Using the FSA Handbook: an Overview for small IFA firms

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SIFA FORE

Foreword

SIFA FORE 1

01/12/2004

The FSA Handbook is an essential document. It sets out the rules that firms are required to follow in order to meet their regulatory responsibilities. It is incumbent upon us, therefore, to make the Handbook as accessible as possible so that firms and individuals are in no doubt as to what is required of them. It was inevitable when merging 10 quite different regulatory regimes into one in time for N2 in December 2001, that the Handbook might become difficult to navigate especially for the smaller and middle sized firms that do not have the scale to invest in large compliance or legal departments.

We are committed to reviewing how we can make the Handbook more accessible to firms and to considering routes for making the rules and guidance more user-friendly. A start has already been made. We have improved the online and CD-ROM Handbook by substantially enhancing its navigation capability and functionality and we support initiatives from industry bodies designed to improve knowledge and awareness of our objectives.

The FSA Annual Report 2002/03 promised that we would prepare a signposting guide to our Handbook for IFAs. "Using the FSA Handbook: an overview for small IFA firms" is the result and we hope that it will help such firms to focus on the rules that apply to them. We have called it an overview to emphasise it is a navigational aid and not a substitute for the Handbook and that the Handbook takes precedence.

We welcome your feedback on the content and presentation of the overview and whether you find it helpful. Comments may be sent to [email address]

John Tiner

Chief Executive

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Legal Instruments that change this Chapter Foreword

SIFA 1

Introduction

SIFA 1.1

Purpose of the Overview

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SIFA 1.1.1

IFA is not a precisely defined term and not every independent financial adviser does identical business or holds the same permission. The Overview directs firms to those parts of the Handbook that will usually be relevant to a typical IFA carrying on financial advisory business relating to investments.

01/12/2004
Future version of SIFA 1.1.1 after 09/09/2005

SIFA 1.1.2

The Overview is aimed at IFA firms not holding client money or other assets that are small personal investment firms i.e. the firm is not a network, has fewer than 26 advisers or representatives, and is a Category B3 firm not within the scope of the Investment Services Directive (ISD).

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Future version of SIFA 1.1.2 after 09/09/2005

SIFA 1.1.3

The material in the Overview has been grouped into chapters covering the most frequent types of interaction with the FSA and the rules that most often apply to IFA firms. For those accessing the Overview electronically it contains hyperlinks to the FSA Handbook and to other related documents. The links to the Handbook and the pointers to other sections within the Overview itself are not intended to be exhaustive.

01/12/2004
Future version of SIFA 1.1.3 after 09/09/2005

SIFA 1.1.4

The purpose of the Overview is to help small IFA firms to locate the rules they need within the FSA Handbook. The Overview refers to and contains extracts from various parts of the FSA Handbook. Firms should consult the FSA Handbook in order to determine the precise wording and effect of the rules.

01/12/2004
Future version of SIFA 1.1.4 after 09/09/2005

SIFA 1.1.5

The Overview is not formal guidance and does not have the status of guidance in the Handbook. You cannot use the Overview to counter a charge of breaking the FSA rules. In the event of any conflict between the Overview and the Handbook, the Handbook takes precedence.

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Future version of SIFA 1.1.5 after 09/09/2005

SIFA 1.1.6

The Overview uses terms that are consistent with those defined in the FSA Handbook Glossary. For your convenience, there are brief definitions of some of the more frequently used terms at Appendix 1. For the full definition firms should consult the FSA Handbook Glossary.

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Future version of SIFA 1.1.6 after 09/09/2005

SIFA 1.1.7

The Overview is current as at 30 September 2003. There is a great deal of work in the pipeline that will lead to changes to the Handbook. The Overview does not remove the need for firms to keep up-to-date with regulatory developments and to consider the potential impact on business of proposed changes, for example, the regulatory framework for mortgages and general insurance. We will regularly update the Overview.

01/12/2004
Future version of SIFA 1.1.7 after 09/09/2005

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SIFA 2

Accessing the Handbook and Handbook Developments

SIFA 2.1

Accessing the Handbook

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Future version of SIFA 2.1 after 09/09/2005

SIFA 2.1.1

The FSA Handbook can be found:

(1) on our website; and

(2) on the monthly CD-ROMs (sent to all firms).

You can buy paper copies from our Publications Order Helpline or order online through our website. The contents are the same in each medium.

01/12/2004
Future version of SIFA 2.1.1 after 09/09/2005

Installing the CD-ROM

SIFA 2.1.2

When you first install the CD-ROM, selecting 'Preferences' enables you to select the entire Handbook or one or more sourcebooks, thus allowing you to refine your search within the Handbook. Tick each sourcebook to select it for your search. You can amend your selection of sourcebooks whenever you wish. This function does not remove any content from the CD-ROM.

01/12/2004
Future version of SIFA 2.1.2 after 09/09/2005

Further information

SIFA 2.1.3

You can find further information from the following sources:

(1) The Reader's Guide describes the contents of the Handbook; where to find them and how to make use of them.

(2) The Tables of Derivations and Destinations show where the rules of a previous regulator correspond to a provision in the FSA Handbook. The Tables provide a guide to the derivation and destination of the Handbook text, but you should not rely on them as a complete statement of the derivation and destination. You can find the Consolidated Tables of Derivations and Destinations on the CD-ROM under Handbook or on our website by clicking on FSA Handbook and scrolling down to the bottom of the page.

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Structure of each sourcebook

SIFA 2.1.4

Any word that is in Italics throughout the Handbook is defined in the Handbook Glossary.

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SIFA 2.1.5

There is no index to the Handbook, although our website and CD-ROM contain search facilities that can be used to find particular words and phrases.

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SIFA 2.1.6

Transitional provisions are included at the beginning of each sourcebook. Many of these provisions have now expired. There are some TSPs (Timeless Savings Provisions) that apply to your existing clients at 30 November 2001 (N2) and allow you to continue to use, or rely on, documentation or compliance work undertaken in line with a previous regulator's rules provided the work remains valid and up-to-date. The Conduct of Business (COB) rules relating to terms of business, client agreements and client classification benefit from TSPs.

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SIFA 2.1.7

A Rule at the beginning of each chapter of the Handbook sets out which firms the chapter applies to. For example, COB 5.4.1 R states 'This section applies to a firm that conducts designated investment business with or for a private customer'. It is therefore recommended that you read the application rule first before moving on to the rest of the chapter, checking the terms in italics with the Handbook Glossary, where necessary.

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SIFA 2.1.8

There are tables of information at the end of each sourcebook. These are numbered consistently throughout the Handbook and provide a summary of requirements as set out below:

Schedule

Contents

Schedule 1

Record keeping requirements (see Chapter 13 of this Overview)

Schedule 2

Notification and reporting requirements (see Chapter 12 of this Overview)

Schedule 3

Fees (see Chapter 18 of this Overview)

Schedule 4

FSA powers used in making the provisions

Schedule 5

Rules where rights of action exist under Section 150 of the Act (action for damages by a person who suffers loss as a result of a breach of the rules)

Schedule 6

Rules which the FSA has powers to waive or modify (See Chapter 16 of this Overview)

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Keeping up-to-date

SIFA 2.1.9

Handbook Notices and Handbook Development newsletters are an important means of keeping up-to-date with changes to the Handbook and regulatory issues. They are sent to each FSA-regulated firm every month.

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SIFA 2.1.10

The Handbook Development Newsletter summarises Consultation and Discussion Papers and Policy Statements issued by us over the preceding month, lists forthcoming publications with expected month of issue and gives other information, such as training offered by us to the industry.

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SIFA 2.1.11

The Handbook Notice is published after each monthly FSA Board meeting, and summarises and explains the additions and changes to the Handbook made by the Board at its meeting. The Handbook Notice also includes Policy Statements where we are not publishing them separately (usually for minor amendments that do not warrant a separate policy statement).

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SIFA 2.1.12

Our website points to where recent FSA publications can be found, such as Discussion Papers (DPs), Consultation Papers (CPs) and Policy Statements (PSs). We also organise conferences, training workshops and other events to update firms on regulatory priorities and current developments. You can contact our Events team on 020 7066 0098 if you want to find out more. Other sources of further information are explained in Chapter 19 of this Overview.

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SIFA 2.1.13

Alongside information from the FSA, trade associations, newspapers and magazines also have an important role in summarising regulatory developments and keeping IFA firms informed of changes.

01/12/2004

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SIFA 3

Contents of the Handbook

SIFA 3.1

The parts of the Handbook that apply to IFAs

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Future version of SIFA 3.1 after 09/09/2005

SIFA 3.1.1

This is an Overview for IFAs to highlight which parts of the Handbook will be of most immediate practical significance to them. There will be some variation, as not all IFAs undertake identical business or hold the same permission.

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Future version of SIFA 3.1.1 after 09/09/2005

Abbreviations

SIFA 3.1.2

A list of abbreviations commonly used to refer to parts of the Handbook and other publications is set out below:

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SIFA 3.1.3

Publication / sourcebook

APER

Statements of Principle and Code of Practice for Approved Persons

FIT

Fit and Proper test for Approved Persons

AUTH

Authorisation manual

Feedback Statement

COAF

Complaints against the FSA

GEN

General provisions

COB

Conduct of Business

IPRU (INV)

Interim Prudential sourcebook for investment businesses

COMP

Compensation

MAR

Market conduct

COND

Threshold conditions

Money Laundering

Consultation paper

PRIN

Principles for Businesses

DEC

Decision making manual (gives guidance on the FSA's decision making and other procedures for giving statutory notices)

Policy statement

DISP

Dispute resolution: complaints

SUP

Supervision manual

Discussion paper

SYSC

Senior management arrangements, Systems and Controls

ENF

Enforcement manual

Training and Competence

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The transition from PIA to FSA

SIFA 3.1.4

Although many of the PIA rules with which firms were familiar have been carried forward with little or no change into the FSA Handbook, all firms must now understand and follow our rules as currently drafted. If transitional provisions have expired, compliance with the former SRO rules is no longer a defence to a breach of FSA rules. Firms should review their existing procedures to ensure that they have been fully revised to comply with the FSA Handbook.

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SIFA 3.1.5

Section 2.1.3(2) of this Overview explains how to access the Tables of Derivations and Destinations so you can check whether previous rules have been carried across to the FSA.

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Contents of the Handbook

SIFA 3.1.6

The Handbook is divided into Blocks that contain sourcebooks and manuals. Sourcebooks provide the source of the FSA's rules and guidance. Manuals contain processes to be followed by firms and by the FSA.

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High Level Standards (Block 1):

SIFA 3.1.7

Block 1 deals with the high-level requirements for all firms and so is very relevant to you.

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SIFA 3.1.8

Section

Contents

PRIN

Sets out the overarching standards we expect of firms and will generally be familiar to you. It includes the Principles.

SYSC

Outlines our management requirements. While this is important to all IFAs, management control and accountability should clearly be simpler in a small firm.

FIT

Sets out our standards applied when giving approved person status and so is relevant when a firm submits an application for an employee to become an approved person. It is also relevant for the purposes of assessing the continuing fitness and propriety of approved persons.

APER

Is of continuing relevance as it sets out the standards of behaviour that we expect of approved persons.

COND

Sets out the minimum standards that firms must satisfy to retain authorisation (the 'Threshold Conditions').

GEN

Sets out some of the underlying legal framework and GEN 1.2 is likely to be one of the most relevant parts: a firm must not refer to approval of its affairs by the FSA unless required to do so under the regulatory system. GEN 4.3 on statutory status disclosure is discussed at section 9.11 of this Overview.

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Business Standards (Block 2):

SIFA 3.1.9

Block 2 sets out most of the detailed requirements that will affect firms day-to-day.

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SIFA 3.1.10

COB will be of immediate practical relevance to you. It will also be familiar in many cases because it carries forward many of the requirements of the former regulators. COB has wide and varied application and so it is particularly important for you to read the application provisions at the beginning of each chapter.

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SIFA 3.1.11

However, for typical IFAs, here is a broad indicator of those parts that are likely to be most immediately relevant to you depending on the nature of your business:

COB Sourcebook

Chapter

Subject

Most of the following chapters will have practical relevance:

Accepting customers and customer classification

Advising and selling

Product disclosure, rights to cancel and withdraw

Parts of the following chapters will have practical relevance:

Rules which apply when conducting designated investment business

Financial promotion

Dealing and managing

Reporting to customers

Relevant if holding client money/ assets:

Client Assets

Not Relevant in most cases:

General application: the various limitations of application are unlikely to be relevant to small firms doing UK business

Collective investment schemes

Trustee and depositary activities

Lloyd's

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SIFA 3.1.12

The rest of Block 2 contains:

(1) IPRU: Chapters 1 and 13 of IPRU (INV) largely carry forward prudential requirements of the previous regulator, and are likely to be relevant to IFAs previously regulated by PIA. The other interim Prudential sourcebooks will not be immediately relevant in most cases. The Prudential sourcebooks explain the financial resources requirements for firms. The existing rules are interim rules that will be replaced in 2007.

(2) Money Laundering (ML) has immediate relevance to IFAs, and builds on existing money laundering requirements.

(3) Training & Competence (TC) has immediate relevance to IFAs.

(4) Market Conduct (MAR) is unlikely to be relevant but MAR 1: The Code of Market Conduct provides guidance to all persons as to whether or not behaviour amounts to market abuse.

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Regulatory processes (Block 3):

SIFA 3.1.13

Block 3 sets out our regulatory processes and procedures and contains the Authorisation (AUTH), Supervision (SUP), Enforcement (ENF), and Decision making (DEC) manuals. Most of this may be of interest but will not be of immediate importance unless you are applying to vary your permission, or facing enforcement action.

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SIFA 3.1.14

Parts of SUP do have more immediate relevance to IFAs. These are Chapters 8 - 10, 11 (if the IFA firm is incorporated), 12, 15, parts of 16, and 20. They cover topics such as individual guidance, approved persons, notifications, financial reporting, and fee rules.

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Redress (Block 4):

SIFA 3.1.15

Block 4 contains the Dispute resolution (DISP), Compensation (COMP) and Complaints against the FSA (COAF) sourcebooks. Chapter 1 of DISP sets out requirements for a firm's complaints procedures.

01/12/2004

Specialist Sourcebooks (Block 5) & Special Guides (Block 6):

SIFA 3.1.16

Block 5 contains specialist sourcebooks, which show how the Handbook applies to certain sectors, such as collective investment schemes and credit unions. These are unlikely to be relevant to most IFAs, but the sourcebook for Professional firms (PROF) may be of interest.

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SIFA 3.1.17

Block 6 contains special guides. Special guides contain guidance aimed at helping a class or type of firm to meet their regulatory responsibilities.

01/12/2004

Fees

SIFA 3.1.18

Various parts of SUP, DISP and COMP will be relevant to the fees payable by IFAs. However, you will receive the necessary information about this with your invoices. Chapter 18 of this Overview includes more information on fees.

01/12/2004

Interpreting the Handbook

SIFA 3.1.19

Every provision in the Handbook must be interpreted with its purpose in mind (GEN 2.2). The purpose of any provision in the Handbook is to be gathered first and foremost from the text of the provision in question and its context amongst other relevant provisions.

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Rules and guidance

SIFA 3.1.20

We have prepared a Reader's Guide to help firms navigate the Handbook and it can be accessed via the CD-ROM (by clicking on 'Handbook') and on our website (by clicking on 'FSA Handbook' and scrolling down the page).

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SIFA 3.1.21

As explained more fully in the Reader's Guide the provisions in the Handbook do not all have the same status. The difference between Rules and Guidance is important. The Rules in the Handbook (marked with an 'R') create binding obligations on firms. If a firm breaches such a rule, it may be subject to enforcement action and in some circumstances to an action for damages.

01/12/2004

SIFA 3.1.22

Guidance in the Handbook (marked with a 'G') is general Guidance given to more than one firm or individual. Guidance is not binding on a firm. So long as a firm follows Guidance that indicates possible means of compliance with a rule or recommends a course of action or arrangement, we intend to proceed on the basis that the firm has complied with the relevant Handbook rule. A small firm may find that Guidance is a helpful indication of how compliance with a Rule may be achieved without devising its own approach to that Rule.

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SIFA 3.1.23

There are also Evidential Provisions. These are rules but they are not binding in their own right - they are marked with a status letter 'E' in the margin or header. You can find a more detailed explanation in the Reader's Guide.

01/12/2004

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Legal Instruments that change this Chapter Contents of the Handbook

SIFA 4

FSA Principles, Systems and Controls

SIFA 4.1

FSA Principles

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Future version of SIFA 4.1 after 09/09/2005

SIFA 4.1.1

The Principles set out in simple terms the high-level standards that all firms must meet. The rest of the Handbook contains more detailed requirements that expand on these standards.

01/12/2004
Future version of SIFA 4.1.1 after 09/09/2005

SIFA 4.1.2

If your firm breaches one or more of the Principles you could face enforcement action. For example, a serious breach may result in your firm's authorisation being removed and could also pose a risk to our statutory objectives.

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Who do the Principles apply to and what is their purpose?

SIFA 4.1.3

The application and purpose of the Principles is as follows:

(1) The Principles apply to every firm. They are general statements of the fundamental obligations of firms under the regulatory system.

(2) The Principles express what is meant by the fit and proper standard set for firms. Breaching the Principles may call into question whether a firm is still fit and proper.

(3) The Principles require a firm to pay due regard to the interests of its customers and treat them fairly.

(4) The Principles are also designed as a general statement of regulatory requirements that are to be applied in new or unforeseen situations (PRIN 1).

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Where are the relevant rules in the Handbook?

SIFA 4.1.4

The Principles are set out in the Principles for Businesses Sourcebook (PRIN). They can be found at Section 2.1 of PRIN and are also set out below:

01/12/2004

SIFA 4.1.5

THE PRINCIPLES

A firm must conduct its business with integrity.

A firm must conduct its business with due skill, care and diligence.

A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

A firm must maintain adequate financial resources.

A firm must observe proper standards of market conduct.

A firm must pay due regard to the interests of its customers and treat them fairly.

A firm must pay due regard to the information needs of its clients, and communicate information to them in a way, which is clear, fair, and not misleading.

A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.

10.

A firm must arrange adequate protection for client's assets when it is responsible for them.

11.

A firm must deal with its regulators in an open and co-operative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

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Senior management arrangements, systems and controls

SIFA 4.1.6

These are set out in the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC). This part of the Handbook expands the meaning of Principle 3.

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SIFA 4.1.7

This means that a firm must (in line with SYSC 2 and SYSC 3):

(1) clearly apportion responsibilities amongst its directors and senior managers;

(2) ensure the business and affairs of the firm can be adequately monitored;

(3) allocate to the Managing Director or most senior person the functions of dealing with the apportionment of responsibilities and overseeing the establishment and maintenance of systems and controls;

(4) make and keep updated a record of these arrangements, for example, by means of an organisation chart; and

(5) take reasonable care to create and maintain such systems and controls as are appropriate to its business.

