Using the FSA Handbook: an Overview for small IFA firms

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SIFA 1

Introduction

SIFA 1.1

Purpose of the Guide

SIFA 1.1.1

handbook-guidance
The FSA Handbook of Rules and Guidance is an essential document. It sets out the FSA's legislative and other provisions made under powers given to it by the Financial Services and Markets Act 2000 (FSMA). Firms are required to follow these rules in order to meet their regulatory responsibilities. We consider it important to make the Handbook as accessible as possible so firms and individuals are in no doubt about what is required of them.

SIFA 1.1.2

handbook-guidance
The Guide directs firms to those parts of the Handbook that will usually be relevant to a typical small firm carrying on financial advisory business relating to investments. It does not cover mortgage and general insurance business as there are other specialist guides on our website for firms doing that business.

SIFA 1.1.3

handbook-guidance
The Guide is intended for small firms of investment intermediaries that do not hold client money or other assets. In the Handbook such firms are called small personal investment firms. It includes firms who advise on packaged products based on a selection from the whole market or a limited number of product providers or a single company. It does not include firms that are networks or have 26 or more advisers or representatives.

SIFA 1.1.4

handbook-guidance
The purpose of the Guide is to help smaller investment intermediaries to find the rules they need in the FSA Handbook. The Guide refers to, and contains extracts from, various parts of the FSA Handbook. You should consult the FSA Handbook to determine the precise wording and effect of the rules. The links to the Handbook and the pointers to other sections within the Guide are not exhaustive.

SIFA 1.1.5

handbook-guidance
The Guide is not formal guidance and does not have the status of guidance in the Handbook. You cannot use the Guide to counter a charge of breaking the FSA rules. If there is any conflict between the Guide and the Handbook, the Handbook takes precedence.

SIFA 1.1.6

handbook-guidance
All references to 'the Guide' are references to 'Using the FSA Handbook: a Guide for smaller investment intermediaries'.

SIFA 1.1.7

handbook-guidance
The Guide uses terms that are consistent with those defined in the FSA Handbook Glossary. These terms are in italics in the Handbook (though not in the Guide). For ease of reference, there are brief definitions of some of the more frequently used terms at Appendix A. For the full definition you should consult the FSA Handbook Glossary.

SIFA 1.1.8

handbook-guidance
The Guide is current as at 31 May 2005. The Guide does not remove the need for firms to keep up to date with regulatory developments and to consider the potential impact on its business of proposed changes to the Handbook. Although we will regularly update the Guide, we will not update it each time the Handbook changes.
  • 09/09/2005

SIFA 1.1.9

handbook-guidance
Over the next few years our priority will be to reduce the length of the Handbook text and make it easier to navigate and understand. We plan to introduce further tailored handbooks alongside those for mortgage and general insurance intermediaries already available. Tailored handbooks include only those requirements in the FSA Handbook relevant to a particular activity. You can access the tailored handbooks from 'Handbook online' on the FSA website. We will also provide a facility for firms to build a personal Handbook and other improvements to the electronic Handbook to make it easier to use.
  • 09/09/2005

SIFA 1.1.10

handbook-guidance
We welcome your feedback on the content and presentation of the Guide and whether you find it helpful. Please send your comments to SmallFirmsCommunications@fsa.gov.uk.
  • 09/09/2005

Export chapter as

SIFA 2

10 key points

SIFA 2.1

10 key points

SIFA 2.1.1

handbook-guidance
We have set out below 10 key points which need attention to ensure that you remain compliant with the FSA's requirements. These points are areas where we frequently find that firms do not meet our requirements. They are not the only points that may be relevant and addressing these points does not mean that you are complying with all the FSA rules.

SIFA 2.1.2

handbook-guidance
The key points are:

• Organise and control your business responsibly and effectively. You must take reasonable care to organise and control your affairs responsibly and effectively, with adequate risk management systems.• Meet our requirements for financial resources and professional indemnity insurance. You must have adequate financial resources for the regulated activities you carry on.• Pay our fees on time. If you do not pay our fees by the due date, you become liable to pay additional charges and interest.• Send in reports and notifications to us on time. These reports help us to analyse your financial condition and performance and to understand your business.• Treat your customers fairly. You must pay due regard to the interests of your customers and treat them fairly.• Maintain your technical knowledge and keep up to date with new products. Your commitment to training and competence should be that your employees are and remain competent, that employees are appropriately supervised, that employees' competence is regularly reviewed and that the level of competence is appropriate to the nature of the business.• Investigate complaints thoroughly, respond within the time limits and co-operate with the FOS. You must have in place and operate appropriate and effective internal complaint handling procedures.• Keep good records. You should ask yourself whether a similarly qualified adviser would be able to understand the file.• Deal with us in an open and co-operative way. You must disclose to us appropriately anything relating to the firm of which we would reasonably expect notice.• If you are unsure what rules apply, look at this Guide, at the Handbook and at our website. If you are still unsure, ask us for further information.

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SIFA 3

Accessing the handbook
and keeping up to date

SIFA 3.1

Accessing the handbook

SIFA 3.1.1

handbook-guidance
You can find the FSA Handbook on:

•our website; and•the monthly CD-ROMs (sent to all firms and to trade bodies).


The contents are the same in each medium. You can order one-off paper copies of the Handbook or modules of the Handbook by contacting The Stationery Office (telephone 0845 608 2372) and selecting option 1.

SIFA 3.2

Installing the CD-ROM

  • 09/09/2005

SIFA 3.2.1

handbook-guidance
When you first install the CD-ROM, selecting Preferences enables you to select the entire Handbook or one or more sourcebooks, allowing you to refine your search within the Handbook. Tick each sourcebook to include it in your search. You can amend the sourcebooks you have selected whenever you wish. This facility does not remove any content from the CD-ROM. The parts of the Handbook that are of most practical significance to small firms are set out in Chapter 4 of the Guide.
  • 09/09/2005

SIFA 3.3

Further information

  • 09/09/2005

SIFA 3.3.1

handbook-guidance
You can find further information from the following sources on our website by clicking on 'FSA Handbook':

•The Reader's Guide describes the contents of the Handbook; where to find them and how to make use of them.•The User Guide provides information on navigating and searching the Handbook.
  • 09/09/2005

SIFA 3.4

Structure of each sourcebook or manual

  • 09/09/2005

SIFA 3.4.1

handbook-guidance
You will find transitional provisions in each sourcebook. Transitional provisions are rules that tell firms in business on or before 30 November 2001 (the date the FSA received its statutory powers known as N2) how to deal with the transition between the FSA rules and the equivalent rules of a previous regulator. There are some TSPs (Timeless Saving Provisions) that apply to your existing clients at 30 November 2001. These 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.
  • 09/09/2005

SIFA 3.4.2

handbook-guidance
There are also some transitional rules for depolarisation which apply to the COB rules as amended by the Depolarisation Instrument 2004 and by the implementation of the Distance Marketing Directive. These state the period during which the transitional rules are to be in force.
  • 09/09/2005

SIFA 3.4.3

handbook-guidance
Each chapter and most sections of the Handbook begin with a rule that sets out which firms the chapter or section 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 but does not apply to a firm when providing basic advice on a stakeholder product'. We recommend that you read the application rule first before moving on, checking the terms in italics with the Handbook Glossary, where necessary. Any word that is in italics in the Handbook will be defined in the Handbook Glossary.
  • 09/09/2005

SIFA 3.4.4

handbook-guidance
There are schedules 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:
  • 09/09/2005

SIFA 3.5

Keeping up-to-date with handbook changes

  • 09/09/2005

SIFA 3.5.1

handbook-guidance
Handbook Notices and Handbook Development Newsletters are an important means of keeping up-to-date with changes to the Handbook and regulatory issues. We publish these on the FSA website and include them in the monthly CD-ROM.
  • 09/09/2005

SIFA 3.5.2

handbook-guidance
We publish the Handbook Notice after each monthly FSA Board meeting. It 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).
  • 09/09/2005

SIFA 3.5.3

handbook-guidance
The Handbook Development Newsletter summarises Consultation and Discussion Papers and Policy Statements we have issued over the preceding month. It also lists forthcoming publications with expected month of issue and gives other information, such as training offered by us to the industry.
  • 09/09/2005

SIFA 3.5.4

handbook-guidance
The 'FSA Library' on our website contains recent FSA publications, such as Discussion Papers (DPs), Consultation Papers (CPs) and Policy Statements (PSs).
  • 09/09/2005

SIFA 3.5.5

handbook-guidance
The 'Doing business with the FSA' pages on our website contain information for small firms. This includes FSA newsletters and the latest regulatory news, events and announcements. There is also a catalogue of useful information such as good practice material (for example, on selecting a compliance consultant).
  • 09/09/2005

SIFA 3.5.6

handbook-guidance
We organise conferences, training workshops and other events to update firms on regulatory priorities and current developments. Details of these events are given in the Handbook Development Newsletters and on our website. You can contact our Events team on 020 7066 0098 if you want to find out more. Chapter 19 of the Guide details other sources of information.
  • 09/09/2005

SIFA 3.5.7

handbook-guidance
Trade associations, newspapers and magazines also have an important role in summarising regulatory developments and keeping smaller investment intermediaries informed of changes.
  • 09/09/2005

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SIFA 4

Contents of
the handbook

SIFA 4.1

The parts of the handbook that apply to smaller investment intermediaries

SIFA 4.1.1

handbook-guidance
This is a Guide for smaller investment intermediaries to highlight which parts of the Handbook will be of most immediate practical significance to them. There will be some variation, as not all firms undertake identical business or have permissions to carry out the same activities.

