.1 R | Rule | Rule |
SYSC 6.3.2 G | Guidance | Guidance |
SYSC 6.3.3 R | Rule | Rule |
SYSC 6.3.4 G | Guidance | Guidance |
SYSC 6.3.5 G | Guidance | Guidance |
SYSC 6.3.6 G | Guidance | Guidance |
SYSC 6.3.7 G | Guidance | Guidance |
SYSC 6.3.8 R | Rule | Rule |
SYSC 6.3.9 R | Rule | Rule |
SYSC 6.3.10 G | Guidance | Guidance |
Provision SYSC 7 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 7.1.1 G | Guidance | Guidance |
SYSC 7.1.2 R | Rule | Guidance |
SYSC 7.1.2A G | Not applicable | Guidance |
SYSC 7.1.3 R | Rule | Guidance |
SYSC 7.1.4 R | Rule | Guidance |
SYSC 7.1.4A G | Not applicable | Guidance |
SYSC 7.1.5 R | Rule | Guidance |
SYSC 7.1.6 R | Rule | Guidance |
SYSC 7.1.7 R | Rule | Guidance |
SYSC 7.1.7A G | Not applicable | Guidance |
SYSC 7.1.8G (1), (2) | (1) Guidance applies only to a BIPRU firm (2) Guidance |
(1) Not applicable (2) Guidance |
SYSC 7.1.9 R | Rule applies only to a BIPRU firm | Not applicable |
SYSC 7.1.10 R | Rule applies only to a BIPRU firm | Not applicable |
SYSC 7.1.11 R | Rule applies only to a BIPRU firm | Not applicable |
SYSC 7.1.12 G | Guidance applies only to a BIPRU firm | Not applicable |
SYSC 7.1.13 R - 7.1.16 R | Rule applies only to a BIPRU firm | Not applicable |
Provision SYSC 8 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 8.1.1 R | Rule | Guidance |
SYSC 8.1.1A G | Not applicable | Guidance |
SYSC 8.1.2 G | Guidance | Guidance |
SYSC 8.1.3 G | Guidance | Guidance |
SYSC 8.1.4 R | Rule | Guidance |
SYSC 8.1.5 R | Rule | Guidance |
SYSC 8.1.5A G | Not applicable | Guidance |
SYSC 8.1.6 R | Rule | Rule |
SYSC 8.1.7 R | Rule | Guidance |
SYSC 8.1.8 R | Rule | Guidance |
SYSC 8.1.9 R | Rule | Guidance |
SYSC 8.1.10 R | Rule | Guidance |
SYSC 8.1.11 R | Rule | Guidance |
SYSC 8.1.11A G | Not applicable | Guidance |
SYSC 8.1.12 G | Guidance | Guidance |
SYSC 8.2 | MiFID investment firms only | Not applicable |
SYSC 8.3 | MiFID investment firms only | Not applicable |
Provision SYSC 9 |
COLUMN A Application to a common platform firm |
COLUMN B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 9.1.1 R | Rule | Rule |
SYSC 9.1.2 R | Rule applies only in relation to MiFID business | Not applicable |
SYSC 9.1.3 R | Rule applies only in relation to MiFID business | Not applicable |
SYSC 9.1.4 G | Guidance | Guidance |
SYSC 9.1.5 G | Guidance | Guidance |
SYSC 9.1.6 G | Guidance | Guidance |
SYSC 9.1.7 G | Guidance applies only in relation to MiFID business | Not applicable |
Provision SYSC 10 |
Column A Application to a common platform firm |
Column B Application to all other firms apart from insurers, managing agents and the Society |
SYSC 10.1.1 R | Rule | Rule |
SYSC 10.1.2 G | Guidance | Guidance |
SYSC 10.1.3 R | Rule | Rule |
SYSC 10.1.4 R | Rule | Guidance - but applies as a rule in relation to the production or arrangement of production of investment research in accordance with COBS 12.2, or the production or dissemination of non-independent research in accordance with COBS 12.3 |
SYSC 10.1.4A G | Not applicable | Guidance |
SYSC 10.1.5 G | Guidance | Guidance |
SYSC 10.1.6 R | Rule | Guidance - but applies as a rule in relation to the production or arrangement of production of investment research in accordance withCOBS 12.2 , or the production or dissemination of non-independent research in accordance with COBS 12.3 |
SYSC 10.1.6A G | Not applicable | Guidance |
SYSC 10.1.7 R | Rule | Rule |
SYSC 10.1.8 R | Rule | Rule |
SYSC 10.1.8A R | Rule | Rule |
SYSC 10.1.9 G | Guidance | Guidance |
SYSC 10.1.10 R | Rule | Guidance - but applies as a rule in relation to the production or arrangement of production of investment research in accordance with COBS 12.2, or the production or dissemination of non-independent research in accordance with COBS 12.3 |
SYSC 10.1.11 R | Rule | Guidance - but applies as a rule in relation to the production or arrangement of production of investment research in accordance with COBS 12.2, or the production or dissemination of non-independent research in accordance with COBS 12.3 |
SYSC 10.1.11A G | Not applicable | Guidance |
SYSC 10.1.12 G - SYSC 10.1.15 G | Guidance | Guidance |
SYSC 10.1.16 R | Not applicable | Rule |
SYSC 10.2.1 R | Rule | Rule |
SYSC 10.2.2 R | Rule | Rule |
SYSC 10.2.3 G | Guidance | Guidance |
SYSC 10.2.4 R | Rule | Rule |
SYSC 10.2.5 G | Guidance | Guidance |
- 01/12/2009
SYSC 2
Senior management arrangements
SYSC 2.1
Apportionment of Responsibilities
- 01/12/2004
SYSC 2.1.1
See Notes
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) it is clear who has which of those responsibilities; and
- (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.
- 01/12/2001
SYSC 2.1.2
See Notes
- 01/12/2001
SYSC 2.1.3
See Notes
A firm must appropriately allocate to one or more individuals, in accordance with SYSC 2.1.4 R, the functions of:
- (1) dealing with the apportionment of responsibilities under SYSC 2.1.1 R; and
- (2) overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R.
- 01/12/2001
SYSC 2.1.4
See Notes
Allocation of functions
This table belongs to SYSC 2.1.3 R
1: Firm type | 2: Allocation of both functions must be to the following individual, if any (see Note): | 3: Allocation to one or more individuals selected from this column is compulsory if there is no allocation to an individual in column 2, but is otherwise optional and additional: |
(1) A firm which is a body corporate and is a member of a group, other than a firm in row (2) | (1) the firm's chief executive (and all of them jointly, if more than one); or |
the firm's and its group's: (1) directors; and (2) senior managers |
(2) a director or senior manager responsible for the overall management of: |
||
(a) the group; or (b) a group division within which some or all of the firm's regulated activities fall |
||
(2) An incoming EEA firm or incoming Treaty firm (note: only the function in SYSC 2.1.3 R (2) must be allocated) | (not applicable) | the firm's and its group's: (1) directors; and (2) senior managers |
(3) Any other firm | the firm's chief executive (and all of them jointly, if more than one) | the firm's and its group's: (1) directors; and (2) senior manager's |
Note: Column 2 does not require the involvement of the chief executive or other executive director or senior manager in an aspect of corporate governance if that would be contrary to generally accepted principles of good corporate governance. |
- 01/12/2001
SYSC 2.1.5
See Notes
- 01/12/2001
SYSC 2.1.6
See Notes
Frequently asked questions about allocation of functions in SYSC 2.1.3 R
This table belongs to SYSC 2.1.5 G
Question | Answer | |
1 | Does an individual to whom a function is allocated under SYSC 2.1.3 R need to be an approved person? | An individual to whom a function is allocated under SYSC 2.1.3 R will be performing the apportionment and oversight function (CF 8, see SUP 10.7.1 R ) and an application must be made to the FSA for approval of the individual before the function is performed under section 59 of the Act (Approval for particular arrangements).There are exceptions from this in SUP 10.1 (Approved persons - Application). |
2 | If the allocation is to more than one individual, can they perform the functions, or aspects of the functions, separately? | If the functions are allocated to joint chief executives under SYSC 2.1.4 R, column 2, they are expected to act jointly.If the functions are allocated to an individual under SYSC 2.1.4 R, column 2, in addition to individuals under SYSC 2.1.4 R, column 3, the former may normally be expected to perform a leading role in relation to the functions that reflects his position. Otherwise, yes. |
3 | What is meant by "appropriately allocate" in this context? | The allocation of functions should be compatible with delivering compliance with Principle 3, SYSC 2.1.1 R and SYSC 3.1.1 R. The FSA considers that allocation to one or two individuals is likely to be appropriate for most firms. |
4 | If a committee of management governs a firm or group, can the functions be allocated to every member of that committee? | Yes, as long as the allocation remains appropriate (see Question 3). If the firm also has an individual as chief executive, then the functions must be allocated to that individual as well under SYSC 2.1.4 R, column 2 (see Question 7). |
5 | Does the definition of chief executive include the possessor of equivalent responsibilities with another title, such as a managing director or managing partner? | Yes. |
6 | Is it possible for a firm to have more than one individual as its chief executive? | Although unusual, some firm may wish the responsibility of a chief executive to be held jointly by more than one individual. In that case, each of them will be a chief executive and the functions must be allocated to all of them under SYSC 2.1.4 R, column 2 (see also Questions 2 and 7). |
7 | If a firm has an individual as chief executive, must the functions be allocated to that individual? | Normally, yes, under SYSC 2.1.4 R, column 2. But if the firm is a body corporate and a member of a group, the functions may, instead of to the firm's chief executive, be allocated to a director or senior manager from the group responsible for the overall management of the group or of a relevant group division, so long as this is appropriate (see Question 3). Such individuals willnevertheless require approval by the FSA (see Question 1). If the firm chooses to allocate the functions to a director or senior manager responsible for the overall management of a relevant group division, the FSA would expect that individual to be of a seniority equivalent to or greater than a chief executive of the firm for the allocation to be appropriate. See also Question 14. |
8 | If a firm has a chief executive, can the functions be allocated to other individuals in addition to the chief executive? | Yes. SYSC 2.1.4 R, column 3, permits a firm to allocate the functions, additionally, to the firm's (or where applicable the group's) directors and senior managers as long as this is appropriate (see Question 3). |
9 | What if a firm does not have a chief executive? | Normally, the functions must be allocated to one or more individuals selected from the firm's (or where applicable the group's) directors and senior managers under SYSC 2.1.4 R, column 3. But if the firm: (1) is a body corporate and a member of a group; and (2) the group has a director or senior manager responsible for the overall management of the group or of a relevant group division; then the functions must be allocated to that individual (together, optionally, with individuals from column 3 if appropriate) under SYSC 2.1.4 R, column 2. |
10 | What do you mean by "group division within which some or all of the firm's regulated activities fall"? | A "division" in this context should be interpreted by reference to geographical operations, product lines or any other method by which the group's business is divided. If the firm's regulated activities fall within more than one division and the firm does not wish to allocate the functions to its chief executive, the allocation must, under SYSC 2.1.4 R, be to: (1) a director or senior manager responsible for the overall management of the group; or (2) a director or senior manager responsible for the overall management of one of those divisions; together, optionally, with individuals from column 3 if appropriate. (See also Questions 7 and 9.) |
11 | How does the requirement to allocate the functions in SYSC 2.1.3 R apply to an overseas firm which is not an incoming EEA firm, incoming Treaty firm or UCITS qualifier? | The firm must appropriately allocate those functions to one or more individuals, in accordance with SYSC 2.1.4 R, but: (1) The responsibilities that must be apportioned and the systems and controls that must be overseen are those relating to activities carried on from a UK establishment with certain exceptions (see SYSC 1 Annex 1.1.7 R). Note that SYSC 1 Annex 1.1.10 R does not extend the territorial scope of SYSC 2 for an overseas firm. (2) The chief executive of an overseas firm is the person responsible for the conduct of the firm's business within the United Kingdom (see the definition of "chief executive"). This might, for example, be the manager of the firm's UK establishment, or it might be the chief executive of the firm as a whole, if he has that responsibility. The apportionment and oversight function applies to such a firm, unless it falls within a particular exception from the approved persons regime (see Question 1). |
12 | How does the requirement to allocate the functions in SYSC 2.1.3 R apply to an incoming EEA firm or incoming Treaty firm? | SYSC 1 Annex 1.1.1R and SYSC 1 Annex 1.1.8 R restrict the application of SYSC 2.1.3 R for such a firm. Accordingly: (1) Such a firm is not required to allocate the function of dealing with apportionment in SYSC 2.1.3 R (1). (2) Such a firm is required to allocate the function of oversight in SYSC 2.1.3 R (2). However, the systems and controls that must be overseen are those relating to matters which the FSA, as Host State regulator, is entitled to regulate (there is guidance on this in SUP 13A Annex 2 G ). Those are primarily, but not exclusively, the systems and controls relating to the conduct of the firm's activities carried on from its UK branch. (3) Such a firm need not allocate the function of oversight to its chief executive; it must allocate it to one or more directors and senior managers of the firm or the firm's group under SYSC 2.1.4 R, row (2). (4) An incoming EEA firm which has provision only for cross border services is not required to allocate either function if it does not carry on regulated activities in the United Kingdom; for example if they fall within the overseas persons exclusions in article 72 of the Regulated Activities Order. See also Questions 1 and 15. |
13 | What about a firm that is a partnership or a limited liability partnership? | The FSA envisages that most if not all partners or members will be either directors or senior managers, but this will depend on the constitution of the partnership (particularly in the case of a limited partnership) or limited liability partnership. A partnership or limited liability partnership may also have a chief executive (see Question 5). A limited liability partnership is a body corporate and, if a member of a group, will fall within SYSC 2.1.4 R, row (1) or (2). |
14 | What if generally accepted principles of good corporate governance recommend that the chief executive should not be involved in an aspect of corporate governance? | The Note to SYSC 2.1.4 R provides that the chief executive or other executive director or senior manager need not be involved in such circumstances. For example, the Combined Code developed by the Committee on Corporate Governance recommends that the board of a listed company should establish an audit committee of non-executive directors to be responsible for oversight of the audit. That aspect of the oversight function may therefore be allocated to the members of such a committee without involving the chief executive. Such individuals may require approval by the FSAin relation to that function (see Question 1). |
15 | What about electronic commerce activities carried on from an establishment in another EEA State with or for a person in the United Kingdom? | SYSC does not apply to an incoming ECA provider acting as such. |
- 01/04/2009
SYSC 2.2
Recording the apportionment
- 01/12/2004
SYSC 2.2.1
See Notes
- (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) This record must be retained for six years from the date on which it was superseded by a more up-to-date record.
- 01/12/2001
SYSC 2.2.2
See Notes
- (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) 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.
- 01/12/2001
SYSC 2.2.3
See Notes
- 01/12/2001
SYSC 3
Systems and Controls
SYSC 3.1
Systems and Controls
- 01/12/2004
SYSC 3.1.1
See Notes
- 01/12/2001
SYSC 3.1.2
See Notes
- (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:
- (a) the nature, scale and complexity of its business;
- (b) the diversity of its operations, including geographical diversity;
- (c) the volume and size of its transactions; and
- (d) the degree of risk associated with each area of its operation.
- (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) 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.
- 01/12/2001
SYSC 3.1.3
See Notes
- 01/12/2001
SYSC 3.1.4
See Notes
- 01/11/2007
SYSC 3.1.5
See Notes
- 01/12/2001
SYSC 3.1.6
See Notes
- 01/11/2007
SYSC 3.1.7
See Notes
- 01/11/2007
SYSC 3.1.8
See Notes
- 01/11/2007
SYSC 3.1.9
See Notes
- 01/11/2007
SYSC 3.1.10
See Notes
- 01/11/2007
SYSC 3.2
Areas covered by systems and controls
- 01/12/2004
Introduction
SYSC 3.2.1
See Notes
- 01/12/2001
Organisation
SYSC 3.2.2
See Notes
- 01/12/2001
SYSC 3.2.3
See Notes
- (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 or, where applicable, its tied agents, appropriate safeguards should be put in place.
- (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) The extent and limits of any delegation should be made clear to those concerned.
- (4) There should be arrangements to supervise delegation, and to monitor the discharge of delegates functions or tasks.
- (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.
- 01/11/2007
SYSC 3.2.4
See Notes
- (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) 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.
- 01/12/2001
SYSC 3.2.5
See Notes
- 01/12/2001
SYSC 3.2.5A
See Notes
- 01/01/2007
SYSC 3.2.5B
See Notes
- 01/01/2007
Systems and controls in relation to compliance, financial crime and money laundering
SYSC 3.2.6
See Notes
- 01/12/2001
SYSC 3.2.6A
See Notes
A firm must ensure that these systems and controls:
- (1) enable it to identify, assess, monitor and manage money laundering risk; and
- (2) are comprehensive and proportionate to the nature, scale and complexity of its activities.
- 01/03/2006
SYSC 3.2.6B
See Notes
- 01/03/2006
SYSC 3.2.6C
See Notes
- 01/03/2006
SYSC 3.2.6D
See Notes
- 01/03/2006
SYSC 3.2.6E
See Notes
- 01/03/2006
SYSC 3.2.6F
See Notes
In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including:
- (1) its customer, product and activity profiles;
- (2) its distribution channels;
- (3) the complexity and volume of its transactions;
- (4) its processes and systems; and
- (5) its operating environment.
- 01/03/2006
SYSC 3.2.6G
See Notes
A firm should ensure that the systems and controls include:
- (1) appropriate training for its employees in relation to money laundering;
- (2) appropriate provision of information to its governing body and senior management, including a report at least annually by that firm's money laundering reporting officer (MLRO) on the operation and effectiveness of those systems and controls;
- (3) appropriate documentation of its risk management policies and risk profile in relation to money laundering, including documentation of its application of those policies (see SYSC 3.2.20 R to SYSC 3.2.22 G);
- (4) appropriate measures to ensure that money laundering risk is taken into account in its day-to-day operation, including in relation to:
- (a) the development of new products;
- (b) the taking-on of new customers; and
- (c) changes in its business profile; and
- (5) appropriate measures to ensure that procedures for identification of new customers do not unreasonably deny access to its services to potential customers who cannot reasonably be expected to produce detailed evidence of identity.
- 01/03/2006
SYSC 3.2.6H
See Notes
- 01/03/2006
The money laundering reporting officer
SYSC 3.2.6I
See Notes
A firm must:
- (1) appoint an individual as MLRO, with responsibility for oversight of its compliance with the FSA's rules on systems and controls against money laundering; and
- (2) ensure that its MLRO has a level of authority and independence within the firm and access to resources and information sufficient to enable him to carry out that responsibility.
- 01/03/2006
SYSC 3.2.6J
See Notes
- 01/03/2006
The compliance function
SYSC 3.2.7
See Notes
- (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) [deleted]
- (3) [deleted]
- 01/03/2006
SYSC 3.2.8
See Notes
- (1) A firm which carries on designated investment business with or for retail clients or professional clients must allocate to a director or senior manager the function of:
- (a) having responsibility for oversight of the firm's compliance; and
- (b) reporting to the governing body in respect of that responsibility.
- (2) In (1) "compliance" means compliance with the rules in:
- 01/04/2009
SYSC 3.2.9
See Notes
- (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) 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.
- 01/12/2001
Risk assessment
SYSC 3.2.10
See Notes
- (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) 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) 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).
- 01/11/2007
Management information
SYSC 3.2.11
See Notes
- (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) 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.
- 01/12/2001
SYSC 3.2.12
See Notes
- 01/12/2001
Employees and agents
SYSC 3.2.13
See Notes
- 01/12/2001
SYSC 3.2.14
See Notes
- (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) 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) [deleted]
- (4) The requirements on firms with respect to approved persons are in Part V of the Act (Performance of regulated activities) and SUP 10.
- 01/11/2007
Audit committee
SYSC 3.2.15
See Notes
- 01/11/2007
Internal audit
SYSC 3.2.16
See Notes
- (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) 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).
- 01/11/2007
Business strategy
SYSC 3.2.17
See Notes
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.
- 01/12/2001
Remuneration policies
SYSC 3.2.18
See Notes
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.
- 01/12/2001
Business continuity
SYSC 3.2.19
See Notes
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.
- 01/12/2001
Records
SYSC 3.2.20
See Notes
- (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) 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) 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).
- 01/12/2001
SYSC 3.2.21
See Notes
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.
- 01/12/2001
SYSC 4
General organisational requirements
SYSC 4.1
General requirements
- 01/01/2007
SYSC 4.1.1
See Notes
A firm must have robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems.
[Note: article 22(1) of the Banking Consolidation Directive, article 13(5) second paragraph of MiFID]
- 01/04/2009
SYSC 4.1.2
See Notes
For a common platform firm, the arrangements, processes and mechanisms referred to in SYSC 4.1.1 R must be comprehensive and proportionate to the nature, scale and complexity of the common platform firm's activities and must take into account the specific technical criteria described in SYSC 4.1.7 R, SYSC 5.1.7 R and SYSC 7 .
[Note: article 22(2) of the Banking Consolidation Directive]
- 01/04/2009
SYSC 4.1.2A
See Notes
Other firms should take account of the comprehensiveness and proportionality rule (SYSC 4.1.2 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G but a firm with an interim RSRB permission to the extent that it carries on regulated sale and rent back activity, need not take into account the specific technical criteria described in SYSC 4.1.7 R, SYSC 5.1.7 R and SYSC 7.