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SIFA 4.1.8

The rules and guidance in SYSC 3.2 cover some of the main issues which a firm is expected to consider in establishing and maintaining the systems and controls appropriate to its business. These include the size of the firm, the scale and complexity of its business, the need to counter the risk that the firm might be used to further financial crime, the need to establish and maintain compliance with regulatory requirements and record-keeping. We do not expect the same kind of systems and controls in both small and large firms. The important point is that they should be fit for purpose given the size and business of the firm. In the case of a sole practitioner, one person is responsible for all aspects of the firm but we expect there to be adequate systems that allow that person to adequately monitor and manage the firm.

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Other requirements

SIFA 4.1.9

When evaluating whether you meet the requirements of Principle 3 you should also consider:

(1) Threshold Conditions;

(2) Money Laundering Regulations (failure to comply is a criminal offence); and

(3) The Money Laundering Sourcebook (ML)

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SIFA 4.1.10

Table:

The following sections of this Overview are also relevant:

• Threshold Conditions in 'Authorisation' - Chapter 5

•'Money Laundering' - Chapter 14

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SIFA 5

Authorisation

SIFA 5.1

Authorisation

01/12/2004
Future version of SIFA 5.1 after 09/09/2005

SIFA 5.1.1

The Authorisation manual (AUTH) sets out the background and provides guidance on how we authorise firms. All firms and individuals enter the regulatory environment through an authorisation or approval process. Our assessment at entry aims to allow only those firms and individuals satisfying the necessary criteria (including honesty, competence and financial soundness) to engage in regulated activity.

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Future version of SIFA 5.1.1 after 09/09/2005

The authorisation / approval process: our duties

SIFA 5.1.2

Our duties are to:

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Future version of SIFA 5.1.2 after 09/09/2005

SIFA 5.1.3

Table:

•

Authorise firms that satisfy the necessary conditions (the threshold conditions) by granting permission to carry on specified regulated activities;

•

Approve individuals to carry on controlled functions in firms as being fit and proper to carry out these functions;

•

Answer technical enquiries about whether firms require authorisation or individuals require approval;

•

Seek to ensure that investment business is not being carried out by unauthorised firms; and

•

Collect and maintain intelligence information about authorised firms and individuals.

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Threshold conditions

SIFA 5.1.4

Before granting Part IV permission (permission for a firm to carry on regulated activities under the Financial Services and Markets Act 2000 (the Act)) we must ensure that the applicant satisfies and will continue to satisfy the threshold conditions. These are as follows:

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SIFA 5.1.5

Threshold Conditions

•

Legal status - can be a sole trader, partnership, limited liability partnership or a limited company.

•

The head office and registered office must be in the UK if your firm is a body corporate formed in the UK.

•

Close links with connected persons such as directors, controllers or partners must not impede FSA supervision.

•

A firm must have adequate financial resources.

•

Suitability - the applicant must be fit and proper.

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SIFA 5.1.6

The threshold conditions are set out in Schedule 6 of the Act. There is guidance on the conditions in COND. You are responsible for ensuring that you continue to meet the threshold conditions in order to retain your authorisation and scope of permission.

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Scope of permission

SIFA 5.1.7

Following a successful application, we will grant an applicant Part IV permission. The scope of your firm's permission is set out in a Scope of Permission Notice that defines the scope in terms of regulated activities together with any limitations on customer type or product and any other requirements or restrictions.

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SIFA 5.1.8

Table:

Typical investment business regulated activities for IFAs are:

•

Arranging deals in investments.

•

Making arrangements with a view to transactions in investments.

•

Advising on investments.

•

Advising on pension transfers and opt-outs.

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SIFA 5.1.9

Your permission will specify the regulated activities and the investments where you can do business with private customers. A permission may also include one or more limitations or requirements as explained in section 5.1.13 below.

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SIFA 5.1.10

You are responsible on a continuing basis for ensuring that your firm holds the correct permission that includes the investment business activities that you wish to carry out.

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Which parts of the Handbook apply

SIFA 5.1.11

Both the Authorisation and Supervision manuals are relevant.

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SIFA 5.1.12

In the Authorisation manual (AUTH) there is:

(1) An overview of the sourcebook in AUTH chapter 1.

(2) An explanation of the authorisation process and the permission regime in AUTH chapter 3. This includes the following sections:

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SIFA 5.1.13

Table:

•

Permission to carry on regulated activities: AUTH 3.4

•

Information on specified investments: AUTH 3.5

•

Information on limitations: AUTH 3.6. An example of a limitation is where we limit the number of clients a firm can deal with during an initial period until its systems are proven.

•

How we may impose requirements: AUTH 3.7. For example, some firms have a requirement to submit independent compliance reviews or not to hold client money.

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SIFA 5.1.14

After Part IV permission has been granted, a firm can apply to vary or cancel that Part IV permission including any limitation or requirement, at any time. The procedures that need to be followed are set out in SUP chapter 6.

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SIFA 5.1.15

Chapter 15 of this Overview covers Variation and Cancellation of Permission.

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Further information

SIFA 5.1.16

The Application Pack and Guidance notes are available from our:

(1) Publications Helpline or our Enquiries and Applications Department at a charge of £25.00 plus VAT; or

(2) from our website. (We plan to produce enhanced guidance and a shorter version of the Application form to help smaller firms with their applications. This should be available for firms to use in the first quarter of 2004.)

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SIFA 5.1.17

When we grant an application for Part IV permission, we will update the FSA Register with the activities the firm has permission to carry on. You can access the Register on our website.

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Further issues

SIFA 5.1.18

There are the following further issues relating to authorisation:

(1) The scope of your firm's permission affects the fees you pay us. Broadly, the wider the scope the higher the fees.

(2) The scope of your permission may also affect the category of business into which your firm falls for financial resources purposes.

(3) We consider the scope of a firm's permission when deciding which risk category the firm falls into. We monitor firms in a higher risk category more closely.

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SIFA 5.1.19

Table:

The following sections of this Overview are also relevant:

•'FSA supervision of small firms' - Chapter 6;

•'Approved persons' - Chapter 7;

•'Variation of permission' - Chapter 15.1;

•'Cancellation of permission' - Chapter 15.2; and

•'Fees' - Chapter 18.

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Legal Instruments that change this Chapter Authorisation

SIFA 6

Authorisation

SIFA 6.1

Framework

01/12/2004
Future version of SIFA 6.1 after 09/09/2005

SIFA 6.1.1

Our approach to regulation is described in A New Regulator for the New Millennium published by us in January 2000 and in subsequent progress reports. We use an assessment of the risks to our statutory objectives to prioritise our efforts and focus on the most significant risks.

01/12/2004
Future version of SIFA 6.1.1 after 09/09/2005

SIFA 6.1.2

Our four statutory regulatory objectives are:

Maintaining confidence in the financial system;

Promoting public understanding of the financial system;

Securing the appropriate degree of protection for consumers; and

Reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

01/12/2004
Future version of SIFA 6.1.2 after 09/09/2005

SIFA 6.1.3

Our operating framework translates these overarching objectives into a risk-based approach used across the FSA. The approach includes an assessment of risks at the firm level and at the consumer, product, market and industry levels. At the firm level, we use the framework to assess the risks that individual firms pose to our objectives and to decide our regulatory response to those risks. The level of supervisory intensity depends on our assessment of impact (the effect on the statutory regulatory objectives if a risk occurs) and probability (the likelihood of a risk occurring).

01/12/2004
Future version of SIFA 6.1.3 after 09/09/2005

Small firms

SIFA 6.1.4

A small firm with a simple business model, a local retail client base and no recent history of regulatory problems is likely to be low impact and its regulatory relationship with the FSA will reflect this. These firms will not have a dedicated FSA relationship manager but will have a contact point in the supervisory division. In the case of small IFA firms, it is the Investment Firms Division (IFD) Contact Centre.

01/12/2004
Future version of SIFA 6.1.4 after 09/09/2005

SIFA 6.1.5

An important part of the monitoring of low impact firms is the receipt and monitoring of returns and notifications (see Chapter 12 of this Overview for more information). Firms send us Returns required under the Handbook (e.g. audited accounts, financial returns and complaints returns) that we monitor to identify potential breaches of regulatory requirements. We will not carry out routine visits to small firms and there will normally be little contact with the firm on an individual basis. However, we may make visits in response to risks identified from returns and other sources of information. In addition, the firm or its business will be covered from time to time by our sector-wide projects (themes) to monitor compliance standards in a class of firm or firms as a whole.

01/12/2004

IFD's supervision strategy

SIFA 6.1.6

The Investment Firms Division (IFD) has developed a supervision strategy for small firms, which includes the above elements. Its primary focus is on mitigating the risk of failure of a substantial number of low impact firms within a sector. Although individually firms are low impact, collectively the impact of these firms may be much greater.

01/12/2004

SIFA 6.1.7

The overall strategy includes:

(1) gathering information on the whole population of firms;

(2) focusing resources on thematic work and where appropriate on passing offenders (firms and individuals) to our Enforcement Division to deal with;

(3) helping newly authorised firms to raise their own standards; and

(4) helping good firms to maintain standards.

01/12/2004

SIFA 6.1.8

Where a firm is non-compliant, we will only take enforcement action where we consider that is appropriate. Where firms show a lack of awareness of regulations or are reluctant to change, we will try to help these firms to help themselves, for example, by explaining how their record keeping can be improved. Improved record keeping benefits both clients and the firm itself through improved management information. We will also encourage these firms to increase their level of training and to make use of contacts with the FSA, trade associations, product providers, auditors and consultants.

01/12/2004

SIFA 6.1.9

Where a firm is compliant, we will try to help it maintain high standards. Such a firm provides a benchmark of best practice that can be spread more widely within the total population of firms. Our overall supervision strategy is to educate all firms about our rules.

01/12/2004

SIFA 6.1.10

The following sections of this Overview are also relevant:

•'Training and Competence' - Chapter 10;

•'Reporting and Notifications' - Chapter 12; and

•'Record Keeping' - Chapter 13.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Authorisation

SIFA 7

Approved Persons

SIFA 7.1

Approved Persons

01/12/2004

SIFA 7.1.1

An Authorised Firm has approved persons and other staff. Approved persons carry out controlled functions and therefore have responsibilities for the firm complying with and working within the Rules.

01/12/2004
Future version of SIFA 7.1.1 after 09/09/2005

SIFA 7.1.2

An approved person is a person whose performance of one or more controlled functions we have approved. Our approval should be obtained before the individual performs the activity.

01/12/2004
Future version of SIFA 7.1.2 after 09/09/2005

SIFA 7.1.3

You need to apply to have an individual approved to perform a controlled function as follows:

(1) before a firm is authorised we must approve the individuals who are going to carry out controlled functions and then register them for the appropriate controlled functions; and

(2) you need to complete and submit a new form in order to obtain FSA approval if an individual joins the firm, changes a controlled function or moves to a different firm. There is a special provision to cover absence of up to 12 weeks for senior functions where approval is not required (SUP 10.5.5 and SUP 10.5.6 ).

01/12/2004
Future version of SIFA 7.1.3 after 09/09/2005

Controlled functions

SIFA 7.1.4

The full list of controlled functions can be found under SUP 10.4.5 . The functions with most relevance to small firms are likely to be the:

(1) Governing functions (CF 1-7) e.g. director, chief executive, partner, sole trader;

(2) Required functions (CF 8-12) e.g. compliance officer, money laundering reporting officer; and

(3) Customer functions (CF 21-27).

01/12/2004
Future version of SIFA 7.1.4 after 09/09/2005

SIFA 7.1.5

The most common controlled customer functions in IFAs are CF21 (Investment adviser function) and CF22 (Investment adviser trainee function), but some IFAs may also have functions CF23 (Corporate finance adviser function), CF24 (Pension transfer specialist function), and CF27 (Investment management function).

01/12/2004

SIFA 7.1.6

The 'Governing functions' and the 'Required functions' are also known as 'Significant Influence functions' because the persons performing these functions are likely to exercise significant influence over the business.

01/12/2004

Becoming and ceasing to be an approved person

SIFA 7.1.7

The Supervision manual (SUP) establishes the 'approved persons regime'. There are five standard forms (A-E). You can find the forms on our website under 'Industry Help', 'Forms', 'Supervision manual Approved persons regime forms'; or on our CD-ROM under 'Library', 'Current Library', 'Forms', 'Supervision', 'Approved Persons Regime'. Firms can also register with the FSA to submit the Approved Persons forms via the Internet. Details of this facility can be obtained from the E-regulation Contact Centre on 0845 606 9966 or by email to: e-regulation@fsa.gov.uk

01/12/2004

SIFA 7.1.8

Form

When to use the form

To perform a controlled function. The individual who is to be appointed to perform the controlled function should complete the form and it should be authorised by an individual with a Governing function within the firm. Form A is also used if an already Approved Person is increasing their functions but sections 4 and 5 of the Form will not always require completion

To withdraw an application to perform a controlled function (i.e. to withdraw the application before it has been approved by the FSA). Both the firm and the individual candidate must sign this form.

To cease to perform a controlled function or to reduce the number of functions that an individual performs (i.e. to withdraw controlled functions from an approved person). Only the firm is required to sign this form.

To change an approved person's details

To notify a person remaining with the same firm but changing a controlled function (e.g. to apply for a change from CF22 trainee investment adviser to CF21 investment adviser).

01/12/2004

How long will an application take?

SIFA 7.1.9

Under section 61 of the Act, the FSA must respond to applications to be an approved person within three months. In practice, the guideline time scale is much shorter, with the majority of applications being processed within 7 working days.

01/12/2004

Which parts of the Handbook are relevant?

SIFA 7.1.10

The following parts of the Handbook are relevant:

(1) SUP Table 10.11.2 G highlights which form you should use and when as does SUP 10 Ann 2.

(2) SUP 10.3 to SUP 10.10 describe the 27 controlled functions and the boundaries of the approved persons regime.

(3) SUP 10.11 to SUP 10.14 set out the procedures for applying for approval, changing the details that we hold about an approved person, and withdrawing from approval.

(4) SUP 10 Ann 1 lists frequently asked questions on the requirements of the approved persons regime.

01/12/2004

Principles for approved persons

SIFA 7.1.11

The Principles for firms (see Chapter 4 of this Overview) are matched by a set of principles for Approved Persons. Statements of Principle and Code of Practice for Approved Persons (APER) include the Statements of Principle in APER 2. The Code of Practice in APER 3 and APER 4 provides guidance on the factors, which in our opinion, should be taken into account when assessing whether an approved person has complied with the Statements of Principle.

01/12/2004

SIFA 7.1.12

STATEMENTS OF PRINCIPLE

• An approved person must act with integrity in carrying out his controlled function.

• An approved person must act with due skill, care and diligence in carrying out his controlled function.

• An approved person must observe proper standards of market conduct in carrying out his controlled function.

• An approved person must deal with the FSA and with other regulators in an open and co-operative way and must disclose appropriately any information of which the FSA would reasonably expect notice.

• An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively.

• An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.

• An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant standards and requirements of the regulatory system.

01/12/2004

Further information and other issues

SIFA 7.1.13

You can obtain further information as follows:

(1) You can find a list of frequently asked questions at AUTH 6 Annex 1 G. If this does not answer your question, you should contact our Enquiries and Applications Department by telephone on 020 7066 0019 or e-mail iva@fsa.gov.uk.

(2) The number of approved persons carrying out controlled functions CF 21-27 registered by a firm may be a factor in the level of fees payable by the firm.

01/12/2004

Record keeping requirements: apportionment of responsibilities

SIFA 7.1.14

You must keep an up-to-date record of how responsibilities have been apportioned between directors and senior managers (SYSC 2.2.1 R). This may take the form, for example, of an organisation chart or diagram (SYSC 2.2.2 G).

01/12/2004

SIFA 7.1.15

Frequently, it is to the managing director that the firm allocates the function of dealing with the apportionment of responsibilities and overseeing the establishment and maintenance of systems and controls (SYSC 2.1).

01/12/2004

SIFA 7.1.16

The following section of this Overview is also relevant:

•'Authorisation' - Chapter 5

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Approved Persons

SIFA 8

Financial resources and professional
indemnity insurance

SIFA 8.1

Summary

01/12/2004

SIFA 8.1.1

Until the Integrated Prudential sourcebook is introduced, the detailed financial resources standards that we apply to investment firms are set out in the Interim Prudential sourcebook for investment businesses (IPRU (INV)). The rules and guidance in this sourcebook help us meet our statutory objectives of protecting consumers and maintaining market confidence. By setting minimum capital standards, this sourcebook seeks to reduce the risk that investment firms will be unable to meet their liabilities and commitments to consumers and counterparties.

01/12/2004
Future version of SIFA 8.1.1 after 09/09/2005

SIFA 8.1.2

Chapters 1 and 13 of IPRU (INV) relate to personal investment firms and are largely a continuation of the prudential requirements that applied under the PIA. The rules of Chapter 13 apply differently to firms depending on what category of firm they are.

01/12/2004
Future version of SIFA 8.1.2 after 09/09/2005

SIFA 8.1.3

This section of the Overview only discusses those parts that relate to a low resource firm i.e. a firm that is:

(1) a Category B3 firm (see Appendix 13(1) of IPRU(INV) - Defined terms for Chapter 13);

(2) not a network;

(3) has fewer than 26 advisers or representatives; and

(4) is not permitted to carry on discretionary portfolio management.

01/12/2004
Future version of SIFA 8.1.3 after 09/09/2005

SIFA 8.1.4

The relevant sections of Chapter 13 for such firms are IPRU (INV) section 13.1 and sections 13.9 to 13.10. The rules and guidance set out in these sections relate to four key areas: financial resources, professional indemnity insurance, record keeping and notification requirements.

01/12/2004
Future version of SIFA 8.1.4 after 09/09/2005

Financial resources

SIFA 8.1.5

Your firm must have and maintain at all times financial resources of the kinds and amounts specified by the rules of IPRU (INV) chapter 13. Your firm must also be able to meet its liabilities as they fall due.

01/12/2004

SIFA 8.1.6

In particular, your firm must have financial resources of at least £10,000 at all times (IPRU(INV) 13.10.1 R). The method of calculating your firm's financial resources is set out in the following sections of IPRU (INV): 13.10.2 R, 13.10.2A R, 13.10.3 R and Table 13.10 (2).

01/12/2004

Professional indemnity insurance (PII)

SIFA 8.1.7

Our policy is under development. Currently your firm must have PII cover for all business activities that it undertakes in line with IPRU (INV) 13.1.3 R to 13.1.5 E.

01/12/2004

SIFA 8.1.8

In July 2003 we published Consultation Paper 193: Professional Indemnity Insurance for personal investment firms (CP193) which proposes new policy and rules in this area.

01/12/2004

Financial resources record keeping

SIFA 8.1.9

Your firm must take reasonable steps to ensure that it keeps records that are sufficient to show at any time that it has complied with the requirements of IPRU (INV) Chapter 13. It must also set up procedures and controls to ensure that those records are made promptly and accurately and, where appropriate brought up-to-date at regular and frequent intervals (IPRU (INV) 13.1.10 R).