SIFA 4.1.2

handbook-guidance
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.
  • 01/12/2004

SIFA 4.1.3

handbook-guidance
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).
  • 01/12/2004

SIFA 4.1.4

handbook-guidance
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

handbook-guidance
  • 01/12/2004

SIFA 4.1.6

handbook-guidance
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.
  • 01/12/2004

SIFA 4.1.7

handbook-guidance
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.
  • 01/12/2004

SIFA 4.1.9

handbook-guidance
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)
  • 01/12/2004

SIFA 4.1.10

handbook-guidance

Table:

  • 01/12/2004

SIFA 4.2

Abbreviations

  • 09/09/2005

SIFA 4.2.1

handbook-guidance
A list of abbreviations commonly used to refer to parts of the Handbook and other publications are set out below:
  • 09/09/2005

SIFA 4.3

Contents of the Handbook

  • 09/09/2005

SIFA 4.3.1

handbook-guidance
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 us.
  • 09/09/2005

High Level Standards (Block 1):

SIFA 4.3.2

handbook-guidance
Block 1 deals with the fundamental requirements for all firms and so is relevant to you.
  • 09/09/2005

Prudential Standards (Block 2):

SIFA 4.3.3

handbook-guidance
Chapters 1 and 13 of IPRU(INV) cover the financial resources requirements, including professional indemnity insurance (PII), that are likely to be relevant to smaller investment intermediaries. In most cases the other Interim Prudential sourcebooks will not be immediately relevant. These Prudential sourcebooks explain the financial resource requirements for other kinds of firm such as banks and insurance companies. Firms that do mortgage or insurance mediation as well as investment business need to consider the requirements of both PRU 9 and IPRU(INV) 13. There is more information in Chapter 8 of the Guide.
  • 09/09/2005

Business standards (Block 3):

SIFA 4.3.4

handbook-guidance
Block 3 sets out most of the detailed requirements that will affect firms on a day-to-day basis.
  • 09/09/2005

SIFA 4.3.5

handbook-guidance
COB will be of immediate practical relevance to you. COB has wide and varied application and so it is important for you to read the application provisions at the beginning of each chapter.
  • 09/09/2005

SIFA 4.3.6

handbook-guidance
However, for typical smaller investment intermediaries, 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):
  • 09/09/2005

SIFA 4.3.7

handbook-guidance
The rest of Block 3 contains:

•Insurance: Conduct of Business (ICOB) sets out the business requirements applying to firms conducting business relating to general insurance or pure protection policies. This is likely to be relevant to smaller investment intermediaries with the relevant permission.•Mortgages: Conduct of Business (MCOB) sets out the conduct of business requirements applying to firms conducting regulated mortgage activities. This is also likely to be relevant to smaller investment intermediaries with the relevant permission.•Money Laundering (ML) has immediate relevance to smaller investment intermediaries, and builds on existing money laundering requirements.•Training & Competence (TC) has immediate relevance to smaller investment intermediaries.•Client Assets (CASS) provides rules and guidance on holding client assets and client money, including requirements regarding segregation and safe custody of assets and statutory trusts in respect of client money. It includes the rules and guidance that were previously included in COB 9. CASS will not be relevant to firms who do not have permission to hold client money or assets.•Market Conduct (MAR) is unlikely to be relevant but 'MAR 1: The Code of Market Conduct' provides guidance to all persons on whether or not behaviour amounts to market abuse.
  • 09/09/2005

Regulatory processes (Block 4):

SIFA 4.3.8

handbook-guidance
Block 4 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 the activities you are permitted to carry on, or facing potential enforcement action.
  • 09/09/2005

SIFA 4.3.9

handbook-guidance
Parts of SUP do have more immediate relevance to smaller investment intermediaries. These are Chapters 8 - 10, 11 (if the firm is incorporated or is a partnership), 12, 15, parts of 16, and 20. They cover topics such as individual guidance, approved persons, notifications, financial reporting, and fee rules.
  • 09/09/2005

Redress (Block 5):

SIFA 4.3.10

handbook-guidance
Block 5 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 complaint-handling procedures.
  • 09/09/2005

Specialist sourcebooks (Block 6):

SIFA 4.3.11

handbook-guidance
Block 6 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 smaller investment intermediaries, but the sourcebook for Professional Firms (PROF) may be of interest. Professional firms means firms of solicitors, accountants and actuaries.
  • 09/09/2005

Listing, Prospectus and Disclosure Rules (Block 7):

SIFA 4.3.12

handbook-guidance
Block 7 contains the Listing Rules (LR), Prospectus Rules (PR) and Disclosure Rules (DR). These modules set out the requirements for issuers listed on, or seeking admission to, the Official List of the UKLA, along with the prospectus and disclosure document requirements.
  • 09/09/2005

Special guides:

SIFA 4.3.13

handbook-guidance
Special guides include documents such as this one. Special guides contain information aimed at helping a class or type of firm to meet their regulatory responsibilities. Small mortgage and insurance intermediaries will find the following useful:

'MIGI' - General rules

http://fsahandbook.info/FSA/html/handbook/MIGI

'MOGI' Mortgage intermediaries (additional rules)

http://fsahandbook.info/FSA/html/handbook/MOGI

and 'GIGI' - Insurance Intermediaries (additional rules)

http://fsahandbook.info/FSA/html/handbook/GIGI.
  • 09/09/2005

SIFA 4.4

Fees

  • 09/09/2005

SIFA 4.4.1

handbook-guidance
Various parts of SUP, DISP and COMP will be relevant to the fees payable by smaller investment intermediaries. However, you will receive the necessary information about this with your invoices. Chapter 18 includes more information on fees.
  • 09/09/2005

SIFA 4.5

Interpreting the handbook

  • 09/09/2005

SIFA 4.5.1

handbook-guidance
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 among other relevant provisions.
  • 09/09/2005

SIFA 4.6

Rules and guidance

  • 09/09/2005

SIFA 4.6.1

handbook-guidance
We have prepared a Reader's Guide to help firms navigate the Handbook - you can access it via 'Handbook' on the CD-ROM or by clicking on 'FSA Handbook' on the homepage of our website.
  • 09/09/2005

SIFA 4.6.2

handbook-guidance
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.
  • 09/09/2005

SIFA 4.6.3

handbook-guidance
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. But where a firm follows Guidance that indicates a possible way to comply 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.
  • 09/09/2005

SIFA 4.6.4

handbook-guidance
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.
  • 09/09/2005

SIFA 4.6.5

handbook-guidance
We have introduced two types of Handbook provisions where we have 'copied out' material from UK and EU legislation. Where appropriate a UK and EU flag icon will appear against the relevant paragraphs, and the letters 'UK' or 'EU' used in cross-references.
  • 09/09/2005

SIFA 4.6.6

handbook-guidance
To help readers we have also introduced other informative text within or at the end of relevant paragraphs of the Handbook. These will be identified as 'Notes'. They will not form part of the legislative material and have no legal status.
  • 09/09/2005

Export chapter as

SIFA 5

FSA Principles, Systems and Controls

SIFA 5.1

FSA Principles

SIFA 5.1.1

handbook-guidance
The Principles set out in simple terms the fundamental or overarching standards (called high-level standards) that all firms must meet. The rest of the Handbook contains more detailed requirements that expand on these standards.

SIFA 5.1.2

handbook-guidance
If a firm breaches one or more of the Principles it becomes liable to disciplinary sanctions. For example, a serious breach may result in your firm's authorisation being removed.

SIFA 5.1.3

handbook-guidance

Table:

  • 01/12/2004

SIFA 5.1.4

handbook-guidance
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:
  • 01/12/2004

SIFA 5.1.5

handbook-guidance
  • 01/12/2004

SIFA 5.1.6

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.7

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.8

handbook-guidance

Table:

  • 01/12/2004

SIFA 5.1.9

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.10

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.11

handbook-guidance
Both the Authorisation and Supervision manuals are relevant.
  • 01/12/2004

SIFA 5.1.12

handbook-guidance
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:
  • 01/12/2004

SIFA 5.1.13

handbook-guidance

Table:

  • 01/12/2004

SIFA 5.1.14

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.15

handbook-guidance
Chapter 15 of this Overview covers Variation and Cancellation of Permission.
  • 01/12/2004

SIFA 5.1.16

handbook-guidance
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.)
  • 01/12/2004

SIFA 5.1.17

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.18

handbook-guidance
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.
  • 01/12/2004

SIFA 5.1.19

handbook-guidance

Table:

  • 01/12/2004

SIFA 5.2

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

  • 09/09/2005

SIFA 5.2.1

handbook-guidance
The application and purpose of the Principles is as follows:

•They apply to every firm. They are a general statement of the fundamental obligations of firms under the regulatory system.•They express what is meant by the fit and proper standard set for firms in the threshold conditions. Breaching the Principles may call into question whether a firm is still fit and proper.•They require a firm to pay due regard to the interests of its customers and treat them fairly.•They are also designed as a general statement of regulatory requirements that are to be applied in new or unforeseen situations (PRIN 1).
  • 09/09/2005

SIFA 5.3

Where are the Principles in the Handbook?

  • 09/09/2005

SIFA 5.3.1

handbook-guidance
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:
  • 09/09/2005

SIFA 5.4

Senior Management Arrangements, Systems and Controls

  • 09/09/2005

SIFA 5.4.1

handbook-guidance
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.
  • 09/09/2005

SIFA 5.4.2

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

•apportion responsibilities among its directors and senior managers so it is clear who has which of these responsibilities and the business and affairs of the firm can be adequately monitored and controlled;•allocate to the Chief Executive or most senior person the functions of apportioning responsibilities and overseeing the establishment and maintenance of systems and controls;•make and keep updated a record of these arrangements, for example, by means of an organisation chart and job descriptions; and•take reasonable care to create and maintain such systems and controls as are appropriate to its business.
  • 09/09/2005

SIFA 5.4.3

handbook-guidance
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 the firm might be used to further financial crime;•the need to establish and maintain systems for compliance with regulatory requirements;•the suitability of employees;•audit requirements; and•record-keeping.


We do not expect small and large firms to have similar systems and controls. The important point is that they should be fit for purpose given the size and business of the firm. With a sole practitioner, one person is responsible for all aspects of the firm but we expect there to be systems that allow that person to monitor and manage the firm adequately.
  • 09/09/2005

SIFA 5.4.4

handbook-guidance
Parts of the Handbook may be relevant to a firm's management of operational risk. These include COB 2 (Rules which apply to all firms conducting designated investment business), COB 3 (Financial promotion) and COB 5 (Advising and selling).
  • 09/09/2005

SIFA 5.5

Other Requirements

  • 09/09/2005

SIFA 5.5.1

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

•Threshold Conditions (COND);•Money Laundering Regulations 2003 (failure to comply is a criminal offence); and•Money Laundering sourcebook (ML).
  • 09/09/2005

Export chapter as

SIFA 6

Authorisation

SIFA 6.1

Authorisation

SIFA 6.1.1

handbook-guidance
The Authorisation manual (AUTH) sets out the background and provides guidance on how we authorise firms. All firms and individuals enter the regulated 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.

SIFA 6.1.2

handbook-guidance
If you carry on an activity regulated by the FSA (a regulated activity) in the UK, then you must either be authorised, be an appointed representative or have some other exemption - for example, if you are a professional firm (solicitors, accountants or actuaries) carrying on investment business that is incidental to your main business.

SIFA 6.1.3

handbook-guidance
To apply to become directly authorised by the FSA, you need to submit an application to us for what is called a Part IV permission (permission for a firm to carry on regulated activities under the Financial Services and Markets Act 2000 (FSMA)). We will assess the application against the Threshold Conditions and advise you of our decision.

SIFA 6.1.4

handbook-guidance
There are several different types of application pack depending on the type of business you plan to undertake and the type of legal entity you intend trading as. The packs that have been tailored for smaller firms are the Small Firms Application Pack and the Sole Trader Application Pack for sole traders with no other approved persons. Applicants must also submit the appropriate Small Firms Controller Forms for each of the firm's controllers (the people who own the firm). These packs and forms are available on our website.