- 06/08/2009
SYSC 4.1.3
See Notes
A BIPRU firm must ensure that its internal control mechanisms and administrative and accounting procedures permit the verification of its compliance with rules adopted in accordance with the Capital Adequacy Directive at all times.
[Note: article 35(1) final sentence of the Capital Adequacy Directive]
- 01/01/2007
SYSC 4.1.4
See Notes
A firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)) must, taking into account the nature, scale and complexity of the business of the firm, and the nature and range of the (for a common platform firm) investment services and activities or (for every other firm) financial services and activities undertaken in the course of that business:
- (1) (if it is a common platform firm) establish, implement and maintain decision-making procedures and an organisational structure which clearly and in a documented manner specifies reporting lines and allocates functions and responsibilities;
- (2) establish, implement and maintain adequate internal control mechanisms designed to secure compliance with decisions and procedures at all levels of the firm; and
- (3) (if it is a common platform firm) establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the firm.
[Note: articles 5(1) final paragraph, 5(1)(a), 5(1)(c) and 5(1)(e) of the MiFID implementing Directive]
- 01/04/2009
SYSC 4.1.4A
See Notes
A firm that is not a common platform firm should take into account the decision-making procedures and effective internal reporting rules (SYSC 4.1.4R (1) and (3) ) as if they were guidance (and as if "should" appeared in those rules instead of "must") as explained in SYSC 1 Annex 1.3.3 G.
- 06/08/2009
SYSC 4.1.5
See Notes
A MiFID investment firm must establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question.
[Note: article 5(2) of the MiFID implementing Directive]
- 01/01/2007
Business continuity
SYSC 4.1.6
See Notes
A common platform firm must take reasonable steps to ensure continuity and regularity in the performance of its regulated activities. To this end the common platform firm must employ appropriate and proportionate systems, resources and procedures.
[Note: article 13(4) of MiFID]
- 01/04/2009
SYSC 4.1.7
See Notes
A common platform firm must establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to its systems and procedures, that any losses are limited, the preservation of essential data and functions, and the maintenance of its regulated activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of its regulated activities.
[Note: article 5(3) of the MiFID implementing Directive and annex V paragraph 13 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 4.1.7A
See Notes
Other firms should take account of the business continuity rules (SYSC 4.1.6 R and 4.1.7 R) as if they were guidance (and as if "should" appeared in those rules instead of "must") as explained in SYSC 1 Annex 1.3.3 G.
- 06/08/2009
SYSC 4.1.8
See Notes
The matters dealt with in a business continuity policy should include:
- (1) resource requirements such as people, systems and other assets, and arrangements for obtaining these resources;
- (2) the recovery priorities for the firm's operations;
- (3) communication arrangements for internal and external concerned parties (including the FSA , clients and the press);
- (4) escalation and invocation plans that outline the processes for implementing the business continuity plans, together with relevant contact information;
- (5) processes to validate the integrity of information affected by the disruption; and
- (6) regular testing of the business continuity policy in an appropriate and proportionate manner in accordance with SYSC 4.1.10 R.
- 01/01/2007
SYSC 4.1.8A
See Notes
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
- 01/05/2002
Accounting policies
SYSC 4.1.9
See Notes
A common platform firm must establish, implement and maintain accounting policies and procedures that enable it, at the request of the FSA, to deliver in a timely manner to the FSA financial reports which reflect a true and fair view of its financial position and which comply with all applicable accounting standards and rules.
[Note: article 5(4) of the MiFID implementing Directive]
- 01/01/2007
Regular monitoring
SYSC 4.1.10
See Notes
A common platform firm must monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with SYSC 4.1.4 R to SYSC 4.1.9 R and take appropriate measures to address any deficiencies.
[Note: article 5(5) of the MiFID implementing Directive]
- 01/01/2007
SYSC 4.1.10A
See Notes
Other firms should take account of the regular monitoring rule (SYSC 4.1.10 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G, but ignoring the cross-reference to SYSC 4.1.5 R and 4.1.9 R.
- 06/08/2009
Audit committee
SYSC 4.1.11
See Notes
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) and provide an interface between management and external auditors. It should have an appropriate number of non-executive directors and it should have formal terms of reference.
- 01/01/2007
SYSC 4.2
Persons who effectively direct the business
- 01/01/2007
SYSC 4.2.1
See Notes
The senior personnel of a common platform firm or of the UK branch of a non-EEA bank must be of sufficiently good repute and sufficiently experienced as to ensure the sound and prudent management of the firm.
[Note: article 9(1) of MiFID and article 11(1) second paragraph of the Banking Consolidation Directive]
- 01/04/2009
SYSC 4.2.1A
See Notes
Other firms should take account of the senior personnel rule (SYSC 4.2.1 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G.
- 06/08/2009
SYSC 4.2.2
See Notes
A common platform firm and the UK branch of a non-EEA bank must ensure that its management is undertaken by at least two persons meeting the requirements laid down in SYSC 4.2.1 R.
[Note: article 9(4) first paragraph of MiFID and article 11(1) first paragraph of the Banking Consolidation Directive]
- 01/04/2009
SYSC 4.2.3
See Notes
In the case of a body corporate, the persons referred to in SYSC 4.2.2 R should either be executive directors or persons granted executive powers by, and reporting immediately to, the governing body. In the case of a partnership, they should be active partners.
- 01/01/2007
SYSC 4.2.4
See Notes
At least two independent minds should be applied to both the formulation and implementation of the policies of a common platform firm and the UK branch of a non-EEA bank. Where such a firm nominates just two individuals to direct its business, the FSA will not regard them as both effectively directing the business where one of them makes some, albeit significant, decisions relating to only a few aspects of the business. Each should play a part in the decision-making process on all significant decisions. Both should demonstrate the qualities and application to influence strategy, day-to-day policy and its implementation. This does not require their day-to-day involvement in the execution and implementation of policy. It does, however, require involvement in strategy and general direction, as well as knowledge of, and influence on, the way in which strategy is being implemented through day-to-day policy.
- 01/04/2009
SYSC 4.2.5
See Notes
Where there are more than two individuals directing the business of a common platform firm or the UK branch of a non-EEA bank, the FSA does not regard it as necessary for all of these individuals to be involved in all decisions relating to the determination of strategy and general direction. However, at least two individuals should be involved in all such decisions. Both individuals' judgement should be engaged so that major errors leading to difficulties for the firm are less likely to occur. Similarly, each individual should have sufficient experience and knowledge of the business and the necessary personal qualities and skills to detect and resist any imprudence, dishonesty or other irregularities by the other individual. Where a single individual, whether a chief executive, managing director or otherwise, is particularly dominant in such a firm this will raise doubts about whether SYSC 4.2.2 R is met.
- 01/04/2009
SYSC 4.2.6
See Notes
If a common platform firm, (other than a credit institution) or the UK branch of a non-EEA bank, is:
- (1) a natural person; or
- (2) a legal person managed by a single natural person;
it must have alternative arrangements in place which ensure sound and prudent management of the firm.
[Note: article 9(4) second paragraph of MiFID]
- 01/04/2009
SYSC 4.3
Responsibility of senior personnel
- 01/01/2007
SYSC 4.3.1
See Notes
A firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)), when allocating functions internally, must ensure that senior personnel and, where appropriate, the supervisory function, are responsible for ensuring that the firm complies with its obligations under the regulatory system. In particular, senior personnel and, where appropriate, the supervisory function must assess and periodically review the effectiveness of the policies, arrangements and procedures put in place to comply with the firm's obligations under the regulatory system and take appropriate measures to address any deficiencies.
[Note: article 9(1) of the MiFID implementing Directive]
- 01/04/2009
SYSC 4.3.2
See Notes
A common platform firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)), must ensure that:
- (1) its senior personnel receive on a frequent basis, and at least annually, written reports on the matters covered by SYSC 6.1.2 R to SYSC 6.1.5 R, SYSC 6.2.1 R and SYSC 7.1.2 R, SYSC 7.1.3 R and SYSC 7.1.5 R to SYSC 7.1.7 R, indicating in particular whether the appropriate remedial measures have been taken in the event of any deficiencies; and
- (2) the supervisory function, if any, receives on a regular basis written reports on the same matters.
[Note: article 9(2) and article 9(3) of the MiFID implementing Directive]
- 01/04/2009
SYSC 4.3.2A
See Notes
Other firms should take account of the written reports rule (SYSC 4.3.2 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G.
- 06/08/2009
SYSC 4.3.3
See Notes
The supervisory function does not include a general meeting of the shareholders of a firm , or equivalent bodies, but could involve, for example, a separate supervisory board within a two-tier board structure or the establishment of a non-executive committee of a single-tier board structure.
- 01/04/2009
SYSC 4.4
Apportionment of responsibilities
- 01/04/2009
Application
SYSC 4.4.1
See Notes
This section applies to:
- (1) an authorised professional firm in respect of its non-mainstream regulated activities unless the firm is also conducting other regulated activities and has appointed approved persons to perform the governing functions with equivalent responsibilities for the firm's non-mainstream regulated activities and other regulated activities;
- (2) activities carried on by a firm whose principal purpose is to carry on activities other than regulated activities and which is:
- (a) an oil market participant; or
- (b) a service company; or
- (c) an energy market participant; or
- (d) a wholly-owned subsidiary of:
- (i) a local authority; or
- (ii) a registered social landlord; or
- (e) a firm with permission to carry on insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity;
- (3) [deleted]
- (4) [deleted]
- (5) [deleted]
- (a) [deleted]
- (b) [deleted]
- (6) [deleted]
- (7) an incoming Treaty firm, an incoming EEA firm or a UCITS qualifier (but only SYSC 4.4.5R (2) applies for these firms); and
- (8) a sole trader, but only if he employs any person who is required to be approved under section 59 of the Act (Approval for particular arrangements).
- 01/04/2009
SYSC 4.4.1A
See Notes
SYSC 4.4.3 R (Maintaining a clear and appropriate apportionment) also applies to a firm with an interim RSRB permission to the extent that it carries on regulated sale and rent back activity.
- 01/07/2009
SYSC 4.4.2
See Notes
This section does not apply to a common platform firm.
- 01/04/2009
Maintaining a clear and appropriate apportionment
SYSC 4.4.3
See Notes
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) it is clear who has which of those responsibilities; and
- (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.
- 01/04/2009
SYSC 4.4.4
See Notes
The role undertaken by a non-executive director will vary from one firm to another. 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 disciplinarily 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.
- 01/04/2009
Allocating functions of apportionment and oversight
SYSC 4.4.5
See Notes
A firm must appropriately allocate to one or more individuals, in accordance with the following table, the functions of:
- (1) dealing with the apportionment of responsibilities under SYSC 4.4.3 R; and
- (2) overseeing the establishment and maintenance of systems and controls under SYSC 4.1.1 R.
1: Firm type | 2: Allocation of both functions must be to the following individual, if any (see Note): | 3: Allocation to one or more individuals selected from this column is compulsory if there is no allocation to an individual in column 2, but is otherwise optional and additional: |
(1) A firm which is a body corporate and is a member of a group, other than a firm in row (2) | (1) the firm'schief executive (and all of them jointly, if more than one); or | the firm's and its group's: (1) directors; and (2) senior managers |
(2) a director or senior manager responsible for the overall management of: (a) the group; or (b) a group division within which some or all of the firm'sregulated activities fall |
||
(2) An incoming EEA firm or incoming Treaty firm (note: only the functions in SYSC 4.4.5R (2) must be allocated) | (not applicable) | the firm's and its group's: (1) directors; and (2) senior managers |
(3) Any other firm | the firm'schief executive (and all of them jointly, if more than one) | the firm's and its group's: (1) directors; and (2) senior managers |
Note: Column 2 does not require the involvement of the chief executive or other executive director or senior manager in an aspect of corporate governance if that would be contrary to generally accepted principles of good corporate governance. |
- 01/04/2009
SYSC 4.4.6
See Notes
Frequently asked questions about allocation of functions in SYSC 4.4.5 R
Question | Answer | |
1 | Does an individual to whom a function is allocated under SYSC 4.4.5 R need to be an approved person? | An individual to whom a function is allocated under SYSC 4.4.5 R will be performing the apportionment and oversight function (CF 8, see SUP 10.7.1 R ) and an application must be made to the FSA for approval of the individual before the function is performed under section 59 of the Act (Approval for particular arrangements). There are exceptions from this in SUP 10.1 (Approved persons - Application). |
2 | If the allocation is to more than one individual, can they perform the functions, or aspects of the functions, separately? | If the functions are allocated to joint chief executives under SYSC 4.4.5 R, column 2, they are expected to act jointly. If the functions are allocated to an individual under SYSC 4.4.5 R, column 2, in addition to individuals under SYSC 4.4.5 R, column 3, the former may normally be expected to perform a leading role in relation to the functions that reflects his position. Otherwise, yes. |
3 | What is meant by "appropriately allocate" in this context? | The allocation of functions should be compatible with delivering compliance with Principle 3, SYSC 4.4.3 R and SYSC 4.1.1 R. The FSA considers that allocation to one or two individuals is likely to be appropriate for most firms. |
4 | If a committee of management governs a firm or group, can the functions be allocated to every member of that committee? | Yes, as long as the allocation remains appropriate (see Question 3). If the firm also has an individual as chief executive, then the functions must be allocated to that individual as well under SYSC 4.4.5 R, column 2 (see Question 7). |
5 | Does the definition of chief executive include the possessor of equivalent responsibilities with another title, such as a managing director or managing partner? | Yes. |
6 | Is it possible for a firm to have more than one individual as its chief executive? | Although unusual, some firms may wish the responsibility of a chief executive to be held jointly by more than one individual. In that case, each of them will be a chief executive and the functions must be allocated to all of them under SYSC 4.4.5 R, column 2 (see also Questions 2 and 7). |
7 | If a firm has an individual as chief executive, must the functions be allocated to that individual? | Normally, yes, under SYSC 4.4.5 R, column 2. But if the firm is a body corporate and a member of a group, the functions may, instead of being allocated to the firm's chief executive, be allocated to a director or senior manager from the group responsible for the overall management of the group or of a relevant group division, so long as this is appropriate (see Question 3). Such individuals will nevertheless require approval by the FSA (see Question 1). If the firm chooses to allocate the functions to a director or senior manager responsible for the overall management of a relevant group division, the FSA would expect that individual to be of a seniority equivalent to or greater than a chief executive of the firm for the allocation to be appropriate. See also Question 14. |
8 | If a firm has a chief executive, can the functions be allocated to other individuals in addition to the chief executive? | Yes. SYSC 4.4.5 R, column 3, permits a firm to allocate the functions, additionally, to the firm's (or where applicable the group's) directors and senior managers as long as this is appropriate (see Question 3). |
9 | What if a firm does not have a chief executive? | Normally, the functions must be allocated to one or more individuals selected from the firm's (or where applicable the group's) directors and senior managers under SYSC 4.4.5 R, column 3. But if the firm: (1) is a body corporate and a member of a group; and (2) the group has a director or senior manager responsible for the overall management of the group or of a relevant group division; then the functions must be allocated to that individual (together, optionally, with individuals from column 3 if appropriate) under SYSC 4.4.5 R, column 2. |
10 | What do you mean by "group division within which some or all of the firm's regulated activities fall"? | A "division" in this context should be interpreted by reference to geographical operations, product lines or any other method by which the group's business is divided. If the firm's regulated activities fall within more than one division and the firm does not wish to allocate the functions to its chief executive, the allocation must, under SYSC 4.4.5 R, be to: (1) a director or senior manager responsible for the overall management of the group; or (2) a director or senior manager responsible for the overall management of one of those divisions; together, optionally, with individuals from column 3 if appropriate. (See also Questions 7 and 9.) |
11 | How does the requirement to allocate the functions in SYSC 4.4.5 R apply to an overseas firm which is not an incoming EEA firm, incoming Treaty firm or UCITS qualifier? | The firm must appropriately allocate those functions to one or more individuals, in accordance with SYSC 4.4.5 R, but: (1) The responsibilities that must be apportioned and the systems and controls that must be overseen are those relating to activities carried on from a UK establishment with certain exceptions (see SYSC 1 Annex 1.1.8R). Note that SYSC 1 Annex 1.1.10R does not extend the territorial scope of SYSC 4.4 for an overseas firm. (2) The chief executive of an overseas firm is the person responsible for the conduct of the firm's business within the United Kingdom (see the definition of "chief executive"). This might, for example, be the manager of the firm'sUK establishment, or it might be the chief executive of the firm as a whole, if he has that responsibility. The apportionment and oversight function applies to such a firm, unless it falls within a particular exception from the approved persons regime (see Question 1). |
12 | How does the requirement to allocate the functions in SYSC 4.4.5 R apply to an incoming EEA firm or incoming Treaty firm? | SYSC 1 Annex 1.1.1R(2) and SYSC 1 Annex 1.1.8R restrict the application of SYSC 4.4.5 R for such a firm. Accordingly: (1) Such a firm is not required to allocate the function of dealing with apportionment in SYSC 4.4.5R (1). (2) Such a firm is required to allocate the function of oversight in SYSC 4.4.5R (2). However, the systems and controls that must be overseen are those relating to matters which the FSA , as Host State regulator, is entitled to regulate (there is guidance on this in SUP 13A Annex 2). Those are primarily, but not exclusively, the systems and controls relating to the conduct of the firm's activities carried on from its UK branch. (3) Such a firm need not allocate the function of oversight to its chief executive; it must allocate it to one or more directors and senior managers of the firm or the firm'sgroup under SYSC 4.4.5 R, row (2). (4) An incoming EEA firm which has provision only for cross border services is not required to allocate either function if it does not carry on regulated activities in the United Kingdom; for example if they fall within the overseas persons exclusions in article 72 of the Regulated Activities Order. See also Questions 1 and 15. |
13 | What about a firm that is a partnership or a limited liability partnership? | The FSA envisages that most if not all partners or members will be either directors or senior managers, but this will depend on the constitution of the partnership (particularly in the case of a limited partnership) or limited liability partnership. A partnership or limited liability partnership may also have a chief executive (see Question 5). A limited liability partnership is a body corporate and, if a member of a group, will fall within SYSC 4.4.5 R, row (1) or (2). |
14 | What if generally accepted principles of good corporate governance recommend that the chief executive should not be involved in an aspect of corporate governance? | The Note to SYSC 4.4.5 R provides that the chief executive or other executive director or senior manager need not be involved in such circumstances. For example, the Combined Code developed by the Committee on Corporate Governance recommends that the board of a listed company should establish an audit committee of non-executive directors to be responsible for oversight of the audit. That aspect of the oversight function may therefore be allocated to the members of such a committee without involving the chief executive. Such individuals may require approval by the FSA in relation to that function (see Question 1). |
15 | What about incoming electronic commerce activities carried on from an establishment in another EEA State with or for a person in the United Kingdom? | SYSC does not apply to an incoming ECA provider acting as such. |
- 01/04/2009
SYSC 5
Employees, agents and other relevant persons
SYSC 5.1
Skills, knowledge and expertise
- 01/01/2007
SYSC 5.1.1
See Notes
A firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them.
[Note: article 5(1)(d) of the MiFID implementing Directive]
- 01/04/2009
SYSC 5.1.2
See Notes
- 01/01/2007
SYSC 5.1.3
See Notes
- 01/01/2007
SYSC 5.1.4
See Notes
- 01/11/2007
SYSC 5.1.4A
See Notes
- 01/11/2007
SYSC 5.1.5
See Notes
- 01/01/2007
SYSC 5.1.5A
See Notes
- 01/11/2007
Segregation of functions
SYSC 5.1.6
See Notes
A common platform firm must 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.
[Note: article 5(1)(g) of the MiFID implementing Directive]
- 01/01/2007
SYSC 5.1.7
See Notes
The senior personnel of a common platform firm must define arrangements concerning the segregation of duties within the firm and the prevention of conflicts of interest.
[Note:annex V paragraph 1 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 5.1.7A
See Notes
- 06/08/2009
SYSC 5.1.8
See Notes
- 01/01/2007
SYSC 5.1.9
See Notes
- 01/04/2009
SYSC 5.1.10
See Notes
- 01/04/2009
SYSC 5.1.11
See Notes
Where a common platform firm 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:
- (1) the work is carried out under the supervision and management of the firm's own internal staff; and
- (2) potential conflicts of interest between the provision of external audit services and the provision of internal audit are properly managed.
- 01/01/2007
Awareness of procedures
SYSC 5.1.12
See Notes
A common platform firm must ensure that its relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities.
[Note: article 5(1)(b) of the MiFID implementing Directive]
- 06/08/2009
SYSC 5.1.12A
See Notes
- 06/08/2009
General
SYSC 5.1.13
See Notes
The systems, internal control mechanisms and arrangements established by a firm in accordance with this chapter must take into account the nature, scale and complexity of its business and the nature and range of (for a common platform firm) investment services and activities or (for every other firm) financial services and activities undertaken in the course of that business.
[Note: article 5(1) final paragraph of the MiFID implementing Directive]
- 01/04/2009
SYSC 5.1.14
See Notes
A common platform firm must monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with this chapter, and take appropriate measures to address any deficiencies.