01/12/2004

SIFA 8.1.10

Records may be held in any form, but they must be in English and up-to-date, and your firm must be able to produce them in paper form at its business premises at our request. You may store records electronically but you must be able to print them out at our request.

01/12/2004

SIFA 8.1.11

The record keeping requirements are in IPRU (INV) 13.1.10 to 13.1.17.

01/12/2004

Reporting and notification requirements

SIFA 8.1.12

The Supervision manual sets out provisions on the periodic reporting and notification of financial information to us. Small personal investment firms (most of which will be low resource firms) must comply with SUP 16.7.48 to SUP 16.7.53 . There is further information in Chapter 12 of this Overview.

01/12/2004

SIFA 8.1.13

Your firm must tell us as soon as it finds out that its professional indemnity insurance is being cancelled or that it cannot obtain new cover (IPRU (INV) 13.1.9 R). This rule is in addition to the notification requirements in the Supervision manual SUP 15 SUP 15).

01/12/2004

SIFA 8.1.14

The following sections of this Overview are also relevant:

•'Reporting and notifications' - Chapter 12;

•'Variation of permission' - Chapter 15.1;

•'Cancellation of Permission' - Chapter 15.2; and

•'Waivers and Rule Modifications' - Chapter 16

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Financial resources and professional indemnity insurance

SIFA 9

Conduct of business

SIFA 9.1

Introduction

01/12/2004
Future version of SIFA 9.1 after 09/09/2005

SIFA 9.1.1

Our Conduct of Business sourcebook (COB) provides the rules that authorised firms must comply with in the conduct of their business.

01/12/2004
Future version of SIFA 9.1.1 after 09/09/2005

SIFA 9.1.2

This part of the Overview covers the rules that IFA firms carrying on typical financial advisory business will encounter most frequently.

01/12/2004
Future version of SIFA 9.1.2 after 09/09/2005

SIFA 9.1.3

Some IFA firms will have a permission that includes other activities. For these firms other parts of COB will also be relevant but are not discussed further in this Overview. For example:

(1) Managing investments: COB 7 Dealing and managing COB 8 Reporting to customers

(2) Holding client money: COB 9 Client assets (but see section 9.16 of this Overview)

01/12/2004
Future version of SIFA 9.1.3 after 09/09/2005

SIFA 9.1.4

COB 8.1 requires firms to send written confirmation to clients promptly after each transaction. This requirement will not usually apply to IFAs in view of the exceptions at COB 8.1.6 R.

01/12/2004
Future version of SIFA 9.1.4 after 09/09/2005

Exclusion of liability

SIFA 9.1.5

COB 2.5 applies to a firm that makes any written or oral communication to a customer in the course of, or in connection with, its designated investment business. It covers how firms should handle the duties and liabilities that they have to their customers.

01/12/2004
Future version of SIFA 9.1.5 after 09/09/2005

SIFA 9.1.6

COB 2.5.3 R states that a firm must not, in any written or oral communication, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a customer under the regulatory system.

01/12/2004
Future version of SIFA 9.1.6 after 09/09/2005

SIFA 9.1.7

COB 2.5.4 R states that a firm must not in any written or oral communication to a private customer seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability not referred to in COB 2.5.3 R unless it is reasonable for it to do so.

01/12/2004
Future version of SIFA 9.1.7 after 09/09/2005

Reliance on others

SIFA 9.1.8

Principle 2 requires a firm to conduct its business with due skill, care and diligence. COB 2.3 indicates the extent to which firms can meet this requirement by relying on others.

01/12/2004

SIFA 9.1.9

A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person (COB 2.3.3 R).

01/12/2004

SIFA 9.1.10

You may generally rely on another authorised person not connected with your firm to provide you with information in writing to meet your own obligations to obtain information, and vice versa (COB 2.3.5 G). 'In writing includes the use of electronic media to make communications (GEN 2.2.14 R). Additional guidance on electronic communication is given at COB 1.8.2 G.

01/12/2004

SIFA 9.2

Clear, fair and not misleading communication

01/12/2004

SIFA 9.2.1

When you communicate information to a customer, you must take reasonable steps to communicate in a way that is clear, fair and not misleading (COB 2.1.3 R).

01/12/2004
Future version of SIFA 9.2.1 after 09/09/2005

Why is it important to communicate clearly?

SIFA 9.2.2

You will want to communicate clearly so that your customers understand your advice and the products and services that you advise them on.

01/12/2004
Future version of SIFA 9.2.2 after 09/09/2005

SIFA 9.2.3

You will also want to ensure that they understand why you are recommending certain products or services and therefore suitability letters should be clear, fair and not misleading.

01/12/2004
Future version of SIFA 9.2.3 after 09/09/2005

How should you communicate and where are the relevant rules?

SIFA 9.2.4

Section 2.1 of the Conduct of Business (COB) sourcebook sets out how you should communicate investment-related issues with a customer.

01/12/2004
Future version of SIFA 9.2.4 after 09/09/2005

SIFA 9.2.5

You should consider your customer's knowledge of the particular investment business that the communication relates to and make reasonable steps to ensure that the communication is clear, fair and not misleading (COB 2.1.4 G).

01/12/2004
Future version of SIFA 9.2.5 after 09/09/2005

SIFA 9.2.6

All types of communication are covered by this requirement (COB 2.1.5 G), for example:

(1) telephone calls;

(2) financial reports;

(3) any communication that is not a financial promotion; and

(4) client agreements.

01/12/2004
Future version of SIFA 9.2.6 after 09/09/2005

SIFA 9.2.7

COB Section 2.1 does not apply to a firm when it communicates a financial promotion, when COB Chapter 3 will apply instead (COB 2.1.1 R). In other words, you have broadly similar obligations whether the communication is a financial promotion or not.

01/12/2004
Future version of SIFA 9.2.7 after 09/09/2005

SIFA 9.2.8

The following sections of this Overview are also relevant:

•'Financial promotions' - Chapter 9.3;

•'Client classification' - Chapter 9.5;

•'Know your customer' - Chapter 9.8;

•'Suitability' - Chapter 9.9; and

•'Assessing your customer's understanding of risk' - Chapter 9.10.

01/12/2004
Future version of SIFA 9.2.8 after 09/09/2005

SIFA 9.3

Financial Promotion

01/12/2004
Future version of SIFA 9.3 after 09/09/2005

SIFA 9.3.1

A financial promotion may be described as an invitation or inducement to engage in investment activity. Section 21(1) of the Act prohibits financial promotions unless communicated by an authorised person, or an authorised person has approved the content of the promotion, or an exemption applies.

01/12/2004
Future version of SIFA 9.3.1 after 09/09/2005

SIFA 9.3.2

A primary intention of the rules and guidance relating to financial promotions is to ensure firms pay due regard to the interests of their customers and communicate information in a manner which is clear, fair and not misleading (see COB 3.8.4 R).

01/12/2004
Future version of SIFA 9.3.2 after 09/09/2005

SIFA 9.3.3

Financial promotions are far wider than just investment advertisements. They can be either solicited or unsolicited and may be through any form of media, such as phone conversations, newspaper advertisements, group presentations and mailshots. For the purposes of COB 3, financial promotions are classed as either real time or non-real time promotions. Real time promotions are those that are communicated in the course of a meeting, telephone conversation, or other interactive dialogue. Non-real time promotions include those made via correspondence, email, website material, and radio and television.

01/12/2004
Future version of SIFA 9.3.3 after 09/09/2005

Real time promotions

SIFA 9.3.4

By their very nature it is not possible for a firm to approve real time financial promotions, and our rules do not allow this (see COB 3.12.2 R). Instead, the rules and guidance require that firms make clear their identity and the purpose of the promotion and do not communicate at an unsociable hour (unless previously agreed with the customer). Above all, promotions should be clear, fair and not misleading.

01/12/2004
Future version of SIFA 9.3.4 after 09/09/2005

SIFA 9.3.5

Your firm must not make an unsolicited real time financial promotion unless the recipient has an established customer relationship with you and expects to receive such promotions (see COB 3.10.3 R).

01/12/2004
Future version of SIFA 9.3.5 after 09/09/2005

Non-real time promotions

SIFA 9.3.6

Before you communicate to a customer or approve a non-real time financial promotion you must arrange for confirmation by an individual in your firm with appropriate expertise that the financial promotion complies with the rules in COB Chapter 3 (see COB 3.6). Firms are also expected to ensure routinely that their financial promotions continue to comply with the rules.

01/12/2004
Future version of SIFA 9.3.6 after 09/09/2005

SIFA 9.3.7

COB 3.8 contains detailed rules and guidance concerning the form and content of financial promotions. For example, all non-real time financial promotions should contain the name and address (or contact point) of the firm or its appointed representative. Any comparisons should be objective, balanced and clear. If a particular investment or service is promoted then a fair and adequate description of the nature of the investment, the commitment required, and the risks involved must be given. As with real time promotions, however, the overriding principle is that promotions be clear, fair and not misleading.

01/12/2004
Future version of SIFA 9.3.7 after 09/09/2005

Direct offer financial promotions

SIFA 9.3.8

A direct offer financial promotion is a non-real time financial promotion that contains an offer for the consumer to enter into an investment agreement or, specifies the manner of response or includes a response form (such as a tear-off slip). The rules require such a promotion to contain enough information to enable the customer to make an informed assessment of the investment or service to which it relates.

(1) The Table in COB 3.9.3 G is intended to help firms locate the sections of COB 3.9 that are applicable to them when they communicate or approve a direct offer financial promotion.

(2) The Table in COB 3.9.7A R lists the information that a direct offer financial promotion should contain.

01/12/2004
Future version of SIFA 9.3.8 after 09/09/2005

SIFA 9.3.9

Direct offer financial promotions for packaged products must contain the information required by COB 6.5 (Content of key features).

01/12/2004
Future version of SIFA 9.3.9 after 09/09/2005

SIFA 9.3.10

Direct offers for investments whose value (or income) may fluctuate must make this clear in terms that are likely to be understood by the kind of customer to whom the promotion is communicated (COB 3.9.15 R).

01/12/2004
Future version of SIFA 9.3.10 after 09/09/2005

Record keeping requirements

SIFA 9.3.11

A firm must make an adequate record of each non-real time financial promotion that it has confirmed as complying with the rules of COB 3. In addition to a copy of the actual promotional material, firms should record the name of the individual who approved the promotion, the date of approval and medium it was authorised for. (See COB 3.7.2 G and COB 3.7.3 G for further guidance).

01/12/2004
Future version of SIFA 9.3.11 after 09/09/2005

SIFA 9.3.12

Records must be kept for the following periods:

Period of Retention

Product Type the Financial Promotion Relates to:

Indefinitely

Pension transfer pension opt out, FSAVC

Six years

Life policy pension contract stakeholder pension scheme.

Three years

All other cases

01/12/2004
Future version of SIFA 9.3.12 after 09/09/2005

Other information

SIFA 9.3.13

The following information may be helpful:

(1) Guidance on the restrictions on making financial promotions under Section 21 of the Act is given in AUTH App 1 (Financial promotion and related activities). This also explains the main exemptions.

(2) The Table at COB 3.2.5 R lists the exemptions to the financial promotion rules in the Handbook. Additionally, some of the main exemptions contained in the Financial Promotion Order are summarised in COB 3 Annex 1.

01/12/2004
Future version of SIFA 9.3.13 after 09/09/2005

SIFA 9.3.14

The following sections of this Overview are also relevant:

•'Clear, fair and not misleading communication' - Chapter 9.2; and

•'Key features' - Chapter 9.15.

01/12/2004
Future version of SIFA 9.3.14 after 09/09/2005

SIFA 9.4

Inducements

01/12/2004
Future version of SIFA 9.4 after 09/09/2005

SIFA 9.4.1

You must ensure that your firm, or anyone acting on behalf of it, does not conduct business under arrangements that are likely to result in a material conflict with your duty to your customers (COB 2.3.3 R). This includes any inducement being given or received by an unregulated associate.

01/12/2004
Future version of SIFA 9.4.1 after 09/09/2005

SIFA 9.4.2

Principles 1 (Integrity) and 6 (Consumer's interest) apply to the issue of inducements.

01/12/2004
Future version of SIFA 9.4.2 after 09/09/2005

Where are the relevant sections in the Handbook?

SIFA 9.4.3

The following sections are relevant:

(1) Section 2.2 of COB in particular COB 2.2.3 R requires a firm to be satisfied that it or anyone acting on its behalf does not conduct business under arrangements that are likely to result in a material conflict with its duty to its customers.

(2) Selling packaged products is on the basis of disclosable commission or fees. Restrictions on the arrangements under which commission may be paid to an IFA in relation to the sale of a packaged product are set out in COB 2.2.5 E.

(3) In addition some indirect benefits are permitted. These are set out in COB 2.2.6 G and the table under COB 2.2.7 G.

(4) Record keeping requirements: COB 2.2.20 R.

01/12/2004
Future version of SIFA 9.4.3 after 09/09/2005

Other considerations

SIFA 9.4.4

For any firms that manage investments, COB 2.2.8 R?COB 2.2.19 R is relevant as it covers soft commission.

01/12/2004
Future version of SIFA 9.4.4 after 09/09/2005

Record keeping requirements

SIFA 9.4.5

You must make a record of the following:

01/12/2004
Future version of SIFA 9.4.5 after 09/09/2005

SIFA 9.4.6

Information

Required period of retention

Each payment of disclosable commission

At least six years from the date of payment.

Each benefit given to an independent intermediary

At least six years from the date on which it was given.

01/12/2004

SIFA 9.4.7

The sections below are also relevant:

•'Excessive charges' - Chapter 9.12 of this Overview;

•'Disclosing charges, remuneration & commission' - Chapter 9.13 of this Overview; and

•PRIN 2.1 in the Handbook.

01/12/2004

SIFA 9.5

Client classification

01/12/2004

SIFA 9.5.1

You need to take reasonable steps to establish the classification of each client that you intend to conduct investment business with or for, and classify them appropriately.

01/12/2004
Future version of SIFA 9.5.1 after 09/09/2005

Why do you need to classify your clients?

SIFA 9.5.2

Classifying your clients is part of the 'know your customer process'. It helps you to recommend suitable products to your clients while ensuring that they are covered by the appropriate protections.

01/12/2004
Future version of SIFA 9.5.2 after 09/09/2005

SIFA 9.5.3

We want to ensure that your clients receive an appropriate level of protection. Private customers are entitled to receive the most protection under the regulatory system.

01/12/2004
Future version of SIFA 9.5.3 after 09/09/2005

When and how should you classify your clients?

SIFA 9.5.4

You must classify your clients before conducting any investment business with them, by taking reasonable steps to establish which category is most appropriate for them (COB 4.1.4 R).

01/12/2004
Future version of SIFA 9.5.4 after 09/09/2005

SIFA 9.5.5

The three client categories are listed below: (the full definitions are in the handbook glossary)

Likelihood of a small personal investment firm dealing with each type of customer

Private customer

Private customers are mainly private individuals. They are given additional protections under COB rules covering financial promotion, know your customer and suitability.

Definitely - the large majority of your clients, if not all of them, will fall into this category.

Intermediate customer:

Examples of intermediate customers could include individuals with substantial investment experience.

Possibly

Market counterparty:

An example of a market counterparty is a central bank

Very unlikely

01/12/2004
Future version of SIFA 9.5.5 after 09/09/2005

Other considerations when classifying customers:

SIFA 9.5.6

Very occasionally, customers who would normally be classed as one type of customer can be classed differently. To do this, you are required to obtain written consent from your customer. For example, an expert private customer could be classed as an intermediate customer but only if you have taken reasonable care to determine that they are experienced and have an in-depth knowledge of products and services (i.e. at a similar level to a financial adviser). COB 4.1.9 R requires you to give such an individual who it is proposed should be classified as an intermediate customer, a written warning (you should keep a copy) to say that they would lose some protections under the regulatory system. You must also give your client sufficient time to consider the implications of being classified as an intermediate customer and obtain his written consent.

01/12/2004
Future version of SIFA 9.5.6 after 09/09/2005

Where are the relevant Handbook sections?

SIFA 9.5.7

The following sections are relevant:

(1) The rules and guidance are in Section 4.1 of COB.

(2) Transitional rules for firms that were 'grandfathered' across to the FSA from the PIA on 1 December 2001 (date also known as N2): COB Table TR3 'Client Classification Provisions' sets out our view on client classifications that were made by firms before N2. The table can be found under COB section TP 1: 'COB TR 1 Transitional Rules for pre-N2 and ex-Section 43 firms'.

(3) Classifying clients under a different category and when to review the classifications: COB 4.1.9 R?COB 4.1.15 R.

01/12/2004
Future version of SIFA 9.5.7 after 09/09/2005

Record keeping

SIFA 9.5.8

You must keep a record of the classification you make for each customer and enough information to support the classification (COB 4.1.16 R). Listed below are details of how long you must keep the record to meet our requirements. Each retention period starts from when the customer ceases to be a customer of your firm.

01/12/2004
Future version of SIFA 9.5.8 after 09/09/2005

SIFA 9.5.9

Period of retention

When client classification relates to:

Indefinitely

Pension transfer, pension opt-out or FSAVC.

At least six years

Life policy or pension contract.

At least three years

In any other case

01/12/2004

SIFA 9.5.10

The following sections of this Overview are also relevant: •'Terms of business' - Chapter 9.6; •'Know your customer' - Chapter 9.8; and •'Suitability' - Chapter 9.9.

01/12/2004

SIFA 9.6

Terms of business

01/12/2004

SIFA 9.6.1

You are required to provide written terms of business to your customers to explain the terms and conditions on which you intend to conduct business with them; and to set out particular issues such as the complaints procedure and payment for services.

01/12/2004
Future version of SIFA 9.6.1 after 09/09/2005

Why do you need to provide terms of business?

SIFA 9.6.2

When you provide terms of business to a client it is a useful record for both your client and your firm. It offers protection to clients if they think that a firm did not provide the services that they agreed to, and it offers the firm protection if a client incorrectly queries the services that it has provided to them.

01/12/2004
Future version of SIFA 9.6.2 after 09/09/2005

SIFA 9.6.3

The requirement to provide terms of business is in line with Principle 7 (Communications with clients).

01/12/2004
Future version of SIFA 9.6.3 after 09/09/2005

When do you need to provide terms of business?

SIFA 9.6.4

You need to give a terms of business document to each customer and you should provide one before conducting any designated investment business with a private customer. However, the length of time you have to provide one depends on both the category of customer and the type of product that forms part of the transaction ( COB 4.2.5 R). Please see the summary below:

01/12/2004
Future version of SIFA 9.6.4 after 09/09/2005

SIFA 9.6.5

Type of customer

When to provide terms of business

Private customer

Before conducting any designated investment business, unless:

The customer has made an oral offer to enter into an investment agreement relating to an ISA or stakeholder pension scheme; in which case you need to provide it within five days of the offer.

Intermediate customer

Within a reasonable period of the firm bringing to conduct designated investment business.

01/12/2004
Future version of SIFA 9.6.5 after 09/09/2005

SIFA 9.6.6

Please note that conducting designated investment business includes advising on investments as well as arranging and entering into transactions (for a complete definition see the Handbook glossary).