SIFA 6.2

The Authorisation Approval Process: Our Functions

  • 09/09/2005

SIFA 6.2.1

handbook-guidance
Our functions are as follows.
  • 09/09/2005

SIFA 6.3

Threshold Conditions

  • 09/09/2005

SIFA 6.3.1

handbook-guidance
Before granting Part IV permission we must ensure that the applicant firm satisfies and will continue to satisfy the threshold conditions. These are set out below:
  • 09/09/2005

SIFA 6.3.2

handbook-guidance
The threshold conditions are set out under Schedule 6 of FSMA. There is guidance on the conditions in COND. You are responsible for ensuring that you continue to meet the threshold conditions to retain your authorisation and scope of permission.
  • 09/09/2005

SIFA 6.4

Scope of Permission

  • 09/09/2005

SIFA 6.4.1

handbook-guidance
Following a successful application, we will grant a Part IV permission to the firm. 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.
  • 09/09/2005

SIFA 6.4.2

handbook-guidance
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 - for example, not holding client money.
  • 09/09/2005

SIFA 6.4.3

handbook-guidance
You are responsible on a continuing basis for ensuring that your firm holds the correct permission that includes the regulated activities that you wish to carry out. If you hold permission for activities you do not carry out you may pay higher fees than necessary.
  • 09/09/2005

SIFA 6.4.4

handbook-guidance
To carry on mortgage or general insurance business you must have the correct permission to do these types of business. For example, you will need to vary your Part IV permission to include permission to carry on general insurance if you sell, advise on, arrange, deal as agent in or assist in administering and carrying out term assurance or other types of insurance such as home contents, motor or mortgage protection. You can vary your permission by completing our standard variation of permission form. This is available on our website through Firms Online.
  • 09/09/2005

SIFA 6.5

Which Parts of the Handbook Apply

  • 09/09/2005

SIFA 6.5.1

handbook-guidance
Both the Authorisation and Supervision manuals are relevant. The Perimeter Guidance manual, whilst not part of the Handbook, provides guidance about circumstances in which authorisation is required, or exempt person status is available. It also includes guidance on the activities which are regulated under FSMA and the exclusions which are available.
  • 09/09/2005

SIFA 6.5.2

handbook-guidance
In the Authorisation manual (AUTH) there is:

•a guide to the sourcebook in AUTH 1; and•an explanation of the authorisation process and the permission regime in AUTH 3. This includes the following sections:
  • 09/09/2005

SIFA 6.5.3

handbook-guidance
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 Chapter 6 of the Supervision manual (SUP). The forms for variation and cancellation of permission are available on our website through Firms Online.
  • 09/09/2005

SIFA 6.5.4

handbook-guidance
The Perimeter Guidance Manual (PERG) is closely based on the text which previously appeared as AUTH Chapters 2 and 7 and AUTH Appendices 1 to 6.
  • 09/09/2005

SIFA 6.5.5

handbook-guidance
Chapter 15 of the Guide covers Variation and Cancellation of Permission.
  • 09/09/2005

SIFA 6.6

Further Information

  • 09/09/2005

SIFA 6.6.1

handbook-guidance
Firms that are not authorised and are enquiring about applying for authorisation should contact the Authorisation & Approvals Helpline on 020 7066 3954 or by email to corporate.authorisation@fsa.gov.uk. All queries about whether an activity is a regulated activity and whether a firm needs to be authorised should be sent to the Authorisation Enquiries Department at AuthorisationEnquiries@fsa.gov.uk or by calling 020 7066 0082.
  • 09/09/2005

SIFA 6.6.2

handbook-guidance
You can download the Application Packs and Guidance notes from the 'Doing business with the FSA' part of our website free of charge or you can order a printed copy from our Publications Helpline on 0845 0608 2372 (at a charge). Please see Chapter 19 of the Guide for further details.
  • 09/09/2005

SIFA 6.6.3

handbook-guidance
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 from our website and, as it contains publicly available information, you can use it to check whether firms you are dealing with are authorised or appointed representatives.
  • 09/09/2005

SIFA 6.7

Further Issues

  • 09/09/2005

SIFA 6.7.1

handbook-guidance
There are the following further issues relating to authorisation:

•The scope of your firm's permission affects the fees you pay us. Broadly, the wider the scope, the higher the fees.•The scope of your permission may also affect the category of business into which your firm falls for financial resources purposes.•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.
  • 09/09/2005

Export chapter as

SIFA 7

Approved Persons

SIFA 7.1

Approved Persons

  • 01/12/2004

SIFA 7.1.1

handbook-guidance
An authorised firm has approved persons and other staff. Approved persons carry out controlled functions and so have responsibilities for the firm complying with and working within the FSA Handbook of Rules and Guidance.

SIFA 7.1.2

handbook-guidance
Controlled functions are functions that meet the conditions under section 59 of FSMA. These conditions are that the function:

•allows the person responsible to exercise a significant influence over the firm's affairs, or•involves the person responsible in dealing with i.e. having contact with, customers; or•involves the person responsible in dealing with customers' property.

SIFA 7.1.3

handbook-guidance
We must approve a person before they perform one or more controlled functions for your firm. The purpose of the direct approval of people who perform controlled functions is to complement the regulation of the authorised firm for which the approved person(s) performs the functions.

SIFA 7.1.4

handbook-guidance
You need to apply to have a person approved to perform a controlled function as follows:

•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•you need to complete and submit a new form to obtain FSA approval if someone joins the firm (including as a partner or director), 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 R and SUP 10.5.6 G).

SIFA 7.2

Controlled Functions

  • 09/09/2005

SIFA 7.2.1

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

•governing functions (CF 1-7) e.g. director, chief executive, partner, sole trader;•required functions (CF 8-12) e.g. apportionment and oversight, compliance officer, money laundering reporting officer; and•customer functions (CF 21-27) e.g. investment adviser.
  • 09/09/2005

SIFA 7.2.2

handbook-guidance
The most common controlled customer functions in smaller investment intermediaries are CF21 (Investment adviser function) and CF22 (Investment adviser trainee function). But some may also have functions CF23 (Corporate finance adviser function), CF24 (Pension transfer specialist function), and CF27 (Investment management function).
  • 09/09/2005

SIFA 7.2.3

handbook-guidance
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.
  • 09/09/2005

SIFA 7.2.4

handbook-guidance
SYSC 2.1.3 R provides that a firm must allocate to an individual (usually the chief executive) the functions of apportioning responsibilities and of overseeing the establishment and maintenance of systems and controls. SYSC 3.2.8 R provides that a firm must allocate to a director or senior manager the function of overseeing the firm's compliance. The Money Laundering Sourcebook (ML) provides that a firm must have a money laundering reporting officer (unless it is a sole trader with no employees).
  • 09/09/2005

SIFA 7.2.5

handbook-guidance
The number of approved persons carrying out controlled functions CF21-27 registered by a firm is a factor in the level of fees the firm pays.
  • 09/09/2005

SIFA 7.3

Becoming and Ceasing to be an Approved Person

  • 09/09/2005

SIFA 7.3.1

handbook-guidance
There are five standard forms (A-E) relevant to approved persons and they are grouped together under the heading 'Supervision manual - Approved persons regime forms'. The forms are included in the Supervision Manual as Annexes 4 to 8 of Chapter 10. The forms are available from our website under 'FSA Library' and 'Forms'. Firms can also register with the FSA to submit the approved persons forms using Firms Online. You can obtain details of how to access Firms Online and how to register for this facility from the 'Doing business with the FSA' part of our website.
  • 09/09/2005

SIFA 7.4

How Long Will An Application Take?

  • 09/09/2005

SIFA 7.4.1

handbook-guidance
Under section 61 of FSMA, we 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 seven working days.
  • 09/09/2005

SIFA 7.4.2

handbook-guidance
It is important that you satisfy yourself that the individual is fit and proper for his role before submitting the form to us. You are responsible for the accuracy of the data and completion of the form. You must also ensure that all the questions on the form are answered completely, as failure to disclose information will prejudice the person's approval.
  • 09/09/2005

SIFA 7.5

Which Parts Of The Handbook Are Relevant?

  • 09/09/2005

SIFA 7.5.1

handbook-guidance
Full details of the approved persons regime and the application process are in Chapter 6 of the Authorisation manual (AUTH) and Chapter 10 of the Supervision manual (SUP). For example, you may wish to refer to the following sections:

• SUP 10.11.2 G and SUP 10 Annex 2 G highlight which form you should use and when.• SUP 10.3 to SUP 10.10 describe the 27 controlled functions and the boundaries of the approved persons regime.• 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.• AUTH 6 Annex 1 G and SUP 10 Annex 1 G answer frequently asked questions on the requirements of the approved persons regime.
  • 09/09/2005

SIFA 7.6

The Approval Process

  • 09/09/2005

SIFA 7.6.1

handbook-guidance
Approval is only granted by the FSA if it is satisfied that the individual candidate is a fit and proper person to perform the controlled function applied for. The minimum standards for becoming and remaining an approved person are set out in the Fit and Proper test for Approved Persons module of the Handbook (FIT).
  • 09/09/2005

SIFA 7.6.2

handbook-guidance
The main assessment criteria are set out at FIT Chapter 2. The 'fit and proper' test takes into consideration an individual's:

•honesty, integrity and reputation;•competence and capability; and•financial soundness.
  • 09/09/2005

SIFA 7.6.3

handbook-guidance
In determining a person's competence and capability the FSA will have regard (among other matters) to whether:

•The person satisfies the relevant requirements of the Training and Competence sourcebook (TC) in relation to the controlled function the person is intended to perform.•The person has demonstrated by experience and training that they will be able to perform the controlled function. For example, you must demonstrate previous experience in the type of business for which you are applying. For a small firm of investment intermediaries we would generally expect that at least one of the principals or directors had at least three years in the financial services industry, with at least one of these years in the independent market.
  • 09/09/2005

SIFA 7.6.4

handbook-guidance
In assessing whether individuals are fit and proper, we also take into account regulated activities of the firm which the individual will perform, the permissions applied for by that firm and the markets in which it operates.
  • 09/09/2005

SIFA 7.7

Principles For Approved Persons

  • 09/09/2005

SIFA 7.7.1

handbook-guidance
The Principles for firms (see Chapter 5 of the Guide) are matched by a set of seven principles for Approved Persons. The Statements of Principle and Code of Practice for Approved Persons sourcebook (APER) includes the Statements of Principle in APER 2 and the Code of Practice in APER 3. 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.
  • 09/09/2005

SIFA 7.7.2

handbook-guidance
The Principles set out the standards of conduct expected of an approved person:
  • 09/09/2005

SIFA 7.8

Further Information And Other Issues

  • 09/09/2005

SIFA 7.8.1

handbook-guidance
If you cannot find an answer to your question from the information and factsheets on our website, you should contact our Individual Vetting and Applications Department by telephone on 020 7066 0019 or by email iva@fsa.gov.uk.
  • 09/09/2005

SIFA 7.9

Record Keeping Requirements: Apportionment Of Responsibilities

  • 09/09/2005

SIFA 7.9.1

handbook-guidance
Frequently, firms give their chief executive the function of apportioning responsibilities and overseeing the establishment and maintenance of systems and controls (SYSC 2.1).
  • 09/09/2005

SIFA 7.9.2

handbook-guidance
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).
  • 09/09/2005

Export chapter as

SIFA 8

Financial resources and professional indemnity insurance

SIFA 8.1

Summary

  • 01/12/2004

SIFA 8.1.1

handbook-guidance
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.