[Note: article 5(5) of the MiFID implementing Directive]
- 01/01/2007
SYSC 5.1.15
See Notes
- 06/08/2009
SYSC 6
Compliance, internal audit and financial crime
SYSC 6.1
Compliance
- 01/01/2007
SYSC 6.1.1
See Notes
A firm must establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives(or where applicable, tied agents) with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime.
[Note: article 13(2) of MiFID]
- 01/04/2009
SYSC 6.1.2
See Notes
A common platform firm must, taking intoaccount the nature, scale and complexity of its business, and the nature and range of investment services and activities undertaken in the course of that business, establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under the regulatory system, as well as associated risks, and put in place adequate measures and procedures designed to minimise such risks and to enable the FSA to exercise its powers effectively under the regulatory system and to enable any other competent authority to exercise its powers effectively under MiFID.
[Note: article 6(1) of the MiFID implementing Directive]
- 01/04/2009
SYSC 6.1.2A
See Notes
- 06/08/2009
SYSC 6.1.3
See Notes
A common platform firm must maintain a permanent and effective compliance function which operates independently and which has the following responsibilities:
- (1) to monitor and, on a regular basis, to assess the adequacy and effectiveness of the measures and procedures put in place in accordance with SYSC 6.1.2 R, and the actions taken to address any deficiencies in the firm's compliance with its obligations;
- (2) to advise and assist the relevant persons responsible for carrying out regulated activities to comply with the firm's obligations under the regulatory system.
[Note: article 6(2) of the MiFID implementing Directive]
- 01/01/2007
SYSC 6.1.3A
See Notes
- (1) Other firms should take account of the compliance function rule (SYSC 6.1.3 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.
- (2) Notwithstanding SYSC 6.1.3 R, as it applies under (1), depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate compliance function. Where a firm has a separate compliance function the firm should also take into account SYSC 6.1.3 R and SYSC 6.1.4 R as guidance.
- 06/08/2009
SYSC 6.1.4
See Notes
In order to enable the compliance function to discharge its responsibilities properly and independently, a common platform firm must ensure that the following conditions are satisfied:
- (1) the compliance function must have the necessary authority, resources, expertise and access to all relevant information;
- (2) a compliance officer must be appointed and must be responsible for the compliance function and for any reporting as to compliance required by SYSC 4.3.2 R;
- (3) the relevant persons involved in the compliance functions must not be involved in the performance of services or activities they monitor;
- (4) the method of determining the remuneration of the relevant persons involved in the compliance function must not compromise their objectivity and must not be likely to do so.
[Note: article 6(3) first paragraph of the MiFID implementing Directive]
- 01/01/2007
SYSC 6.1.4A
See Notes
- (1) A firm which is not a common platform firm and which carries on designated investment business with or for retail clients or professional clients must allocate to a director or senior manager the function of:
- (a) having responsibility for oversight of the firm's compliance; and
- (b) reporting to the governing body in respect of that responsibility.
- (2) In SYSC 6.1.4A R (1) compliance means compliance with the rules in:
- 06/08/2009
SYSC 6.1.5
See Notes
A common platform firm need not comply with SYSC 6.1.4 R (3) or SYSC 6.1.4 R (4) if it is able to demonstrate that in view of the nature, scale and complexity of its business, and the nature and range of (for a common platform firm) investment services and activities or (for every other firm) financial services and activities, the requirements under those rules are not proportionate and that its compliance function continues to be effective.
[Note: article 6(3) second paragraph of the MiFID implementing Directive]
- 01/04/2009
SYSC 6.1.6
See Notes
- 06/08/2009
SYSC 6.2
Internal audit
- 01/01/2007
SYSC 6.2.1
See Notes
A common platform firm must, where appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of investment services and activities undertaken in the course of that business, establish and maintain an internal audit function which is separate and independent from the other functions and activities of the firm and which has the following responsibilities:
- (1) to establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the firm's systems, internal control mechanisms and arrangements;
- (2) to issue recommendations based on the result of work carried out in accordance with (1);
- (3) to verify compliance with those recommendations;
- (4) to report in relation to internal audit matters in accordance with SYSC 4.3.2 R.
[Note: article 8 of the MiFID implementing Directive]
- 01/01/2007
SYSC 6.2.1A
See Notes
- 06/08/2009
SYSC 6.2.2
See Notes
- 01/04/2009
SYSC 6.3
Financial crime
- 01/01/2007
SYSC 6.3.1
See Notes
A firm must ensure the policies and procedures established under SYSC 6.1.1 R include systems and controls that:
- (1) enable it to identify, assess, monitor and manage money laundering risk; and
- (2) are comprehensive and proportionate to the nature, scale and complexity of its activities.
- 01/04/2009
SYSC 6.3.2
See Notes
- 01/01/2007
SYSC 6.3.3
See Notes
- 01/04/2009
SYSC 6.3.4
See Notes
- 01/04/2009
SYSC 6.3.5
See Notes
- 01/04/2009
SYSC 6.3.6
See Notes
In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including:
- (1) its customer, product and activity profiles;
- (2) its distribution channels;
- (3) the complexity and volume of its transactions;
- (4) its processes and systems; and
- (5) its operating environment.
- 01/04/2009
SYSC 6.3.7
See Notes
A firm should ensure that the systems and controls include:
- (1) appropriate training for its employees in relation to money laundering;
- (2) appropriate provision of information to its governing body and senior management, including a report at least annually by that firm's money laundering reporting officer (MLRO) on the operation and effectiveness of those systems and controls;
- (3) appropriate documentation of its risk management policies and risk profile in relation to money laundering, including documentation of its application of those policies (see SYSC 9);
- (4) appropriate measures to ensure that money laundering risk is taken into account in its day-to-day operation, including in relation to:
- (a) the development of new products;
- (b) the taking-on of new customers; and
- (c) changes in its business profile; and
- (5) appropriate measures to ensure that procedures for identification of new customers do not unreasonably deny access to its services to potential customers who cannot reasonably be expected to produce detailed evidence of identity.
- 01/04/2009
SYSC 6.3.8
See Notes
- 01/04/2009
The money laundering reporting officer
SYSC 6.3.9
See Notes
A firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular purposes)) must:
- (1) appoint an individual as MLRO, with responsibility for oversight of its compliance with the FSA's rules on systems and controls against money laundering; and
- (2) ensure that its MLRO has a level of authority and independence within the firm and access to resources and information sufficient to enable him to carry out that responsibility.
- 01/04/2009
SYSC 6.3.10
See Notes
- 01/01/2007
SYSC 7
Risk control
SYSC 7.1
Risk control
- 01/01/2007
SYSC 7.1.1
See Notes
- 01/04/2009
SYSC 7.1.2
See Notes
A common platform firm must establish, implement and maintain adequate risk management policies and procedures, including effective procedures for risk assessment, which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm.
[Note: article 7(1)(a) of the MiFID implementing Directive, article 13(5) second paragraph of MiFID]
- 01/01/2007
SYSC 7.1.2A
See Notes
- 06/08/2009
SYSC 7.1.3
See Notes
A common platform firm must adopt effective arrangements, processes and mechanisms to manage the risk relating to the firm's activities, processes and systems, in light of that level of risk tolerance.
[Note: article 7(1)(b) of the MiFID implementing Directive]
- 01/01/2007
SYSC 7.1.4
See Notes
The senior personnel of a common platform firm must approve and periodically review the strategies and policies for taking up, managing, monitoring and mitigating the risks the firm is or might be exposed to, including those posed by the macroeconomic environment in which it operates in relation to the status of the business cycle.
[Note: annex V paragraph 2 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 7.1.4A
See Notes
- 06/08/2009
SYSC 7.1.5
See Notes
A common platform firm must monitor the following:
- (1) the adequacy and effectiveness of the firm's risk management policies and procedures;
- (2) the level of compliance by the firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with SYSC 7.1.3 R;
- (3) the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons to comply with such arrangements or processes and mechanisms or follow such policies and procedures.
[Note: article 7(1)(c) of the MiFID implementing Directive]
- 01/01/2007
SYSC 7.1.6
See Notes
A common platform firm must, where appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of the investment services and activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:
- (1) implementation of the policies and procedures referred to in SYSC 7.1.2 R to SYSC 7.1.5 R; and
- (2) provision of reports and advice to senior personnel in accordance with SYSC 4.3.2 R.
[Note: MiFID implementing Directive Article 7(2) first paragraph]
- 01/01/2007
SYSC 7.1.7
See Notes
Where a common platform firm is not required under SYSC 7.1.6 R to maintain a risk management function that functions independently, it must nevertheless be able to demonstrate that the policies and procedures which it has adopted in accordance with SYSC 7.1.2 R to SYSC 7.1.5 R satisfy the requirements of those rules and are consistently effective.
[Note: article 7(2) second paragraph of the MiFID implementing Directive]
- 01/01/2007
SYSC 7.1.7A
See Notes
- 06/08/2009
SYSC 7.1.8
See Notes
- (1) SYSC 4.1.3 R requires a BIPRU firm to ensure that its internal control mechanisms and administrative and accounting procedures permit the verification of its compliance with rules adopted in accordance with the Capital Adequacy Directive at all times. In complying with this obligation, a BIPRU firm should document the organisation and responsibilities of its risk management function and it should document its risk management framework setting out how the risks in the business are identified, measured, monitored and controlled.
- (2) The term 'risk management function' in SYSC 7.1.6 R and SYSC 7.1.7 R refers to the generally understood concept of risk assessment within a firm , that is, the function of setting and controlling risk exposure. The risk management function is not a controlled function itself, but is part of the systems and controls function (CF28).
- 01/04/2009
Credit and counterparty risk
SYSC 7.1.9
See Notes
A BIPRU firm must base credit-granting on sound and well-defined criteria and clearly establish the process for approving, amending, renewing, and re-financing credits.
[Note: annex V paragraph 3 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 7.1.10
See Notes
A BIPRU firm must operate through effective systems the ongoing administration and monitoring of its various credit risk-bearing portfolios and exposures, including for identifying and managing problem credits and for making adequate value adjustments and provisions.
[Note: annex V paragraph 4 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 7.1.11
See Notes
A BIPRU firm must adequately diversify credit portfolios given its target market and overall credit strategy.
[Note: annex V paragraph 5 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 7.1.12
See Notes
- 01/01/2007
Residual risk
SYSC 7.1.13
See Notes
A BIPRU firm must address and control by means of written policies and procedures the risk that recognised credit risk mitigation techniques used by it prove less effective than expected.
[Note: annex V paragraph 6 of the Banking Consolidation Directive]
- 01/01/2007
Market risk
SYSC 7.1.14
See Notes
A BIPRU firm must implement policies and processes for the measurement and management of all material sources and effects of market risks.
[Note: annex V paragraph 10 of the Banking Consolidation Directive]
- 01/01/2007
Interest rate risk
SYSC 7.1.15
See Notes
A BIPRU firm must implement systems to evaluate and manage the risk arising from potential changes in interest rates as they affect a BIPRU firm's non-trading activities.
[Note: annex V paragraph 11 of the Banking Consolidation Directive]
- 01/01/2007
Operational risk
SYSC 7.1.16
See Notes
A BIPRU firm must implement policies and processes to evaluate and manage the exposure to operational risk, including to low-frequency high severity events. Without prejudice to the definition of operational risk, BIPRU firms must articulate what constitutes operational risk for the purposes of those policies and procedures.
[Note: annex V paragraph 12 of the Banking Consolidation Directive]
- 01/01/2007
SYSC 8
Outsourcing
SYSC 8.1
General outsourcing requirements
- 01/11/2007
SYSC 8.1.1
See Notes
A common platform firm must:
- (1) when relying on a third party for the performance of operational functions which are critical for the performance of regulated activities, listed activities or ancillary services (in this chapter "relevant services and activities") on a continuous and satisfactory basis, ensure that it takes reasonable steps to avoid undue additional operational risk;
- (2) not undertake the outsourcing of important operational functions in such a way as to impair materially:
- (a) the quality of its internal control; and
- (b) the ability of the FSA to monitor the firm's compliance with all obligations under the regulatory system and, if different, of a competent authority to monitor the firm's compliance with all obligations under MiFID.
[Note: article 13(5) first paragraph of MiFID]
- 01/01/2007
SYSC 8.1.1A
See Notes
- 06/08/2009
SYSC 8.1.2
See Notes
- 01/04/2009
SYSC 8.1.3
See Notes
- 01/04/2009
SYSC 8.1.4
See Notes
For the purposes of this chapter an operational function is regarded as critical or important if a defect or failure in its performance would materially impair the continuing compliance of a common platform firm with the conditions and obligations of its authorisation or its other obligations under the regulatory system, or its financial performance, or the soundness or the continuity of its relevant services and activities.
[Note: article 13(1) of the MiFID implementing Directive]
- 01/01/2007
SYSC 8.1.5
See Notes
Without prejudice to the status of any other function, the following functions will not be considered as critical or important for the purposes of this chapter:
- (1) the provision to the firm of advisory services, and other services which do not form part of the relevant services and activities of the firm, including the provision of legal advice to the firm, the training of personnel of the firm, billing services and the security of the firm's premises and personnel;
- (2) the purchase of standardised services, including market information services and the provision of price feeds;
[Note: article 13(2) of the MiFID implementing Directive]
- (3) the recording and retention of relevant telephone conversations or electronic communications subject to COBS 11.8.
- 06/03/2009
SYSC 8.1.5A
See Notes
- 06/08/2009
SYSC 8.1.6
See Notes
If a firm outsources critical or important operational functions or any relevant services and activities, it remains fully responsible for discharging all of its obligations under the regulatory system and must comply, in particular, with the following conditions:
- (1) the outsourcing must not result in the delegation by senior personnel of their responsibility;
- (2) the relationship and obligations of the firm towards its clients under the regulatory system must not be altered;
- (3) the conditions with which the firm must comply in order to be authorised, and to remain so, must not be undermined;
- (4) none of the other conditions subject to which the firm's authorisation was granted must be removed or modified.
[Note: article 14(1) of the MiFID implementing Directive]
- 01/04/2009
SYSC 8.1.7
See Notes
A common platform firm must exercise due skill and care and diligence when entering into, managing or terminating any arrangement for the outsourcing to a service provider of critical or important operational functions or of any relevant services and activities.
[Note: article 14(2) first paragraph of the MiFID implementing Directive]
- 01/01/2007
SYSC 8.1.8
See Notes
A common platform firm must in particular take the necessary steps to ensure that the following conditions are satisfied:
- (1) the service provider must have the ability, capacity, and any authorisation required by law to perform the outsourced functions, services or activities reliably and professionally;
- (2) the service provider must carry out the outsourced services effectively, and to this end the firm must establish methods for assessing the standard of performance of the service provider;
- (3) the service provider must properly supervise the carrying out of the outsourced functions, and adequately manage the risks associated with the outsourcing;
- (4) appropriate action must be taken if it appears that the service provider may not be carrying out the functions effectively and in compliance with applicable laws and regulatory requirements;
- (5) the firm must retain the necessary expertise to supervise the outsourced functions effectively and to manage the risks associated with the outsourcing,and must supervise those functions and manage those risks;
- (6) the service provider must disclose to the firm any development that may have a material impact on its ability to carry out the outsourced functions effectively and in compliance with applicable laws and regulatory requirements;
- (7) the firm must be able to terminate the arrangement for the outsourcing where necessary without detriment to the continuity and quality of its provision of services to clients;
- (8) the service provider must co-operate with the FSA and any other relevant competent authority in connection with the outsourced activities;
- (9) the firm, its auditors, the FSA and any other relevant competent authority must have effective access to data related to the outsourced activities, as well as to the business premises of the service provider; and the FSA and any other relevant competent authority must be able to exercise those rights of access;
- (10) the service provider must protect any confidential information relating to the firm and its clients;
- (11) the firm and the service provider must establish, implement and maintain a contingency plan for disaster recovery and periodic testing of backup facilities where that is necessary having regard to the function, service or activity that has been outsourced.
[Note: article 14(2) second paragraph of the MiFID implementing Directive]
- 06/05/2009
SYSC 8.1.9
See Notes
A common platform firm must ensure that the respective rights and obligations of the firm and of the service provider are clearly allocated and set out in a written agreement.
[Note: article 14(3) of the MiFID implementing Directive]
- 01/01/2007
SYSC 8.1.10
See Notes
If a common platform firm and the service provider are members of the same group, the firm may, for the purpose of complying with SYSC 8.1.7 R to SYSC 8.1.11 R and SYSC 8.2 and SYSC 8.3, take into account the extent to which the common platform firm controls the service provider or has the ability to influence its actions.
[Note: article 14(4) of the MiFID implementing Directive]
- 01/01/2007
SYSC 8.1.11
See Notes
A common platform firm must make available on request to the FSA and any other relevant competent authority all information necessary to enable the FSA and any other relevant competent authority to supervise the compliance of the performance of the outsourced activities with the requirements of the regulatory system.
[Note: article 14(5) of the MiFID implementing Directive]
- 01/01/2007
SYSC 8.1.11A
See Notes
- 06/08/2009
SYSC 8.1.12
See Notes
As SUP 15.3.8 G explains, a firm should notify the FSA when it intends to rely on a third party for the performance of operational functions which are critical or important for the performance of relevant services and activities on a continuous and satisfactory basis.
[Note: recital 20 of the MiFID implementing Directive]
- 01/04/2009
SYSC 8.2
Outsourcing of portfolio management for retail clients to a non-EEA State
- 01/11/2007
SYSC 8.2.1
See Notes
- (1) In addition to the requirements set out in the MiFID outsourcing rules, when a MiFID investment firm outsources the investment service of portfolio management to retail clients to a service provider located in a non-EEA state, it must ensure that the following conditions are satisfied:
- (a) the service provider must be authorised or registered in its home country to provide that service and must be subject to prudential supervision;
- (b) there must be an appropriate cooperation agreement between the FSA and the supervisor in the non-EEA state;
- (in this chapter the "conditions").
- [Note: article 15(1) of the MiFID implementing Directive]
- (2) In addition to complying with the common platform outsourcing rules, if one or both of the conditions are not satisfied, a MiFID investment firm may enter into such an outsourcing only if it gives prior notification in writing to the FSA containing adequate details of the proposed outsourcing and the FSA does not object to that arrangement within a reasonable time following receipt of that notification.
- [Note: article 15(2) and (4) of the MiFID implementing Directive]
- (3) For the purposes of this rule a "reasonable time" is within one month of receipt of a notification. However, the FSA may seek further information from the MiFID investment firm in relation to the outsourcing proposal if this is necessary to enable the FSA to make a decision. Any effect this may have on the FSA's response time will be notified to the MiFID investment firm and that revised response time will constitute a reasonable time for the purposes of this rule.
- 01/04/2009
SYSC 8.2.2
- 01/11/2007
SYSC 8.2.3
See Notes
- 01/11/2007
SYSC 8.2.4
See Notes
- 01/11/2007
SYSC 8.2.5
See Notes
- 01/11/2007
Notification requirements: timing of notification
SYSC 8.2.6
See Notes
- 01/11/2007
Notification requirements: content
SYSC 8.2.7
See Notes
- 01/11/2007
SYSC 8.2.8
See Notes
A notification under this section should include:
- (1) details on which of the conditions is not met;
- (2) if applicable, details and evidence of the service provider's authorisation or regulation including the regulator's contact details;
- (3) the firm's proposals for meeting its obligations under this chapter on an ongoing basis;
- (4) why the firm wishes to outsource to the service provider;
- (5) a draft of the outsourcing agreement between the service provider and the firm;
- (6) the proposed start date of the outsourcing; and
- (7) confirmation that the firm has had regard to the guidance in SYSC 8.3, or if it has not, why not.
- 01/11/2007
Notification requirements additional guidance
SYSC 8.2.9
See Notes
- 01/11/2007
SYSC 8.3
Guidance on outsourcing portfolio management for retail clients to a non-EEA State
- 01/11/2007
SYSC 8.3.1
See Notes
- 01/11/2007
SYSC 8.3.2
See Notes
This guidance sets out examples of the type of actions that a firm proposing to outsource should have undertaken when assessing the suitability of the service provider and its ability to carry on the outsourced activity.
[Note: article 15(3) of the MiFID implementing Directive]
- 01/11/2007
SYSC 8.3.3
See Notes
- 01/11/2007
SYSC 8.3.4
See Notes
- 01/11/2007
SYSC 8.3.5
See Notes
- 01/11/2007
SYSC 8.3.6
See Notes
The following should be taken into account where the service provider is not authorised or registered in its home country and/or not subject to prudential supervision.
- (1) The firm should examine, and be able to demonstrate, to what extent the service provider may be subject to any form of voluntary regulation, including self-regulation in its home state.
- (2) The firm should be able to satisfy the FSA that the service provider is committed for the term of the outsourcing agreement to devoting sufficient, competent resources to providing the service.
- (3) In addition to the requirement to ensure that a service provider discloses any developments that may have a material impact on its ability to carry out the outsourcing (SYSC 8.1.8 R (6)), where the conditions are not met the developments to be disclosed should include, but are not limited to:
- (a) any adverse effect that any laws or regulations introduced in the service provider's home country may have on its carrying on the outsourced activity; and
- (b) any changes to its capital reserve levels or its prudential risks.