01/12/2004
Future version of SIFA 9.6.6 after 09/09/2005

What should you include in terms of business?

SIFA 9.6.7

You must ensure that your terms of business sets out the basis on which you will conduct business with your customer in adequate detail (COB 4.2.10 R and COB 4.2.11 E).

01/12/2004
Future version of SIFA 9.6.7 after 09/09/2005

SIFA 9.6.8

The terms of business information does not have to be contained in only one document because you might not know a private customer's investment objectives before you provide him with your terms of business (see COB 4.2.12 R). However, you should ensure that:

(1) your customers are aware that any separate terms of business documents you give to them are collectively the terms of business; and

(2) the content is still easy to understand.

01/12/2004
Future version of SIFA 9.6.8 after 09/09/2005

SIFA 9.6.9

We will not approve the content or layout of your terms of business. You should follow the rules and guidance in COB 4.2 (Terms of business and client agreements with customers) when designing the content. In particular, see the Table at COB 4.2.15 E.

01/12/2004
Future version of SIFA 9.6.9 after 09/09/2005

Where is the relevant information in the Handbook?

SIFA 9.6.10

Information is available as follows:

(1) Our requirements for terms of business and client agreements: COB Chapter 4.2.

(2) A list of the general requirements for the content of terms of business is given in the Table under COB 4.2.15 E. The following sections will be particularly relevant to a small personal investment firm: sections 1-7, 9-11, 13, 14, 15-17, 21-25.

01/12/2004
Future version of SIFA 9.6.10 after 09/09/2005

Other considerations

SIFA 9.6.11

There are the following other considerations:

(1) There are times when you need to issue a client agreement (which the client has to sign before it comes into force) instead of a terms of business : COB 4.2.7 R.

(2) There are occasions when you are not required to provide terms of business: COB 4.2.1 R and Table at COB 4.2.9 R.

(3) If the terms of business provided to a customer allow you to amend the terms of business without your customer's consent you must give the customer at least 10 business days notice before conducting business on the amended terms (COB 4.2.13 R).

(4) There are two transitional provisions that apply to terms of business. COB Table TR1 contains the following: ETP1 located in Section 1.1. (1) of the Table; andTSP2 located in Section 3.3 of the Table. The transitional provisions are applicable to firms that were grandfathered across to the FSA from the PIA at N2. The Table can be found under COB section TP1 'COB TR 1 Transitional Rules for pre-N2 and ex-Section 43 firms'.

(5) A firm can continue to rely on terms of business issued to an existing client under the rules of its previous regulator. If any amendments need to be made or there is a new client, the firm must issue a new terms of business that complies with COB 4.2.13 R.

01/12/2004
Future version of SIFA 9.6.11 after 09/09/2005

Record keeping requirements

SIFA 9.6.12

You must make a record of each terms of business you provide as soon as it comes into force (COB 4.2.14 R).

01/12/2004

SIFA 9.6.13

Listed below are details of how long you must keep records of the terms of business letters to meet our requirements; each period of retention starts from when the customer ceases to be a customer of your firm (COB 4.2.4 G).

Period of retention:

When terms of business relates to:

Indefinitely

Pension transfer, pension opt-out or FSAVC.

Six years

Life policy, pension contract or stakeholder pension scheme.

Three years

In any other case.

01/12/2004

SIFA 9.6.14

The following sections are also relevant:

•'Client classification' - Chapter 9.5 of this Overview;

•'Know your customer' - Chapter 9.8 of this Overview;

•'Suitability' - Chapter 9.9 of this Overview; and

•PRIN 2.1 in the Handbook.

01/12/2004

SIFA 9.7

Polarisation: Effect of the rules

01/12/2004
Future version of SIFA 9.7 after 09/09/2005

SIFA 9.7.1

Polarisation only applies to advice relating to packaged products, which are life policies, personal pensions, collective investment schemes, stakeholder pensions and investment trust savings schemes.

01/12/2004
Future version of SIFA 9.7.1 after 09/09/2005

SIFA 9.7.2

Polarisation requires firms that advise on packaged products to be either:

(1) independent intermediaries (IFAs) who sell products from the whole market place; or

(2) representatives selling on behalf of a single company (or group).

01/12/2004
Future version of SIFA 9.7.2 after 09/09/2005

Independent advice

SIFA 9.7.3

If your firm holds itself out as an independent intermediary then it must offer advice across the whole market of packaged product providers. IFAs need not necessarily provide advice on all product types, but instead may specialise in certain areas (e.g. annuities and pensions). COB 5.1.16 R (1) states that an independent intermediary must at all times act in the best interests of its private customers when advising on packaged products. It must not enter into any commercial arrangement that may adversely affect its ability to provide independent advice (COB 5.1.16 R (2)).

01/12/2004
Future version of SIFA 9.7.3 after 09/09/2005

SIFA 9.7.4

An IFA can be the appointed representative of an IFA network or another IFA. In this case, the network, or principal, is responsible for the training and competence of the IFA and for ensuring compliance with the FSA rules.

01/12/2004
Future version of SIFA 9.7.4 after 09/09/2005

SIFA 9.7.5

Offering independent, whole-of-market advice does not mean that for each and every customer the firm must search the entire market of packaged products. IFA firms may maintain a panel of preferred packaged products selected from those generally available in the market, based on the criteria of quality of product and general suitability for customers. So long as the panel is made up of products from a sufficiently large number of providers, is selected against definite criteria which are applied equally, and is reviewed regularly (and whenever significant market changes require it) we consider the practice acceptable. We would always expect an IFA using such a panel to have written instructions describing the criteria to be applied in selection or review of products and to maintain a full written record of its initial selection and subsequent reviews.

01/12/2004
Future version of SIFA 9.7.5 after 09/09/2005

Exceptions

SIFA 9.7.6

The polarisation rules apply only to packaged products. They do not apply to mortgages or pure protection products for example. So, an IFA may be restricted to one or more companies for the purpose of advising on non-packaged products, and still act 'independently' in relation to packaged products.

01/12/2004
Future version of SIFA 9.7.6 after 09/09/2005

Reporting requirements

SIFA 9.7.7

Monitoring of business placement: your firm is required to inform us when it places 20% or more of its business with a particular provider together with its reasons for doing so. This is a question in the Annual questionnaire at SUP 16 Ann 7 .

01/12/2004
Future version of SIFA 9.7.7 after 09/09/2005

What are the relevant sections of the Handbook?

SIFA 9.7.8

The detailed rules and guidance relating to Polarisation can be found in COB 5.1.

01/12/2004
Future version of SIFA 9.7.8 after 09/09/2005

Upcoming developments

SIFA 9.7.9

In CP121 and CP166 we have outlined plans to abolish the polarisation regime. To continue to have 'independent' status firms that advise on packaged products from the whole of the market will have to offer customers the opportunity to pay by fee.

01/12/2004
Future version of SIFA 9.7.9 after 09/09/2005

SIFA 9.7.10

We do not propose to remove the polarisation rules until a further Consultation Paper (covering the so-called 'menu' and transitional rules) is published and the necessary changes have been made to the Handbook. If your firm then wishes to take advantage of the removal of the polarisation restriction, it may do so, providing that it is at the same time in a position to comply with the new obligations that go with it. Following a transitional period all firms will be required to comply with the new rules.

01/12/2004
Future version of SIFA 9.7.10 after 09/09/2005

SIFA 9.7.11

For more information on the upcoming changes to the polarisation regime please see CP166, 'Reforming Polarisation: Removing the Barriers to Choice'.

01/12/2004
Future version of SIFA 9.7.11 after 09/09/2005

SIFA 9.8

Know your customer

01/12/2004

SIFA 9.8.1

Before you give personal recommendations regarding investment business to private customers, you must take reasonable steps to ensure that you have enough personal and financial information about them. The information you gather should be relevant to the services that you agree to provide (COB 5.2.5 R).

01/12/2004
Future version of SIFA 9.8.1 after 09/09/2005

Why do you have to gather know your customer information?

SIFA 9.8.2

Principle 9 (Customers: relationships of trust) requires you to take reasonable care to ensure the suitability of your advice and discretionary decisions. You will not be able to comply with Principle 9 unless you have first obtained enough information about your private customers to enable you correctly to assess their individual requirements. This will help you to meet your responsibility to give suitable advice.

01/12/2004
Future version of SIFA 9.8.2 after 09/09/2005

SIFA 9.8.3

Another key reason for obtaining information about your customers is to prevent money laundering (see Chapter 14 of this Overview).

01/12/2004
Future version of SIFA 9.8.3 after 09/09/2005

How do you assess a private customer?

SIFA 9.8.4

You will need to obtain personal and financial information to be able to recommend a suitable product. The factors that you will need to assess include:

(1) the financial needs and objectives of a private customer;

(2) the affordability of any investment that you recommend to a private customer;

(3) their attitude to risk; and

(4) any foreseeable future events for your client.

There is guidance in the Table at COB 5.2.11 G.

01/12/2004
Future version of SIFA 9.8.4 after 09/09/2005

SIFA 9.8.5

We do not prescribe the method of completing a fact-find and of obtaining personal and financial information about a private customer. Instead, you may design and use a process that is suitable for the market in which you transact business (COB 5.2.11 G).

01/12/2004
Future version of SIFA 9.8.5 after 09/09/2005

SIFA 9.8.6

Where you advise a customer on a continuing basis, you should regularly review the information you keep about him ( COB 5.2.6 G).

01/12/2004
Future version of SIFA 9.8.6 after 09/09/2005

SIFA 9.8.7

If a private customer declines to provide information, you should advise him that this may adversely affect the quality of the services you can provide (COB 5.2.7 G).

01/12/2004
Future version of SIFA 9.8.7 after 09/09/2005

Which part of the Handbook is relevant?

SIFA 9.8.8

The following parts of the Handbook are relevant:

(1) Know your customer requirements: COB Section 5.2

(2) Guidance on how to collect information: Table 5.2.11G of COB.

01/12/2004
Future version of SIFA 9.8.8 after 09/09/2005

Other considerations

SIFA 9.8.9

If you arrange an execution-only transaction you will not normally need to obtain personal or financial information. However, you will still need to do money-laundering checks (COB 5.2.2 G).

01/12/2004
Future version of SIFA 9.8.9 after 09/09/2005

Record keeping requirements

SIFA 9.8.10

You must keep a record of a private customer's personal and financial circumstances. The table below shows details of how long you must keep the records to meet our requirements. Each period of retention starts from the date when the information was obtained (COB 5.2.9 R).

01/12/2004
Future version of SIFA 9.8.10 after 09/09/2005

SIFA 9.8.11

Period of retention:

When a private customer's details relate to:

Indefinitely

Pension transfer, pension opt-out or FSAVC.

At least six years

Life policy or pension contract, or stakeholder pension scheme.

At least three years

In any other case.

01/12/2004
Future version of SIFA 9.8.11 after 09/09/2005

SIFA 9.8.12

If you arrange a pension transfer or opt-out from an occupational pension scheme for a private customer on an execution-only basis, you will need to make and retain a clear record to confirm that no advice was supplied to the customer (COB 5.2.10 R).

01/12/2004
Future version of SIFA 9.8.12 after 09/09/2005

SIFA 9.8.13

The following sections are also relevant:

•'Suitability' - Chapter 9.9 of this Overview;

•'Assessing your customer's understanding of risk' - Chapter 9.10 of this Overview;

•'Money laundering' - Chapter 14 of this Overview; and

•PRIN 2.1 in the Handbook.

01/12/2004

SIFA 9.9

Suitability

01/12/2004

SIFA 9.9.1

The purpose of the Suitability section (COB 5.3) is that advisers take reasonable steps to ensure that any investment they recommend is suitable for the customer's requirements. The adviser must base his recommendation on information disclosed by the customer and on other relevant facts about the customer of which the adviser is, or reasonably should be, aware. It applies to all investments, but only in relation to advice given to private customers - not intermediate customers or market counterparties (see COB 5.3.5 R). You should refer to COB 5.3.1 R to check where section 5.3 applies.

01/12/2004
Future version of SIFA 9.9.1 after 09/09/2005

SIFA 9.9.2

An adviser may not recommend a packaged product if they are aware of another more suitable product that is generally available (see COB 5.3.9 R(1)). Nor may an adviser recommend the packaged product of a connected product provider unless that product is better than every other available packaged product (the 'Better than Best' rule see (COB 5.3.9 R(2)). To comply with these rules, an adviser is expected to have adequate knowledge of the products available from the market as a whole.

01/12/2004
Future version of SIFA 9.9.2 after 09/09/2005

SIFA 9.9.3

COB 5.3.29 G contains guidance for firms in assessing the suitability of personal pensions and FSAVCs (compared to stakeholder pensions and AVCs), broker funds, pension transfers and opt-outs, hybrid products, industrial assurance policies, income withdrawals, ISA or PEP transfers and contracting out of SERPS.

01/12/2004
Future version of SIFA 9.9.3 after 09/09/2005

Suitability letters

SIFA 9.9.4

When a private customer decides to act on the investment advice given, your firm is required to provide the customer with a written explanation of why it has concluded that the transaction is suitable. This is commonly referred to as a 'suitability letter', but need not necessarily take the form of a letter. However, whatever form it takes, it should explain simply and clearly why the recommendation is viewed as suitable having regard to the customer's personal and financial circumstances, needs and priorities, and attitude to risk. It is also essential that a member of staff who is authorised to advise on the type of product being recommended signs the 'suitability letter' and accepts responsibility for the advice. Detailed guidance on the contents of suitability letters can be found in COB 5.3.30 G.

01/12/2004
Future version of SIFA 9.9.4 after 09/09/2005

SIFA 9.9.5

The requirement for providing a suitability letter is explained in COB 5.3.14 R.

01/12/2004
Future version of SIFA 9.9.5 after 09/09/2005

SIFA 9.9.6

When you must provide a suitability letter is explained in COB 5.3.18 R.

01/12/2004
Future version of SIFA 9.9.6 after 09/09/2005

Record keeping

SIFA 9.9.7

Record keeping requirements for suitability letters are listed in COB 5.3.19A R.

01/12/2004
Future version of SIFA 9.9.7 after 09/09/2005

SIFA 9.9.8

The following section of this Overview is also relevant:

•'Know your customer' - Chapter 9.8.

01/12/2004
Future version of SIFA 9.9.8 after 09/09/2005

SIFA 9.10

Assessing your customer's understanding of risk

01/12/2004

SIFA 9.10.1

When you conduct investment business for private customers, you must ensure that you take reasonable steps to ensure that they understand the nature of the risks involved with the transaction (COB 5.4.3 R).

01/12/2004
Future version of SIFA 9.10.1 after 09/09/2005

Why do you have to assess your customer's understanding of risk?

SIFA 9.10.2

You will want to sell products or services that are suitable for your client's risk profile. This is so that they are happy with the service that you provide them but it is also a vital part of the 'know your customer process'.

01/12/2004
Future version of SIFA 9.10.2 after 09/09/2005

SIFA 9.10.3

Assessing your customers' understanding of risk will help ensure that you meet the requirements set out in the following Principles:

01/12/2004
Future version of SIFA 9.10.3 after 09/09/2005

SIFA 9.10.4

Principle 7 (Communications with clients) requires you to pay due regard to the information needs of your clients and to communicate information to them in a clear, fair and not misleading way.

01/12/2004
Future version of SIFA 9.10.4 after 09/09/2005

SIFA 9.10.5

Principle 9 (Customers: relationships of trust) requires you to take reasonable care to establish the suitability of advice that you give.

01/12/2004
Future version of SIFA 9.10.5 after 09/09/2005

SIFA 9.10.6

You must establish what each client considers an acceptable level of risk to be for him or her and advise him or her on that basis. When you have a clear understanding of your client's attitude to risk (i.e. whether they are risk averse or willing to take some degree of risk) you will be in a better position to recommend suitable products.

01/12/2004
Future version of SIFA 9.10.6 after 09/09/2005

Where is the relevant section in the Handbook?

SIFA 9.10.7

The requirements for assessing your customer's understanding of risk and providing risk warnings are set out in Section 5.4 of COB.

01/12/2004
Future version of SIFA 9.10.7 after 09/09/2005

SIFA 9.10.8

COB 5.4.3 R refers to the general requirement for an adviser to assess a private customer's understanding of risk for any personal recommendation. Special risk warnings apply in addition for:

(1) warrants and derivatives (COB 5.4.6 E);

(2) retail securitised derivatives (COB 5.4.6A E);

(3) non-readily realisable investments (COB 5.4.7 E);

(4) penny shares (COB 5.4.8 E);

(5) securities subject to stabilisation (COB 5.4.9 E); and

(6) stock lending activity (COB 5.4.10 E).

01/12/2004
Future version of SIFA 9.10.8 after 09/09/2005

Other considerations

SIFA 9.10.9

Your client may have different attitudes to risk for different products. You should not assume that they would have the same attitude to risk for all of their financial planning needs.

01/12/2004
Future version of SIFA 9.10.9 after 09/09/2005

SIFA 9.10.10

The following sections are also relevant:

•'Clear, fair and not misleading' - Chapter 9.2 of this Overview;

•'Know your customer' - Chapter 9.8 of this Overview;

•'Suitability' - Chapter 9.9 of this Overview; and

•PRIN 2.1 in the Handbook.

01/12/2004

SIFA 9.11

Information about the firm

01/12/2004

SIFA 9.11.1

You need to disclose certain information about your firm when you conduct investment business with or for private customers so as to ensure that they have adequate information.

01/12/2004
Future version of SIFA 9.11.1 after 09/09/2005

SIFA 9.11.2

The disclosure of information is relevant to any written communications that:

(1) your firm publishes; or

(2) your employees, agents, representatives, financial advisers and introducers use such as stationery, business cards, or other business documentation.

01/12/2004
Future version of SIFA 9.11.2 after 09/09/2005

Why is it important for you to disclose the information?

SIFA 9.11.3

Disclosing information about your firm ensures that your clients know who they are conducting business with, both the identity of the firm and the employee or representative of the firm. This is in line with Principle 7 (Communications with clients), which requires you to pay due regard to the information needs of your clients and communicate information to them in a way that is clear, fair and not misleading.

01/12/2004
Future version of SIFA 9.11.3 after 09/09/2005

What information do you need to disclose?

SIFA 9.11.4

When you conduct investment business with private customers you should take reasonable steps to ensure that they have been given adequate information about:

(1) the identity of your firm and business address and telephone number;

(2) employees or other agents of the firm; and

(3) your firm's statutory status;

unless you have given the information to the client on a previous occasion and it is still up to date ( COB 5.5.3 R).

01/12/2004
Future version of SIFA 9.11.4 after 09/09/2005

Which sections of the Handbook apply?

SIFA 9.11.5

(1) The rules and guidance on information about the firm: section 5.5 of COB.

(2) A list of the information that you should include in your written communications: Table COB 5.5.5 E.

(3) Statutory status disclosure: GEN 4.3.1 R & GEN 4 Annex 1. The rule has recently changed: see section 9.11.6 below.