SIFA 8.1.2

handbook-guidance
Chapters 1 and 13 of IPRU(INV) relate to personal investment firms. Where firms do a mixture of activities that includes mortgage and general insurance business, they also need to consider the interaction with the rules in PRU 9.

SIFA 8.1.3

handbook-guidance
The rules of Chapter 13 apply differently to firms depending on what category of firm they are. This section of the Guide only discusses those parts that relate to a low resource firm i.e. a firm that:

•is a Category B3 firm (see Appendix 13(1) of IPRU(INV) - Defined terms for Chapter 13);•is not a network;•has fewer than 26 advisers or representatives; and•is not permitted to carry on discretionary portfolio management.

SIFA 8.1.4

handbook-guidance
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.

SIFA 8.2

Financial Resources

  • 09/09/2005

SIFA 8.2.1

handbook-guidance
Your firm must have and maintain at all times financial resources of the kinds and amounts specified by the rules in Chapter 13 of IPRU(INV). Your firm must also be able to meet its liabilities as they fall due.
  • 09/09/2005

SIFA 8.2.2

handbook-guidance
In particular, your firm must have financial resources of at least £10,000 at all times (IPRU(INV) 13.10.1R). The method of calculating your firm's financial resources is set out in the following sections of IPRU(INV): 13.10.2R, 13.10.2AR, 13.10.3R and Table 13.10(2). We have included some worked examples of own funds calculations in Appendix B of the Guide.
  • 09/09/2005

SIFA 8.2.3

handbook-guidance
Where personal investment firms also do mortgage or general insurance business, under PRU 9.3.24 R they should work out which is the higher financial resource requirement under the relevant parts or PRU and IPRU(INV). In the case of a low resource firm with a £10,000 financial resources requirement, the requirement is the higher of £10,000 and 2.5% of annual income from mortgage and general insurance activities (PRU 9.3.30R (1)). This means that a £10,000 requirement will apply unless a firm earns more than £400,000 in annual income from mortgage and general insurance activities. Annual income includes all brokerages, fees and commission earned by the firm for mortgage and general insurance business.
  • 09/09/2005

SIFA 8.2.4

handbook-guidance
Where a low resource firm holds client money for general insurance mediation purposes with the money in a statutory trust account the resources requirement is 5% of annual income from its mortgage and general insurance activities (PRU 9.3.30R (2)). Firms that hold client money in a non-statutory trust account must maintain minimum capital of £50,000 or 5% of annual income which ever is the greater (CASS 5.4.4 R (4)).
  • 09/09/2005

SIFA 8.3

Professional Indemnity Insurance (PII)

  • 09/09/2005

SIFA 8.3.1

handbook-guidance
Your firm must hold PII. The requirements are outlined in IPRU(INV) 13.1.3(1)G to 13.1.4(4)G. These are minimum requirements and we expect senior management to take responsibility for ensuring that the cover they have in place is appropriate to the needs of their firm. The PII requirements also apply to networks and firms with 26 or more advisers but this is not discussed further in the Guide.
  • 09/09/2005

SIFA 8.3.2

handbook-guidance
The terms that your policy must contain are in IPRU(INV) 13.1.4(2)R and include the limits of indemnity that apply. Further core requirements are outlined in IPRU(INV) 13.1.4(5)E to 13.1.4(7)G.
  • 09/09/2005

SIFA 8.3.3

handbook-guidance
Your firm has the option of using its own financial resources in conjunction with its PII cover. Under IPRU(INV) 13.1.4(8)R to 13.1.4(14)G the policy must not be subject to conditions or exclusions which unreasonably limit the cover provided. However, under IPRU(INV) 13.1.4(10)E a firm is allowed a higher level of excess on a policy where it can show that it has additional own funds which are held in a readily realisable form.
  • 09/09/2005

SIFA 8.3.4

handbook-guidance
For firms that do a mixture of activities IPRU(INV) 13 applies rather than the requirements in PRU provided the mixture of activities includes personal investment business.
  • 09/09/2005

SIFA 8.3.5

handbook-guidance
IPRU(INV) 13.1.4(15)R allows firms, whether connected or not, to benefit from a PII policy that provides cover to more than one firm. So your firm may benefit from reduced administration costs from this type of arrangement but you must consider how you will deal with notifications to both your insurer and the FSA.
  • 09/09/2005

SIFA 8.3.6

handbook-guidance
There is further information about buying PII on the 'Doing business with the FSA' part of our website under 'Information for small firms'.
  • 09/09/2005

SIFA 8.4

Financial Resources Record Keeping

  • 09/09/2005

SIFA 8.4.1

handbook-guidance
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) 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) 13.1.10R).
  • 09/09/2005

SIFA 8.4.2

handbook-guidance
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. In other words, you can store records electronically but you must be able to print them out efficiently at our request.
  • 09/09/2005

SIFA 8.4.3

handbook-guidance
For the record-keeping requirements in IPRU(INV) Chapter 13 see sections 13.1.10R to 13.1.17R.
  • 09/09/2005

SIFA 8.5

Reporting and Notification Requirements

  • 09/09/2005

SIFA 8.5.1

handbook-guidance
The Supervision manual sets out provisions on the periodic reporting and notification of financial information to us. Personal investment firms must comply with SUP 16.7.76 R to SUP 16.7.81 G. There is further information in Chapter 12 of the Guide.
  • 09/09/2005

SIFA 8.5.2

handbook-guidance
Retail Mediation Activities Return (RMAR) reporting started on 1 April 2005. The return requires financial information and also includes a PII section that must be completed and which replaces the self-certification form. There is more information in Chapter 12.1 of the Guide.
  • 09/09/2005

SIFA 8.5.3

handbook-guidance
There are also six notifiable events relating to PII. These include the requirements that 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) 13.1.9R). This rule is in addition to the general notification requirements in SUP 15).
  • 09/09/2005

Export chapter as

SIFA 9

Conduct of business

SIFA 9.1

Summary

SIFA 9.1.1

handbook-guidance
Our Conduct of Business sourcebook (COB) provides the rules that you must comply with in the conduct of your investment business. If you undertake mortgage and/or general insurance intermediation you will also need to be familiar with the conduct of business source books for mortgages (MCOB) and insurance (ICOB). You may find it helpful to refer to the special guides (MIGI, MOGI, and GIGI).

SIFA 9.1.2

handbook-guidance
This part of the Guide covers the conduct of business rules that small personal investment firms will encounter most frequently. These are:

•clear, fair and not misleading communication•financial promotions•inducements•client classification•terms of business•depolarisation•know your customer•suitability•assessing your customer's understanding of risk•information about the firm•excessive charges•disclosing charges, remuneration and commission•projections•key features•custody and client money•basic advice on stakeholder products

SIFA 9.1.3

handbook-guidance
Some small personal investment firms will have a wider permission that includes other activities. For these firms other parts of the Handbook will also be relevant but these are not discussed further in the Guide. For example:

SIFA 9.1.4

handbook-guidance
COB 8.1 requires firms to send a written confirmation to clients promptly after each transaction. This requirement will not usually apply to small personal investment firms in view of the exceptions at COB 8.1.6 R.

Exclusion of liability

SIFA 9.1.5

handbook-guidance
Under COB 2.5 you must not seek to exclude or restrict any duty or liability you may have to a customer under the regulatory system. This applies whenever you make any written or oral communication to a customer in the course of, or in connection with, designated investment business. COB 2.5 also required you not to exclude or restrict any other duty or liability when you are communicating with a private customer unless it is reasonable to do so. You also need to bear in mind your obligations under the Unfair Terms in Consumer Contracts Regulations 1999.

Reliance on Others

SIFA 9.1.6

handbook-guidance
Principle 2 requires you to conduct your business with due skill, care and diligence. COB 2.3 indicates the extent to which you can meet this requirement by relying on others. You may generally rely on another competent person not connected with your firm to provide you with information in writing to meet your own obligations to obtain information, and vice versa. This is providing that you can show that it was reasonable to do so (COB 2.3.5 G provides guidance on when it will be reasonable). You may also send information to a third party (unconnected with the firm) on the instructions of the customer.

SIFA 9.1.7

handbook-guidance
'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.

SIFA 9.2

Clear, fair and not misleading communication

  • 01/12/2004

SIFA 9.2.1

handbook-guidance
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). This is a requirement in COB, MCOB and ICOB. However MCOB and ICOB are more prescriptive about the terms that must or must not be used.

Why is it important to communicate clearly?

SIFA 9.2.2

handbook-guidance
You will want to communicate clearly so that your customers understand the scope of advice, the range of products on which you will advise and the payment options. For example, a firm holding itself out as independent must provide whole-of-market advice and offer customers the option to pay by fee for that advice.

SIFA 9.2.3

handbook-guidance
You will also want to ensure that they understand why you are recommending certain products or services and so suitability letters and statements of demands and needs should be clear, fair and not misleading.

SIFA 9.2.4

handbook-guidance
Where your communications have been clear, fair and not misleading you face a reduced risk of complaints as your customers should be fully aware of the advantages and risks of the products you have recommended.

How should you communicate and where are the relevant rules?

SIFA 9.2.5

handbook-guidance
COB 2.1 sets out the basic requirements for all types of communication to be clear, fair and not misleading.

SIFA 9.2.6

handbook-guidance
COB 2.1 embraces all communications with customers. Communication with customers is not a one-off process. It begins with the initial disclosure document and fees and commission statement (also known as the menu) and continues through the advice and selling process ending with the production of the suitability letter and key features. The detailed requirements for these communications are found in COB 4, COB 5 and COB 6.

SIFA 9.2.7

handbook-guidance
This is not to suggest that communications do not need to be clear, fair and not misleading once the suitability letter has been provided. The requirement to be clear, fair and not misleading continues throughout the customer relationship, for example, when dealing with a complaint or providing a report. It also applies to intermediate customers who do not receive initial disclosure documents and menus.

A further consideration:

SIFA 9.2.8

handbook-guidance
COB Section 2.1 does not apply to a firm in respect of the communication and approval of financial promotions. This is dealt with separately under COB 3 (COB 2.1.1 R) but the same overarching standard of clear, fair and not misleading applies to all communications.

SIFA 9.3

Financial Promotions

SIFA 9.3.1

handbook-guidance
A financial promotion is an invitation or inducement to engage in investment activity and so is far wider than just investment advertisements. Section 21(1) of FSMA prohibits financial promotions unless communicated by an authorised person, or an authorised person has approved the content of the promotion, or an exemption applies.

SIFA 9.3.2

handbook-guidance
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).

SIFA 9.3.3

handbook-guidance
Financial promotions can be either solicited or unsolicited and may be communicated through any form of media - such as phone conversations, newspaper advertisements, websites, group presentations and mail shots. 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 through correspondence, email, website material, and radio and television.

SIFA 9.3.4

handbook-guidance
The general rules on the content and form of both real and non-real time promotions are given in COB 3.8. There are major differences between the financial promotion requirements for investment business and mortgage or general insurance business. Firms that undertake mortgage or general insurance intermediation should consult MCOB 3 and ICOB 3 and the relevant guides for small firms.