- (4) The firm should satisfy itself that the service provider is able to meet its liabilities as they fall due and that it has positive net assets.
- (5) The firm should require that the service provider prepares annual reports and accounts which:
- (a) are in accordance with the service provider's national law which, in all material respects, is the same as or equivalent to the international accounting standards;
- (b) have been independently audited and reported on in accordance with the service provider's national law which is the same as or equivalent to international auditing standards.
- (6) The firm should receive copies of each set of the audited annual report and accounts of the service provider. If the service provider expects or knows its auditor will qualify his report on the audited report and accounts, or add an explanatory paragraph, the service provider should be required to notify the firm without delay.
- (7) The firm should satisfy itself, and be able to demonstrate, that it has in place appropriate procedures to ensure that it is fully aware of the service provider's controls for protecting confidential information.
- (8) In addition to the requirement at SYSC 8.1.8 R (10) that the service provider must protect any confidential information relating to the firm or its clients, the outsourcing agreement should require the service provider to notify the firm immediately if there is a breach of confidentiality.
- (9) The outsourcing agreement should be governed by the law and subject to the jurisdiction of an EEA state.
- 01/04/2009
SYSC 8.3.7
See Notes
The following should be taken into account by a firm where there is no cooperation agreement between the FSA and the supervisory authority of the service provider or there is no supervisory authority of the service provider.
- (1) The outsourcing agreement should ensure the firm can provide the FSA with any information relating to the outsourced activity the FSA may require in order to carry out effective supervision. The firm should therefore assess the extent to which the service provider's regulator and/or local laws and regulations may restrict access to information about the outsourced activity. Any such restriction should be described in the notification to be sent to the FSA.
- (2) The outsourcing agreement should require the service provider to provide the firm's offices in the United Kingdom with all requested information required to meet the firm's regulatory obligations. The FSA should be given an enforceable right under the agreement to obtain such information from the firm and to require the service provider to provide the information directly.
- 01/04/2009
SYSC 9
Record-keeping
SYSC 9.1
General rules on record-keeping
- 01/11/2007
SYSC 9.1.1
See Notes
A firm must arrange for orderly records to be kept of its business and internal organisation, including all services and transactions undertaken by it, which must be sufficient to enable the FSA or any other relevant competent authority under MiFID to monitor the firm's compliance with the requirements under the regulatory system, and in particular to ascertain that the firm has complied with all obligations with respect to clients.
[Note: article 13(6) of MiFID and article 5(1)(f) of the MiFID implementing Directive]
- 01/11/2007
SYSC 9.1.2
See Notes
A common platform firm must retain all records kept by it under this chapter in relation to its MiFID business for a period of at least five years.
[Note: article 51 (1) of the MiFID implementing Directive]
- 01/04/2009
SYSC 9.1.3
See Notes
In relation to its MiFID business, a common platform firm must retain records in a medium that allows the storage of information in a way accessible for future reference by the FSA or any other relevant competent authority under MiFID, and so that the following conditions are met:
- (1) the FSA or any other relevant competent authority under MiFID must be able to access them readily and to reconstitute each key stage of the processing of each transaction;
- (2) it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections and amendments, to be easily ascertained;
- (3) it must not be possible for the records otherwise to be manipulated or altered.
[Note: article 51(2) of the MiFID implementing Directive]
- 01/11/2007
Guidance on record-keeping
SYSC 9.1.4
See Notes
- 01/11/2007
SYSC 9.1.5
See Notes
- 01/11/2007
SYSC 9.1.6
See Notes
Schedule 1 to each module of the Handbook sets out a list summarising the record-keeping requirements of that module.
[Note: article 51(3) of MiFID implementing Directive]
- 01/11/2007
SYSC 9.1.7
See Notes
- 01/11/2007
SYSC 10
Conflicts of interest
SYSC 10.1
Application
- 01/01/2007
SYSC 10.1.1
See Notes
- 01/04/2009
Requirements only apply if a service is provided
SYSC 10.1.2
See Notes
The requirements in this section only apply where a service is provided by a firm . The status of the client to whom the service is provided (as a retail client, professional client or eligible counterparty) is irrelevant for this purpose.
[Note: recital 25 of MiFID implementing Directive]
- 01/04/2009
Identifying conflicts
SYSC 10.1.3
See Notes
A firm must take all reasonable steps to identify conflicts of interest between:
- (1) the firm, including its managers, employees and appointed representatives (or where applicable, tied agents ), or any person directly or indirectly linked to them by control, and a client of the firm; or
- (2) one client of the firm and another client;
that arise or may arise in the course of the firm providing any service referred to in SYSC 10.1.1 R.
[Note: article 18(1) of MiFID]
- 01/04/2009
Types of conflicts
SYSC 10.1.4
See Notes
For the purposes of identifying the types of conflict of interest that arise, or may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a client, a common platform firm must take into account, as a minimum, whether the firm or a relevant person, or a person directly or indirectly linked by control to the firm:
- (1) is likely to make a financial gain, or avoid a financial loss, at the expense of the client;
- (2) has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client's interest in that outcome;
- (3) has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;
- (4) carries on the same business as the client; or
- (5) receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission or fee for that service.
The conflict of interest may result from the firm or person providing a service referred to in SYSC 10.1.1 R or engaging in any other activity.
[Note: article 21 of MiFID implementing Directive]
- 01/01/2007
SYSC 10.1.4A
See Notes
- 01/04/2009
SYSC 10.1.5
See Notes
The circumstances which should be treated as giving rise to a conflict of interest cover cases where there is a conflict between the interests of the firm or certain persons connected to the firm or the firm's group and the duty the firm owes to a client; or between the differing interests of two or more of its clients, to whom the firm owes in each case a duty. It is not enough that the firm may gain a benefit if there is not also a possible disadvantage to a client, or that one client to whom the firm owes a duty may make a gain or avoid a loss without there being a concomitant possible loss to another such client.
[Note: recital 24 of MiFID implementing Directive]
- 01/01/2007
Record of conflicts
SYSC 10.1.6
See Notes
A common platform firm must keep and regularly update a record of the kinds of service or activity carried out by or on behalf of the firm in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise.
[Note: article 23 of MiFID implementing Directive]
- 01/01/2007
SYSC 10.1.6A
See Notes
- 01/04/2009
Managing conflicts
SYSC 10.1.7
See Notes
A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest as defined in SYSC 10.1.3 R from constituting or giving rise to a material risk of damage to the interests of its clients.
[Note: article 13(3) of MiFID]
- 01/04/2009
Disclosure of conflicts
SYSC 10.1.8
See Notes
- (1) If arrangements made by a firm under SYSC 10.1.7 R to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must clearly disclose the general nature and/or sources of conflicts of interest to the client before undertaking business for the client.
- (2) The disclosure must:
- (a) be made in a durable medium; and
- (b) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises.
[Note: article 18(2) of MiFID and Article 22(4) of MiFID implementing Directive]
- 01/04/2009
SYSC 10.1.8A
See Notes
- 01/04/2009
SYSC 10.1.9
See Notes
Firms should aim to identify and manage the conflicts of interest arising in relation to their various business lines and their group's activities under a comprehensive conflicts of interest policy. In particular, the disclosure of conflicts of interest by a firm should not exempt it from the obligation to maintain and operate the effective organisational and administrative arrangements under SYSC 10.1.7 R. While disclosure of specific conflicts of interest is required by SYSC 10.1.8 R, an over-reliance on disclosure without adequate consideration as to how conflicts may appropriately be managed is not permitted.
[Note: recital 27 of MiFID implementing Directive]
- 01/04/2009
Conflicts policy
SYSC 10.1.10
See Notes
[Note: article 22(1) of MiFID implementing Directive]
- 01/01/2007
Contents of policy
SYSC 10.1.11
See Notes
[Note: article 22(2) and (3) of MiFID implementing Directive]
- 01/01/2007
SYSC 10.1.11A
See Notes
- 01/04/2009
SYSC 10.1.12
See Notes
In drawing up a conflicts of interest policy which identifies circumstances which constitute or may give rise to a conflict of interest, a firm should pay special attention to the activities of investment research and advice, proprietary trading, portfolio management and corporate finance business, including underwriting or selling in an offering of securities and advising on mergers and acquisitions. In particular, such special attention is appropriate where the firm or a person directly or indirectly linked by control to the firm performs a combination of two or more of those activities.
[Note: recital 26 of MiFID implementing Directive]
- 01/04/2009
Corporate finance
SYSC 10.1.13
See Notes
- 01/04/2009
SYSC 10.1.14
See Notes
- 01/04/2009
SYSC 10.1.15
See Notes
Measures that a firm might wish to consider in drawing up its conflicts of interest policy in relation to the management of an offering of securities include:
- (1) at an early stage agreeing with its corporate finance client relevant aspects of the offering process such as the process the firm proposes to follow in order to determine what recommendations it will make about allocations for the offering; how the target investor group will be identified; how recommendations on allocation and pricing will be prepared; and whether the firm might place securities with its investment clients or with its own proprietary book, or with an associate, and how conflicts arising might be managed; and
- (2) agreeing allocation and pricing objectives with the corporate finance client; inviting the corporate finance client to participate actively in the allocation process; making the initial recommendation for allocation to retail clients of the firm as a single block and not on a named basis; having internal arrangements under which senior personnel responsible for providing services to retail clients make the initial allocation recommendations for allocation to retail clients of the firm; and disclosing to the issuer details of the allocations actually made.
[Note: The provisions in SYSC 10.1 also implement BCD Article 22 and BCD Annex V paragraph 1]
- 01/04/2009
Application of conflicts of interest rules to non-common platform firms when producing investment research or non-independent research
SYSC 10.1.16
See Notes
The rules relating to:
- (1) types of conflict (see SYSC 10.1.4 R);
- (2) records of conflicts (see SYSC 10.1.6 R); and
- (3) conflicts of interest policies (see SYSC 10.1.10 R and SYSC 10.1.11 R);
also apply to a firm which is not a common platform firm when it produces, or arranges for the production of, investment research that is intended or likely to be subsequently disseminated to clients of the firm or to the public in accordance with COBS 12.2, and when it produces or disseminates non-independent research in accordance with COBS 12.3.
- 01/04/2009
SYSC 10.2
Chinese walls
- 01/01/2007
Application
SYSC 10.2.1
See Notes
- 01/04/2009
Control of information
SYSC 10.2.2
See Notes
- (1) When a firm establishes and maintains a Chinese wall (that is, an arrangement that requires information held by a person in the course of carrying on one part of the business to be withheld from, or not to be used for, persons with or for whom it acts in the course of carrying on another part of its business) it may:
- (a) withhold or not use the information held; and
- (b) for that purpose, permit persons employed in the first part of its business to withhold the information held from those employed in that other part of the business;
- but only to the extent that the business of one of those parts involves the carrying on of regulated activities, ancillary activities or, in the case of MiFID business, the provision of ancillary services.
- (2) Information may also be withheld or not used by a firm when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group. This provision does not affect any requirement to transmit or use information that may arise apart from the rules in COBS.
- (3) For the purpose of this rule, "maintains" includes taking reasonable steps to ensure that the arrangements remain effective and are adequately monitored, and must be interpreted accordingly.
- (4) For the purposes of section 118A(5)(a) of the Act, behaviour conforming with paragraph (1) does not amount to market abuse.
- 01/04/2009
Effect of rules
SYSC 10.2.3
See Notes
SYSC 10.2.2 R is made under section 147 of the Act (Control of information rules). It has the following effect:
- (1) acting in conformity with SYSC 10.2.2 R (1) provides a defence against proceedings brought under section 397(2) or (3) of the Act (Misleading statements and practices) - see sections 397(4) and (5)(c);
- (2) behaviour in conformity with SYSC 10.2.2 R (1) does not amount to market abuse (see SYSC 10.2.2 R (4)); and
- (3) acting in conformity with SYSC 10.2.2 R (1) provides a defence for a firm against FSA enforcement action, or an action for damages under section 150 of the Act, based on a breach of a relevant requirement to disclose or use this information.
- 01/01/2007
Attribution of knowledge
SYSC 10.2.4
See Notes
- 01/04/2009
SYSC 10.2.5
See Notes
- 01/04/2009
SYSC 11
Liquidity risk systems and controls
SYSC 11.1
Application
- 31/12/2006
SYSC 11.1.1
See Notes
SYSC 11 applies to an insurer, unless it is:
- (1) a non-directive friendly society; or
- (2) a Swiss general insurer; or
- (3) an EEA-deposit insurer; or
- (4) an incoming EEA firm; or
- (5) an incoming Treaty firm.
- 01/12/2009
SYSC 11.1.2
See Notes
- 31/12/2006
SYSC 11.1.3
See Notes
- 31/12/2006
SYSC 11.1.4
See Notes
SYSC 11 does not apply to:
- (1) a non-directive friendly society; or
- (2) a UCITS qualifier; or
- (3) an ICVC; or
- (4) an incoming EEA firm (unless it has a branch in the United Kingdom - see SYSC 11.1.1R (3)); or
- (5) an incoming Treaty firm; or
- (6) an incoming ECA provider acting as such.
- 01/11/2007
SYSC 11.1.5
See Notes
- (1) [deleted]
- (2) [deleted]
- 01/12/2009
SYSC 11.1.6
See Notes
If a firm carries on:
- (1) long-term insurance business; and
- (2) general insurance business;
SYSC 11 applies separately to each type of business.
- 31/12/2006
Purpose
SYSC 11.1.7
See Notes
The purpose of SYSC 11 is to amplify GENPRU and SYSC in their specific application to liquidity risk and, in so doing, to indicate minimum standards for systems and controls in respect of that risk.
- 31/12/2006
SYSC 11.1.8
See Notes
Appropriate systems and controls for the management of liquidity risk will vary with the scale, nature and complexity of the firm's activities. Most of the material in SYSC 11 is, therefore, guidance. SYSC 11 lays out some of the main issues that the FSA expects a firm to consider in relation to liquidity risk. A firm should assess the appropriateness of any particular item of guidance in the light of the scale, nature and complexity of its activities as well as its obligations as set out in Principle 3 to organise and control its affairs responsibly and effectively.
- 31/12/2006
SYSC 11.1.9
See Notes
- 31/12/2006
SYSC 11.1.10
See Notes
SYSC 11.1.11 R and SYSC 11.1.12 R implement the specific liquidity risk requirements of the BCD.
- 31/12/2006
SYSC 11.1.11
See Notes
A BIPRU firm must have policies and processes for the measurement and management of its net funding position and requirements on an ongoing and forward looking basis. Alternative scenarios must be considered and the assumptions underpinning decisions concerning the net funding position must be reviewed regularly.
[Note: annex V paragraph 14 of the Banking Consolidation Directive]
- 31/12/2006
SYSC 11.1.12
See Notes
A BIPRU firm must have contingency plans in place to deal with liquidity crises.
[Note: annex V paragraph 15 of the Banking Consolidation Directive]
- 31/12/2006
SYSC 11.1.13
See Notes
An insurer is also required to comply with the requirements in relation to liquidity risk set out in INSPRU 4.1.
- 31/12/2006
SYSC 11.1.14
See Notes
SYSC 4.1.1 R requires a BIPRU firm to have effective processes to identify, manage, monitor and report the risks it is or might be exposed to. A BIPRU firm is required by SYSC 7.1.2 R to establish, implement and maintain adequate risk management policies and procedures, including effective procedures for risk assessment. Liquidity risk is one of the risks covered by both of those requirements.
- 31/12/2006
SYSC 11.1.15
See Notes
A UK bank, a branch of an EEA bank and a branch of an overseas bank is required in IPRU(BANK) GN 3.4.3 to set out its policy on the management of its liquidity. Guidance on a bank's liquidity policy statement is given in IPRU(BANK) LM Section 10. Guidance on a bank's management of liquidity risk is given in IPRU(BANK) LM Sections 2 and 9.
- 31/12/2006
SYSC 11.1.16
See Notes
A building society is required by IPRU(BSOC) 5.2.7 R to maintain a board-approved policy statement on liquidity. Guidance on a building society's liquidity policy statement is given in IPRU(BSOC) 5.2.8 and IPRU(BSOC) Annex 5B Guidance on a building society's management of liquidity risk is given in IPRU(BSOC) Sections 5.3 to 5.8.
- 31/12/2006
SYSC 11.1.17
See Notes
High level requirements in relation to carrying out stress testing and scenario analysis are set out in GENPRU 1.2. In particular, GENPRU 1.2.42R requires a firm to carry out appropriate stress testing and scenario analysis. SYSC 11 gives guidance in relation to these tests in the case of liquidity risk.
- 31/12/2006
Stress testing and scenario analysis
SYSC 11.1.18
See Notes
The effect of GENPRU 1.2.30R, GENPRU 1.2.34R, GENPRU 1.2.37R(1) and GENPRU 1.2.42R is that, for the purposes of determining the adequacy of its overall financial resources, a firm must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallise.
- 31/12/2006
SYSC 11.1.19
See Notes
GENPRU 1.2.40G and GENPRU 1.2.62G to GENPRU 1.2.78G give guidance on stress testing and scenario analysis, including on how to choose appropriate scenarios, but the precise scenarios that a firm chooses to use will depend on the nature of its activities. For the purposes of testing liquidity risk, however, a firm should normally consider scenarios based on varying degrees of stress and both firm-specific and market-wide difficulties. In developing any scenario of extreme market-wide stress that may pose systemic risk, it may be appropriate for a firm to make assumptions about the likelihood and nature of central bank intervention.
- 31/12/2006
SYSC 11.1.20
See Notes
A firm should review frequently the assumptions used in stress testing scenarios to gain assurance that they continue to be appropriate.
- 31/12/2006
SYSC 11.1.21
See Notes
- (1) A scenario analysis in relation to liquidity risk required under GENPRU 1.2.42R should include a cash-flow projection for each scenario tested, based on reasonable estimates of the impact (both on and off balance sheet) of that scenario on the firm's funding needs and sources.
- (2) Contravention of (1) may be relied on as tending to establish contravention of GENPRU 1.2.42R.
- 31/12/2006
SYSC 11.1.22
See Notes
In identifying the possible on and off balance sheet impact referred to in SYSC 11.1.21E (1), a firm may take into account:
- (1) possible changes in the market's perception of the firm and the effects that this might have on the firm's access to the markets, including:
- (a) (where the firm funds its holdings of assets in one currency with liabilities in another) access to foreign exchange markets, particularly in less frequently traded currencies;
- (b) access to secured funding, including by way of repo transactions; and
- (c) the extent to which the firm may rely on committed facilities made available to it;
- (2) (if applicable) the possible effect of each scenario analysed on currencies whose exchange rates are currently pegged or fixed; and
- (3) that:
- (a) general market turbulence may trigger a substantial increase in the extent to which persons exercise rights against the firm under off balance sheet instruments to which the firm is party;
- (b) access to OTC derivative and foreign exchange markets are sensitive to credit-ratings;
- (c) the scenario may involve the triggering of early amortisation in asset securitisation transactions with which the firm has a connection; and
- (d) its ability to securitise assets may be reduced.
- 31/12/2006
Contingency funding plans
SYSC 11.1.23
See Notes
GENPRU 1.2.26R states that a firm must at all times maintain overall financial resources adequate to ensure that there is no significant risk that its liabilities cannot be met as they fall due. GENPRU 1.2.42R(1)(b) provides that for the purposes of determining the adequacy of its overall financial resources, a firm must estimate the financial resources it would need in each of the circumstances and events considered in carrying out its stress testing and scenario analysis in order to, inter alia, meet its liabilities as they fall due.
- 31/12/2006
SYSC 11.1.24
See Notes
- (1) A firm should have an adequately documented contingency funding plan for taking action to ensure, so far as it can, that, in each of the scenarios analysed under GENPRU 1.2.42R(1)(b), it would still have sufficient liquid financial resources to meet liabilities as they fall due.
- (2) The contingency funding plan should cover what events or circumstances will lead the firm to put into action any part of the plan.
- (3) [deleted]
- (4) A firm's contingency funding plan should, where relevant, take account of the impact of stressed market conditions on:
- (a) the behaviour of any credit-sensitive liabilities it has; and
- (b) its ability to securitise assets.
- (5) A firm's contingency funding plan should contain administrative policies and procedures that will enable the firm to manage the plan's implementation effectively, including:
- (a) the responsibilities of senior management;
- (b) names and contact details of members of the team responsible for implementing the contingency funding plan;
- (c) where, geographically, team members will be assigned;
- (d) who within the team is responsible for contact with head office (if appropriate), analysts, investors, external auditors, press, significant client's, regulators, lawyers and others; and
- (e) mechanisms that enable senior management and the governing body to receive management information that is both relevant and timely.
- (6) Contravention of any of (1) to (5) may be relied upon as tending to establish contravention of GENPRU 1.2.30R(2)(c).
- 01/12/2009
Documentation
SYSC 11.1.25
See Notes
GENPRU 1.2.60R requires a firm to document its assessment of the adequacy of its liquidity financial resources, how it intends to deal with those risks, and details of the stress tests and scenario analyses carried out and the resulting financial resources estimated to be required. Accordingly, a firm should document both its stress testing and scenario analysis (see SYSC 11.1.18 G) and its contingency funding plan (see SYSC 11.1.23 G).