01/12/2004
Future version of SIFA 9.11.5 after 09/09/2005

SIFA 9.11.6

Statutory status disclosure - changes to the rule

• When sending a letter or an email to a private customer you are required to disclose that your firm is "Authorised and regulated by the Financial Services Authority".

• If your firm is an appointed representative of a network then you are required to state "[Name of appointed representative] is an appointed representative of [firm] which is authorised and regulated by the Financial Services Authority".

• Please note that the abbreviation FSA should no longer be used in this context.

You are likely to find it convenient to include the required disclosure on your letterhead.

The above rules came into force on 1 March 2003. Firms that are complying with the previous requirement have until 30 September 2004 to make the necessary changes.

01/12/2004
Future version of SIFA 9.11.6 after 09/09/2005

Other considerations

SIFA 9.11.7

If you give advice to a private customer about packaged products you are reminded of the additional disclosure requirements in COB 5.1 (Polarisation and status disclosure).

01/12/2004
Future version of SIFA 9.11.7 after 09/09/2005

SIFA 9.11.8

There are further considerations to take into account if you:

(1) conduct overseas business for UK private customers ( COB 5.5.7 R); or

(2) conduct business from an overseas place of business with overseas customers ( COB 5.5.8 G).

01/12/2004

SIFA 9.11.9

The following sections are also relevant:

•'Clear, fair and not misleading' - Chapter 9.2 of this Overview;

•'Polarisation' - Chapter 9.7 of this Overview; and

•PRIN 2.1 in the Handbook.

01/12/2004

SIFA 9.12

Excessive charges

01/12/2004

SIFA 9.12.1

A firm must ensure that the charges it makes to a private customer, in the course of or in connection with designated investment business are not excessive. This is in line with Principle 6 (Customer's interests) which requires you to pay due regard to the interests of your customers and treat them fairly.

01/12/2004
Future version of SIFA 9.12.1 after 09/09/2005

How do you ensure that you do not charge customers excessively?

SIFA 9.12.2

COB 5.6.4 G says that you should consider the following to determine whether a charge is excessive:

(1) how your charges for products or services compare to similar ones in the market;

(2) to what extent the charges made are an abuse of the trust that your customer has placed in your firm; and

(3) the nature and extent of the disclosure of the charges to your private customers.

01/12/2004
Future version of SIFA 9.12.2 after 09/09/2005

Where are the relevant sections in the Handbook?

SIFA 9.12.3

The following sections of the Handbook are relevant:

(1) The general requirements: Section 5.6 of COB.

(2) There is a special provision for charges in respect of designated investments that are not readily realisable (COB 5.6.5 R).

(3) Section 5.7 of COB deals with the disclosure of charges.

01/12/2004
Future version of SIFA 9.12.3 after 09/09/2005

SIFA 9.12.4

The following sections are also relevant:

•'Inducements' - Chapter 9.4 of this Overview;

•'Disclosing charges, remuneration and commission' - Chapter 9.13 of this Overview; and

•PRIN 2.1 in the Handbook

01/12/2004

SIFA 9.13

Disclosing charges, remuneration & commission

01/12/2004

SIFA 9.13.1

Before you conduct business with or for private customers, you must communicate in writing ( COB 5.7.3 R(1)):

(1) the basis or amount of charges you will charge them for conducting the business; and

(2) the nature or amount of any other income you or your associate will receive.

'Associate' has a wide meaning and you should consider the definition in the Handbook glossary.

01/12/2004
Future version of SIFA 9.13.1 after 09/09/2005

Why do you have to disclose this information?

SIFA 9.13.2

The purpose of this requirement is to ensure that you make each private customer aware of the direct or indirect costs he/she will have to pay for financial services. This is so that they are in a better position to make informed choices (COB 5.7.2 G).

01/12/2004
Future version of SIFA 9.13.2 after 09/09/2005

SIFA 9.13.3

This is in line with Principle 7 (Communications with clients) which requires you to pay due regard to the information needs of your clients and communicate information to them in a clear, fair and not misleading way.

01/12/2004
Future version of SIFA 9.13.3 after 09/09/2005

How do you disclose this information?

SIFA 9.13.4

You can disclose the required information in a terms of business, in a client agreement, or in a separate written statement. When you advise private customers on packaged products, product-related charges and expenses are normally disclosed in a key features document (COB 5.7.4 G).

01/12/2004
Future version of SIFA 9.13.4 after 09/09/2005

Where are the relevant sections in the Handbook?

SIFA 9.13.5

The following sections of the Handbook are relevant:

(1) The requirements: COB 5.7

(2) Key features requirements are set out in COB 6.2 and COB 6.4 including disclosure of product charges.

(3) Disclosure of remuneration and commission for packaged products is covered by COB 5.7.5 R.

01/12/2004
Future version of SIFA 9.13.5 after 09/09/2005

Other considerations

SIFA 9.13.6

If you conduct business on an execution-only basis not for a packaged product, there are certain exceptions to the rules. Full details can be found at COB 5.7.3 R (2). Any income receivable by an associate also needs to be disclosed.

01/12/2004
Future version of SIFA 9.13.6 after 09/09/2005

SIFA 9.13.7

The following sections are also relevant:

'Clear, fair and not misleading' - Chapter 9.2 of this Overview;

'Inducements' - Chapter 9.4 of this Overview;

'Terms of business' - Chapter 9.6 of this Overview;

'Excessive charges' - Chapter 9.12 of this Overview;

'Key features' - Chapter 9.15 of this Overview; and

PRIN 2.1 in the Handbook.

01/12/2004
Future version of SIFA 9.13.7 after 09/09/2005

SIFA 9.14

Projections

01/12/2004

SIFA 9.14.1

COB 6.6 applies to a firm in respect of projections for packaged products. A firm must not provide a projection for a packaged product unless the projection is calculated and presented in accordance with the rules in COB 6.6 . A firm should not provide its own unauthorised projections.

01/12/2004
Future version of SIFA 9.14.1 after 09/09/2005

Why do you need to follow these rules?

SIFA 9.14.2

To avoid committing an offence under section 397 of the Act (Misleading statements and practices) you should ensure that all forecasts of future values of investments are not misleading, false or deceptive. In respect of packaged products COB 6.6 amplifies Principle 7 which requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way that is clear, fair and not misleading. A projection needs to be carried out on a basis of consistent rates of investment return so that firms do not seek to compete on the basis of wholly speculative forecasts as to the potential value of future benefits from an investment.

01/12/2004
Future version of SIFA 9.14.2 after 09/09/2005

How do you disclose this information?

SIFA 9.14.3

An IFA firm must ensure that a projection given to a customer is relevant to that customer's circumstances (COB 6.6.7).

01/12/2004
Future version of SIFA 9.14.3 after 09/09/2005

SIFA 9.14.4

An IFA can hand over the projections prepared by a product provider. If you wish to make your own calculations then you must comply with the rules in COB 6.6 .

01/12/2004
Future version of SIFA 9.14.4 after 09/09/2005

SIFA 9.14.5

COB 6.5 sets out circumstances in connection with potential sales when projections must be given.

01/12/2004
Future version of SIFA 9.14.5 after 09/09/2005

Other considerations

SIFA 9.14.6

There is an exception to the rules in COB 6.6 for pension benefit projections that meet the requirements in COB 6.6.5 .

01/12/2004
Future version of SIFA 9.14.6 after 09/09/2005

SIFA 9.14.7

The FSA keeps the projection rates on investment products under review. In June 2003 the FSA announced that it will take a fundamental look at its role in setting projection rates and the standards it expects the industry to adopt in illustrating potential returns to its customers.

01/12/2004
Future version of SIFA 9.14.7 after 09/09/2005

SIFA 9.15

Key Features

01/12/2004

SIFA 9.15.1

Consumers need key features so that they can understand the product and compare it with different packaged products. The COB 6 requirements expand on Principle 7 that requires a firm to pay due regard to the information needs of its customers.

01/12/2004
Future version of SIFA 9.15.1 after 09/09/2005

Key features document

SIFA 9.15.2

At the core of the regime is the Key Features Document (KFD) that your firm must give to consumers before they complete an application for any packaged product or cash deposit ISA. Product providers must produce key features for every packaged product that they provide. Under the rules set out in COB 6.5, all KFDs should be split into a number of sections and the information disclosed will vary depending on the type of product. COB 6.4 explains the product disclosure required in some special situations.

01/12/2004
Future version of SIFA 9.15.2 after 09/09/2005

SIFA 9.15.3

KFDs must contain an illustration of the effect of charges over time on what the consumer might get back (COB 6.5.24 and COB 6.5.31 ). In many cases, mainly for life products, an additional illustration is required to show the investor what he might get back assuming set rates of return (COB 6.5.15 ). Your firm may provide these illustrations in a document separate from the main text of the KFD but presented with it.

01/12/2004
Future version of SIFA 9.15.3 after 09/09/2005

SIFA 9.15.4

In the case where a consumer has responded to a direct offer financial promotion, the information package that they receive should contain example-based key features documents. There is no need to provide a further set of key features for this transaction (COB 6.2.8 ).

01/12/2004
Future version of SIFA 9.15.4 after 09/09/2005

SIFA 9.15.5

A firm may delay the provision of a KFD when a customer is buying a life policy (which includes a pension policy) without making a written application. However, that firm must give an adequate oral explanation of the main features of the product, and must send the customer a KFD within five business days of the sale (COB 6.2.9 (2)).

01/12/2004
Future version of SIFA 9.15.5 after 09/09/2005

SIFA 9.15.6

For the rules relating to the provision of KFDs when there are variations to existing life policies please refer to COB 6.2.16 to COB 6.2.19 .

01/12/2004
Future version of SIFA 9.15.6 after 09/09/2005

SIFA 9.15.7

COB 6.2.12 deals with the provision of revised key features where the terms of a proposed life policy are subsequently altered before the private customer completes the application form.

01/12/2004
Future version of SIFA 9.15.7 after 09/09/2005

Financial promotion rules

SIFA 9.15.8

You are reminded that key features are a form of financial promotion and are subject to the rules contained in COB 3 (see also section 9.3 of this Overview on financial promotions).

01/12/2004
Future version of SIFA 9.15.8 after 09/09/2005

Record keeping requirements

SIFA 9.15.9

Your firm must keep records of its key features as governed by the rules applying to record keeping of non-real time financial promotions (COB 3.7). Also see section 9.3 in this Overview.

01/12/2004
Future version of SIFA 9.15.9 after 09/09/2005

Upcoming developments

SIFA 9.15.10

We have set out in CP170 new proposals for product disclosure at the point of sale, which will see the Key Features Document and 'illustrations' replaced by a Key Facts Document and 'examples'. The main focus of our work has been to develop a Key Facts Document consumers will recognise, read, and understand.

01/12/2004
Future version of SIFA 9.15.10 after 09/09/2005

SIFA 9.15.11

The proposals make little change to the disclosure regime in terms of the products to which it relates. The requirement for full, clear, fair and not misleading product disclosure will remain the bedrock of the regime. The main costs of the change will be borne by life and non-life product providers who are responsible for producing the key facts information.

01/12/2004
Future version of SIFA 9.15.11 after 09/09/2005

SIFA 9.15.12

A policy statement, RM19, giving feedback to the responses we received to CP170 will be published in 2004. We expect to implement the revised rules in 2005. For detailed information on the new proposals see CP170, 'Informing Consumers: Product Disclosure at the Point of Sale' (February 2003).

01/12/2004
Future version of SIFA 9.15.12 after 09/09/2005

SIFA 9.15.13

The following sections of this Overview are also relevant:

•'Financial promotions' - Chapter 9.3;

•'Suitability' - Chapter 9.9; and

•'Assessing your customer's understanding of risk' - Chapter 9.10.

01/12/2004
Future version of SIFA 9.15.13 after 09/09/2005

SIFA 9.16

Custody and client money

01/12/2004

SIFA 9.16.1

You will find the rules at COB 9.1 for custody and COB 9.3 for client money. Many small firms are not allowed to hold client money and custody assets, and hence this Overview does not include a discussion of these rules.

01/12/2004
Future version of SIFA 9.16.1 after 09/09/2005

How can you avoid inadvertently holding client money and custody assets?

SIFA 9.16.2

COB 9.1.9 (3)COB 9.1.9(3) states that when a firm temporarily holds a designated investment belonging to a client (other than in bearer form) it is exempt from the custody rules if it takes certain steps as set out in the Rule. You should not rely on this rule as a matter of course, and should only retain a designated investment for as long as is strictly necessary.

01/12/2004
Future version of SIFA 9.16.2 after 09/09/2005

SIFA 9.16.3

There is no equivalent exemption for client money. An example of where a firm may need to act to avoid holding client money is where a customer sends a cheque intended for the purchase of a product made payable to the firm rather than the product provider. In this case you should not cash the cheque if you want to avoid holding client money instead you should return the cheque to the client with a request for an amended cheque.

01/12/2004
Future version of SIFA 9.16.3 after 09/09/2005

SIFA 9.16.4

A further potential client money issue is that of rebated commission. If a firm makes it clear in its agreement with the client that any commission remains the firm's until actually paid into the account of the client, then the client money rules should not apply. However, as soon as a firm agrees that a part of its commission will belong to the client, then on receipt it will be part client money and part firm money and the client money rules may need to be applied.

01/12/2004
Future version of SIFA 9.16.4 after 09/09/2005

Mandates

SIFA 9.16.5

You will find the rules on mandates at COB 9.2. The rules apply to those firms that control rather than hold clients' assets, or are able to create liabilities in the name of the client (COB 9.2.4).

01/12/2004
Future version of SIFA 9.16.5 after 09/09/2005

SIFA 9.16.6

The rules seek to ensure that firms establish and maintain records and internal controls to prevent misuse of the authority granted by the client. Mandates include a firm's authority over a client's bank account to make direct debits in favour of the firm, and a firm holding a client's credit card details.

01/12/2004
Future version of SIFA 9.16.6 after 09/09/2005

New developments

SIFA 9.16.7

We are introducing a new sourcebook - the Client Assets sourcebook (CASS). This will bring together in one sourcebook the existing client assets rules from the Conduct of Business sourcebook (COB chapter 9), and the proposed client money rules from the Insurance and Mortgage Conduct of Business sourcebooks (ICOB and MCOB).

01/12/2004

SIFA 9.16.8

Details of the proposals are in CP199: Miscellaneous amendments (September 2003). We will publish comprehensive Destination and Derivation tables, and there will be automatic links on the electronic version of the Handbook from COB chapter 9 to the relevant sections of CASS. (The COB rules will not change, they will just be re-numbered).

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Conduct of business

SIFA 10

Training and Competence

SIFA 10.1

Training and Competence

01/12/2004

SIFA 10.1.1

Training and competence is covered in the Training and Competence sourcebook (TC). The sourcebook defines the standards firms should achieve but does not prescribe in detail what a firm's training and competence (T&C) arrangements should be. It expects a firm to use this flexibility to design a T&C scheme that meets its needs effectively and efficiently. This means that firms should take a risk-based approach to T&C so that they spend time and resource on the areas that need it rather than applying a standard approach in every circumstance.

01/12/2004
Future version of SIFA 10.1.1 after 09/09/2005

SIFA 10.1.2

The TC sourcebook contains:

(1) Transitional Provisions (TP);
(2) Commitments (TC Chapter 1);
(3) Rules and Guidance (TC Chapter 2); and
(4) Interim approved examinations (Annexes).

01/12/2004
Future version of SIFA 10.1.2 after 09/09/2005

SIFA 10.1.3

Chapter 2 contains sections on recruitment, training, attaining competence, approved exams, maintaining competence, supervising and record keeping. The TC2 rules apply to employees of a firm engaging in or overseeing the activities in TC 2.1.4 R. The activity of 'advising without dealing' is likely to be the one most relevant to IFA firms, though you should check whether other activities may also be relevant.

01/12/2004
Future version of SIFA 10.1.3 after 09/09/2005

Commitments

SIFA 10.1.4

The Commitments amplify Principle 3 in relation to training and competence. They apply to everyone within a firm associated with a regulated activity including senior management who may not fall within the scope of the TC2 rules.

01/12/2004
Future version of SIFA 10.1.4 after 09/09/2005

SIFA 10.1.5

The firm's commitments to training and competence should be that:

(1) its employees are competent;

(2) its employees remain competent for the work they do;

(3) its employees are appropriately supervised;

(4) its employees' competence is regularly reviewed; and

(5) the level of competence is appropriate to the nature of the business.

Employee is a generic term that covers everyone who works in a firm.

01/12/2004

Rules and guidance

SIFA 10.1.6

Being competent means being able to show the relevant individual has the necessary knowledge, skills and experience to do the job and doing it to the required standard effectively and consistently.

01/12/2004

SIFA 10.1.7

Competence is made up of:

(1) application of knowledge and skills; and

(2) appropriate approved examination passes.

Knowledge and skills must be assessed, measured and improved where necessary.

01/12/2004

SIFA 10.1.8

The activity in the Training and Competence sourcebook most likely to be carried out by an IFA is TC 2.1.4 R1(f) which covers employees engaging in advising on investments, which are packaged products (other than broker funds). The approved exams for this activity are in Annex 3R, Table 1, which can be accessed through the following link:www.fsa.gov.uk/vhb/html/TC/TC2Annex3.html. It is up to regulated firms to decide which is the most appropriate approved examination.

01/12/2004

SIFA 10.1.9

We are consulting on moving from approved examinations to appropriate examinations, which will be maintained by the Skills Council for Financial Services. If the proposals are accepted, we intend to implement them in 2004. The proposals are in CP194, available at 'http://www.fsa.gov.uk/pubs/cp/cp194.pdf.'

01/12/2004

SIFA 10.1.10

In applying the T&C Rules you should consider:

(1) Who do the rules apply to? (TC 2.1)

(2) What is the existing level of knowledge and skills of the individual? (TC 2.2, TC 2.3)

(3) What knowledge and skills are required to carry out the role to an adequate standard? (TC 2.4)

(4) What action such as training is required to fill the gaps? (TC 2.3)

(5) How is it known whether the training has worked? (TC 2.3)

(6) How to measure the level of knowledge and skills already achieved and compare this with the level required? (TC 2.4)

(7) Once achieved, how is competence to be maintained? (TC 2.6)

(8) What arrangements need to be in place to ensure that employees are appropriately supervised? (TC 2.7)

01/12/2004

Training plan

SIFA 10.1.11

Firms should have a training plan in place for each employee carrying out an activity listed in TC 2.1.4 R. This plan should cover the testing and measurement of skills and knowledge.

01/12/2004

Recruitment

SIFA 10.1.12

When a new employee joins the firm you should think about the knowledge and skills of that individual and how they match up to the role they will perform. Your firm must also take reasonable steps to gather enough information about their previous activities, training and qualifications (TC 2.2).

01/12/2004

Maintaining competence

SIFA 10.1.13

Your firm needs arrangements in place to ensure an employee remains competent. These might include tests, role-plays, performance indicators or file checks. It is up to the firm to determine the most suitable methods (TC 2.6).