Real Time Promotions

SIFA 9.3.5

handbook-guidance
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 (see COB 3.8.22 R).

SIFA 9.3.6

handbook-guidance
Your firm must not make an unsolicited real time financial promotion (see COB 3.10.3 R) unless:

•the recipient has an established customer relationship with you and expects to receive such promotions; or•the financial promotion relates to a generally marketable packaged product which does not involve higher volatility funds; or•the financial promotion relates to a controlled activity carried out by an authorised person involving readily realisable securities and generally marketable non-geared packaged products only.

Non-Real Time Promotions

SIFA 9.3.7

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

SIFA 9.3.8

handbook-guidance
Firms may communicate non-real time financial promotions produced by other firms (e.g. product providers) in the circumstances set out in COB 3.6.5 R. However you should remember that if you pass on to your client someone else's promotional material such as product provider literature, you are responsible for taking reasonable care to ensure that the product provider has confirmed compliance and that the literature has not ceased to be clear, fair and not misleading.

SIFA 9.3.9

handbook-guidance
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.

Direct Offer Financial Promotions

SIFA 9.3.10

handbook-guidance
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 and 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.

SIFA 9.3.11

handbook-guidance
You should bear in mind that an unsolicited letter to clients which contains direct offer marketing material will (in the absence of an exemption) be a financial promotion if any reference is made to the benefits or risks of the products. So these will need to be approved before issue.

SIFA 9.3.12

handbook-guidance
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.

SIFA 9.3.13

handbook-guidance
The information that a direct offer financial promotion should contain is set out in COB 3.9.6 R. Among other things, a direct offer financial promotion must contain the information set out in COB Appendix 1.

SIFA 9.3.14

handbook-guidance
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) and with due prominence.

SIFA 9.3.15

handbook-guidance
Following implementation of the Distance Marketing Directive in October 2004, all direct offers must be in a durable medium. This can be paper, or another medium that enables the person receiving the information to store it so that it can be accessed in the future and remains unchanged (COB 3.9.6 R (1)). Retail customers must also be provided with all contractual terms on which your service will be provided in a durable medium before the customer is bound by the offer, unless an exemption applies.
  • 09/09/2005

Record keeping requirements

SIFA 9.3.16

handbook-guidance
You must make an adequate record of each non-real time financial promotion that your firm has confirmed as complying with the rules of COB 3. In addition to a copy of actual promotional material, you should record the name of the individual who approved the promotion, the date of approval and the medium it was authorised for (see COB 3.7.2 G and COB 3.7.3 G for further guidance).
  • 09/09/2005

SIFA 9.3.17

handbook-guidance
Records must be kept for the following periods:
  • 09/09/2005

SIFA 9.3.18

handbook-guidance
A summary of record-keeping requirements is set out in schedule 1 to each sourcebook (COB, MCOB and ICOB). The summaries are intended as guides and are not a complete statement of our requirements - you will also need to refer to the rules in the body of the sourcebook. These are minimum requirements and you may decide to keep material for longer. Remember that other organisations you deal with e.g. PII insurers and auditors may have different record-keeping requirements.
  • 09/09/2005

Other useful information

SIFA 9.3.19

handbook-guidance
The following information may be helpful:

•Guidance on the restrictions on making financial promotions under section 21 of FSMA is given in PERG Chapter 8 (Financial promotion and related activities). This also explains the main exemptions from this restriction.•The table at COB 3.2.5 R lists the exemptions to the financial promotion rules. Additionally, some of the main exemptions are summarised in COB 3 Annex 1 G.•There is information about financial promotions on our website under 'Doing Business with the FSA' - 'Being Regulated'.•'Financial Promotion: taking stock and moving forward' published in February 2005 www.fsa.gov.uk/pubs/other/promo_forward.pdf explains our approach to regulating financial promotions, some of our major concerns about promotions and systems and controls and how we will continue to review promotions, visit firms and communicate with the industry. The document is available on our website under 'FSA Library' - 'Other publications'.•If you see an advertisement that you feel is unfair, unclear or misleading you can report it to us using the Financial Promotions Hotline on 08457 300 168.
  • 09/09/2005

SIFA 9.4

Inducements and Commissions

SIFA 9.4.1

handbook-guidance
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 2.2.3 R). This includes any inducement being given or received by an unregulated associate. There are similar requirements in COB, ICOB and MCOB but the nature of business covered results in specific requirements for each. COB 5.7 covers disclosure of charges, remuneration and commission. In relation to business involving packaged products, remuneration and commission information is included in the menu (COB 4.3).

SIFA 9.4.2

handbook-guidance
Principles 1 (Integrity) and 6 (Customers' interests) apply to the issue of inducements.

Where are the relevant sections in the Handbook?

SIFA 9.4.3

handbook-guidance
The following sections are relevant.

•Section 2.2 of COB and 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. This rule is relevant to firms who may consider making or receiving payments to secure their distribution arrangements following depolarisation.•Selling packaged products is on the basis of disclosable commission or fees. Restrictions on the arrangements under which commission may be paid to a firm in relation to the sale of a packaged product are set out in COB 2.2.5 E. Financial assistance from product providers is covered by COB 2.2.5A E.•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. Reasonable indirect benefits now include assistance for the development of software or other computer facilities but only to the extent that the indirect benefits will generate equivalent cost savings to the provider (who must not be part of your immediate group) or to consumers.•Record-keeping requirements: COB 2.2.20 R.

Other considerations

SIFA 9.4.4

handbook-guidance
For any firms that deal in investments, COB 2.2.8 R to COB 2.2.19 R is relevant, as it discusses soft commission. We issued CP05/5 'Bundled brokerage and soft commission arrangements' in March 2005 which includes proposed rule changes. Hence you should check your understanding of these rules remains current.

Record keeping requirements

SIFA 9.4.5

handbook-guidance
You must make a record of the following:

These are minimum requirements and you may decide to keep material for longer.

SIFA 9.5

Client classification

  • 01/12/2004

SIFA 9.5.1

handbook-guidance
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. Provisions in MCOB relate to customers and in ICOB relate to retail customers and commercial customers, so firms must be guided by the specific provisions for advising and selling in each sourcebook.

Why do you need to classify your customers?

SIFA 9.5.2

handbook-guidance
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.

SIFA 9.5.3

handbook-guidance
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.

When and how should you classify your clients?

SIFA 9.5.4

handbook-guidance
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).

Other considerations when classifying customers:

SIFA 9.5.5

handbook-guidance
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 this is only if you have taken reasonable care to determine that they have sufficient experience and understanding of the relevant products and services.

SIFA 9.5.6

handbook-guidance
If you propose classifying an individual as an intermediate customer, COB 4.1.9 R requires you to give them a written warning to say that they would lose some protections under the regulatory system. You should keep a copy of this warning letter. You must also give your client sufficient time to consider the implications of being classified as an intermediate customer and obtain their written consent. The contents of the warning are set out at COB 4.1.11 E. This should include advising the client that they will lose the protection afforded by the rules in COB 5.1: Advising on packaged products.

Where are the relevant Handbook sections?

SIFA 9.5.7

handbook-guidance
There are two relevant sections:

•the rules and guidance in section 4.1 of COB; and•classifying clients under a different category and when to review the classifications in COB 4.1.9 R to COB 4.1.15 R.

Record keeping

SIFA 9.5.8

handbook-guidance
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. Each retention period starts from when the customer ceases to be a customer of your firm. These are minimum requirements and you may decide to keep material for longer.

SIFA 9.6

Terms of business

  • 01/12/2004

SIFA 9.6.1

handbook-guidance
You are required to provide written terms of business to your customers to explain the terms and conditions on which you intend conducting business with them; and to set out particular issues such as the complaints procedure and payment for services. The requirements for terms of business are included in COB 4.2. If your firm carries on business in relation to packaged products it must also comply with COB 4.3 which covers the contents of the initial disclosure document (IDD) and fees and commission statement (menu). The terms of business do not need to duplicate information in the IDD and menu.

Why do you need to provide terms of business?

SIFA 9.6.2

handbook-guidance
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 it has provided to them.

SIFA 9.6.3

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

When do you need to provide terms of business?

SIFA 9.6.4

handbook-guidance
You need to give a terms of business document to each investment business customer. This must be provided to the customer 'in good time' before the business is conducted (COB 4.2.5 R). This means that the customer must have enough time to fully consider all the information before they are bound by the contract (COB 4.2.6A G).

What should you include in terms of business?

SIFA 9.6.5

handbook-guidance
You must ensure that your terms of business set out the basis on how you will conduct business with your customer in adequate detail (COB 4.2.10 R and COB 4.2.11 E). For distance contracts, where there is no face-to-face contact with the customer ('distance contract' is defined in the Glossary), you must provide further information (COB 4.2.10 R (2)). This information is set out in COB Appendix 1.

SIFA 9.6.6

handbook-guidance
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:

•your customers are aware that any separate terms of business documents you give to them collectively amount to being the terms of business; and•the content is still easy to understand.

SIFA 9.6.7

handbook-guidance
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 and in particular the table at COB 4 Annex 2E.

Where is the relevant information in the Handbook?

SIFA 9.6.8

handbook-guidance
Information is available as follows:

•requirements for terms of business and client agreements: COB 4.2; and•a list of the general requirements for the content of terms of business: COB 4 Annex 2E.

Other considerations

SIFA 9.6.9

handbook-guidance
There are the following other considerations:

•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•There are occasions when you are not required to provide terms of business: COB 4.2.5 R and COB 4 Annex 1R.•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)•A firm can continue to rely on terms of business issued to an existing client under the rules of its previous regulator. However it must also inform such clients in writing of the matters set out at COB 4 Annex 2E Notes 2, 20 and 21 which deal with FSA regulation and the protections available from the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS). If you need to make any amendments to the terms of business, or there is a new client, you must issue new terms.

Record keeping requirements

SIFA 9.6.10

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

SIFA 9.6.11

handbook-guidance
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 4.2.14 R). These are minimum requirements and you may decide to keep material for longer.

SIFA 9.7

Depolarisation

SIFA 9.7.1

handbook-guidance
Polarisation required firms that advise on packaged products to be either independent financial advisers (IFAs) who sell products from the whole market place and charge fees; or representatives selling on behalf of a single company (or group). These rules changed on 1 December 2004 when the depolarisation rules came into effect. Under these rules firms may offer advice with the following scope (COB 5.1.6A R):

•from the whole of the market, or•from a limited number of providers, or•from a single provider.

SIFA 9.7.2

handbook-guidance
There is guidance on the scope and range of advice on packaged products at COB 5.1.6B G. You can expand the scope of advice beyond the scope previously arranged with the customer provided you make the customer aware of the proposed change in advance in a durable medium.

SIFA 9.7.3

handbook-guidance
The Insurance Mediation Directive requires enhanced disclosure when business relates to life policies - see COB 4.3.19 R to COB 4.3.26 R. Firms can comply using the IDD. Firms will also need to provide a 'statement of demands and needs' (unless these points are covered in the suitability letter before conclusion of the contract) - see COB 5.2.12 R to COB 5.2.17 G.