- 31/12/2006
SYSC 11.1.26
See Notes
A firm should have adequate information systems for controlling and reporting liquidity risk. The management information system should be used to check for compliance with the firm's established policies, procedures and limits.
- 31/12/2006
SYSC 11.1.27
See Notes
Reports on liquidity risk should be provided on a timely basis to the firm's governing body, senior management and other appropriate personnel. The appropriate content and format of reports depends on a firm's liquidity management practices and the nature, scale and complexity of the firm's business. Reports to the firm's governing body may be less detailed and less frequent than reports to senior management with responsibility for managing liquidity risk.
- 31/12/2006
SYSC 11.1.28
See Notes
[deleted
- 01/12/2009
SYSC 11.1.29
See Notes
When considering what else might be included in liquidity risk management information, a firm should consider other types of information that may be important for understanding its liquidity risk profile. This may include:
- 31/12/2006
SYSC 11.1.30
See Notes
A firm's senior management should decide what limits need to be set, in accordance with the nature, scale and complexity of its activities. The structure of limits should reflect the need for a firm to have systems and controls in place to guard against a spectrum of possible risks, from those arising in day-to-day liquidity risk management to those arising in stressed conditions.
- 31/12/2006
SYSC 11.1.31
See Notes
A firm should periodically review and, where appropriate, adjust its limits when conditions or risk tolerances change.
- 31/12/2006
SYSC 11.1.32
See Notes
Policy or limit exceptions should receive the prompt attention of the appropriate management and should be resolved according to processes described in approved policies.
- 31/12/2006
SYSC 12
Group risk systems and controls requirements
SYSC 12.1
Application
- 01/01/2007
SYSC 12.1.1
See Notes
Subject to SYSC 12.1.2 R to SYSC 12.1.4 R, this section applies to each of the following which is a member of a group:
- (1) a firm that falls into any one or more of the following categories:
- (a) a regulated entity;
- (b) an ELMI;
- (c) an insurer;
- (d) a BIPRU firm;
- (e) a non-BIPRU firm that is a parent financial holding company in a Member State and is a member of a UK consolidation group; and
- (f) a firm subject to the rules in IPRU(INV) Chapter 14.
- (2) a UCITS firm, but only if its group contains a firm falling into (1); and
- (3) the Society.
- 01/01/2007
SYSC 12.1.2
See Notes
Except as set out in SYSC 12.1.4 R, this section applies with respect to different types of group as follows:
- (1) SYSC 12.1.8 R and SYSC 12.1.10 R apply with respect to all groups, including FSA regulated EEA financial conglomerates, other financial conglomerates and groups dealt with in SYSC 12.1.13 R to SYSC 12.1.16 R;
- (2) the additional requirements set out in SYSC 12.1.11 R and SYSC 12.1.12 R only apply with respect to FSA regulated EEA financial conglomerates; and
- (3) the additional requirements set out in SYSC 12.1.13 R to SYSC 12.1.16 R only apply with respect to groups of the kind dealt with by whichever of those rules apply.
- 01/01/2007
SYSC 12.1.3
See Notes
This section does not apply to:
- (1) an incoming EEA firm; or
- (2) an incoming Treaty firm; or
- (3) a UCITS qualifier; or
- (4) an ICVC; or
- (5) an incoming ECA provider acting as such.
- 01/11/2007
SYSC 12.1.4
See Notes
- (1) This rule applies in respect of the following rules:
- (a) SYSC 12.1.8R (2);
- (b) SYSC 12.1.10R (1), so far as it relates to SYSC 12.1.8R (2);
- (c) SYSC 12.1.10R (2); and
- (d) SYSC 12.1.11 R to SYSC 12.1.15 R.
- (2) The rules referred to in (1):
- (a) only apply with respect to a financial conglomerate if it is an FSA regulated EEA financial conglomerate;
- (b) (so far as they apply with respect to a group that is not a financial conglomerate) do not apply with respect to a group for which a competent authority in another EEA state is lead regulator;
- (c) (so far as they apply with respect to a financial conglomerate) do not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation;
- (d) (so far as they apply with respect to other groups) do not apply to a firm with respect to a group of which it is a member if the only relationship of the kind set out in paragraph (3) of the definition of group between it and the other members of the group is nothing more than a participation; and
- (e) do not apply with respect to a third-country group.
- 01/01/2007
SYSC 12.1.5
See Notes
For the purpose of this section, a group is defined in the Glossary, and includes the whole of a firm's group, including financial and non-financial undertakings. It also covers undertakings with other links to group members if their omission from the scope of group risk systems and controls would be misleading. The scope of the group systems and controls requirements may therefore differ from the scope of the quantitative requirements for groups.
- 01/01/2007
Purpose
SYSC 12.1.6
See Notes
The purpose of this chapter is to set out how the systems and control requirements imposed by SYSC (Senior Management Arrangements, Systems and Controls) apply where a firm is part of a group. If a firm is a member of a group, it should be able to assess the potential impact of risks arising from other parts of its group as well as from its own activities.
- 01/01/2007
SYSC 12.1.7
See Notes
This section implements Articles 73(3) (Supervision on a consolidated basis of credit institutions) and 138 (Intra-group transactions with mixed activity holding companies) of the Banking Consolidation Directive, Article 9 of the Financial Groups Directive (Internal control mechanisms and risk management processes) and Article 8 of the Insurance Groups Directive (Intra-group transactions).
- 01/01/2007
General rules
SYSC 12.1.8
See Notes
A firm must:
- (1) have adequate, sound and appropriate risk management processes and internal control mechanisms for the purpose of assessing and managing its own exposure to group risk, including sound administrative and accounting procedures; and
- (2) ensure that its group has adequate, sound and appropriate risk management processes and internal control mechanisms at the level of the group, including sound administrative and accounting procedures.
- 01/01/2007
SYSC 12.1.9
See Notes
For the purposes of SYSC 12.1.8 R, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group's business.
- 01/01/2007
SYSC 12.1.10
See Notes
The internal control mechanisms referred to in SYSC 12.1.8 R must include:
- (1) mechanisms that are adequate for the purpose of producing any data and information which would be relevant for the purpose of monitoring compliance with any prudential requirements (including any reporting requirements and any requirements relating to capital adequacy, solvency, systems and controls and large exposures):
- (a) to which the firm is subject with respect to its membership of a group; or
- (b) that apply to or with respect to that group or part of it; and
- (2) mechanisms that are adequate to monitor funding within the group.
- 01/01/2007
Financial conglomerates
SYSC 12.1.11
See Notes
Where this section applies with respect to a financial conglomerate, the risk management processes referred to in SYSC 12.1.8R (2) must include:
- (1) sound governance and management processes, which must include the approval and periodic review by the appropriate managing bodies within the financial conglomerate of the strategies and policies of the financial conglomerate in respect of all the risks assumed by the financial conglomerate, such review and approval being carried out at the level of the financial conglomerate;
- (2) adequate capital adequacy policies at the level of the financial conglomerate, one of the purposes of which must be to anticipate the impact of the business strategy of the financial conglomerate on its risk profile and on the capital adequacy requirements to which it and its members are subject;
- (3) adequate procedures for the purpose of ensuring that the risk monitoring systems of the financial conglomerate and its members are well integrated into their organisation; and
- (4) adequate procedures for the purpose of ensuring that the systems and controls of the members of the financial conglomerate are consistent and that the risks can be measured, monitored and controlled at the level of the financial conglomerate.
- 01/01/2007
SYSC 12.1.12
See Notes
Where this section applies with respect to a financial conglomerate, the internal control mechanisms referred to in SYSC 12.1.8R (2) must include:
- (1) mechanisms that are adequate to identify and measure all material risks incurred by members of the financial conglomerate and appropriately relate capital in the financial conglomerate to risks; and
- (2) sound reporting and accounting procedures for the purpose of identifying, measuring, monitoring and controlling intra-group transactions and risk concentrations.
- 01/01/2007
BIPRU firms and other firms to which BIPRU 8 applies
SYSC 12.1.13
See Notes
If this rule applies under SYSC 12.1.14 R to a firm, the firm must:
- (1) comply with SYSC 12.1.8R (2) in relation to any UK consolidation group or non-EEA sub-group of which it is a member, as well as in relation to its group; and
- (2) ensure that the risk management processes and internal control mechanisms at the level of any UK consolidation group or non-EEA sub-group of which it is a member comply with the obligations set out in the following provisions on a consolidated (or sub-consolidated) basis:
- (a) SYSC 4.1.1 R and SYSC 4.1.2 R;
- (b) SYSC 4.1.7 R;
- (c) SYSC 5.1.7 R;
- (d) SYSC 7;
- (e) BIPRU 12.3.27 R and BIPRU 12.4.10 R;
- (f) BIPRU 2.3.7 R (1);
- (g) BIPRU 9.1.6 R and BIPRU 9.13.21 R (Liquidity plans);
- (h) BIPRU 10.12.3 R (Concentration risk policies).
[Note: article 73(3) of the Banking Consolidation Directive]
- 01/12/2009
SYSC 12.1.14
See Notes
SYSC 12.1.13 R applies to a firm that is:
- (1) an ELMI;
- (2) a BIPRU firm; or
- (3) a non-BIPRU firm that is a parent financial holding company in a Member State and is a member of a UK consolidation group.
- 01/01/2007
SYSC 12.1.15
See Notes
In the case of a firm that:
- (1) is an ELMI or a BIPRU firm; and
- (2) has a mixed-activity holding company as a parent undertaking;
the risk management processes and internal control mechanisms referred to in SYSC 12.1.8 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm's parent undertaking mixed-activity holding company and any of the mixed-activity holding company's subsidiary undertakings.
- 01/01/2007
Insurance undertakings
SYSC 12.1.16
See Notes
- 01/01/2007
SYSC 12.1.17
See Notes
- 01/01/2007
Nature and extent of requirements and allocation of responsibilities within the group
SYSC 12.1.18
See Notes
- 01/01/2007
SYSC 12.1.19
See Notes
- 01/01/2007
SYSC 12.1.20
See Notes
- 01/01/2007
SYSC 12.1.21
See Notes
- 01/01/2007
SYSC 12.1.22
See Notes
- 01/01/2007
SYSC 13
Operational risk: systems and controls for insurers
SYSC 13.1
Application
- 31/12/2006
SYSC 13.1.1
See Notes
SYSC 13 applies to an insurer unless it is:
- (1) a non-directive friendly society; or
- (2) an incoming EEA firm; or
- (3) an incoming Treaty firm.
- 01/01/2007
SYSC 13.1.2
See Notes
SYSC 13 applies to:
- (1) an EEA-deposit insurer; and
- (2) a Swiss general insurer;
only in respect of the activities of the firm carried on from a branch in the United Kingdom.
- 31/12/2006
SYSC 13.1.4
See Notes
- 01/11/2007
SYSC 13.2
Purpose
- 31/12/2006
SYSC 13.2.1
See Notes
- 31/12/2006
SYSC 13.2.2
See Notes
- 31/12/2006
SYSC 13.2.3
See Notes
- 31/12/2006
SYSC 13.2.4
See Notes
- 31/12/2006
SYSC 13.3
Other related Handbook sections
- 31/12/2006
SYSC 13.3.1
See Notes
The following is a non-exhaustive list of rules and guidance in the Handbook that are relevant to a firm's management of operational risk:
- (1) SYSC 14 and INSPRU 5.1 contain specific rules and guidance for the establishment and maintenance of operational risk systems and controls in a prudential context.
- (2) COBS contains rules and guidance that can relate to the management of operational risk; for example, COBS 2 (Conduct of business obligations), COBS 4 (Communicating with clients, including financial promotions), COBS 6 (Information about the firm, its services and remuneration), COBS 7 (Insurance mediation), COBS 9 (Suitability (including basic advice)), COBS 11 (Dealing and managing), COBS 12 (Investment research), COBS 14 (Providing product information to clients) and COBS 19 (Pensions: supplementary provisions).
- 01/11/2007
SYSC 13.4
Requirements to notify the FSA
- 31/12/2006
SYSC 13.4.1
See Notes
- 31/12/2006
SYSC 13.4.2
See Notes
- 31/12/2006
SYSC 13.5
Risk management terms
- 31/12/2006
SYSC 13.5.1
See Notes
In this chapter, the following interpretations of risk management terms apply:
- (1) a firm's risk culture encompasses the general awareness, attitude and behaviour of its employees and appointed representatives or, where applicable, its tied agents, to risk and the management of risk within the organisation;
- (2) operational exposure means the degree of operational risk faced by a firm and is usually expressed in terms of the likelihood and impact of a particular type of operational loss occurring (for example, fraud, damage to physical assets);
- (3) a firm's operational risk profile describes the types of operational risks that it faces, including those operational risks within a firm that may have an adverse impact upon the quality of service afforded to its clients, and its exposure to these risks.
- 01/11/2007
SYSC 13.6
People
- 31/12/2006
SYSC 13.6.1
See Notes
- 01/11/2007
SYSC 13.6.2
See Notes
A firm should establish and maintain appropriate systems and controls for the management of operational risks that can arise from employees. In doing so, a firm should have regard to:
- (1) its operational risk culture, and any variations in this or its human resource management practices, across its operations (including, for example, the extent to which the compliance culture is extended to in-house IT staff);
- (2) whether the way employees are remunerated exposes the firm to the risk that it will not be able to meet its regulatory obligations (see SYSC 3.2.18 G). For example, a firm should consider how well remuneration and performance indicators reflect the firm's tolerance for operational risk, and the adequacy of these indicators for measuring performance;
- (3) whether inadequate or inappropriate training of client-facing services exposes clients to risk of loss or unfair treatment including by not enabling effective communication with the firm;
- (4) the extent of its compliance with applicable regulatory and other requirements that relate to the welfare and conduct of employees;
- (5) its arrangements for the continuity of operations in the event of employee unavailability or loss;
- (6) the relationship between indicators of 'people risk' (such as overtime, sickness, and employee turnover levels) and exposure to operational losses; and
- (7) the relevance of all the above to employees of a third party supplier who are involved in performing an outsourcing arrangement. As necessary, a firm should review and consider the adequacy of the staffing arrangements and policies of a service provider.
- 31/12/2006
Employee responsibilities
SYSC 13.6.3
See Notes
A firm should ensure that all employees are capable of performing, and aware of, their operational risk management responsibilities, including by establishing and maintaining:
- (1) appropriate segregation of employees' duties and appropriate supervision of employees in the performance of their responsibilities (see SYSC 3.2.5 G);
- (2) appropriate recruitment and subsequent processes to review the fitness and propriety of employees (see SYSC 3.2.13 G and SYSC 3.2.14 G);
- (3) clear policy statements and appropriate systems and procedures manuals that are effectively communicated to employees and available for employees to refer to as required. These should cover, for example, compliance, IT security and health and safety issues;
- (4) training processes that enable employees to attain and maintain appropriate competence; and
- (5) appropriate and properly enforced disciplinary and employment termination policies and procedures.
- 31/12/2006
SYSC 13.6.4
See Notes
- 31/12/2006
SYSC 13.7
Processes and systems
- 31/12/2006
SYSC 13.7.1
See Notes
A firm should establish and maintain appropriate systems and controls for managing operational risks that can arise from inadequacies or failures in its processes and systems (and, as appropriate, the systems and processes of third party suppliers, agents and others). In doing so a firm should have regard to:
- (1) the importance and complexity of processes and systems used in the end-to-end operating cycle for products and activities (for example, the level of integration of systems);
- (2) controls that will help it to prevent system and process failures or identify them to permit prompt rectification (including pre-approval or reconciliation processes);
- (3) whether the design and use of its processes and systems allow it to comply adequately with regulatory and other requirements;
- (4) its arrangements for the continuity of operations in the event that a significant process or system becomes unavailable or is destroyed; and
- (5) the importance of monitoring indicators of process or system risk (including reconciliation exceptions, compensation payments for client losses and documentation errors) and experience of operational losses and exposures.
- 31/12/2006
Internal documentation
SYSC 13.7.2
See Notes
- 31/12/2006
External documentation
SYSC 13.7.3
See Notes
- 31/12/2006
SYSC 13.7.4
See Notes
A firm should ensure the adequacy of its processes and systems to review external documentation prior to issue (including review by its compliance, legal and marketing departments or by appropriately qualified external advisers). In doing so, a firm should have regard to:
- (1) compliance with applicable regulatory and other requirements;
- (2) the extent to which its documentation uses standard terms (that are widely recognised, and have been tested in the courts) or non-standard terms (whose meaning may not yet be settled or whose effectiveness may be uncertain);
- (3) the manner in which its documentation is issued; and
- (4) the extent to which confirmation of acceptance is required (including by customer signature or counterparty confirmation).
- 01/11/2007
IT systems
SYSC 13.7.5
See Notes
- 31/12/2006
SYSC 13.7.6
See Notes
A firm should establish and maintain appropriate systems and controls for the management of its IT system risks, having regard to:
- (1) its organisation and reporting structure for technology operations (including the adequacy of senior management oversight);
- (2) the extent to which technology requirements are addressed in its business strategy;
- (3) the appropriateness of its systems acquisition, development and maintenance activities (including the allocation of responsibilities between IT development and operational areas, processes for embedding security requirements into systems); and
- (4) the appropriateness of its activities supporting the operation of IT systems (including the allocation of responsibilities between business and technology areas).
- 31/12/2006
Information security
SYSC 13.7.7
See Notes
Failures in processing information (whether physical, electronic or known by employees but not recorded) or of the security of the systems that maintain it can lead to significant operational losses. A firm should establish and maintain appropriate systems and controls to manage its information security risks. In doing so, a firm should have regard to:
- (1) confidentiality: information should be accessible only to persons or systems with appropriate authority, which may require firewalls within a system, as well as entry restrictions;
- (2) integrity: safeguarding the accuracy and completeness of information and its processing;
- (3) availability and authentication: ensuring that appropriately authorised persons or systems have access to the information when required and that their identity is verified;
- (4) non-repudiation and accountability: ensuring that the person or system that processed the information cannot deny their actions.
- 31/12/2006
SYSC 13.7.8
See Notes
- 31/12/2006
Geographic location
SYSC 13.7.9
See Notes
Operating processes and systems at separate geographic locations may alter a firm's operational risk profile (including by allowing alternative sites for the continuity of operations). A firm should understand the effect of any differences in processes and systems at each of its locations, particularly if they are in different countries, having regard to:
- (1) the business operating environment of each country (for example, the likelihood and impact of political disruptions or cultural differences on the provision of services);
- (2) relevant local regulatory and other requirements regarding data protection and transfer;
- (3) the extent to which local regulatory and other requirements may restrict its ability to meet regulatory obligations in the United Kingdom (for example, access to information by the FSA and local restrictions on internal or external audit); and
- (4) the timeliness of information flows to and from its headquarters and whether the level of delegated authority and the risk management structures of the overseas operation are compatible with the firm's head office arrangements.
- 31/12/2006
SYSC 13.8
External events and other changes
- 31/12/2006
SYSC 13.8.1
See Notes
The exposure of a firm to operational risk may increase during times of significant change to its organisation, infrastructure and business operating environment (for example, following a corporate restructure or changes in regulatory requirements). Before, during, and after expected changes, a firm should assess and monitor their effect on its risk profile, including with regard to:
- (1) untrained or de-motivated employees or a significant loss of employees during the period of change, or subsequently;
- (2) inadequate human resources or inexperienced employees carrying out routine business activities owing to the prioritisation of resources to the programme or project;
- (3) process or system instability and poor management information due to failures in integration or increased demand; and
- (4) inadequate or inappropriate processes following business re-engineering.
- 31/12/2006
SYSC 13.8.2
See Notes
A firm should establish and maintain appropriate systems and controls for the management of the risks involved in expected changes, such as by ensuring:
- (1) the adequacy of its organisation and reporting structure for managing the change (including the adequacy of senior management oversight);
- (2) the adequacy of the management processes and systems for managing the change (including planning, approval, implementation and review processes); and
- (3) the adequacy of its strategy for communicating changes in systems and controls to its employees.
- 31/12/2006
Unexpected changes and business continuity management
SYSC 13.8.3
See Notes
- 31/12/2006
SYSC 13.8.4
See Notes
- 31/12/2006
SYSC 13.8.5
See Notes
A firm should consider the likelihood and impact of a disruption to the continuity of its operations from unexpected events. This should include assessing the disruptions to which it is particularly susceptible (and the likely timescale of those disruptions) including through:
- (1) loss or failure of internal and external resources (such as people, systems and other assets);
- (2) the loss or corruption of its information; and
- (3) external events (such as vandalism, war and "acts of God").
- 31/12/2006
SYSC 13.8.6
See Notes
- 31/12/2006
SYSC 13.8.7
See Notes
A firm should document its strategy for maintaining continuity of its operations, and its plans for communicating and regularly testing the adequacy and effectiveness of this strategy. A firm should establish:
- (1) formal business continuity plans that outline arrangements to reduce the impact of a short, medium or long-term disruption, including:
- (a) resource requirements such as people, systems and other assets, and arrangements for obtaining these resources;
- (b) the recovery priorities for the firm's operations; and
- (c) communication arrangements for internal and external concerned parties (including the FSA, clients and the press);
- (2) escalation and invocation plans that outline the processes for implementing the business continuity plans, together with relevant contact information;
- (3) processes to validate the integrity of information affected by the disruption;
- (4) processes to review and update (1) to (3) following changes to the firm's operations or risk profile (including changes identified through testing).