01/12/2004

Supervision

SIFA 10.1.14

Employees must be appropriately supervised both before and after they have attained competence. The level of supervision will vary depending on the competence of the employee and is likely to be less intense once competence has been attained (TC 2.7). In the case of an employee advising private customers on packaged products, the individual supervising that employee must have passed an appropriate approved examination and have the required knowledge and skills before acting as supervisor (TC 2.7.5 R). A sole practitioner is permitted to supervise himself.

01/12/2004

Record keeping

SIFA 10.1.15

A firm must keep records to demonstrate compliance with the rules (TC 2.8.1 R). The records kept should enable the firm to demonstrate the information in the table below:

01/12/2004

SIFA 10.1.16

Information about recruitment, training and competence that must be retained:

•

How recruitment procedures have analysed the level of skills and knowledge of recruits

•

How training needs have been identified, evaluated and followed up

•

How and when decisions that competence has been attained are made

•

How decisions that competence has been maintained are made

•

How the supervision of employees is carried out, including criteria used to decide the level of supervision and that the supervisor is competent

•

Whether exams have been passed within the time scales allowed

01/12/2004

SIFA 10.1.17

TC Schedule 1 gives an overall view of the record keeping requirements. Your firm must retain records for at least three years after the end of an individual's employment. The records of pension transfer specialists must be kept indefinitely.

01/12/2004

Transitional provisions

SIFA 10.1.18

These may be found at TC Transitional Provisions (TP). TP1 covers staff assessed as competent before N2 under the rules of previous regulators. TP1 enables a firm to assess such an employee as competent after N2 to carry on the same or substantially the same activities without making an assessment of competence or requiring the employee to pass an examination. When such a person is recruited, your firm should gather evidence that TP1 applies. The new employer also needs to assess the person as competent. This will be on the same basis as applied at N2, provided he carries on the same, or substantially the same activity and provided there has not been a significant break in employment since last assessed as competent. It is up to the firm to decide what constitutes a significant break.

01/12/2004

SIFA 10.1.19

TP4 allowed advisers at N2 the remainder of the three-year time limit that they had to pass approved examinations under the PIA Rules. The three-year time limit is not transferable. If the employee moves to a new firm then he has until 30 November 2003 to pass the examinations (TC Annex 3R Table 1).

01/12/2004

T&C Toolkits

SIFA 10.1.20

Several industry bodies have worked to develop best practice appropriate to their sector of the industry. The main IFA trade associations have been involved in the Financial Services National Training Organisation's Toolkit for IFAs.

01/12/2004

Further help

SIFA 10.1.21

Our Industry Training department runs T&C workshops. Since 5 September 2003 a T&C compact disc has also been available (to order download and complete the flyer at http://www.fsa.gov.uk/industry-training/tc_distance_flyer.pdf, or phone the industry training booking line on 020 7066 0752). Our T&C Helpline (020 7066 0770/0766) also provides help for firms.

01/12/2004

Upcoming developments

SIFA 10.1.22

CP 194, Amendments to the Training and Competence sourcebook proposes:

(1) revising the requirement to pass an FSA 'approved' examination to one that is appropriate;

(2) removing the list of 'approved' exams from our Handbook; and

(3) that firms will select the appropriate examination from the examinations list to be maintained by the Skills Council for Financial Services.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Training and Competence

SIFA 11

Complaints

SIFA 11.1

How to handle a complaint

01/12/2004

SIFA 11.1.1

There are many reasons why clients complain to firms. However, not all problems are grounds for complaint (e.g. poor investment performance alone is not normally grounds for a complaint). Typically, complaints arise where:

(1) a firm makes unexpected or excessive charges;

(2) a firm does not draw attention to a particularly strict condition in a contract;

(3) a firm does not give a client adequate notice about changes to a contract;

(4) a client loses money because of a firm's slow administration; or

(5) a firm does not warn a client adequately about the risks of a product.

01/12/2004
Future version of SIFA 11.1.1 after 09/09/2005

SIFA 11.1.2

If you receive a complaint from or on behalf of an eligible complainant (usually a private customer) about your firm's provision of, or failure to provide a financial service, you will need to follow certain procedures.

01/12/2004
Future version of SIFA 11.1.2 after 09/09/2005

SIFA 11.1.3

An example of an eligible complainant is a private individual. Private individuals can refer a complaint to the Financial Ombudsman Service (FOS) if they are unhappy with a firm's final response.

01/12/2004
Future version of SIFA 11.1.3 after 09/09/2005

SIFA 11.1.4

Your procedures must cover:

(1) receiving complaints;

(2) responding to complaints;

(3) the appropriate investigation of complaints; and

(4) notifying complainants of their right to go to the FOS where relevant.

01/12/2004
Future version of SIFA 11.1.4 after 09/09/2005

SIFA 11.1.5

You must have in place and operate appropriate and effective internal complaint handling procedures for handling any expression of dissatisfaction, whether oral or written, justified or not. The procedures must be written down.

01/12/2004
Future version of SIFA 11.1.5 after 09/09/2005

When and where should you publicise your procedures?

SIFA 11.1.6

The requirements are as follows:

(1) You must display a notice stating that the FOS covers your firm. The notice should be displayed in all of your branches or offices to which your customers have access.

(2) At or immediately after the point of sale, your firm must refer your clients in writing to the availability of your internal complaint handling procedures - for example, in your terms of business.

(3) If you receive a complaint (unless it is resolved by close of business the next day) or receive a request for a copy of the procedures, you must supply a copy of the complaint handling procedures to the complainant.

(4) All of your employees should be aware of the procedures.

01/12/2004
Future version of SIFA 11.1.6 after 09/09/2005

How quickly do you need to deal with a complaint?

SIFA 11.1.7

You will want to resolve complaints quickly and efficiently, though the length of time that it will take you to investigate a complaint may vary. There are fixed periods within which you have to inform your client of your progress:

01/12/2004
Future version of SIFA 11.1.7 after 09/09/2005

SIFA 11.1.8

The steps are explained in more detail below:

Step 1

Within five business days

- send a copy of your internal complaints procedures; and

- inform them who will be handling the complaint.

Step 2

Within four weeks

Send a final response with a copy of leaflet regarding FOS covering:

- A summary of the complaint

- Details of any offer made

- Right for your client to go to FOS

- A summary of your investigation

- Time limit on any offer made

- Six-month time limit for referrals to FOS

(It should be a separate document and written in plain English)

Or send a holding response

Explaining why you are not yet in a position to resolve the complaint and indicating when you will make further contact with the client.

Step 3

Within eight weeks

Send a final response

As per the details in step 2 above

Or a response explaining:

- Why you are not able to respond

- When you expect to provide a final response

- Explain that client is entitled to refer the complaint to FOS if unhappy with the delay

- Reasons for the delay

- Give copy of leaflet regarding FOS

- Six-month time limit for referrals to FOS

01/12/2004
Future version of SIFA 11.1.8 after 09/09/2005

Exception to the rules: quick resolution of complaints

SIFA 11.1.9

If you manage to deal with a complaint by the end of the next business day after receiving it, there is no need to supply your client with a copy of the complaints procedures.

01/12/2004
Future version of SIFA 11.1.9 after 09/09/2005

SIFA 11.1.10

Complaints that are resolved by the next business day do not fall under the requirements for:

(1) time limits;

(2) record keeping; or

(3) reporting.

01/12/2004
Future version of SIFA 11.1.10 after 09/09/2005

Where are the relevant Handbook sections?

SIFA 11.1.11

Complaints handling procedures are explained fully in chapter 1 of the Dispute Resolution sourcebook (DISP). The sections cover:

(1) the general and additional requirements: DISP 1.2;

(2) additional requirements for internal complaint handling procedures: DISP 1.3;

(3) the time limits for dealing with a complaint: DISP 1.4; and

(4) who should deal with a complaint: DISP 1.2.16 R.

01/12/2004
Future version of SIFA 11.1.11 after 09/09/2005

Record keeping requirements

SIFA 11.1.12

You must keep records for a minimum of three years from when you receive a complaint. This is so that you meet our requirements and are able to co-operate with FOS if they ask for information about a complaint that is later referred to them.

01/12/2004
Future version of SIFA 11.1.12 after 09/09/2005

SIFA 11.1.13

Information about a complaint that you should keep

The name of the complainant.

The substance of the complaint.

Copies of correspondence between your firm and the complaint.

Details of any redress offered by your firm.

01/12/2004
Future version of SIFA 11.1.13 after 09/09/2005

SIFA 11.1.14

The following section of this Overview is also relevant:

•'Complaints reporting to the FSA' - Chapter 11.2.

01/12/2004
Future version of SIFA 11.1.14 after 09/09/2005

SIFA 11.2

Complaints reporting to the FSA

01/12/2004

SIFA 11.2.1

You will need to send in a complaints report (unless your firm only conducts business with clients that are not eligible complainants, which, as a small personal investment firm would be very unlikely).

01/12/2004
Future version of SIFA 11.2.1 after 09/09/2005

Why do you need to submit a complaints report?

SIFA 11.2.2

We collect complaints data to assist us in monitoring firms and their regulatory compliance.

01/12/2004
Future version of SIFA 11.2.2 after 09/09/2005

When are the reporting periods?

SIFA 11.2.3

You must send a report to us twice each year. The reporting periods are:

(1) 1 April to 30 September; and

(2) 1 October to 31 March.

01/12/2004
Future version of SIFA 11.2.3 after 09/09/2005

SIFA 11.2.4

Reports have to be sent to us within one month of the end of each reporting period, (e.g. a report for the 1 April to 30 September period has to be submitted by 31 October each year).

01/12/2004
Future version of SIFA 11.2.4 after 09/09/2005

How do you submit a report?

SIFA 11.2.5

There is a standard form to use when submitting your return.

(1) On-line submission: the on-line system goes 'live' on the first day after the end of each reporting period e.g. 1 April for reporting period 1 October to 31 March. You will need a password to use the facility. Please contact your usual supervisory contact, which will normally be the IFD Contact Centre, if you do not already have a password.

(2) Paper form: there is a paper form that is available for firms that do not have an Internet facility. You will find it on the CD-ROM by clicking on 'Handbook', 'Forms', 'Dispute Resolution: Complaints' and then 'Annex 1R: Complaints return'.

01/12/2004
Future version of SIFA 11.2.5 after 09/09/2005

Where are the relevant Handbook sections?

SIFA 11.2.6

The following sections of DISP are relevant:

(1) an explanation of what an eligible complainant is: DISP 2.4.3 R;

(2) the reporting periods: DISP 1.5.6 R;

(3) the Financial Ombudsman Service funding rules: DISP Chapter 5; and

(4) how to notify the FSA if you do not conduct business with eligible complainants: DISP 1.1.7 R- DISP 1.1.8 R.

01/12/2004
Future version of SIFA 11.2.6 after 09/09/2005

SIFA 11.2.7

The following sections of this Overview are also relevant:

•'How to handle a complaint' - Chapter 11.1; and

•'Reporting requirements' - Chapter 12.1.

01/12/2004
Future version of SIFA 11.2.7 after 09/09/2005

Export chapter as

Legal Instruments that change this Chapter Complaints

SIFA 12

Reporting and notifications

SIFA 12.1

Reporting requirements

01/12/2004

SIFA 12.1.1

We need timely and accurate information from firms so that we can carry out our duties under the Act. You are required to send some information as regular reports and some as notifications if and when a particular event occurs. Principle 11 (Relations with regulators) includes a requirement for your firm to disclose anything relating to it of which we would reasonably expect notice. You may be subject to enforcement action if you fail to submit the reports on time ( ENF 13.5).

01/12/2004
Future version of SIFA 12.1.1 after 09/09/2005

SIFA 12.1.2

We are able to build up a picture of firms' circumstances and behaviour by receiving regular reports and the information also helps us to identify where a firm or sector may be experiencing a particular problem.

01/12/2004
Future version of SIFA 12.1.2 after 09/09/2005

SIFA 12.1.3

This is in line with Principle 11 (Relations with regulators) that requires firms to deal with the FSA in an open and co-operative way, and also Principle 4 (financial prudence).

01/12/2004
Future version of SIFA 12.1.3 after 09/09/2005

Which reports are you required to submit?

SIFA 12.1.4

The table below highlights the reports that your firm must send to us each year.

01/12/2004
Future version of SIFA 12.1.4 after 09/09/2005

SIFA 12.1.5

Report

Frequency report is required

Relevant section in the Handbook

Method of Reporting

Annual questionnaire (Financial report)

Yearly - four months after the firm's accounting reference date.

Supervision (SUP) manual SUP 16.7.48R - 16.7.53G

Use the standard form

Complaints report

Twice a year - within one month of the end of each reporting period below:

• 1 April to 30 September

• 1 October to 31 March

Dispute resolution: Complaints (DISP 1.5.6 R)

Use the standard form

01/12/2004
Future version of SIFA 12.1.5 after 09/09/2005

SIFA 12.1.6

You can find the standard forms mentioned above as follows:

(1) Annual questionnaire: on our CD-ROM under 'Library, Forms, Supervision Chapter 16, Annex 7R'; or on our website by clicking on 'FSA Handbook', 'Forms', 'Supervision forms' and 'Chapter 16: personal investment firms' reporting forms - Annex 7R'.

(2) Complaints report: please see Chapter 11.2 of this Overview on Complaints reporting (paragraph 11.2.5).

01/12/2004
Future version of SIFA 12.1.6 after 09/09/2005

SIFA 12.1.7

And you may need to submit the following reports:

Report

Frequency report is required

Relevant section in the handbook

Method of reporting

Controllers report

Does not apply to firms that are sole traders

Yearly within four months of the firm's accounting reference date

SUP - 16.4.5R

(General information: SUP Chapter 11)

No standard form please write to us

Close links report

Does not apply to firms that are sole traders

Yearly within four months of the firm's accounting reference date.

SUP 16.5.4R

(General information: SUP Chapter 11)

No standard form please write to us

Pension transfers and opt-outs

Every six months no specific start date A nil return not required. There are related quarterly reports required.

Conduct of Business (COB) sourcebook COB 5.3.26 R

COB 5.3.26 R (1A)

No standard form please write to us

Significant management function reports

Yearly by no later than 31 July each year. A nil return is not required

SUP 10.9.8R

No standard from please write to us.

Audited consolidated annual financial statements

Yearly four months after the firm's accounting reference date. This is only required if the firm is a holding company, or if one of its controllers is a company (SUP 16.7.49R Note 1)

SUP 16.7.49R

The firm must submit the statutory accounts of the group to which it belongs.

01/12/2004
Future version of SIFA 12.1.7 after 09/09/2005

Time-lines

SIFA 12.1.8

Below are two time-lines on the reports that you must send to us. The first time-line lists the reports on a firm's accounting-year basis, the second is on a calendar-year basis. Paragraph 12.1.11 below is about the pension transfer and opt-out report, which is submitted on a different basis.

01/12/2004
Future version of SIFA 12.1.8 after 09/09/2005

SIFA 12.1.9

Accounting-year basis

01/12/2004
Future version of SIFA 12.1.9 after 09/09/2005

SIFA 12.1.10

Calendar-year basis

01/12/2004
Future version of SIFA 12.1.10 after 09/09/2005

Pension transfer and opt-out report:

SIFA 12.1.11

You will need to notify us every six months in writing of the number of pension opt-out and pension transfer transactions, that you arranged during the previous six months. There is no specified start date but you would need to send us details every six months after your first report unless there have not been any such arrangements.

01/12/2004
Future version of SIFA 12.1.11 after 09/09/2005

SIFA 12.1.12

There are also related quarterly reports, which may apply to you. There are further details in COB 5.3.26 R.

01/12/2004
Future version of SIFA 12.1.12 after 09/09/2005

SIFA 12.1.13

You are required to keep records indefinitely of any notifications of pension transfer and opt-out transactions required by COB 5.3.26 R (1) and (1A).

01/12/2004
Future version of SIFA 12.1.13 after 09/09/2005

Where will you find the forms?

SIFA 12.1.14

You will find the forms:

(1) on the FSA CD-ROM by going to 'Handbook' and then clicking on 'Forms' (highlighted in green); or

(2) on our website (www.fsa.gov.uk) by going to 'Industry Help' and then clicking on 'Forms'.

01/12/2004
Future version of SIFA 12.1.14 after 09/09/2005

SIFA 12.1.15

You will find the annual questionnaire on our website by clicking on 'Forms', 'Supervision forms' and then 'Chapter 16: reporting requirements - Annex 7R'. There are two questionnaires there, but you will need the one entitled 'Annual questionnaire for small personal investment firms'.

01/12/2004
Future version of SIFA 12.1.15 after 09/09/2005

Where are the relevant Handbook sections?

SIFA 12.1.16

The following sections of the Handbook are relevant:

(1) The table at section 13.1.6 above includes the relevant Handbook sections.

(2) The general provisions on reporting to the FSA: SUP 16.3.

(3) The requirements for personal investment firms completing reports: SUP 16 Annex 7 and SUP 16.7.48 , SUP 16.7.53 .

(4) Guidance on completion of the Annual Questionnaire is at SUP 16 Annex 8 .

01/12/2004
Future version of SIFA 12.1.16 after 09/09/2005

How do you submit the reports to us?

SIFA 12.1.17

You may be required to send a report to us in a particular way; however usually the following methods may be used (SUP 16.3.9 ) :

(1) electronic mail;

(2) post;

(3) hand delivery; or

(4) fax - (if you deliver by fax you must also send the report by one of the methods above within five working days. You should also check the particular requirements for the report).

01/12/2004
Future version of SIFA 12.1.17 after 09/09/2005

Other issues

SIFA 12.1.18

If your firm holds client money or assets you should consider whether the following reporting requirements are relevant:

(1) SUP 3.10 details when an auditor would need to submit a client assets report;

(2) There are notification requirements at COB 9.1.97, COB 9.3.98 and in COB 9.5. You should also check the notification requirements in Schedule 2 to COB.

01/12/2004
Future version of SIFA 12.1.18 after 09/09/2005

SIFA 12.1.19

The following sections are also relevant:

•

'Complaints reporting to the FSA' - Chapter 11.2 of this Overview;

•

'Notifications' - Chapter 12.2 of this Overview; and

•

PRIN 2.1 in the Handbook

01/12/2004
Future version of SIFA 12.1.19 after 09/09/2005

SIFA 12.2

Notifications

01/12/2004

SIFA 12.2.1

Your firm must make notifications in certain circumstances. The main circumstances are listed below.

01/12/2004
Future version of SIFA 12.2.1 after 09/09/2005

Matters having a serious regulatory impact:

SIFA 12.2.2

Your firm must let us know immediately when it becomes aware, or has information that reasonably suggests, that any of the following has occurred, may have occurred or may occur in the foreseeable future:

(1) If your firm fails to satisfy one or more of the threshold conditions (there is more information on these in section 5.1.4 of this Overview).

(2) Any matter that could have a significant adverse impact on your firm's reputation.

(3) Any matter that could affect your firm's ability to continue to provide adequate services to customers and which could result in serious detriment to a customer of the firm.