SIFA 9.7.4

handbook-guidance
A firm must not hold itself out as independent unless:

•it provides advice from the whole market (or the whole of a sector of the market), and•it offers the customer the opportunity of paying fees for the provision of such advice (COB 5.1.11A R).


This means that a firm cannot use the word independent in its name unless it offers customers the opportunity of paying by fee.

Initial disclosure document (IDD)

SIFA 9.7.5

handbook-guidance
The IDD may be found at COB 4 Annex 4 R. On first making contact with a private customer with a view to advising etc on packaged products you should provide an IDD. The activities that require this disclosure are set out at COB 4.3.3 R (1)(a). Any loans to the firm as well as share ownership of 10% or more must be disclosed in the IDD. Where the IDD is provided by an appointed representative, it must cover loans made to or by that appointed representative or holdings in or held by that appointed representative.

SIFA 9.7.6

handbook-guidance
Downloadable templates of the document are on our website at: http://www.fsa.gov.uk/Pages/Doing/Info/disclosure/index.shtml. Any terms of business not covered by the IDD may be attached to the IDD or provided to the client as a separate document.

Menu (fees and commission statement)

SIFA 9.7.7

handbook-guidance
The menu may be found at COB 4 Annex 6 R. You should give out a menu on first making contact with a private customer with a view to providing advice on packaged products (COB 4.3.3 R), or on request (COB 4.3.5 R).

SIFA 9.7.8

handbook-guidance
If you allow payment by commission you will need to disclose the higher of commission or commission equivalent if you are in the same immediate group as a product provider (i.e. you are more than 50% owned by a provider or otherwise controlled by a provider) (COB 5.7.5 R). A firm can have more than one menu as it may offer a different charging structure to different groups of clients. The menu disclosures are in addition to the existing disclosure of actual commission in cash terms.

SIFA 9.7.9

handbook-guidance
To help firms to complete their menus, we have developed a calculator using Excel software. This will help you to identify your firm's own maximum commission levels by comparing different commission shapes and giving you the corresponding market average. The calculator is available on our website.

Other Considerations

SIFA 9.7.10

handbook-guidance
A small investment business firm can be the appointed representative of a network or another firm (the principal). In this case, the network, or principal, is responsible for the training and competence of the appointed representative and for ensuring compliance with the FSA rules, including the depolarisation rules. Appointed representatives will need to agree the scope and range of advice they give with their principal.

SIFA 9.7.11

handbook-guidance
Offering independent, whole-of-market advice does not mean that you must search the entire market of packaged products for each and every customer. You may maintain a panel of 'preferred' packaged products selected from those generally available in the market. As long as the panel is made up of products from a sufficiently large number of providers, is selected following a reasonable analysis against definite criteria reflecting adequate knowledge of the products available on the market which are applied equally, and is reviewed regularly (and whenever significant market changes require it) we consider the practice acceptable (see further COB 5.1.6B G (4)). We would always expect a firm using such a panel to have written instructions describing the criteria to be applied in selecting or reviewing products and to maintain a full written record of its initial selection and subsequent reviews.

SIFA 9.7.12

handbook-guidance
Both the IDD and menu must carry the keyfacts logo. The logo may not be used on any document where its use is not mandated by FSA rules (GEN 5.1).
  • 09/09/2005

SIFA 9.7.13

handbook-guidance
Firms need to secure customer agreement to fee charging arrangements before starting to act for a private client (COB 4.3.6 R (1)). If charging solely by fee you may only retain trail commission where it would be manifestly disproportionate for your firm to be required to account to the customer and you have agreed a maximum amount to be retained each year with your customer (COB 4.3.6 R (2)). Paragraphs 2.119-2.122 of PS04/27 set out what we mean by a fee.
  • 09/09/2005

SIFA 9.7.14

handbook-guidance
If the firm receives a complaint that is the responsibility of another party to the transaction you must have procedures in place to refer it to the appropriate party (DISP 1.2.1 R and DISP 1.4.18 R). The records you keep should also include the documentation relating to the referral of a complaint under DISP 1.4.18 R (DISP 1.5.2 G).
  • 09/09/2005

SIFA 9.7.15

handbook-guidance
The scope of advice of the firm (whole-of-market, multi-tied, single-tied) will require different competences on the part of the firm's advisers to enable it to discharge its advisory functions.
  • 09/09/2005

Record keeping Requirements

SIFA 9.7.16

handbook-guidance
You must keep records of each particular menu provided to a private customer (other than one given merely in reference to a request). Firms need to keep a copy of each menu for six years from when it was updated or replaced (COB 4.3.11 R). These are minimum requirements and you may decide to keep material for longer.
  • 09/09/2005

SIFA 9.8

Know your customer

  • 01/12/2004

SIFA 9.8.1

handbook-guidance
Before you give personal recommendations regarding investment or mortgage 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). For general insurance the required information is ascertained in the preparation of the statement of demands and needs. When arranging a life policy for any client, you may be required to give them a statement of their demands and needs (COB 5.2.12 R to COB 5.2.17 G).

Why do you have to gather know your customer information?

SIFA 9.8.2

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

SIFA 9.8.3

handbook-guidance
Another key reason for obtaining information about your customers is to prevent money laundering (see Chapter 14 of the Guide).

How do you assess a private customer?

SIFA 9.8.4

handbook-guidance
You will need to obtain personal and financial information to be able to recommend a suitable product. The process is often described as fact-finding and the document that records the information is generally referred to as a fact-find. The factors that you will need to assess include:

•the financial needs and objectives of a private customer;•the customer's current income and expenditure and any likely changes to income and expenditure - to assess the affordability of any investment or mortgage product that you recommend to a private (or retail) customer;•their attitude to risk; and•any foreseeable future events for your client.


There is guidance in the table at COB 5.2.11 G.

SIFA 9.8.5

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

SIFA 9.8.6

handbook-guidance
Where you advise customers on a continuing basis, you should regularly review the information you keep about them (COB 5.2.6 G).

SIFA 9.8.7

handbook-guidance
If a private customer declines to provide relevant personal and financial information, you should not proceed without promptly advising them that this may adversely affect the quality of the services you can provide (COB 5.2.7 G). You should consider sending written confirmation of that advice. Note that provision of certain information e.g. income / expenditure is not optional when dealing with mortgage products where it is a requirement to ensure responsible lending. Fact-finds for these products are specific and vary according to the nature of the loan e.g. property purchase, equity release or lifetime mortgages.

Which part of the Handbook is relevant?

SIFA 9.8.8

handbook-guidance
The following parts of the Handbook are relevant:

•know your customer requirements: COB Section 5.2;•guidance on how to collect information: table at COB 5.2.11 G;•statement of demands and needs: COB 5.2.12 R to COB 5.2.17 G; and•in MCOB and ICOB - advising and selling standards.

Other considerations

SIFA 9.8.9

handbook-guidance
If you arrange an execution-only transaction (a transaction where no advice is sought or given) you will not normally need to obtain personal or financial information. However, you may still need to do money-laundering checks and provide a demands and needs statement in relation to any life policy business (COB 5.2.2 G).

SIFA 9.8.10

handbook-guidance
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).

SIFA 9.8.11

handbook-guidance
COB 5.2 does not apply if you are providing basic advice on a stakeholder product - see COB 5A and Chapter 9.17 of the Guide.

Record keeping requirements

SIFA 9.8.12

handbook-guidance
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). These are minimum requirements and you may decide to keep material for longer.

SIFA 9.9

Suitability

  • 01/12/2004

SIFA 9.9.1

handbook-guidance
The purpose of the Suitability section (COB 5.3) is that advisers take reasonable steps to ensure that any investment product they recommend is suitable for the customer's requirements. A firm must take reasonable steps to ensure that the advice on investments is suitable for the client. Any recommendation it makes must have regard to the facts the client disclosed and any other relevant facts about the client of which the firm is - or reasonably should be - aware (COB 5.3.5 R). The section applies to all investments, but only in relation to advice given to private customers. It does not generally apply to firms' direct offer financial promotions and does not apply to providing basic advice on a stakeholder product.

SIFA 9.9.2

handbook-guidance
However you are reminded of the requirement in COB 3.9.6 R (Direct offer financial promotions: general requirements). Under this, if you issue a direct offer promotion, you must make it clear that if a private customer is in any doubt about the suitability of the agreement which is the subject of the promotion, they should seek advice.

SIFA 9.9.3

handbook-guidance
If the recommendation relates to a packaged product, it must be the most suitable from the range of packaged products on which you give investment advice to the client. If there is no packaged product in the firm's relevant range of packaged products which is suitable for the client, you must not make a recommendation (COB 5.3.5 R (2)). However please see paragraph 9.9.4 below.

SIFA 9.9.4

handbook-guidance
Following depolarisation firms have the opportunity to make out-of-range recommendations. COB 5.3.8A R sets out the procedure that must be followed when a firm wishes to go out of range. Before doing so a firm will want to consider whether its systems and controls and training and competence arrangements are adequate to enable it to go out of range and still comply with its regulatory obligations. COB 5.3.10A R sets out the requirements which whole-of-market advisers must follow if their recommendations are to be suitable.

SIFA 9.9.5

handbook-guidance
COB 5.3.13 G lists where you can find the specific rules and guidance for firms in assessing the suitability of personal pensions and FSAVCs (relative 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 the State Second Pension (formerly SERPS).

Suitability Letters

SIFA 9.9.6

handbook-guidance
When a private customer decides to act on the investment advice given, your firm is required to provide them 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. 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 should also contain a summary of the main consequences and any possible disadvantages of the transaction. 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 and there is additional information on our website.

SIFA 9.9.7

handbook-guidance
The requirement for providing a suitability letter is listed at COB 5.3.14 R. The timing of when you must provide a suitability letter is at COB 5.3.18 R

Record Keeping

SIFA 9.9.8

handbook-guidance
Record-keeping requirements for suitability letters are listed in COB 5.3.19A R. These are minimum requirements and you may decide to keep material for longer.

SIFA 9.10

Assessing your customer's understanding of risk

  • 01/12/2004

SIFA 9.10.1

handbook-guidance
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).

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

SIFA 9.10.2

handbook-guidance
Assessing attitude to risk is a fundamental part of the 'know your customer' process and of suitability. You will want to recommend products or services that are suitable for your client's risk profile. This is so that they are happy with the service you have provided.

SIFA 9.10.3

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

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

SIFA 9.10.4

handbook-guidance
You must establish what each client considers an acceptable level of risk to be for them and advise them 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.

Where is the relevant section in the Handbook?

SIFA 9.10.5

handbook-guidance
The requirements for assessing your customers' understanding of risk and providing risk warnings are set out in COB 5.4.

SIFA 9.10.6

handbook-guidance
COB 5.4 refers to the requirement for an adviser to assess a private customer's understanding of risk for any personal recommendation (COB 5.4.3 R). Special risk warnings apply in addition for:

•warrants and derivatives (COB 5.4.6 E);•retail securitised derivatives (COB 5.4.6A E);•non-readily realisable investments (COB 5.4.7 E);•penny shares (COB 5.4.8 E);•securities subject to stabilisation (COB 5.4.9 E); and•stock-lending activity (COB 5.4.10 E).