- 31/12/2006
SYSC 13.8.8
See Notes
- 31/12/2006
SYSC 13.9
Outsourcing
- 31/12/2006
SYSC 13.9.1
See Notes
- 31/12/2006
SYSC 13.9.2
See Notes
- 31/12/2006
SYSC 13.9.3
See Notes
- 31/12/2006
SYSC 13.9.4
See Notes
Before entering into, or significantly changing, an outsourcing arrangement, a firm should:
- (1) analyse how the arrangement will fit with its organisation and reporting structure; business strategy; overall risk profile; and ability to meet its regulatory obligations;
- (2) consider whether the agreements establishing the arrangement will allow it to monitor and control its operational risk exposure relating to the outsourcing;
- (3) conduct appropriate due diligence of the service provider's financial stability and expertise;
- (4) consider how it will ensure a smooth transition of its operations from its current arrangements to a new or changed outsourcing arrangement (including what will happen on the termination of the contract); and
- (5) consider any concentration risk implications such as the business continuity implications that may arise if a single service provider is used by several firms.
- 31/12/2006
SYSC 13.9.5
See Notes
In negotiating its contract with a service provider, a firm should have regard to:
- (1) reporting or notification requirements it may wish to impose on the service provider;
- (2) whether sufficient access will be available to its internal auditors, external auditors or actuaries (see section 341 of the Act) and to the FSA (see SUP 2.3.5 R (Access to premises) and SUP 2.3.7 R (Suppliers under material outsourcing arrangements);
- (3) information ownership rights, confidentiality agreements and Chinese walls to protect client and other information (including arrangements at the termination of the contract);
- (4) the adequacy of any guarantees and indemnities;
- (5) the extent to which the service provider must comply with the firm's policies and procedures (covering, for example, information security);
- (6) the extent to which a service provider will provide business continuity for outsourced operations, and whether exclusive access to its resources is agreed;
- (7) the need for continued availability of software following difficulty at a third party supplier;
- (8) the processes for making changes to the outsourcing arrangement (for example, changes in processing volumes, activities and other contractual terms) and the conditions under which the firm or service provider can choose to change or terminate the outsourcing arrangement, such as where there is:
- (a) a change of ownership or control (including insolvency or receivership) of the service provider or firm; or
- (b) significant change in the business operations (including sub-contracting) of the service provider or firm; or
- (c) inadequate provision of services that may lead to the firm being unable to meet its regulatory obligations.
- 31/12/2006
SYSC 13.9.6
See Notes
In implementing a relationship management framework, and drafting the service level agreement with the service provider, a firm should have regard to:
- (1) the identification of qualitative and quantitative performance targets to assess the adequacy of service provision, to both the firm and its clients, where appropriate;
- (2) the evaluation of performance through service delivery reports and periodic self certification or independent review by internal or external auditors; and
- (3) remedial action and escalation processes for dealing with inadequate performance.
- 31/12/2006
SYSC 13.9.7
See Notes
- 31/12/2006
SYSC 13.9.8
See Notes
- 31/12/2006
SYSC 13.10
Insurance
- 31/12/2006
SYSC 13.10.1
See Notes
- 31/12/2006
SYSC 13.10.2
See Notes
When considering utilising insurance, a firm should consider:
- (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) 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) 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).
- 31/12/2006
SYSC 14
Prudential risk management and associated systems and controls for insurers
SYSC 14.1
Application
- 31/12/2006
SYSC 14.1.1
See Notes
This section applies to an insurer unless it is:
- (1) a non-directive friendly society; or
- (2) an incoming EEA firm; or
- (3) an incoming Treaty firm.
- 31/12/2006
SYSC 14.1.2
See Notes
This section applies to:
- (1) an EEA-deposit insurer; and
- (2) a Swiss general insurer;
only in respect of the activities of the firm carried on from a branch in the United Kingdom.
- 31/12/2006
SYSC 14.1.2A
See Notes
- 01/11/2007
Purpose
SYSC 14.1.3
See Notes
- 31/12/2006
SYSC 14.1.4
See Notes
- 31/12/2006
SYSC 14.1.5
See Notes
- 31/12/2006
How to interpret this section
SYSC 14.1.6
See Notes
- 31/12/2006
SYSC 14.1.7
See Notes
- 31/12/2006
SYSC 14.1.8
See Notes
Appropriate systems and controls for the management of prudential risk will vary from firm to firm. Therefore, most of the material in this section is guidance. In interpreting this guidance, a firm should have regard to its own particular circumstances. Following from SYSC 3.1.2 G, this should include considering the nature, scale and complexity of its business, which may be influenced by factors such as:
- (1) the diversity of its operations, including geographical diversity;
- (2) the volume and size of its transactions; and
- (3) the degree of risk associated with each area of its operation.
- 31/12/2006
SYSC 14.1.9
See Notes
- 31/12/2006
The role of systems and controls in a prudential context
SYSC 14.1.10
See Notes
- 31/12/2006
The prudential responsibilities of senior management and the apportionment of those responsibilities
SYSC 14.1.11
See Notes
Ultimate responsibility for the management of prudential risks rests with a firm's governing body and relevant senior managers, and in particular with those individuals that undertake the firm's governing functions and the apportionment and oversight function. In particular, these responsibilities should include:
- (1) overseeing the establishment of an appropriate business plan and risk management strategy;
- (2) overseeing the development of appropriate systems for the management of prudential risks;
- (3) establishing adequate internal controls; and
- (4) ensuring that the firm maintains adequate financial resources.
- 31/12/2006
The delegation of responsibilities within the firm
SYSC 14.1.12
See Notes
- 31/12/2006
SYSC 14.1.13
See Notes
- 31/12/2006
Firms subject to risk management on a group basis
SYSC 14.1.14
See Notes
Some firms organise the management of their prudential risks on a stand-alone basis. In some cases, however, the management of a firm's prudential risks may be entirely or largely subsumed within a whole group or sub-group basis.
- (1) The latter arrangement may still comply with the FSA's prudential policyon systems and controls if the firm's governing body formally delegates the functions that are to be carried out in this way to the persons or bodies that are to carry them out. Before doing so, however, the firm's governing body should have explicitly considered the arrangement and decided that it is appropriate and that it enables the firm to meet the FSA's prudential policy on systems and controls. The firm should notify the FSA if the management of its prudential risks is to be carried out in this way.
- (2) Where the management of a firm's prudential risks is largely, but not entirely, subsumed within a whole group or sub-group basis, the firm should ensure that any prudential issues that are specific to the firm are:
- (a) identified and adequately covered by those to whom it has delegated certain prudential risk management tasks; or
- (b) dealt with by the firm itself.
- 31/12/2006
SYSC 14.1.15
See Notes
- 31/12/2006
SYSC 14.1.16
See Notes
- 31/12/2006
Business planning and risk management
SYSC 14.1.17
See Notes
- 31/12/2006
SYSC 14.1.18
See Notes
- 31/12/2006
SYSC 14.1.19
See Notes
When establishing and maintaining its business plan and prudential risk management systems, a firm must document:
- (1) an explanation of its overall business strategy, including its business objectives;
- (2) a description of, as applicable, its policies towards market, credit (including provisioning), liquidity, operational, insurance and group risk (that is, its risk policies), including its appetite or tolerance for these risks and how it identifies, measures or assesses, monitors and controls these risks;
- (3) the systems and controls that it intends to use in order to ensure that its business plan and risk policies are implemented correctly;
- (4) a description of how the firm accounts for assets and liabilities, including the circumstances under which items are netted, included or excluded from the firm's balance sheet and the methods and assumptions for valuation;
- (5) appropriate financial projections and the results of its stress testing and scenario analysis (see GENPRU 1.2 (Adequacy of financial resources)); and
- (6) details of, and the justification for, the methods and assumptions used in financial projections and stress testing and scenario analysis.
- 31/12/2006
SYSC 14.1.20
See Notes
The prudential risk management systems referred to in SYSC 14.1.18 R and SYSC 14.1.19 R are the means by which a firm is able to:
- (1) identify the prudential risks that are inherent in its business plan, operating environment and objectives, and determine its appetite or tolerance for these risks;
- (2) measure or assess its prudential risks;
- (3) monitor its prudential risks; and
- (4) control or mitigate its prudential risks.
INSPRU 4.1.63 E is an evidential provision relating to SYSC 14.1.18 R concerning risk management systems in respect of liquidity risk arising from substantial exposures in foreign currencies.
- 31/12/2006
SYSC 14.1.21
See Notes
- 31/12/2006
SYSC 14.1.22
See Notes
A firm's business plan and risk management systems should be:
- (1) effectively communicated so that all employees and contractors understand and adhere to the procedures related to their own responsibilities;
- (2) regularly updated and revised, in particular when there is significant new information or when actual practice or performance differs materially from the documented strategy, policy or systems.
- 31/12/2006
SYSC 14.1.23
See Notes
- 31/12/2006
SYSC 14.1.24
See Notes
- 31/12/2006
SYSC 14.1.25
See Notes
- 31/12/2006
Internal controls: introduction
SYSC 14.1.26
See Notes
- 31/12/2006
SYSC 14.1.27
See Notes
- 31/12/2006
SYSC 14.1.28
See Notes
The precise role and organisation of internal controls can vary from firm to firm. However, a firm's internal controls should normally be concerned with assisting its governing body and relevant senior managers to participate in ensuring that it meets the following objectives:
- (1) safeguarding both the assets of the firm and its customers, as well as identifying and managing liabilities;
- (2) maintaining the efficiency and effectiveness of its operations;
- (3) ensuring the reliability and completeness of all accounting, financial and management information; and
- (4) ensuring compliance with its internal policies and procedures as well as all applicable laws and regulations.
- 31/12/2006
SYSC 14.1.29
See Notes
When determining the adequacy of its internal controls, a firm should consider both the potential risks that might hinder the achievement of the objectives listed in SYSC 14.1.28 G, and the extent to which it needs to control these risks. More specifically, this should normally include consideration of:
- (1) the appropriateness of its reporting and communication lines (see SYSC 3.2.2 G);
- (2) how the delegation or contracting of functions or activities to employees, appointed representatives or, where applicable, its tied agents or other third parties (for example outsourcing) is to be monitored and controlled (see SYSC 3.2.3 G to SYSC 3.2.4 G, SYSC 14.1.12 G to SYSC 14.1.16 G and SYSC 14.1.33 G; additional guidance on the management of outsourcing arrangements is also provided in SYSC 13.9);
- (3) the risk that a firm's employees or contractors might accidentally or deliberately breach a firm's policies and procedures (see SYSC 13.6.3 G);
- (4) the need for adequate segregation of duties (see SYSC 3.2.5 G and SYSC 14.1.30 G to SYSC 14.1.33 G);
- (5) the establishment and control of risk management committees (see SYSC 14.1.34 G to SYSC 14.1.37 G);
- (6) the need for risk assessment and the establishment of a risk assessment function (see SYSC 3.2.10 G and SYSC 14.1.38 G to SYSC 14.1.41 G);
- (7) the need for internal audit and the establishment of an internal audit function and audit committee (see SYSC 3.2.15 G to SYSC 3.2.16 G and SYSC 14.1.42 G to SYSC 14.1.45 G).
- 01/11/2007
Internal controls: segregation of duties
SYSC 14.1.30
See Notes
The effective segregation of duties is an important internal control in the prudential context. In particular, it helps to ensure that no one individual is completely free to commit a firm's assets or incur liabilities on its behalf. Segregation can also help to ensure that a firm's governing body receives objective and accurate information on financial performance, the risks faced by the firm and the adequacy of its systems. In this regard, a firm should ensure that there is adequate segregation of duties between employees involved in:
- (1) taking on or controlling risk (which could involve risk mitigation);
- (2) risk assessment (which includes the identification and analysis of risk); and
- (3) internal audit.
- 31/12/2006
SYSC 14.1.31
See Notes
- 31/12/2006
SYSC 14.1.32
See Notes
- 31/12/2006
SYSC 14.1.33
See Notes
Where a firm outsources a controlled function, such as internal audit, 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:
- (1) the work is carried out under the supervision and management of the firm's own internal staff; and
- (2) potential conflicts of interest between the provision of external audit services and the provision of controlled functions are properly managed.
- 01/11/2007
Internal controls: risk management committees
SYSC 14.1.34
See Notes
- 31/12/2006
SYSC 14.1.35
See Notes
Where a firm decides to create one or more risk management committee(s), adequate internal controls should be put in place to ensure that these committees are effective and that their actions are consistent with the objectives outlined in SYSC 14.1.28 G. This should normally include consideration of the following:
- (1) setting clear terms of reference, including membership, reporting lines and responsibilities of each committee;
- (2) setting limits on their authority;
- (3) agreeing routine reporting and non-routine reporting escalation procedures;
- (4) agreeing the minimum frequency of committee meetings; and
- (5) reviewing the performance of these risk management committees.
- 31/12/2006
SYSC 14.1.36
See Notes
- 31/12/2006
SYSC 14.1.37
See Notes
The effective use of risk management committees can help to enhance a firm's internal controls. In establishing and maintaining its risk management committees, a firm should consider:
- (1) their membership, which should normally include relevant senior managers (such as the head of group risk, head of legal, and the heads of market, credit, liquidity and operational risk, etc.), business line managers, risk management personnel and other appropriately skilled people, for example, actuaries, lawyers, accountants, IT specialists, etc.;
- (2) using these committees to:
- (i) inform the decisions made by a firm's governing body regarding its appetite or tolerance for risk taking;
- (ii) highlight risk management issues that may require attention by the governing body;
- (iii) consider risk at the firm-wide level and, within delegated limits, to determine the allocation of risk limits and financial resources across business lines; and
- (iv) consider how exposures may be unwound, hedged, or otherwise mitigated, as appropriate.
- 31/12/2006
Internal controls: risk assessment
SYSC 14.1.38
See Notes
Risk assessment is the process through which a firm identifies and analyses (using both qualitative and quantitative methodologies) the risks that it faces. A firm's risk assessment activities should normally include consideration of:
- (1) its total exposure to risk at the firm-wide level (that is, its exposure across business lines and risk categories);
- (2) capital allocation and the need to calculate risk weighted returns for different business lines;
- (3) the potential correlations that can exist between the risks in different business lines; this should also include looking for risks to which a firm's business plan is particularly sensitive, such as interest rate risk, or multiple dealings with the same counterparty;
- (4) the use of stress tests and scenario analysis;
- (5) whether there are risks inherent in the firm's business that are not being addressed adequately;
- (6) the risk adjusted return that the firm is achieving; and
- (7) the adequacy and timeliness of management information on market, credit, insurance, liquidity, operational and group risks from the business lines, including risk limit utilisation.
- 31/12/2006
SYSC 14.1.39
See Notes
- (1) In accordance with SYSC 3.2.10 G a firm should consider whether it needs to set up a separate risk assessment function (or functions) that is responsible for assessing the risks that the firm faces and advising its governing body and senior managers on them.
- (2) 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).
- 01/11/2007
SYSC 14.1.40
See Notes
- 01/11/2007
SYSC 14.1.41
See Notes
- 01/11/2007
Internal audit
SYSC 14.1.42
See Notes
A firm should ensure that it has appropriate mechanisms in place to assess and monitor the appropriateness and effectiveness of its systems and controls. This should normally include consideration of:
- (1) adherence to and effectiveness of, as appropriate, its market, credit, liquidity, operational, insurance, and group risk policies;
- (2) whether departures and variances from its documented systems and controls and risk policies have been adequately documented and appropriately reported, including whether appropriate pre-clearance authorisation has been sought for material departures and variances;
- (3) adherence to and effectiveness of its accounting policies, and whether accounting records are complete and accurate;
- (4) adherence to and effectiveness of its management reporting arrangements, including the timeliness of reporting, and whether information is comprehensive and accurate; and
- (5) adherence to FSA rules and regulatory prudential standards.
- 31/12/2006
SYSC 14.1.43
See Notes
- (1) In accordance with SYSC 3.2.15 G and SYSC 3.2.16 G, a firm should consider whether it needs to set up a dedicated internal audit function.
- (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).
- 01/11/2007
SYSC 14.1.44
See Notes
- 01/11/2007
SYSC 14.1.45
See Notes
- 01/11/2007
Management information
SYSC 14.1.46
See Notes
- 31/12/2006
SYSC 14.1.47
See Notes
The role of management information should be to help a firm's governing body and senior managers to understand risk at a firm-wide level. In so doing, it should help them to:
- 31/12/2006
SYSC 14.1.48
See Notes
A firm should consider what information needs to be made available to its governing body and senior managers. Some possible examples include:
- (1) firm-wide information such as the overall profitability and value of a firm and its total exposure to risk;
- (2) reports from committees to which the governing body has delegated risk management tasks, if applicable;
- (3) reports from a firm's internal audit and risk assessment functions (see SYSC 14.1.43 G and SYSC 14.1.39 G), if applicable, including exception reports, where risk limits and policies have been breached or systems circumvented;
- (4) financial projections under expected and abnormal (that is, stressed) conditions;
- (5) reconciliation of actual profit and loss to previous financial projections and an analysis of any significant variances;
- (6) matters which require a decision from the governing body or senior managers, for example a significant variation to a business plan, amendments to risk limits, the creation of a new business line, etc;
- (7) compliance with FSA rules and regulatory prudential standards;
- (8) risk weighted returns; and
- (9) liquidity and funding requirements.
- 01/11/2007
SYSC 14.1.49
See Notes
The management information that is provided to a firm's governing body and senior managers should have the following characteristics:
- (1) it should be timely, its frequency being determined by factors such as:
- (a) the volatility of the business in which the firm is engaged (that is, the speed at which its risks can change);
- (b) any time constraints on when action needs to be taken; and
- (c) the level of risk that the firm is exposed to, compared to its available financial resources and tolerance for risk;
- (2) it should be reliable, having regard to the fact that it may be necessary to sacrifice a degree of accuracy for timeliness; and
- (3) it should be presented in a manner that highlights any relevant issues on which those undertaking governing functions should focus particular attention.
- 31/12/2006
SYSC 14.1.50
See Notes
- 31/12/2006
Record keeping
SYSC 14.1.51
See Notes
SYSC 3.2.20 R requires a firm to take reasonable care to make and retain adequate records. The following policy on record keeping supplements SYSC 3.2.20 R by providing some additional rules and guidance on record keeping in a prudential context. The purpose of this policy is to:
- (1) facilitate the prudential supervision of a firm by ensuring that adequate information is available regarding its past/current financial situation and business activities (which includes the design and implementation of systems and controls); and
- (2) help the FSA to satisfy itself that a firm is operating in a prudent manner and is not prejudicing the interests of its customers or market confidence
- 31/12/2006
SYSC 14.1.52
See Notes
- 31/12/2006
SYSC 14.1.53
See Notes
- (1) A firm must make and regularly update accounting and other records that are sufficient to enable the firm to demonstrate to the FSA:
- (a) that the firm is financially sound and has appropriate systems and controls;
- (b) the firm's financial position and exposure to risk (to a reasonable degree of accuracy); and
- (c) the firm's compliance with the rules in GENPRU, INSPRU and SYSC.
- (2) The records in (1) must be retained for a minimum of three years, or longer as appropriate.
- 31/12/2006
SYSC 14.1.54
See Notes
- 31/12/2006
SYSC 14.1.55
See Notes
- 31/12/2006
SYSC 14.1.56
See Notes
- 31/12/2006
SYSC 14.1.57
See Notes
- 31/12/2006
SYSC 14.1.58
See Notes
- 31/12/2006
SYSC 14.1.59
See Notes
- 31/12/2006
SYSC 14.1.60
See Notes
A firm must keep the records required in SYSC 14.1.53 R in the United Kingdom, except where:
- (1) they relate to business carried on from an establishment in a country or territory that is outside the United Kingdom; and
- (2) they are kept in that country or territory.
- 31/12/2006
SYSC 14.1.61
See Notes
- 31/12/2006
SYSC 14.1.62
See Notes
- 31/12/2006
SYSC 14.1.63
See Notes
- 31/12/2006
SYSC 14.1.64
See Notes
- 31/12/2006
Operational risk
SYSC 14.1.65
See Notes
As well as covering other types of risk, the rules and guidance set out in this chapter deal with a firm's approach to operational risk. In particular:
- (1) SYSC 14.1.18 R requires a firm to take reasonable steps to ensure that the risk management systems put in place to identify, assess, monitor and control operational risk are adequate for that purpose;
- (2) SYSC 14.1.19R (2) requires a firm to document its policy for operational risk, including its risk appetite and how it identifies, assesses, monitors and controls that risk; and
- (3) SYSC 14.1.27 R requires a firm to take reasonable steps to establish and maintain adequate internal controls to enable it to assess and monitor the effectiveness and implementation of its business plan and prudential risk management systems.
- 31/12/2006
SYSC 15
Credit risk management systems and controls for insurers
SYSC 15.1
Application
- 31/12/2006
SYSC 15.1.1
See Notes
SYSC 15.1 applies to an insurer unless it is:
- (1) a non-directive friendly society; or
- (2) an incoming EEA firm; or
- (3) an incoming Treaty firm.