(4) Any matter in respect of your firm that could result in serious financial consequences to the financial system or to other firms.

01/12/2004
Future version of SIFA 12.2.2 after 09/09/2005

Communications with us in line with Principle 11:

SIFA 12.2.3

Compliance with Principle 11 includes but is not limited to giving us notice of:

01/12/2004
Future version of SIFA 12.2.3 after 09/09/2005

SIFA 12.2.4

1. Any proposed restructuring, reorganisation or business expansion, which could have a significant impact on your firm's risk profile or resources, including but not limited to:

Starting to provide a new product or service (you may need to apply for a variation of Part IV permission).

Ceasing to undertake a regulated or ancillary activity, or significantly reducing the scope of such activities. (You may need to apply for a variation of Part IV permission).

Entering into, or significantly changing, a material outsourcing arrangement.

Any change in your firm's prudential category.

2. Any significant failure of your firm's systems or controls (including those reported to your firm by your auditor - if applicable).

3. Any action that your firm proposes to take which would result in a material change in its capital adequacy or solvency including, but not limited to:

Any action that would result in a material change in your firm's financial resources or financial resources requirement.

A material change resulting from the payment of a special or unusual dividend or the repayment of share capital or a subordinated loan.

4. Significant breaches of rules or other requirements under the Act.

01/12/2004
Future version of SIFA 12.2.4 after 09/09/2005

Core information where advance notice of changes required

SIFA 12.2.5

There are certain pieces of core information where we need you to give us reasonable advance notice if there is going to be a change:

01/12/2004
Future version of SIFA 12.2.5 after 09/09/2005

SIFA 12.2.6

Notification

Supervision sourcebook (SUP) reference

A change in your firm's name.

SUP 15.5.1 R

A change in address (to the principal place of business).

SUP 15.5.4 R

A change to the legal status of your firm. (You may be required to send us a new application for Part IV permission).

SUP 15.5.5 R

A change to supervision by an overseas regulator.

SUP 15.5.7 R

01/12/2004
Future version of SIFA 12.2.6 after 09/09/2005

General notification requirements:

SIFA 12.2.7

There are also the following general notification requirements.

01/12/2004
Future version of SIFA 12.2.7 after 09/09/2005

SIFA 12.2.8

Notification

Handbook reference

Breaches of rules and other requirements in or under the Act.

SUP 15.3.11 R

Civil, criminal or disciplinary proceedings against a firm.

SUP 15.3.15

Fraud, errors and other irregularities.

SUP 15.3.17 R

Insolvency, bankruptcy and winding up.

SUP 15.3.21 R

Change of accounting reference date.

Change of controller.

SUP 11.3

Approved persons: employees who start performing controlled functions (CFs), those who change or add CFs or those who cease performing CFs. (There are standard forms to use called 'Approved Persons regime forms').

Change of auditor.

SUP 3.3

Financial issues, such as professional indemnity insurance cover being refused or cancelled.

Interim Prudential sourcebook (IPRU INV) Chapter 13: 13.1.9 R

01/12/2004
Future version of SIFA 12.2.8 after 09/09/2005

When should you notify us?

SIFA 12.2.9

If a notification rule requires you to send a notification within a specified period, you must send it in time for us to receive it before the end of the period. If the end of the period falls on a weekend or bank holiday, you must make sure it is received no later that the first business day after the end of the period (SUP 16.3.13 ). If a notification rule does not require notification within a specified period, then your firm should act reasonably in deciding when to notify us.

01/12/2004
Future version of SIFA 12.2.9 after 09/09/2005

How do you notify us?

SIFA 12.2.10

You must send a notification in writing stating your firm's FSA Reference Number (unless stated otherwise in the notification rule).

01/12/2004
Future version of SIFA 12.2.10 after 09/09/2005

SIFA 12.2.11

You should have regard to the urgency and significance of the matter. You may need to contact your normal supervisory contact by telephone (or other prompt means of notification) before writing to us.

01/12/2004

SIFA 12.2.12

As stated above, you should normally give or send a notification for the attention of your firm's usual supervisory contact, unless otherwise stated (SUP 15.7.4 R). Normally this will be the IFD Contact Centre.

01/12/2004

Where are the relevant Handbook sections?

SIFA 12.2.13

The following Handbook sections are relevant:

(1) Notification requirements: SUP Chapter 15.

(2) The methods of delivery: SUP 15.7.5 R.

(3) Notifications required for particular products or services: SUP 15.8.

01/12/2004

Other considerations

SIFA 12.2.14

You must take reasonable steps to ensure that all information that your firm sends to us is accurate, truthful, complete and not misleading.

01/12/2004

SIFA 12.2.15

The following sections are also relevant:

•'Authorisation' - Chapter 5 of this Overview;

•'Complaints reporting to the FSA' - Chapter 11.2 of this Overview;

•'Reporting requirements' - Chapter 12.1 of this Overview;

• Threshold Conditions sourcebook (COND); and

•PRIN 2.1 in the Handbook

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Reporting and notifications

SIFA 13

Record Keeping

SIFA 13.1

General requirement

01/12/2004

SIFA 13.1.1

A firm must take reasonable care to make and keep adequate records of matters and dealings (including accounting records) which are the subject of requirements and standards under the regulatory system. The records should be capable of being reproduced on paper in English. ( SYSC 3.2.20 R).

01/12/2004
Future version of SIFA 13.1.1 after 09/09/2005

SIFA 13.1.2

A firm should have appropriate systems and controls to fulfil its regulatory and statutory obligations on the adequacy, access, periods of retention and security of records. The general principle is that records should be kept for as long as is relevant for the purposes for which they are made. You can store records on computer disc so long as they are capable of being reproduced on paper.

01/12/2004
Future version of SIFA 13.1.2 after 09/09/2005

SIFA 13.1.3

You will find detailed record keeping requirements throughout the Handbook. Schedule 1 to each of the sourcebooks is an overall summary of these requirements.

01/12/2004
Future version of SIFA 13.1.3 after 09/09/2005

SIFA 13.1.4

There are references to record keeping in the following chapters of this Overview:

•'Authorisation' - Chapter 5;

•'Approved Persons' - Chapter 7;

•'Financial Resources and PII' - Chapter 8;

•'Conduct of Business' - Chapter 9;

•'Training and Competence' - Chapter 10;

•'Complaints Handling' - Chapter 11;

•'Reporting and Notifications' - Chapter 12; and

•'Money Laundering' - Chapter 14.

01/12/2004
Future version of SIFA 13.1.4 after 09/09/2005

Export chapter as

Legal Instruments that change this Chapter Record Keeping

SIFA 14

Money Laundering

SIFA 14.1

Money Laundering

01/12/2004

SIFA 14.1.1

The Act charges us with reducing the extent to which regulated firms are used in connection with financial crime, including money laundering. The Act gives us powers to make our own rules on money laundering as well as prosecuting firms for breaches of the Money Laundering Regulations 2003.

01/12/2004
Future version of SIFA 14.1.1 after 09/09/2005

The Money Laundering sourcebook

SIFA 14.1.2

The Money Laundering (ML) sourcebook details our Rules and Guidance on anti-money laundering systems and controls, to reduce the opportunities for money laundering. These rules are regulatory requirements as opposed to requirements imposed by the criminal law and the Proceeds of Crime Act 2002. There are two parallel regulatory regimes and firms must comply with both. Changes to the Money Laundering sourcebook are being made, covering the Money Laundering Regulations 2003 and the 2nd European Directive on Money Laundering.

01/12/2004
Future version of SIFA 14.1.2 after 09/09/2005

SIFA 14.1.3

Our rules require your firm to:

ML ref.

•

Appoint an Approved Person to be the Money Laundering Reporting Officer (MLRO). The MLRO is responsible for your firm's oversight of ant-money laundering activities. He or she must produce a report to senior management, at least once every year on any relevant money laundering issues and your firm's compliance with the Money Laundering sourcebook. This report also needs to detail any necessary remedial action.

2.1 & 7.1

•

Take reasonable steps to identify clients. The Joint Money Laundering Steering Group Guidance Notes show how to comply with this rule.

3.1 & 3.2

•

Have clear procedures for internal(made to the MLRO at the firm)and external reporting(made by the MLRO to NCIS) of suspicious activity.

4.1 & 4.3

•

Train staff who handle, or are managerially responsible for the handling of, transactions which may involve money laundering at least every 24 months in their anti-money laundering responsibilities.

6.2 & 6.3

•

Keep relevant records.

7.3

01/12/2004

Further rules to take into consideration

SIFA 14.1.4

You should also take the following rules into consideration:

(1) If you are a sole trader with no employees, not all the provisions in ML apply ( ML 8.1).

(2) Other areas of the FSA Handbook, which refer to money laundering, are detailed in ML 1.2.3 G. This includes rules in SYSC that place a specific duty on senior management to take full responsibility for all areas of compliance with the Rules and to demonstrate that your firm has adequate systems and controls in place.

01/12/2004

CD-ROM

SIFA 14.1.5

We have produced a CD-ROM called "Preventing Money Laundering: a simple guide for IFAs" that provides further information on money laundering.

01/12/2004

SIFA 14.1.6

One copy of the CD-ROM was distributed to all IFA firms free of charge between early and mid September 2003. Further copies are available for £40 each for one to nine copies; the cost reduces slightly for more than nine copies. To place an order for additional copies please call our Publications order line on 0845 608 2372. You may also order on-line, please see the Industry Training section of our website for more details.

01/12/2004

SIFA 14.1.7

The following sections of this Overview are also relevant:

•'FSA Principles, Systems and Controls' - Chapter 4; and

•'Know your customer' - Chapter 9.8.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Money Laundering

SIFA 15

Variation and cancellation of permission

SIFA 15.1

Variation of permission (VOP)

01/12/2004

SIFA 15.1.1

A Part IV permission is granted by us to allow a firm to conduct one or more regulated activities. The permission states the activities that a firm may carry on and also specifies the designated investments that it relates to. Should your firm wish to alter the regulated activities it undertakes, or stop conducting them completely, you must apply to us for a variation, or cancellation of permission. Rules and guidance on this are in SUP 6.

01/12/2004
Future version of SIFA 15.1.1 after 09/09/2005

SIFA 15.1.2

A firm can apply to us to vary its permission if it wants to do one or more of:

(1) carry on further regulated activities;

(2) reduce the number of regulated activities it is permitted to undertake;

(3) vary the description of its regulated activities (including the removal or variation of any limitations); or

(4) add, remove or vary any requirement.

01/12/2004
Future version of SIFA 15.1.2 after 09/09/2005

SIFA 15.1.3

Limitations and requirements are covered in AUTH 3.6 and AUTH 3.7 and are also described in Chapter 5 of this Overview. Our powers to vary a firm's Part IV permission on our own initiative are described in SUP Chapter 7.

01/12/2004
Future version of SIFA 15.1.3 after 09/09/2005

SIFA 15.1.4

Under Section 45 of the Act we can vary a firm's permission on our own initiative. This covers imposing a requirement or limitation to a firm's Part IV permission, for example where a firm fails to satisfy one of its threshold conditions, such as in relation to capital adequacy.

01/12/2004
Future version of SIFA 15.1.4 after 09/09/2005

SIFA 15.1.5

If your firm intends to expand its business you should assess, taking appropriate professional advice where necessary, whether you will need to apply to us for a variation of permission before making any changes. If your firm is planning on varying its permission substantially, you should discuss these plans with your usual supervisory contact as early as possible. The supervisory contact for small IFA firms is the Contact Centre.

01/12/2004
Future version of SIFA 15.1.5 after 09/09/2005

SIFA 15.1.6

If your firm applies for a VOP to add new regulated activities, you should bear in mind that it is required to begin the activity within 12 months of being granted a variation of permission. We have the power to alter a firm's permission if it does not adhere to this rule, or if it ceases to provide a permitted regulated activity for a period of 12 months or more (regardless of when the permission was granted). We may also vary a firm's permission for other reasons, for example if it appears the firm is failing to satisfy the Threshold Conditions in relation to one or more of its regulated activities.

01/12/2004
Future version of SIFA 15.1.6 after 09/09/2005

SIFA 15.1.7

If your firm is applying for a VOP that will require a change in the controlled functions of its approved persons, you should also submit the necessary form at the same time as your application for the VOP. For more information on Approved Persons see chapter 7 of this Overview.

01/12/2004
Future version of SIFA 15.1.7 after 09/09/2005

Application procedure

SIFA 15.1.8

An application for a VOP should be made in writing and must contain a statement of the desired variation and of the regulated activity (or activities) that your firm proposes to carry on if its application is successful. Your firm should also explain the reasons and circumstances that have given rise to the request and include any additional information requested by your supervisor during pre-application discussions. You must address and deliver the application to us as explained in SUP 15.7.4 to SUP 15.7.6.

01/12/2004
Future version of SIFA 15.1.8 after 09/09/2005

SIFA 15.1.9

Until the application has been granted, we must be notified immediately your firm becomes aware of any significant change in the information you have given.

01/12/2004
Future version of SIFA 15.1.9 after 09/09/2005

SIFA 15.1.10

As soon as possible after receipt of the application we will advise your firm of any additional information we require. The amount of information we may request will depend on the scale of the variation and its complexity. We have 6 months from receipt to deal with a complete application. However, if the application is incomplete this is extended to 12 months.

01/12/2004
Future version of SIFA 15.1.10 after 09/09/2005

SIFA 15.1.11

We publish typical response times on our website, setting out how long the process is expected to take in practice. Also, from time to time, we will publish our performance against these times. You will find details of our performance against the service standards on our website by clicking on the following: 'Publications'; 'By type'; 'Annual reports'; 'Annual report 2002/03' (or whichever year is relevant); and 'The Performance Account' under the 'Additional information' heading.

01/12/2004
Future version of SIFA 15.1.11 after 09/09/2005

SIFA 15.1.12

SUP 6 Ann 2 provides a flowchart that summarises the procedures for applying for a variation of Part IV permission.

01/12/2004
Future version of SIFA 15.1.12 after 09/09/2005

SIFA 15.1.13

The following section of this Overview is also relevant:

•'Cancellation of permission' - Chapter 15.2.

01/12/2004

SIFA 15.2

Cancellation of permission

01/12/2004

SIFA 15.2.1

If your firm wishes to cease carrying on all regulated activities for which your firm holds permission, you may apply for a cancellation of Part IV permission. You may do this whilst still carrying out business so long as your firm has formal plans to cease all regulated activities in the short term (normally 6 months from the date of application for the cancellation of permission).

01/12/2004
Future version of SIFA 15.2.1 after 09/09/2005

SIFA 15.2.2

As with VOPs, we may cancel a firm's permission under our own-initiative powers.

01/12/2004
Future version of SIFA 15.2.2 after 09/09/2005

SIFA 15.2.3

A firm applying for cancellation should, at the same time, notify us of the persons who perform controlled functions.

01/12/2004
Future version of SIFA 15.2.3 after 09/09/2005

SIFA 15.2.4

We will not usually grant a cancellation request until the firm can demonstrate that it has:

(1) ceased all regulated activities;

(2) repaid all client money and client deposits;

(3) discharged custody assets and all other property belonging to clients; and

(4) discharged, satisfied, or resolved all complaints against the firm.

01/12/2004
Future version of SIFA 15.2.4 after 09/09/2005

Application procedure

SIFA 15.2.5

You must make a request for a cancellation in writing (to the Cancellation Team at the FSA) stating the reasons and circumstances for the application and the date at which your firm ceased, or intends to cease, all regulated activities. When we receive the application, we will send your firm an acknowledgement that will explain the cancellation process and detail the information required.

01/12/2004
Future version of SIFA 15.2.5 after 09/09/2005

SIFA 15.2.6

As with VOPs, until the cancellation has been approved, your firm must inform us immediately it becomes aware of any significant changes in the information you have submitted.

01/12/2004
Future version of SIFA 15.2.6 after 09/09/2005

SIFA 15.2.7

To contact the Corporate Authorisation Cancellation Team:

(1) telephone on 020 7066 1102; fax on 020 7066 1099; or

(2) write to: Corporate Authorisation Cancellation Team, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS; or

(3) email corporate.authorisation@fsa.gov.uk

01/12/2004
Future version of SIFA 15.2.7 after 09/09/2005

SIFA 15.2.8

SUP 6 Ann 3 provides a flowchart that summarises the procedures for applying for a cancellation of Part IV permission.

01/12/2004
Future version of SIFA 15.2.8 after 09/09/2005

SIFA 15.2.9

The following sections of this Overview are also relevant:

•'Notifications' - Chapter 12.2; and

•'Variation of permission (VOP)' - Chapter 15.1.

01/12/2004
Future version of SIFA 15.2.9 after 09/09/2005

Export chapter as

Legal Instruments that change this Chapter Variation and cancellation of permission

SIFA 16

Waivers and rule modifications

SIFA 16.1

General approach

01/12/2004

SIFA 16.1.1

We may, on the application or with the consent of your firm, state that certain rules:

(1) are not to apply to your firm; or

(2) are to apply to your firm with specified modifications.

01/12/2004
Future version of SIFA 16.1.1 after 09/09/2005

SIFA 16.1.2

Under the Act we can only grant a waiver where we are satisfied that:

(1) compliance by your firm with the rule would be unduly burdensome or would not achieve the purpose for which the rule was made; and

(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.

01/12/2004
Future version of SIFA 16.1.2 after 09/09/2005

SIFA 16.1.3

SUP 8 sets out our approach to waivers. Most but not all rules can be waived (see SUP 8.2.6 G to). Schedule 6 to each sourcebook identifies the rules in that sourcebook that can and cannot be waived.

01/12/2004
Future version of SIFA 16.1.3 after 09/09/2005

SIFA 16.1.4

Unless there are exceptional circumstances, SUP 8.2.8 G we normally publish the details of waivers we have given. You can view the details of published waivers through the FSA Register. Before you do so, you will need to know the name of the firm. You can also view waivers in a consolidated list by rule, but we update the list only monthly.

01/12/2004
Future version of SIFA 16.1.4 after 09/09/2005

Application for a waiver

SIFA 16.1.5

You must use the standard form on our website if you apply for a waiver (referred to at SUP 8.3.3 Dand SUP 8 Annex 2). You will find it through the "Forms" link at www.fsa.gov.uk/handbook: Go to 'Industry' 'Help'; select 'Waivers'; click on 'form' at the bottom of the page and then click on 'Waivers application form'. You will also find it through the Handbook section of the CD-ROM under 'Forms'.

01/12/2004

SIFA 16.1.6

You can send applications by email or by post to the IFD Contact Centre or to your usual contact in Corporate Authorisation.

01/12/2004

SIFA 16.1.7

An example of a rule waiver being given to IFAs is Professional Indemnity Insurance cases where IPRU (INV) 13.1.3R has been waived to enable firms to continue in business without holding PII. In these cases, firms have been unable to get PII but as they are able to demonstrate they have adequate resources, they are in a position to "self-insure" against potential claims.