SIFA 9.10.7

handbook-guidance
A firm has a general duty to ensure that it has taken reasonable steps to ensure that its private customers understand the risks involved with any investment product that the firm recommends to them (COB 5.4.3 R) and, similarly, with the risks involved in mortgage and/or general insurance products.

Other considerations

SIFA 9.10.8

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

SIFA 9.10.9

handbook-guidance
COB Section 5.4 does not apply if you are providing basic advice on a stakeholder product - see COB 5A and Chapter 9.17 of the Guide.

SIFA 9.11

Information about the firm

  • 01/12/2004

SIFA 9.11.1

handbook-guidance
You need to disclose certain information about your firm when you conduct investment business with or for private customers, to ensure they have adequate information about the firm.

SIFA 9.11.2

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

•your firm publishes; or•your employees, agents, representatives, financial advisers and introducers use


such as stationery, business cards, or other business documents.

Why is it important for you to disclose the information?

SIFA 9.11.3

handbook-guidance
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.

What information do you need to disclose?

SIFA 9.11.4

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

•the identity and business address of the firm;•the identity and status or relationship that employees - or other agents of the firm the customer may have contact with - have with the firm; and•the fact that the firm is authorised and regulated by the FSA (or is an appointed representative of such a firm).


This is 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). For business involving packaged products this information is included in the IDD which is given to the private customer on first contact.

Which section of the Handbook applies?

SIFA 9.11.5

handbook-guidance


•the rules and guidance on information about the firm: COB 5.5;•a list of the information you should include in your written communications: Table 5.5.5E in COB; and•statutory status disclosure: GEN 4.3.1 R & GEN 4 Annex 1 R.

Other considerations

SIFA 9.11.6

handbook-guidance
If you give advice to a private customer about packaged products there are additional disclosure requirements in COB 4.3 (Disclosing information about services, fees and commission - packaged products).

SIFA 9.11.7

handbook-guidance
There are further considerations to take into account if you:

• conduct overseas business for UK private customers (COB 5.5.7 R); or• conduct business from an overseas place of business with overseas customers (COB 5.5.8 G).

SIFA 9.12

Excessive charges

  • 01/12/2004

SIFA 9.12.1

handbook-guidance
Principle 6 (Customer's interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. The purpose of COB 5.6 is to ensure that the charges a firm makes to its private customers are not excessive. The obligations to disclose to a private customer the charges a firm intends to make are set out in COB 4.3 and COB 5.7.

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

SIFA 9.12.2

handbook-guidance
COB 5.6.4 G says that you should consider the following to decide whether a charge is excessive:

•how your charges for products or services compare to similar ones in the market;•to what extent the charges made are an abuse of the trust that your customer has placed in your firm; and•the nature and extent of the disclosure of the charges to your private customers.

Where is the relevant section in the Handbook?

SIFA 9.12.3

handbook-guidance
The following sections of the Handbook are relevant:

• COB 5.6 sets out the general requirements;•there is a special provision for charges in respect of designated investments that are not readily realisable (COB 5.6.5 R);• COB 4.3 (Disclosing information about services, fees and commission - packaged products); and• COB 5.7 (Disclosure of charges, remuneration and commission).

SIFA 9.13

Disclosing charges, remuneration & commission

  • 01/12/2004

SIFA 9.13.1

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

•the basis or amount of charges you will charge them for conducting the business; and•the nature or amount of any other income you or your associate will receive.


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

Why do you have to disclose this information?

SIFA 9.13.2

handbook-guidance
The purpose of this requirement is to ensure that you make each private or retail customer aware of the direct or indirect costs he 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).

SIFA 9.13.3

handbook-guidance
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.

How do you disclose this information?

SIFA 9.13.4

handbook-guidance
A firm may make the disclosures required by COB 5.7.3 R in its terms of business, in a client agreement, or in a separate written statement. Disclosure should include any product-related charges that are deducted from the private customer's investment. If the product is a packaged product, product-related charges and expenses will be disclosed in the key features document in line with COB 6.2 and COB 6.4.

SIFA 9.13.5

handbook-guidance
If you are providing advice in connection with packaged products, you should - in line with COB 4.3.3 R - have given your customer a menu setting out the maximum rates of any fees or commissions which the firm may earn or retain in connection with the sale of packaged products. COB 5.7.3 R does not require any further disclosure of a firm's fees if, in line with COB 4.3.6 R, it has confirmed the exact amount or rate that it will charge.

SIFA 9.13.6

handbook-guidance
In addition a private customer should be informed as soon as practicable of the exact rate or the exact amount in cash terms of any commission or equivalent which the firm will receive for a specific transaction. COB 5.7.5 R (2) sets out the circumstances when a firm is to be regarded as receiving commission equivalent.

Where are the relevant sections in the Handbook?

SIFA 9.13.7

handbook-guidance
The following sections of the Handbook are relevant:

•the requirements in COB 5.7;•key features requirements set out in COB 6.2 and COB 6.4, including disclosure of product charges; and•disclosure of commission (or equivalent) for packaged products: COB 5.7.5 R.

Other considerations

SIFA 9.13.8

handbook-guidance
If you conduct business on an execution-only basis for a packaged product, there are certain exceptions to the rules. Full details are can be found at COB 5.7.3 R (2). Any income receivable by an associate also needs to be disclosed.
  • 09/09/2005

SIFA 9.13.9

handbook-guidance
COB 6.7 on Cancellation and Withdrawal applies to product providers and does not concern small advisory firms directly. The COB 6.7 rules vary depending on the product sold and hence advisers may find it useful to be aware of these rules in relation to the rights of their customers.
  • 09/09/2005

SIFA 9.14

Projections

  • 01/12/2004

SIFA 9.14.1

handbook-guidance
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.

Why do you need to follow these rules?

SIFA 9.14.2

handbook-guidance
To avoid committing an offence under section 397 of FSMA (Misleading statements and practices) you should ensure that all forecasts of future values of investments are not misleading, false or deceptive. For 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 about the potential value of future benefits from an investment.

How do you disclose this information?

SIFA 9.14.3

handbook-guidance
A firm must ensure that the projection it gives a customer is relevant to that customer's circumstances (COB 6.6.7 R).

SIFA 9.14.4

handbook-guidance
A firm 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.

SIFA 9.14.5

handbook-guidance
COB 6.6 sets out circumstances in connection with potential sales when projections must be given.

Other considerations

SIFA 9.14.6

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

SIFA 9.14.7

handbook-guidance
We keep the projection rates on investment products under review. In July 2004 we issued DP04/1 Projections Review - the case for change. We will update the FSA Library on our website with any further publications on this subject.

SIFA 9.15

Key Features

  • 01/12/2004

SIFA 9.15.1

handbook-guidance
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.

Key features document

SIFA 9.15.2

handbook-guidance
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. A direct offer financial promotion for a packaged product must also contain key features information (COB 3.9.10 R). 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.

SIFA 9.15.3

handbook-guidance
KFDs must contain an illustration of the effect of charges over time on what the consumer might get back (COB 6.5.24 R and COB 6.5.31 R). 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 R). Your firm may provide these illustrations in a document separate from the main text of the KFD but you should present the documents at the same time.

SIFA 9.15.4

handbook-guidance
When the business with the customer is carried out at a distance, and falls under the definition of a distance contract, as well as the KFD you must also send the customer the terms and conditions of the contract and all the information set out in COB Appendix 1. You do not need to put all this information in one document, as long as you give it all to the customer in a durable medium at the same time as you provide the KFD (COB 6.5.2 R (6)).

SIFA 9.15.5

handbook-guidance
If a consumer has responded to a direct offer financial promotion, the information package you send 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 G).

SIFA 9.15.6

handbook-guidance
When you carry out business with the customer on the telephone, you must give them certain information about your firm and why you are calling (COB 6.4.27 R). Instead of providing the customer with the KFD before they are bound by the contract, which is the rule set out in COB 6.5.2 R (6), you can give the customer some of this information on the telephone and send the KFD afterwards. But the customer must agree to this.

SIFA 9.15.7

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

SIFA 9.15.8

handbook-guidance
COB 6.2.12 R 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.

Simplified prospectus Rules

SIFA 9.15.9

handbook-guidance
In PS05/4 we set out final rules and guidance (COB 6.6) for implementing European requirements on product disclosure information for consumers in relation to collective investment schemes such as unit trusts and OEICS that hold a UCITS certificate enabling them to be marketed in other EEA countries.

SIFA 9.15.10

handbook-guidance
The product information will be contained in a new document known as the Simplified Prospectus. EU rules require this document to be offered to anyone who wants to invest in a collective investment scheme that holds a UCITS certificate.

SIFA 9.15.11

handbook-guidance
Our approach builds on the existing Key Features document by adding new information requirements only where it is necessary to meet EU standards. The new rules and guidance came into effect on 1 May 2005. However, transitional relief is granted until 30 September 2005 where the existing Key Features regime is still to be followed.

Financial Promotion Rules

SIFA 9.15.12

handbook-guidance
You are reminded that key features are a form of financial promotion and are subject to the rules contained in COB 3. Also see section 9.3 of the Guide.

Record Keeping Requirements

SIFA 9.15.13

handbook-guidance
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 of the Guide. These are minimum requirements and you may decide to keep material for longer.

SIFA 9.16

Custody and client money

  • 01/12/2004

SIFA 9.16.1

handbook-guidance
You will find the rules at CASS 2.1 for custody and CASS 4 for client money. Safeguarding and administering client assets is a separate regulated activity and permission must be obtained to carry it out. Many small firms are not allowed to hold client money and custody assets, and hence the Guide does not include a discussion of these rules.

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

SIFA 9.16.2

handbook-guidance
Some firms can get an exemption from the custody rules by following CASS 2.1.9 R (3). The rule 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.

SIFA 9.16.3

handbook-guidance
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 it to the client with a request for an amended cheque.

SIFA 9.16.4

handbook-guidance
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. Firms operating fee agreements where commission is rebated to the client, either directly or by holding excess amounts against future fees, will continue to be able to construct their fee agreements in such a way that the client money rules are not engaged.

Mandates

SIFA 9.16.5

handbook-guidance
You will find the rules on mandates at CASS 4.5. 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 (CASS 4.5.4 G).

SIFA 9.16.6

handbook-guidance
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.