- 31/12/2006
SYSC 15.1.2
See Notes
SYSC 15.1 applies to:
- (1) an EEA-deposit insurer; and
- (2) a Swiss general insurer;
only in respect of the activities of the firm carried on from a branch in the United Kingdom.
- 31/12/2006
SYSC 15.1.2A
See Notes
- 01/11/2007
Purpose
SYSC 15.1.3
See Notes
- 31/12/2006
SYSC 15.1.4
See Notes
- 31/12/2006
SYSC 15.1.5
See Notes
Credit risk concerns the FSA in a prudential context because inadequate systems and controls for credit risk management can create a threat to the regulatory objectives of market confidence and consumer protection by:
- (1) the erosion of a firm's capital due to excessive credit losses thereby threatening its viability as a going concern;
- (2) an inability of a firm to meet its own obligations to depositors, policyholders or other market counterparties due to its capital erosion.
- 31/12/2006
SYSC 15.1.6
See Notes
- 31/12/2006
Requirements
SYSC 15.1.7
See Notes
High level requirements for prudential systems and controls, including those for credit risk, are set out in SYSC 14. In particular:
- (1) SYSC 14.1.19R (2) requires a firm to document its policy for credit risk, including its risk appetite and how it identifies, measures, monitors and controls that risk;
- (2) SYSC 14.1.19R (2) requires a firm to document its provisioning policy. Documentation should describe the systems and controls that it intends to use to ensure that the policy is correctly implemented;
- (3) SYSC 14.1.18 R requires it to establish and maintain risk management systems to identify, measure, monitor and control credit risk (in accordance with its credit risk policy), and to take reasonable steps to ensure that its systems are adequate for that purpose; or
- (4) in line with SYSC 14.1.11 G, the ultimate responsibility for the management of credit risk should rest with a firm's governing body. Where delegation of authority occurs the governing body and relevant senior managers should approve and periodically review systems and controls to ensure that delegated duties are being performed correctly.
- 31/12/2006
Credit risk policy
SYSC 15.1.8
See Notes
SYSC 14.1.18 R requires a firm to establish, maintain and document a business plan and risk policies. They should provide a clear indication of the amount and nature of credit risk that the firm wishes to incur. In particular, they should cover for credit risk:
- (1) how, with particular reference to its activities, the firm defines and measures credit risk;
- (2) the firm's business aims in incurring credit risk including:
- (a) identifying the types and sources of credit risk to which the firm wishes to be exposed (and the limits on that exposure) and those to which the firm wishes not to be exposed (and how that is to be achieved, for example how exposure is to be avoided or mitigated);
- (b) specifying the level of diversification required by the firm and the firm's tolerance for risk concentrations (and the limits on those exposures and concentrations); and
- (c) drawing the distinction between activities where credit risk is taken in order to achieve a return (for example, lending) and activities where credit exposure arises as a consequence of pursuing some other objective (for example, the purchase of a derivative in order to mitigate market risk);
- (3) how credit risk is assessed both when credit is granted or incurred and subsequently, including how the adequacy of any security and other risk mitigation techniques is assessed;
- (4) the detailed limit structure for credit risk which should:
- (a) address all key risk factors, including intra-group exposures and indirect exposures (for example, exposures held by related and subsidiary undertakings);
- (b) be commensurate with the volume and complexity of activity; and
- (c) be consistent with the firm's business aims, historical performance, and its risk appetite;
- (5) procedures for:
- (a) approving new or additional exposures to counterparties;
- (b) approving new products and activities that give rise to credit risk;
- (c) regular risk position and performance reporting;
- (d) limit exception reporting and approval; and
- (e) identifying and dealing with the problem exposures caused by the failure or downgrading of a counterparty;
- (6) the methods and assumptions used for the stress testing and scenario analysis required by GENPRU 1.2 (Adequacy of financial resources), including how these methods and assumptions are selected and tested; and
- (7) the allocation of responsibilities for implementing the credit risk policy and for monitoring adherence to, and the effectiveness of, the policy.
- 31/12/2006
Counterparty assessment
SYSC 15.1.9
See Notes
The firm should make a suitable assessment of the risk profile of the counterparty. The factors to be considered will vary according to both the type of credit and the counterparty being considered. This may include:
- (1) the purpose of the credit, the duration of the agreement and the source of repayment;
- (2) an assessment and continuous monitoring of the credit quality of the counterparty;
- (3) an assessment of the claims payment record where the counterparty is a reinsurer;
- (4) an assessment of the nature and amount of risk attached to the counterparty in the context of the industrial sector or geographical region or country in which it operates, as well as the potential impact on the counterparty of political, economic and market changes; and
- (5) the proposed terms and conditions attached to the granting of credit, including ongoing provision of information by the counterparty, covenants attached to the facility as well as the adequacy and enforceability of collateral, security and guarantees.
- 31/12/2006
SYSC 15.1.10
See Notes
- 31/12/2006
SYSC 15.1.11
See Notes
- 31/12/2006
SYSC 15.1.12
See Notes
- 31/12/2006
SYSC 15.1.13
See Notes
- 31/12/2006
SYSC 15.1.14
See Notes
- 31/12/2006
SYSC 15.1.15
See Notes
- 31/12/2006
Credit risk measurement
SYSC 15.1.16
See Notes
- 31/12/2006
SYSC 15.1.17
See Notes
- 31/12/2006
SYSC 15.1.18
See Notes
- 31/12/2006
SYSC 15.1.19
See Notes
- 31/12/2006
Risk monitoring
SYSC 15.1.20
See Notes
- 31/12/2006
SYSC 15.1.21
See Notes
- 31/12/2006
SYSC 15.1.22
See Notes
- 31/12/2006
SYSC 15.1.23
See Notes
- 31/12/2006
Problem exposures
SYSC 15.1.24
See Notes
- 31/12/2006
SYSC 15.1.25
See Notes
- 31/12/2006
Provisioning
SYSC 15.1.26
See Notes
- 31/12/2006
SYSC 15.1.27
See Notes
- 31/12/2006
SYSC 15.1.28
See Notes
- 31/12/2006
SYSC 15.1.29
See Notes
- 31/12/2006
SYSC 15.1.30
See Notes
- 31/12/2006
SYSC 15.1.31
See Notes
- 31/12/2006
Risk mitigation
SYSC 15.1.32
See Notes
- 31/12/2006
SYSC 15.1.33
See Notes
- 31/12/2006
SYSC 15.1.34
See Notes
- 31/12/2006
SYSC 15.1.35
See Notes
- 31/12/2006
Record keeping
SYSC 15.1.36
See Notes
Prudential records made under SYSC 14.1.53 R should include appropriate records of:
- (1) credit exposures, including aggregations of credit exposures, as appropriate, by:
- (a) groups of connected counterparties; or
- (b) types of counterparty as defined, for example, by the nature or geographical location of the counterparty;
- (2) credit decisions, including details of the decision and the facts or circumstances upon which it was made; and
- (3) information relevant to assessing current counterparty and risk quality.
- 31/12/2006
SYSC 15.1.37
See Notes
- 31/12/2006
SYSC 16
Market risk management systems and controls for insurers
SYSC 16.1
Application
- 31/12/2006
SYSC 16.1.1
See Notes
SYSC 16.1 applies to an insurer unless it is:
- (1) a non-directive friendly society; or
- (2) an incoming EEA firm; or
- (3) an incoming Treaty firm.
- 31/12/2006
SYSC 16.1.2
See Notes
SYSC 16.1 applies to:
- (1) an EEA-deposit insurer; and
- (2) a Swiss general insurer;
only in respect of the activities of the firm carried on from a branch in the United Kingdom.
- 31/12/2006
SYSC 16.1.2A
See Notes
- 01/11/2007
SYSC 16.1.3
See Notes
- 31/12/2006
Purpose
SYSC 16.1.4
See Notes
- (1) The purpose of this section is to amplify SYSC 14 insofar as it relates to market risk.
- (2) Market risk includes equity, interest rate, foreign exchange (FX), commodity risk and interest rate risk on long-term insurance contracts. The price of financial instruments may also be influenced by other risks such as spread risk, basis risk, correlation, specific risk and volatility risk.
- (3) This section does not deal with the risk management of market risk in a group context. A firm that is a member of a group should also read SYSC 12 (Group risk systems and controls) which outlines the FSA's requirements for the risk management of market risk within a group.
- (4) Appropriate systems and controls for the management of market risk will vary with the scale, nature and complexity of the firm's activities. Therefore the material in this section is guidance. A firm should assess the appropriateness of any particular item of guidance in the light of the scale, nature and complexity of its activities as well as its obligations as set out in Principle 3 to organise and control its affairs responsibly and effectively.
- 31/12/2006
Requirements
SYSC 16.1.5
See Notes
High level requirements for prudential systems and controls, including those for market risk, are set out in SYSC 14. In particular:
- (1) SYSC 14.1.19R (2) requires a firm to document its policy for market risk, including its risk appetite and how it identifies, measures, monitors and controls that risk;
- (2) SYSC 14.1.19R (4) requires a firm to document its asset and liability recognition policy. Documentation should describe the systems and controls that it intends to use to comply with the policy;
- (3) SYSC 14.1.19 R requires a firm to establish and maintain risk management systems to identify, measure, monitor and control market risk (in accordance with its market risk policy), and to take reasonable steps to establish systems adequate for that purpose; and
- (4) In line with SYSC 14.1.11 G, the ultimate responsibility for the management of market risk should rest with a firm's governing body. Where delegation of authority occurs the governing body and relevant senior managers should approve and adequately review systems and controls to check that delegated duties are being performed correctly.
- 31/12/2006
Market risk policy
SYSC 16.1.6
See Notes
SYSC 14 requires a firm to establish, maintain and document a business plan and risk policies. They should provide a clear indication of the amount and nature of market risk that the firm wishes to incur. In particular, they should cover for market risk:
- (1) how, with particular reference to its activities, the firm defines and measures market risk;
- (2) the firm's business aims in incurring market risk including:
- (a) identifying the types and sources of market risk to which the firm wishes to be exposed (and the limits on that exposure) and those to which the firm wishes not to be exposed (and how that is to be achieved, for example how exposure is to be avoided or mitigated); and
- (b) specifying the level of diversification required by the firm and the firm's tolerance for risk concentrations (and the limits on those exposures and concentrations).
- 31/12/2006
SYSC 16.1.7
See Notes
- 31/12/2006
SYSC 16.1.8
See Notes
The market risk policy of a firm should enforce the risk management and control principles and include detailed information on:
- (1) the financial instruments, commodities, assets and liabilities (and mismatches between assets and liabilities) that a firm is exposed to and the limits on those exposures;
- (2) the firm's investment strategy as applicable between each insurance fund;
- (3) activities that are intended to hedge or mitigate market risk including mismatches caused by for example differences in the assets and liabilities and maturity mismatches; and
- (4) the methods and assumptions used for measuring linear, non-linear and geared market risk including the rationale for selection, ongoing validation and testing. Methods might include stress testing and scenario analysis, asset/liability analysis, correlation analysis, Value-at-Risk (VaR) and options such as delta, gamma, vega, rho and theta. Exposure to non-linear or geared market risk is typically through the use of derivatives.
- 31/12/2006
Risk identification
SYSC 16.1.9
See Notes
A firm should have in place appropriate risk reporting systems that enable it to identify the types and amount of market risk to which it is, and potentially could be, exposed. The information that systems should capture may include but is not limited to:
- (1) position information which may include a description of individual financial instruments and their cash flows; and
- (2) market data which may consist of raw time series of market rates, index levels and prices and derived time series of benchmark yield curves, spreads, implied volatilities, historical volatilities and correlations.
- 31/12/2006
Risk measurement
SYSC 16.1.10
See Notes
Having identified the market risk that the firm is exposed to on at least a daily basis, a firm should be able to measure and manage that market risk on a consistent basis. This may be achieved by:
- (1) regularly stress testing all or parts of the firm's portfolio to estimate potential economic losses in a range of market conditions including abnormal markets. Corporate level stress test results should be discussed regularly by risk monitors, senior management and risk takers, and should guide the firm's market risk appetite (for example, stress tests may lead to discussions on how best to unwind or hedge a position), and influence the internal capital allocation process;
- (2) measuring the firm's exposure to particular categories of market risk (for example, equity, interest rate, foreign exchange and commodities) as well as across its entire portfolio of market risks;
- (3) analysing the impact that new transactions or businesses may have on its market risk position on an on-going basis; and
- (4) regularly backtesting realised results against internal model generated market risk measures in order to evaluate and assess its accuracy. For example, a firm should keep a database of daily risk measures such as VaR and options such as delta, gamma, vega, rho and theta, and use these to back test predicted profit and loss against actual profit and loss for all trading desks and business units, and monitor the number of exceptions from agreed confidence bands.
- 31/12/2006
Valuation
SYSC 16.1.11
See Notes
- 31/12/2006
SYSC 16.1.12
See Notes
The systems and controls referred to in SYSC 16.1.11 G should include the following:
- (1) the department responsible for the validation of the value of assets and liabilities should be independent of the business trading area, and should be adequately resourced by suitably qualified staff. The department should report to a suitably qualified individual, independent from the business trading area, who has sufficient authority to enforce the systems and controls policies and any alterations to valuation treatments where necessary;
- (2) all valuations should be checked and validated at appropriate intervals. Where a firm has chosen not to validate all valuations on a daily basis this should be agreed by senior management;
- (3) a firm should establish a review procedure to check that the valuation procedures are followed and are producing valuations in compliance with the requirements in this section. The review should be undertaken by suitably qualified staff independent of the business trading area, on a regular and ad hoc basis. In particular, this review procedure should include:
- (a) the quality and appropriateness of the price sources used;
- (b) valuation reserves held; and
- (c) the valuation methodology employed for each product and consistent adherence to that methodology;
- (4) where a valuation is disputed and the dispute cannot be resolved in a timely manner it should be reported to senior management. It should continue to be reported to senior management until agreement is reached;
- (5) where a firm is marking positions to market it should take reasonable steps to establish a price source that is reliable and appropriate to enable compliance with the provisions in this section on an ongoing basis;
- (6) a firm should document its policies and procedures relating to the entire valuation process. In particular, the following should be documented:
- (a) the valuation methodologies employed for all product categories;
- (b) details of the price sources used for each product;
- (c) the procedures to be followed where a valuation is disputed;
- (d) the valuation adjustment and reserving policies;
- (e) the level at which a difference between a valuation assigned to an asset or liability and the valuation used for validation purposes will be reported on an exceptions basis and investigated;
- (f) where a firm is using its own internal estimate to produce a valuation, it should document in detail the process followed in order to produce the valuation; and
- (g) the review procedures established by a firm in relation to the requirements of this section should be adequately documented and include the rationale for the policy;
- (7) a firm should maintain records which demonstrate:
- (a) senior management's approval of the policies and procedures established; and
- (b) management sign-off of the reviews undertaken in accordance with SYSC 16.1.11 G.
- 31/12/2006
Risk monitoring
SYSC 16.1.13
See Notes
- 31/12/2006
SYSC 16.1.14
See Notes
The market risk policy of a firm may require the production of market risk reports at various levels within the firm. These reports should provide sufficiently accurate market risk data to relevant functions within the firm, and should be timely enough to allow any appropriate remedial action to be proposed and taken, for example:
- (1) at a firm wide level, a market risk report may include information:
- (a) summarising and commenting on the total market risk that a firm is exposed to and market risk concentrations by business unit, asset class and country;
- (b) on VaR reports against risk limits by business unit, asset class and country;
- (c) commenting on significant risk concentrations and market developments; and
- (d) on market risk in particular legal entities and geographical regions;
- (2) at the business unit level, a market risk report may include information summarising market risk by currency, trading desk, maturity or duration band, or by instrument type;
- (3) at the trading desk level, a market risk report may include detailed information summarising market risk by individual trader, instrument, position, currency, or maturity or duration band; and
- (4) all risk data should be readily reconcilable back to the prime books of entry with a fully documented audit trail.
- 31/12/2006
SYSC 16.1.15
See Notes
Risk monitoring may also include information on:
- (1) the procedures for taking appropriate action in response to the information within the market risk reports;
- (2) ensuring that there are controls and procedures for identifying and reporting trades and positions booked at off-market rates;
- (3) the process for new product approvals;
- (4) the process for dealing with situations (authorised and unauthorised) where particular market risk exposures exceed predetermined risk limits and criteria; and
- (5) the periodic review of the risk monitoring process in order to check its suitability for both current market conditions and the firm's overall risk appetite.
- 31/12/2006
SYSC 16.1.16
See Notes
- 31/12/2006
Risk control
SYSC 16.1.17
See Notes
Risk control is the independent monitoring, assessment and supervision of business units within the defined policies and procedures of the market risk policy. This may be achieved by:
- (1) setting an appropriate market risk limit structure to control the firm's exposure to market risk; for example, by setting out a detailed market risk limit structure at the corporate level, the business unit level and the trading desk level which addresses all the key market risk factors and is commensurate with the volume and complexity of activity that the firm undertakes;
- (2) setting limits on risks such as price or rate risk, as well as those factors arising from options such as delta, gamma, vega, rho and theta;
- (3) setting limits on net and gross positions, market risk concentrations, the maximum allowable loss (also called "stop-loss"), VaR, potential risks arising from stress testing and scenario analysis, gap analysis, correlation, liquidity and volatility; and
- (4) considering whether it is appropriate to set intermediate (early warning) thresholds that alert management when limits are being approached, triggering review and action where appropriate.
- 31/12/2006
Record keeping
SYSC 16.1.18
See Notes
- 31/12/2006
SYSC 16.1.19
See Notes
In relation to market risk, a firm should retain appropriate prudential records of:
- (1) off and on market trades in financial instruments;
- (2) the nature and amounts of off and on balance sheet exposures, including the aggregation of exposures;
- (3) trades in financial instruments and other assets and liabilities; and
- (4) methods and assumptions used in stress testing and scenario analysis and in VaR models.
- 31/12/2006
SYSC 16.1.20
See Notes
- 31/12/2006
SYSC 17
Insurance risk systems and controls
SYSC 17.1
Application
- 31/12/2006
SYSC 17.1.1
See Notes
SYSC 17.1 applies to an insurer unless it is:
- (1) a non-directive friendly society; or
- (2) an incoming EEA firm; or
- (3) an incoming Treaty firm.
- 31/12/2006
SYSC 17.1.2
See Notes
SYSC 17.1 applies to:
- (1) an EEA-deposit insurer; and
- (2) a Swiss general insurer;
only in respect of the activities of the firm carried on from a branch in the United Kingdom.
- 31/12/2006
SYSC 17.1.2A
See Notes
- 01/11/2007
Purpose
SYSC 17.1.3
See Notes
- 31/12/2006
SYSC 17.1.4
See Notes
Insurance risk concerns the FSA in a prudential context because inadequate systems and controls for its management can create a threat to the regulatory objectives of market confidence and consumer protection. Inadequately managed insurance risk may result in:
- (1) the inability of a firm to meet its contractual insurance liabilities as they fall due; and
- (2) the inability of a firm to treat its policyholders fairly consistent with the firm's obligations under Principle 6 (for example, in relation to bonus payments).
- 31/12/2006
SYSC 17.1.5
See Notes
- 31/12/2006
SYSC 17.1.6
See Notes
- 31/12/2006
SYSC 17.1.7
See Notes
- 31/12/2006
General requirements
SYSC 17.1.8
See Notes
High level rules and guidance for prudential systems and controls for insurance risk are set out in SYSC 14. In particular:
- (1) SYSC 14.1.18 R requires a firm to take reasonable steps to establish and maintain a business plan and appropriate risk management systems;
- (2) SYSC 14.1.19R (2) requires a firm to document its policy for insurance risk, including its risk appetite and how it identifies, measures, monitors and controls that risk; and
- (3) SYSC 14.1.27 R requires a firm to take reasonable steps to establish and maintain adequate internal controls to enable it to assess and monitor the effectiveness and implementation of its business plan and prudential risk management systems.
- 31/12/2006
Insurance risk policy
SYSC 17.1.9
See Notes
A firm's insurance risk policy should outline its objectives in carrying out insurance business, its appetite for insurance risk and its policies for identifying, measuring, monitoring and controlling insurance risk. The insurance risk policy should cover any activities that are associated with the creation or management of insurance risk. For example, underwriting, claims management and settlement, assessing technical provisions in the balance sheet, risk mitigation and risk transfer, record keeping and management reporting. Specific matters that should normally be in a firm's insurance risk policy include:
- (1) a statement of the firm's willingness and capacity to accept insurance risk;
- (2) the classes and characteristics of insurance business that the firm is prepared to accept;
- (3) the underwriting criteria that the firm intends to adopt, including how these can influence its rating and pricing decisions;
- (4) its approach to limiting significant aggregations of insurance risk, for example, by setting limits on the amount of business that can be underwritten in one region or with one policyholder;
- (5) where relevant, the firm's approach to pricing long-term insurance contracts, including the determination of the appropriate level of any reviewable premiums;
- (6) the firm's policy for identifying, monitoring and managing risk when it has delegated underwriting authority to another party (additional guidance on the management of outsourcing arrangements is provided in SYSC 13.9);
- (7) the firm's approach to managing its expense levels, including acquisition costs, recurring costs, and one-off costs, taking account of the margins available in both the prices for products and in the technical provisions in the balance sheet;
- (8) the firm's approach to the exercise of any discretion (e.g. on charges or the level of benefits payable) that is available in its long-term insurance contracts, in the context also of the legal and regulatory constraints existing on the application of this discretion;
- (9) the firm's approach to the inclusion of options within new long-term insurance contracts and to the possible exercise by policyholders of options on existing contracts;
- (10) the firm's approach to managing persistency risk;
- (11) the firm's approach to managing risks arising from timing differences in taxation or from changes in tax laws;
- (12) the firm's approach to the use of reinsurance or the use of some other means of risk transfer;
- (13) how the firm intends to assess the effectiveness of its risk transfer arrangements and manage the residual or transformed risks (for example, how it intends to handle disputes over contract wordings, potential payout delays and counterparty performance risks);
- (14) a summary of the data and information to be collected and reported on underwriting, claims and risk control (including internal accounting records), management reporting requirements and external data for risk assessment purposes;
- (15) the risk measurement and analysis techniques to be used for setting underwriting premiums, technical provisions in the balance sheet, and assessing capital requirements; and
- (16) the firm's approach to stress testing and scenario analysis, as required by GENPRU 1.2 (Adequacy of financial resources), including the methods adopted, any assumptions made and the use that is to be made of the results.