01/12/2004

Waiver by consent

SIFA 16.1.8

In exceptional circumstances where we consider that a waiver should apply to a number of firms, we may tell the firms concerned that the waiver is available. These firms will not have to make a formal application but will have to give their written consent for the waiver to apply to them.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Waivers and rule modifications

SIFA 17

Individual guidance, whistleblowing,
auditors

SIFA 17.1

Individual guidance, whistleblowing, auditors

01/12/2004
Future version of SIFA 17.1 after 09/09/2005

SIFA 17.1.1

This section mentions a number of other topics that may cause us to contact firms.

01/12/2004
Future version of SIFA 17.1.1 after 09/09/2005

Individual guidance

SIFA 17.1.2

A firm or an individual may ask us for individual guidance on how the rules and general guidance in the Handbook, the Act or other regulatory requirements apply in their particular circumstances (SUP 9). Requests for individual guidance may be made orally or in writing addressed to your firm's usual supervisory contact at the FSA. For IFA firms this will usually be the IFD Contact Centre. We will expect the firm or individual to have taken reasonable steps to research and analyse a topic before approaching us for individual guidance.

01/12/2004
Future version of SIFA 17.1.2 after 09/09/2005

SIFA 17.1.3

We may also give individual guidance to a firm on our own initiative (SUP 9.3). We may use this as a regulatory tool in response to our risk assessment of the firm.

01/12/2004
Future version of SIFA 17.1.3 after 09/09/2005

Whistleblowing

SIFA 17.1.4

Employees can contact us if they are concerned about something that is relevant to our functions. They are protected by the Public Interest Disclosure Act where they:

(1) have raised the matter internally within the firm and remain concerned by the response or lack of response or they have felt unable to talk to anyone internally;

(2) reasonably believe the information and any allegations in it are substantially true; and

(3) reasonably believe the FSA is responsible for the issue in question.

01/12/2004
Future version of SIFA 17.1.4 after 09/09/2005

SIFA 17.1.5

SYSC 4.2.2 R(2)(b) describes what may be appropriate internal procedures for smaller firms so that employees can raise concerns. Our direct whistleblowing number is 020 7066 9200. Our direct email address is whistle@fsa.gov.uk. Further information is available at www.fsa.gov.uk/whistle/. Letters may also be sent to Authorisation Enquiries Department (ref. PIDA) at the FSA.

01/12/2004

Auditors

SIFA 17.1.6

Small personal investment firms are exempt from the requirement to appoint an auditor (SUP 3.1), but see section 17.1.7 below.

01/12/2004

SIFA 17.1.7

Small personal investment firms that are limited companies or limited liability partnerships are nonetheless required by the Companies Act 1985 to appoint an auditor as audited accounts are required by Companies House. There is an exemption from audit for small companies under Company Law but this exemption does not apply to firms authorised by us. Sole traders and partnerships do not need to produce audited accounts.

01/12/2004

SIFA 17.1.8

A firm should consider whether it should notify the FSA under Principle 11 if:

(1) the firm expects or knows its auditor will qualify his report on the audited annual financial statements or add an explanatory paragraph (SUP 3.3.7 R); or

(2) The firm receives a written communication from its auditors commenting on internal controls (SUP 3.3.7 R).

01/12/2004

SIFA 17.1.9

The following section of this Overview is also relevant:

•'Further information' - Chapter 19.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Individual guidance, whistleblowing, auditors

SIFA 18

Fees

SIFA 18.1

Fees

01/12/2004

SIFA 18.1.1

The FSA is an independent, non-governmental body, which is funded by levies on the financial services industry. We receive no funds from the public purse.

01/12/2004
Future version of SIFA 18.1.1 after 09/09/2005

SIFA 18.1.2

Broadly, we use three main types of fee to finance our activities:

(1) Periodic fees;

(2) Application fees; and

(3) Special Project fees.

01/12/2004
Future version of SIFA 18.1.2 after 09/09/2005

SIFA 18.1.3

Periodic fees are paid annually, to provide most of the funding we require to undertake our statutory functions.

01/12/2004
Future version of SIFA 18.1.3 after 09/09/2005

SIFA 18.1.4

Application fees contribute to the cost of processing applications for authorisation or recognition, or requests for significant variations to the permission of firms that are already authorised.

01/12/2004
Future version of SIFA 18.1.4 after 09/09/2005

SIFA 18.1.5

Special Project fees recover part of the costs of specific regulatory activities at the request of, and on behalf of, a fee-payer, where the activity primarily benefits that fee-payer. It is unlikely that this type of fee would apply to small firms.

01/12/2004
Future version of SIFA 18.1.5 after 09/09/2005

Periodic fees

SIFA 18.1.6

Fundamentally, three things decide the fees that organisations have to pay us:

(1) What kind of activities they undertake (a firm's permission).

(2) The costs we incur in regulating that class, or classes, of activities.

(3) The scale on which they undertake those activities.

01/12/2004

SIFA 18.1.7

According to the permission a firm has with us, it is allocated to fee-blocks. Fee-blocks categorise fee-payers together who offer broadly similar products and services, ensuring they pay fees on a similar basis. The definitions of the fee-blocks are based on sets of regulated activities.

01/12/2004

SIFA 18.1.8

The cost we expect to incur in undertaking our functions is known as our Annual Funding Requirement (AFR). This AFR is split into an AFR for each fee-block, using our internal costing system.

01/12/2004

SIFA 18.1.9

The scale on which firms undertake activities is measured by each fee-block tariff-base. Tariff-bases are proxies for potential impact, as indicated by the size of the business reported by the tariff-base. Tariff-bases are usually different for each fee-block.

01/12/2004

SIFA 18.1.10

Tariff-bases combined with the fee-tariff rates for each fee-block, allow the calculation of periodic fees for individual fee-payers. So, for each fee-block, the fee calculation is: Periodic fee = (tariff-base data for firm) x (fee-block tariff-rates)

01/12/2004

SIFA 18.1.11

Typically, the permission (set of regulated activities) granted to an independent financial adviser would cause the firm to be allocated to fee-block A.13 (Advisers, arrangers, dealers and brokers NOT holding and/or controlling client money and/or client assets).

01/12/2004

SIFA 18.1.12

The tariff-base for this fee-block is the number of approved persons, in customer functions 21, 22, 24, 25 and 26. Therefore, firms falling into this fee-block would pay periodic fees based on this measure, multiplied by the fee tariff-rates for the fee-block.

01/12/2004

SIFA 18.1.13

The fee tariff-rates for each fee-block are in the FSA Handbook, in the Supervision Manual (SUP 20 Annex 1).

01/12/2004

Application fees

SIFA 18.1.14

Any organisation applying to us for authorisation or recognition has to pay an application fee. We also charge an application fee where firms currently authorised seek significant variations to their permission. Application fees must be paid whether or not the application is successful and are not refundable. This reflects the fact that we commit resources to applications when they are received; so all applications have a cost to us regardless of their outcome.

01/12/2004

SIFA 18.1.15

Application fees are flat rate fees that vary according to the category of business for which authorisation is being sought. For applicants that wish to become authorised persons there are three main types of application fees:

(1) straightforward;

(2) moderately complex; and

(3) complex.

01/12/2004

SIFA 18.1.16

The complexity of an application is determined by the fee-block(s) to which an applicant would be allocated if the application were successful.

01/12/2004

SIFA 18.1.17

Typically, applications from small firms such as independent financial advisers would be classed as straightforward. This reflects the fact that the typical permission profile of such firms would cause them to be allocated to either fee-block A.12 or A.13. Applications for the activities covered by these fee-blocks are deemed to be straightforward.

01/12/2004

SIFA 18.1.18

An authorised firm may seek to significantly vary their scope of permission, and that extension, if granted, may cause them to fall into new fee-blocks they were not allocated to before the variation. In these cases, a permission variation fee is payable. These fees are charged at 50% of the equivalent application fee for the new fee-block(s).

01/12/2004

SIFA 18.1.19

Application fee rates for each fee-block are located in the FSA Handbook, in the Authorisation Manual ( AUTH 4 Annex 1).

01/12/2004

Where are the relevant Handbook sections?

SIFA 18.1.20

The main sections of the FSA Handbook relating to fees that small firms should be aware of are:

(1) general provisions regarding fees: GEN 3;

(2) application fee rules and current rates per fee-block: AUTH 4, AUTH 4 Annex 1;

(3) periodic fee rules, current rates per fee-block and fee-block definitions: SUP 20, SUP 20 Annex 1; and

(4) permission variations: SUP 6.3.22 R.

01/12/2004

SIFA 18.1.21

Firms should also be aware that in January of each year we produce a consultation paper indicating the proposed fee rates for the coming financial year (1 April - 31 March). The FSA Board makes the final fee rates for the financial year in May (with the exception of application fee rates, which are made in March, before the beginning of the financial year). Small firms should expect to receive a periodic fee invoice in June/July each year.

01/12/2004

SIFA 18.1.22

In June each year our Consolidated Policy Statement on our fee raising arrangements is updated. This document provides further detail on our fee policy, and you will find it under the Publications section of our website.

01/12/2004

SIFA 18.1.23

The following sections of this Overview are also relevant:

•'Authorisation' - Chapter 5; and

•'Variation of permission (VOP)' - Chapter 15.1.

01/12/2004

Export chapter as

Legal Instruments that change this Chapter Fees

SIFA 19

Further information

SIFA 19.1

FSA contacts

01/12/2004

a) Handbook and publications

SIFA 19.1.1

Handbook orders: online at www.tso.co.uk/bookshop

Handbook subscriptions and amendments helpline: 0845 608 2372

Technical queries on the CD-ROM: fsa@techindex.co.uk or 0134 440 4457

Other comments on the CD-ROM contents: cdhelp@fsa.gov.uk.

01/12/2004
Future version of SIFA 19.1.1 after 09/09/2005

b) FSA website: www.fsa.gov.uk

SIFA 19.1.2

The FSA Website is an essential resource for firms and provides fully updated information and help. Clicking on 'Firms' and then 'Handbook' gives you access to the full FSA Handbook, the Reader's Guide, Tables of Derivation and Destination for FSA Rules, Forms, Guidance Notes and information on Periodic Fees.

01/12/2004
Future version of SIFA 19.1.2 after 09/09/2005

SIFA 19.1.3

Clicking on 'Industry Help' gives you access to information on a range of topics that are relevant to firms. The Financial Services and Markets Act 2000 (the Act) may also be accessed from our website, under 'Industry Help'.

01/12/2004
Future version of SIFA 19.1.3 after 09/09/2005

SIFA 19.1.4

Clicking on 'What We Do' provides an explanation of the functions of different parts of the FSA.

01/12/2004
Future version of SIFA 19.1.4 after 09/09/2005

SIFA 19.1.5

The FSA Register is also on the website. The Register lists the permission of every FSA authorised firm and the controlled functions allocated to every registered individual.

01/12/2004
Future version of SIFA 19.1.5 after 09/09/2005

c) FSA Industry Training courses, FSA events and conferences

SIFA 19.1.6

FSA Industry Training Department: see our website for further details www.fsa.gov.uk/industry-training

FSA Events and Conferences: Contact the FSA Events team by phone on 020 7066 0098, by fax on 020 7066 0063 or email at events@fsa.gov.uk.

01/12/2004
Future version of SIFA 19.1.6 after 09/09/2005

d) FSA authorisation and approved persons

SIFA 19.1.7

If your firm is considering whether to apply for FSA authorisation for the first time or whether to modify its existing authorisation, you should refer to the Guidance Notes. The Application Pack and Guidance Notes may be ordered from our Publications Helpline at a charge of £25.00 plus VAT or are available on the FSA website.

01/12/2004
Future version of SIFA 19.1.7 after 09/09/2005

SIFA 19.1.8

For queries about approved persons contact the Enquiries and Applications Department by email: iva@fsa.gov.uk or telephone the help line 020 7066 0019.

01/12/2004
Future version of SIFA 19.1.8 after 09/09/2005

e) Old rules / previous regulators

SIFA 19.1.9

If your firm has a query about a previous rule or disciplinary notice issued by one of our predecessor regulators, you should email legal.queries@fsa.gov.uk. You can also check the derivation and destination tables at the back of the COB sourcebook.

01/12/2004
Future version of SIFA 19.1.9 after 09/09/2005

f) FSA fees

SIFA 19.1.10

For invoice calculation, tariff data and payment queries including moving to direct debit, contact the Fees Helpline by email: fsafees@fsa.gov.uk or telephone 020 7066 1888. You can also write to The Revenue Department, Finance & Business Planning at the FSA.

01/12/2004
Future version of SIFA 19.1.10 after 09/09/2005

g) Contact Centre

SIFA 19.1.11

The Contact Centre provides a helpline for firms supervised within Investment Firms Division but who do not have a nominated supervisor. This is where you should direct queries on matters such as Permissions and FOS and FSCS exemptions. You can reach the Contact Centre by email at red.cc@fsa.gov.uk, telephone 0845 606 9966, or you can write to Investment Firms Contact Centre 11th floor at the FSA.

01/12/2004
Future version of SIFA 19.1.11 after 09/09/2005

SIFA 19.1.12

There is an information sheet of frequently asked questions on our website. To access it, please click on 'Industry Help' and then 'Information for firms supervised by the Investment Firms Division Contact Centre'.

01/12/2004
Future version of SIFA 19.1.12 after 09/09/2005

Other contacts Financial Ombudsmen Service (FOS)

SIFA 19.1.13

For queries about payment and accounts for the FOS annual levy, contact the FOS by email: levy@financial-ombudsman.org.uk or telephone 020 7964 1222.

01/12/2004
Future version of SIFA 19.1.13 after 09/09/2005

SIFA 19.1.14

For informal advice and guidance on ombudsman procedures, policy and decisions - contact the technical advice desk by email: technical.advice@financial-ombudsman.org.uk or telephone 020 7964 1400.

01/12/2004
Future version of SIFA 19.1.14 after 09/09/2005

Financial Services Compensation Scheme (FSCS)

SIFA 19.1.15

Contact by email: enquiries@fscs.org.uk or telephone 020 7892 7300.

01/12/2004
Future version of SIFA 19.1.15 after 09/09/2005

Joint Money Laundering Steering Group (JMLSG)

SIFA 19.1.16

The JMLSG website www.jmlsg.org.uk explains where you can get the Guidance Notes. AIFA is a member of the Steering Group.

01/12/2004
Future version of SIFA 19.1.16 after 09/09/2005

Export chapter as

Legal Instruments that change this Chapter Further information

SIFA App 1

SIFA App 1.1

Brief definitions of terms in the Overview

01/12/2004
Future version of SIFA App 1.1 after 09/09/2005

SIFA App 1.1.1

The following are brief definitions of terms used in the Overview. Before taking any action firms should also check the FSA Handbook Glossary.

Act

The Financial Services and Markets Act 2000 (FSMA)

Approved person

A person in relation to whom the FSA has given its approval for the performance of a controlled function

Client

Any person with or for whom a firm conducts or intends to conduct investment business

Controlled function

A function relating to the carrying on of investment business which is specified in the Table of controlled functions at SUP (Supervision Manual) 10.4.5R

Customer

A client who is not a market counterparty

Designated investment business

Any of the activities specified in Part II of the Regulated Activities Order which is carried on by way of business

Eligible complainant

A person eligible to have a complaint considered by the Financial Ombudsman Service as defined in DISP 2.4

Financial promotion

An invitation or inducement to engage in investment activity

Intermediate customer

A client who is not a market counterparty or a private customer and which falls within the list included in the Glossary definition

Limitation

A limitation incorporated in a Part IV permission

Low resource firm

A Category B3 firm which is not a network, has fewer than 26 financial advisers or representatives and is not permitted to carry on discretionary portfolio management

Packaged Product

a life policy a unit in a regulated collective investment scheme an interest in an investment trust savings scheme a stakeholder pension Whether or not (in the case of a, b, or c) held within a PEP or an ISA

Part IV permission

Permission given by the FSA under part IV of FSMA to carry on regulated activities

Personal investment firm

A firm which was a member of PIA immediately before N2, or A firm whose permission includes a requirement that it comply with IPRU (INV) 13, or A firm for whom the most substantial part of its income is derived from (a) advising on investments or bringing about deals in investments, in relation to packaged products(b) managing investments for private customers

Personal recommendation

A recommendation given to a specific person

Private customer

A client who is not a market counterparty or an intermediate customer

Prudential requirements

The requirements and standards relating to a firm's financial resources

Regulated activity

Any of the activities specified in Part II of the Regulated Activities Order which is carried on by way of business

Requirement

A requirement included in a firm's Part IV permission

Small personal investment firm

A personal investment firm which is not a network and which has fewer than 26 financial advisers and representatives

Suitability Letter

A letter that must be provided to a private customer under COB 5.3.14R and that contains the information required by COB 5.3.16R

Threshold conditions

Any of the conditions set out in Schedule 6 to the Act (see COND)

01/12/2004
Future version of SIFA App 1.1.1 after 09/09/2005

Export chapter as

Legal Instruments that change this Chapter SIFA App 1

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Using the FSA Handbook: an Overview for small IFA firms

Used in

Export part as

Foreword

Introduction

Purpose of the Overview

Accessing the Handbook and Handbook Developments

Accessing the Handbook

Installing the CD-ROM

Further information

Structure of each sourcebook

There are tables of information at the end of each sourcebook. These are numbered consistently throughout the Handbook and provide a summary of requirements as set out below:

Keeping up-to-date

Contents of the Handbook

The parts of the Handbook that apply to IFAs

Abbreviations

The transition from PIA to FSA

Contents of the Handbook

High Level Standards (Block 1):

Business Standards (Block 2):

However, for typical IFAs, here is a broad indicator of those parts that are likely to be most immediately relevant to you depending on the nature of your business:

Regulatory processes (Block 3):

Redress (Block 4):

Specialist Sourcebooks (Block 5) & Special Guides (Block 6):

Fees

Interpreting the Handbook

Rules and guidance

FSA Principles, Systems and Controls

FSA Principles

Who do the Principles apply to and what is their purpose?

Where are the relevant rules in the Handbook?

Senior management arrangements, systems and controls

Other requirements

Table:

Authorisation

Authorisation

The authorisation / approval process: our duties

Table:

Threshold conditions

Scope of permission

Table:

Which parts of the Handbook apply

Table:

Further information

Further issues

Table:

Authorisation

Framework

Small firms

IFD's supervision strategy

Approved Persons

Approved Persons

Controlled functions

Becoming and ceasing to be an approved person

How long will an application take?

Which parts of the Handbook are relevant?

Principles for approved persons

Further information and other issues

Record keeping requirements: apportionment of responsibilities

Financial resources and professionalindemnity insurance

Summary

Financial resources

Professional indemnity insurance (PII)

Financial resources record keeping

Reporting and notification requirements

Conduct of business

Introduction

Exclusion of liability

Reliance on others

Clear, fair and not misleading communication

Why is it important to communicate clearly?

How should you communicate and where are the relevant rules?

Financial Promotion

Real time promotions

Non-real time promotions

Direct offer financial promotions

Record keeping requirements

Records must be kept for the following periods:

Other information

Financial resources and professional
indemnity insurance