- 31/12/2006
SYSC 17.1.10
See Notes
- 31/12/2006
Risk identification
SYSC 17.1.11
See Notes
- 31/12/2006
SYSC 17.1.12
See Notes
The identification of insurance risk should normally include:
- (1) in connection with the firm's business plan:
- (a) processes for identifying the types of insurance risks that may be associated with a new product and for comparing the risk types that are present in different classes of business (in order to identify possible aggregations in particular insurance risks); and
- (b) processes for identifying business environment changes (for example landmark legal rulings) and for collecting internal and external data to test and modify business plans;
- (2) at the point of sale, processes for identifying the underwriting risks associated with a particular policyholder or a group of policyholders (for example, processes for identifying potential claims for mis-selling and for collecting information on the claims histories of policyholders, including whether they have made any potentially false or inaccurate claims, to identify possible adverse selection or moral hazard problems);
- (3) after the point of sale, processes for identifying potential and emerging claims for the purposes of claims management and claims provisioning; this could include:
- (a) identifying possible judicial rulings;
- (b) keeping up to date with developments in market practice; and
- (c) collecting information on industry wide initiatives and settlements.
- 31/12/2006
SYSC 17.1.13
See Notes
- 31/12/2006
Risk measurement
SYSC 17.1.14
See Notes
- 31/12/2006
SYSC 17.1.15
See Notes
A firm should ensure that the data it collects and the measurement methodologies that it uses are sufficient to enable it to evaluate, as appropriate:
- (1) its exposure to insurance risk at all relevant levels, for example, by contract, policyholder, product line or insurance class;
- (2) its exposure to insurance risk across different geographical areas and time horizons;
- (3) its total, firm-wide, exposure to insurance risk and any other risks that may arise out of the contracts of insurance that it issues;
- (4) how changes in the volume of business (for example via changes in premium levels or the number of new contracts that are underwritten) may influence its exposure to insurance risk;
- (5) how changes in policy terms may influence its exposure to insurance risk; and
- (6) the effects of specific loss scenarios on the insurance liabilities of the firm.
- 31/12/2006
SYSC 17.1.16
See Notes
- 31/12/2006
SYSC 17.1.17
See Notes
- 31/12/2006
SYSC 17.1.18
See Notes
- 31/12/2006
SYSC 17.1.19
See Notes
- 31/12/2006
SYSC 17.1.20
See Notes
- 31/12/2006
SYSC 17.1.21
See Notes
A firm should have the capability to measure its exposure to insurance risk on a regular basis. In deciding on the frequency of measurement, a firm should consider:
- (1) the time it takes to acquire and process all necessary data;
- (2) the speed at which exposures could change; and
- (3) that it may need to measure its exposure to certain types of insurance risk on a daily basis (for example, weather catastrophes).
- 31/12/2006
Risk monitoring
SYSC 17.1.22
See Notes
A firm should provide regular and timely information on its insurance risks to the appropriate level of management. This could include providing reports on the following:
- (1) a statement of the firm's profits or losses for each class of business that it underwrites (with an associated analysis of how these have arisen for any long-term insurance contracts), including a variance analysis detailing any deviations from budget or changes in the key performance indicators that are used to assess the success of its business plan for insurance;
- (2) the firm's exposure to insurance risk at all relevant levels (see SYSC 17.1.15G (1)), as well as across different geographical areas and time zones (see SYSC 17.1.15G (2)), also senior management should be kept informed of the firm's total exposure to insurance risk (see SYSC 17.1.15G (3));
- (3) an analysis of any internal or external trends that could influence the firm's exposure to insurance risk in the future (e.g. new weather patterns, socio-demographic changes, expense overruns etc);
- (4) any new or emerging developments in claims experience (e.g. changes in the type of claims, average claim amounts or the number of similar claims);
- (5) the results of any stress testing or scenario analyses;
- (6) the amount and details of new business written and the amount of business that has lapsed or been cancelled;
- (7) identified fraudulent claims;
- (8) a watch list, detailing, for example, material/catastrophic events that could give rise to significant numbers of new claims or very large claims, contested claims, client complaints, legal and other developments;
- (9) the performance of any reinsurance/risk transfer arrangements; and
- (10) progress reports on matters that have previously been referred under escalation procedures (see SYSC 17.1.23 G).
- 31/12/2006
SYSC 17.1.23
See Notes
A firm should establish and maintain procedures for the escalation of appropriate matters to the relevant level of management. Such matters may include:
- (1) any significant new exposures to insurance risk, including for example any landmark rulings in the courts;
- (2) a significant increase in the size or number of claims;
- (3) any breaches of the limits set out in SYSC 17.1.27 G and SYSC 17.1.28 G, in particular senior management should be informed where any maximum limits have been breached (see SYSC 17.1.29 G); and
- (4) any unauthorised deviations from its insurance risk policy (including those by a broker, appointed representative or other delegated authority).
- 31/12/2006
SYSC 17.1.24
See Notes
- 31/12/2006
SYSC 17.1.25
See Notes
- 31/12/2006
Risk control
SYSC 17.1.26
See Notes
- 31/12/2006
SYSC 17.1.27
See Notes
A firm should consider setting limits for its exposure to insurance risk, which trigger action to be taken to control exposure. Periodically these limits should be amended in the light of new information (e.g. on the expected number or size of claims). For example, limits could be set for:
- (1) the firm's aggregate exposure to a single source of insurance risk or for events that may be the result of a number of different sources;
- (2) the firm's exposure to specific geographic areas or any other groupings of risks whose outcomes may be positively correlated;
- (3) the number of fraudulent claims;
- (4) the number of very large claims that could arise;
- (5) the number of unauthorised deviations from its insurance risk policy;
- (6) the amount of insurance risk than can be transferred to a particular reinsurer;
- (7) the level of expenses incurred in respect of each relevant business area; and
- (8) the level of persistency by product line or distribution channel.
- 31/12/2006
SYSC 17.1.28
See Notes
- 31/12/2006
SYSC 17.1.29
See Notes
- 31/12/2006
SYSC 17.1.30
See Notes
A firm should pay close attention to the wording of its policy documentation to ensure that these wordings do not expose it to more, or higher, claims than it is expecting. In so doing, the firm should consider:
- (1) whether it has adequate in-house legal resources;
- (2) the need for periodic independent legal review of policy documentation;
- (3) the use of standardised documentation and referral procedures for variation of terms;
- (4) reviewing the documentation used by other insurance companies;
- (5) revising documentation for new policies in the light of past experience; and
- (6) the operation of law in the jurisdiction of the policyholder.
- 31/12/2006
SYSC 17.1.31
See Notes
- 31/12/2006
SYSC 17.1.32
See Notes
- 31/12/2006
SYSC 17.1.33
See Notes
- 31/12/2006
Reinsurance and other forms of risk transfer
SYSC 17.1.34
See Notes
Before entering into or significantly changing a reinsurance agreement, or any other form of insurance risk transfer agreement, a firm should:
- (1) analyse how the proposed reinsurance/risk transfer agreement will affect its exposure to insurance risk, its underwriting strategy and its ability to meet its regulatory obligations;
- (2) ensure there are adequate legal checking procedures in respect of the draft agreement;
- (3) conduct an appropriate due diligence of the reinsurer's financial stability (that is, solvency) and expertise; and
- (4) understand the nature and limits of the agreement (particular attention should be given to the wording of contracts to ensure that all of the required risks are covered, that the level of available cover is appropriate, and that all the terms, conditions and warranties are unambiguous and understood).
- 31/12/2006
SYSC 17.1.34A
See Notes
A firm should analyse regularly the full effect of all its reinsurance agreements and other risk transfer agreements (both current and proposed), including any related agreements or side-letters, on both its current and potential future financial position, and ensure that:
- (1) all significant risks related to these agreements, and the residual risks borne by the firm, have been identified; and
- (2) appropriate risk mitigation techniques have been applied to manage and control the risks.
- 06/04/2007
SYSC 17.1.35
See Notes
In managing its reinsurance agreements, or any other form of insurance risk transfer agreement, a firm should have in place appropriate systems that allow it to maintain its desired level of cover. This could involve systems for:
- (1) monitoring the risks that are covered (that is, the scope of cover) by these agreements and the level of available cover;
- (2) keeping underwriting staff informed of any changes in the scope or level of cover;
- (3) properly co-ordinating all reinsurance/risk transfer activities so that, in aggregate, the desired level and scope of cover is maintained;
- (4) ensuring that the firm does not become overly reliant on any one reinsurer or other risk transfer provider; or
- (5) conducting regular stress testing and scenario analysis to assess the resilience of its reinsurance and risk transfer programmes to catastrophic events that may give rise to large and or numerous claims.
- 31/12/2006
SYSC 17.1.36
See Notes
In making a claim on a reinsurance contract (that is, its reinsurance recoveries) or some other risk transfer contract a firm should ensure:
- (1) that it is able to identify and recover any money that it is due in a timely manner; and
- (2) that it makes adequate financial provision for the risk that it is unable to recover any money that it expected to be due, as a result of either a dispute with or a default by the reinsurer/risk transfer provider. Additional guidance on credit risk in reinsurance/risk transfer contracts is provided in INSPRU 2.1 (Credit risk in insurance).
- 31/12/2006
SYSC 17.1.37
See Notes
- 31/12/2006
Record keeping
SYSC 17.1.38
See Notes
The FSA's high level rules and guidance for record keeping are outlined in SYSC 3.2.20 R (Records). Additional rules and guidance in relation to the prudential context are set out in SYSC 14.1.51 G to SYSC 14.1.64 G. In complying with these rules and guidance, a firm should retain an appropriate record of its insurance risk management activities. This may, for example, include records of:
- (1) each new risk that is underwritten (noting that these records may be held by agents or cedants, rather than directly by the firm provided that the firm has adequate access to those records);
- (2) any material aggregation of exposure to risk from a single source, or of the same kind or to the same potential catastrophe or event;
- (3) each notified claim including the amounts notified and paid, precautionary notices and any re-opened claims;
- (4) policy and contractual documents and any relevant representations made to policyholders;
- (5) other events or circumstances relevant to determining the risks and commitments that arise out of contracts of insurance (including discretionary benefits and charges under any long-term insurance contracts);
- (6) the formal wordings of reinsurance contracts; and
- (7) any other relevant information on the firm's reinsurance or other risk-transfer arrangements, including the extent to which they:
- 31/12/2006
SYSC 18
Guidance on Public Interest Disclosure Act: Whistleblowing
SYSC 18.1
Application
- 31/12/2006
SYSC 18.1.1
See Notes
- 31/12/2006
Purpose
SYSC 18.1.2
See Notes
- (1) The purposes of this chapter are:
- (a) to remind firms of the provisions of PIDA; and
- (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) In this chapter "worker" includes, but is not limited to, an individual who has entered into a contract of employment.
- 31/12/2006
SYSC 18.1.3
See Notes
- 31/12/2006
SYSC 18.2
Practical measures
- 31/12/2006
Effect of Public Interest Disclosure Act 1998
SYSC 18.2.1
See Notes
- (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) In accordance with section 1 of PIDA:
- (a) a protected disclosure is a qualifying disclosure which meets the relevant requirements set out in that section;
- (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:
- (i) a criminal offence; or
- (ii) a failure to comply with any legal obligation; or
- (iii) a miscarriage of justice; or
- (iv) the putting of the health and safety of an individual in danger; or
- (v) damage to the environment; or
- (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.
- 31/12/2006
Internal procedures
SYSC 18.2.2
See Notes
- (1) Firms are encouraged to consider adopting (and encouraged to invite their appointed representatives or, where applicable, their tied agents 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) 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.
- (a) For larger firms, appropriate internal procedures may include:
- (i) a clear statement that the firm takes failures seriously (see SYSC 18.2.1G (2)(b));
- (ii) an indication of what is regarded as a failure;
- (iii) respect for the confidentiality of workers who raise concerns, if they wish this;
- (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;
- (v) the opportunity to raise concerns outside the line management structure, such as with the Compliance Director, Internal Auditor or Company Secretary;
- (vi) penalties for making false and malicious allegations;
- (vii) an indication of the proper way in which concerns may be raised outside the firm if necessary (see (3));
- (viii) providing access to an external body such as an independent charity for advice;
- (ix) making whistleblowing procedures accessible to staff of key contractors; and
- (x) written procedures.
- (b) For smaller firms, appropriate internal procedures may include:
- (i) telling workers that the firm takes failures seriously (see SYSC 18.2.1G (2)(b)) and explaining how wrongdoing affects the organisation;
- (ii) telling workers what conduct is regarded as failure;
- (iii) telling workers who raise concerns that their confidentiality will be respected, if they wish this;
- (iv) making it clear that concerned workers will be supported and protected from reprisals;
- (v) nominating a senior officer as an alternative route to line management and telling workers how they can contact that individual in confidence;
- (vi) making it clear that false and malicious allegations will be penalised by the firm;
- (vii) telling workers how they can properly blow the whistle outside the firm if necessary (see (3));
- (viii) providing access to an external body such as an independent charity for advice; and
- (ix) encouraging managers to be open to concerns.
- (3)
- (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.
- (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 http://www.fsa.gov.uk/Pages/Doing/Contact/Whistle/FAQ/index.shtml).
- (c) For the FSA's treatment of confidential information, see SUP 2.2.4 G.
- 01/11/2007
Link to fitness and propriety
SYSC 18.2.3
See Notes
- 31/12/2006
Transitional Provisions and Schedules
SYSC TP 1
Common platform firms
TP 1: Common platform firms | |||
Application | |||
1.1 | R | SYSC TP 1 applies to a common platform firm. | |
Commencement and expiry of SYSC TP1 | |||
1.2 | R | SYSC TP 1 comes into force on 1 January 2007 and applies until 1 November 2007. | |
Purpose | |||
1.3 | G | From 1 November 2007, a firm must comply with the common platform requirements and SYSC 3 will cease to apply to it. However, until 1 November 2007, a firm may choose to comply with the specific parts of the common platform requirements instead of SYSC 3. The purpose of SYSC TP 1 is to give a firm the option of complying with the common platform requirements sooner than 1 November 2007. | |
1.4 | G | The ability to comply with the common platform requirements before 1 November 2007 does not apply to SYSC 9 (Record-keeping), SYSC 8.2 (Outsourcing of portfolio management for retail clients to a non-EEA State) or SYSC 8.3 (Guidance on outsourcing portfolio management for retail clients to a non-EEA State). All firms must continue to comply with the record-keeping requirements in SYSC 3.2.22 G until 1 November 2007, when SYSC 9 will enter into force. | |
The decision to comply with the common platform requirements | |||
1.5 | R | SYSC 4 to SYSC 7, SYSC 8.1 and SYSC 10 do not apply to a firm unless it decides to comply with them sooner than 1 November 2007. | |
1.6 | R | If a firm decides to comply with the common platform requirements in accordance with SYSC TP 1.5R: | |
(1) it must make a record of the date of the decision and the date from which it is to be effective; and | |||
(2) subject to SYSC TP 1.7R below, from the effective date, it must comply with SYSC 4 to SYSC 7, SYSC 8.1 and SYSC 10, and SYSC 3 will not apply to it. | |||
1.7 | R | The following provisions in SYSC 3 will continue to apply to a firm that decides to comply with the common platform requirements before the 1 November 2007: | |
(1) SYSC 3.2.23 R, SYSC 3.2.24 R, SYSC 3.2.26 R and SYSC 3.2.28 R to SYSC 3.2.35 R in so far as SYSC 12.1.13 R applies to it; and | |||
(2) SYSC 3.2.20 R to SYSC 3.2.22 G. | |||
1.8 | G | The purpose of SYSC TP 1.7R is to ensure the effective operation of the provisions on consolidated risk management processes and internal control mechanisms in relation to a firm that decides to comply with the common platform requirements before 1 November 2007. | |
1.9 | G | A decision by a firm to comply with the common platform requirements must be made in relation to all of the common platform requirements. The firm may not 'cherry-pick'. | |
Definitions in SYSC TP1 and the common platform requirements | |||
1.10 | R | The terms common platform firm and MiFID investment firm have effect in SYSC TP 1 and the common platform requirements as if MiFID applied generally from 1 January 2007. |
- 01/01/2007
SYSC TP 2
Firms other than common platform firms, insurers, managing agents and the Society
(1) | (2) | (3) | (4) | (5) | (6) |
Material to which the transitional provision applies | Transitional provision | Transitional provision: dates in force | Handbook provisions: Coming into force |
||
2.1 | SYSC 8.1 | R | If a firm other than a common platform firm, insurer, managing agent or the Society has in force on 1 April 2009 outsourcing arrangements which would be covered by SYSC 8.1 it need not amend those contracts to comply with these provisions but should comply with the new rules and guidance in respect of any outsourcing contracts which are entered into, or materially amended, on or after 1 April 2009. | 1 April 2009 indefinitely | 1 April 2009 |
- 01/04/2009
SYSC Sch 1
Record keeping requirements
- 01/12/2004
SYSC Sch 1.1
See Notes
The aim of the guidance in the following table is to give the reader a quick over-all view of the relevant record keeping requirements. |
It is not a complete statement of those requirements and should not be relied on as if it were. |
- 01/12/2004
SYSC Sch 1.2
See Notes
Handbook reference | Subject of record | Contents of record | When record must be made | Retention period |
SYSC 2.2.1 R | Arrangements made to satisfy SYSC 2.1.1 R (apportionment) and SYSC 2.1.3 R (allocation) | Those arrangements | On making the arrangements and when they are updated | Six years from the date on which the record is superseded by a more up-to-date record |
SYSC 3.2.20 R | Matters and dealings (including accounting records) which are the subject of requirements and standards under the regulatory system | Adequate | Adequate time | Adequate |
SYSC 10.1.6 R | Conflict of interest | Kinds of service or activity carried out by or on behalf of the firm in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise. | Not specified | 5 years |
SYSC 14.1.53 R | Prudential risk management and systems and controls | Accounting and other records that are sufficient to enable the firm to demonstrate to the FSA : (1) that the firm is financially sound and has appropriate systems and controls; (2) the firm's financial position and exposure to risk (to a reasonable degree of accuracy); (3) the firm's compliance with the rules in GENPRU, INSPRU and SYSC. | Not specified | 3 years, or longer as appropriate |
- 01/01/2007
SYSC Sch 2
Notification requirements
- 01/12/2004
SYSC Sch 2.1
See Notes
There are no notification or reporting requirements in SYSC. |
- 01/12/2004
SYSC Sch 3
Fees and other required payments
- 01/12/2004
SYSC Sch 3.1
See Notes
There are no requirement for fees or other payments in SYSC. |
- 01/12/2004
SYSC Sch 4
Powers exercised
- 01/12/2004
SYSC Sch 4.1
See Notes
The following powers and related provisions in the Act have been exercised by the FSA to make the rules in SYSC: |
Section 138 (General rule-making power) |
Section 145 (Financial promotion rules) |
Section 146 (Money laundering rules) |
Section 150(2) (Actions for damages) |
Section 156 (General supplementary powers) |
- 01/12/2004
SYSC Sch 4.2
See Notes
- 06/10/2009
SYSC Sch 5
Rights of action for damages
- 01/12/2004
SYSC Sch 5.1
See Notes
- 01/12/2004
SYSC Sch 5.2
See Notes
If a 'Yes' appears in the column headed 'For private person', the rule may be actionable by a 'private person' under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001 No 2256)). A 'Yes' in the column headed 'Removed' indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given. |
- 01/12/2004
SYSC Sch 5.3
See Notes
The column headed 'For other person' indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given. |
- 01/12/2004
SYSC Sch 5.4
See Notes
Chapter/Appendix | Section/Annex | Paragraph | Right of action under section 150 | ||
For private person? | Removed? | For other person? | |||
SYSC 2 and SYSC 3 | No | Yes SYSC 1 Annex 1.1.12R | No | ||
SYSC 4 to SYSC 10 | No | Yes SYSC 1 Annex 1.2.19R | No | ||
SYSC 11 to SYSC 18 | No | Yes SYSC 1.4.2 R | No |
- 01/04/2009
SYSC Sch 6
Rules that can be waived
- 01/12/2004