SIFA 9.17

Providing basic advice on stakeholder products (basic advice)

  • 09/09/2005

SIFA 9.17.1

handbook-guidance
Basic advice is intended to be a simpler, quicker and cheaper form of advice to consumers interested in buying a stakeholder product. It covers advice in the form of a recommendation given to a retail customer. The recommendation must relate to a stakeholder product and certain other conditions must be met. These conditions are based on the need for the adviser to make an assessment of the consumer's needs based on the answers that the consumer provides to a series of pre-scripted questions. Firms intending to provide basic advice must ensure that their permission covers the activity.
  • 09/09/2005

SIFA 9.17.2

handbook-guidance
The stakeholder products on which basic advice may be given are:

•cash deposits;•medium term investment products i.e. life assurance contracts or collective investments;•stakeholder pensions; and•Child Trust Funds


These products are the only products that can be sold with basic advice and they must meet certain criteria to be stakeholder products. For example, the charges are capped. Currently, medium-term investment products cannot include a smoothed fund because our research found a risk that consumers who received basic advice may not understand the concept of smoothing.
  • 09/09/2005

SIFA 9.17.3

handbook-guidance
A new Chapter 5A has been included in COB that sets out what firms must do when providing basic advice on a stakeholder product. You must provide an IDD on first making contact with the customer. COB 5A.3.1 R includes rules on the scope and range of advice on stakeholder products. The scope of basic advice may be based on a limited number of providers of stakeholder products or a single provider. The range of stakeholder products provided must include no more than one of each type of product (except for cash deposits). A firm may have several different ranges but only one can be disclosed to the customer.
  • 09/09/2005

SIFA 9.17.4

handbook-guidance
Firms must provide basic advice through a sales process that incorporates pre-scripted questions put to the customer. There is no FSA-mandated script. Instead the firm's sales process must ensure that the firm only recommends that a customer acquire a stakeholder product if it is suitable. The suitability of stakeholder products is covered at COB 5A.4.2 R. COB 5A Annex 1 contains guidance on the steps a firm could take to ensure it complies with the requirements in COB 5A.4.2R (1). A customer must be sent or given a copy of the completed scripted questions and answers.
  • 09/09/2005

SIFA 9.17.5

handbook-guidance
Where the sales process results in a firm making a recommendation to a customer to acquire a stakeholder product it must meet the requirements of COB 5A.4.6 R to COB 5A.4.9 R. The firm must provide the customer with a summary sheet that sets out for each product recommended the amounts the customer wishes to invest and the reasons for the recommendation. It also explains that in determining any subsequent complaint the Financial Ombudsman Service may take into account that the recommendation was based on limited information only. Where a firm gives basic advice on stakeholder products that offer a choice of funds, it must not give advice on, or recommend, a particular fund for the customer.
  • 09/09/2005

SIFA 9.17.6

handbook-guidance
The basic advice regime aims to deliver an assessment whether a stakeholder product is suitable without a detailed assessment of the customer's needs. Hence, it differs from full advice on investments. As a result, some other sections of COB do not apply to a firm when providing basic advice on a stakeholder product:

• COB 5.1 Advising on packaged products;• COB 5.2 Know your customer;• COB 5.3 Suitability; and• COB 5.4 Customer's understanding of risk.


Individuals who give basic advice do not need to be approved persons. They must be competent but there is no specified examination requirement.
  • 09/09/2005

SIFA 9.17.7

handbook-guidance
COB Sch 1 summarises record-keeping requirements concerning the firm's scope and range of stakeholder products. In addition, COB 5A.4.10 R requires a firm to keep a record of each recommendation to acquire a stakeholder product and the customer's summary sheet for at least six years from the date of the recommendation. This is the minimum requirement and you may decide to keep material for longer.
  • 09/09/2005

SIFA 9.17.8

handbook-guidance
Firms that have permission to undertake 'advising on investments' as at 6 April 2005 must notify us in writing of their intention to provide basic advice. The permission will be granted as at the date of our acknowledgement. Firms may notify us using Firms Online or by email or letter.
  • 09/09/2005

SIFA 9.17.9

handbook-guidance
Firms that do not have permission to undertake 'advising on investments' are required to apply for a variation of permission (VOP) - see Chapter 15.1 of the Guide.
  • 09/09/2005

Export chapter as

SIFA 10

Training and Competence

SIFA 10.1

Training and Competence

  • 01/12/2004

SIFA 10.1.1

handbook-guidance
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 own needs effectively and efficiently. This means that firms should take a risk-based approach to T&C so they spend time and resource on the areas that need it rather then applying a standard approach in every circumstance.

SIFA 10.1.2

handbook-guidance

The TC sourcebook contains:

  • Commitments (TC 1); and
  • Rules and Guidance (TC 2).

SIFA 10.1.3

handbook-guidance
Chapter 2 contains sections on recruitment, training, attaining competence, appropriate exams, maintaining competence, supervising and monitoring and record keeping. The TC 2 rules apply to employees of a firm engaging in or overseeing the activities in the table in TC 2.1.4 G. Activities under the heading of 'advising without dealing' are likely to be the most relevant to smaller investment intermediaries, though you should check whether other activities may also be relevant.

SIFA 10.1.4

handbook-guidance
The sections in TC 2 on training, recruitment and supervising and monitoring apply only to activities carried out for private customers.

SIFA 10.2

Commitments

  • 09/09/2005

SIFA 10.2.1

handbook-guidance
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 TC 2 rules.
  • 09/09/2005

SIFA 10.2.2

handbook-guidance
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.
  • 09/09/2005

SIFA 10.3

Rules And Guidance

  • 09/09/2005

SIFA 10.3.1

handbook-guidance
Being competent means being able to show the relevant individual has and maintains the necessary knowledge, skills and experience to do the job and does it to the required standard effectively and consistently. Once assessed as competent the individual can act without being supervised.
  • 09/09/2005

SIFA 10.3.2

handbook-guidance
Competence is made up of:

•application of knowledge and skills; and•appropriate examination passes.


Knowledge and skills must be assessed, measured and improved where necessary.
  • 09/09/2005

SIFA 10.3.3

handbook-guidance
The activity in the Training and Competence sourcebook most likely to be carried out by a small advisory firm is TC 2.1.4 G 1(f) - 'Employees engaging in advising on investments, which are packaged products (other than broker funds or long-term care insurance contracts)'.
  • 09/09/2005

SIFA 10.3.4

handbook-guidance
If employees advise on long-term care insurance (LTCI) contracts (under TC 2.1.4 G 1(ha)), they must be competent to advise on LTCI contracts (under TC 2.4.5 R). This activity became a regulated activity on 31 October 2004. LTCI contract advisers who were deemed competent at that date under a transitional provision in TC do not have to pass an appropriate LTCI examination at the moment. However, this transitional provision remains in force only until 30 October 2006. The effect of this is that LTCI contract advisers deemed competent under the transitional provision must have passed an appropriate LTCI examination before 31 October 2006. Firms whose employees advise on LTCI contracts should also consider whether TC 2.5.5A R applies.
  • 09/09/2005

SIFA 10.3.5

handbook-guidance
If employees provide basic advice on stakeholder products, there is no examination requirement. However, the firm must still assess them as competent before they can give this type of advice without being supervised.
  • 09/09/2005

SIFA 10.3.6

handbook-guidance
We no longer include a list of approved examinations in TC. Instead, the Financial Services Skills Council (FSSC) maintains a list of 'appropriate examinations' from which firms can select an appropriate exam(s). The list of appropriate exams is on the FSSC's website: www.fssc.org.uk/cgi-bin/go.pl/exams/index.html
  • 09/09/2005

SIFA 10.3.7

handbook-guidance

In applying the T&C rules you should consider the following:

  • Who do the rules apply to? (TC 2.1)
  • What is the existing level of knowledge and skills of the individual? (TC 2.2, TC 2.3)
  • What knowledge and skills are required to carry out the role to an adequate standard? (TC 2.4)
  • What action such as training is required to fill the gaps? (TC 2.3)
  • How is it known whether the training has worked? (TC 2.3)
  • How to measure the level of knowledge and skills already achieved and compare this with the level required? TC 2.4)
  • What are the time limits for passing an appropriate examination? (TC 2.5)
  • Once achieved, how is competence to be maintained? (TC 2.6)
  • What arrangements need to be in place to ensure that non-competent employees are appropriately supervised? (TC 2.7)
  • What arrangements need to be in place to ensure that competent employees are appropriately monitored? (TC 2.7)
  • 09/09/2005

SIFA 10.4

Training Plan

  • 09/09/2005

SIFA 10.4.1

handbook-guidance
Firms should have a training plan in place for each employee carrying out an activity listed in TC 2.1.4 G. This plan should cover the testing and measurement of skills and knowledge. The firm must, at intervals appropriate to the circumstances, determine the training needs of those employees and organise appropriate training to address these needs (TC 2.3).
  • 09/09/2005

SIFA 10.5

Recruitment

  • 09/09/2005

SIFA 10.5.1

handbook-guidance
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).
  • 09/09/2005

SIFA 10.6

Maintaining Competence

  • 09/09/2005

SIFA 10.6.1

handbook-guidance
Your firm needs arrangements in place to ensure an employee remains competent. These might include tests, role-plays, and performance indicators or file checks. It is up to the firm to determine the most suitable methods (TC 2.6).
  • 09/09/2005

SIFA 10.7

Supervision And Monitoring

  • 09/09/2005

SIFA 10.7.1

handbook-guidance
You must ensure that if an employee is not assessed as competent they are appropriately supervised until assessed as competent in that activity (TC 2.7.1 R). In the case of an employee advising private customers on packaged products, the individual supervising that employee must have passed an appropriate examination and have the required knowledge and skills before acting as supervisor (TC 2.7.5 R).
  • 09/09/2005

SIFA 10.7.2

handbook-guidance
You must have arrangements in place to ensure that employees who have been assessed as competent are appropriately monitored in that activity (TC 2.7.5A R). The level of monitoring will vary depending on the knowledge and skills of the employee. It is likely to be less intense than the supervision carried out on employees who are not competent.
  • 09/09/2005

SIFA 10.7.3

handbook-guidance
A sole trader or the only director or partner in a firm who is carrying out the activity, can monitor themselves. In both cases, the individual should be able to prove that they have complied with the requirements of TC 2.7.5A R. The sole trader or firm should try to make appropriate arrangements where practicable, as it can be difficult to be objective about one's own performance.
  • 09/09/2005

SIFA 10.7.4

handbook-guidance
If an employee falls below the standard expected of a competent employee, the firm must make arrangements for supervising the employee (TC 2.7.5C R). Where the employee is advising private customers on packaged products, these arrangements should ensure that the individual supervising the employee satisfies the requirements of TC 2.7.5 R as described in paragraph 10.7.1 above.
  • 09/09/2005

SIFA 10.8

Record Keeping

  • 09/09/2005

SIFA 10.8.1

handbook-guidance
TC Sch 1 gives an overall view of the record-keeping requirements. A firm must make and retain 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.
  • 09/09/2005

SIFA 10.8.2

handbook-guidance
Your firm must retain records for at least three years after the individual ceases to carry out an activity. These are minimum requirements and you may decide to keep material for longer.
  • 09/09/2005

SIFA 10.8.3

handbook-guidance
The records of pension transfer specialists must be kept indefinitely.
  • 09/09/2005

SIFA 10.9

T&C Toolkits

  • 09/09/2005

SIFA 10.9.1

handbook-guidance
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.
  • 09/09/2005

SIFA 10.10

Further Help

  • 09/09/2005

SIFA 10.10.1

handbook-guidance
Our Industry Training department run training and competence (T&C) workshops; you can find details on the Industry Training Web Pages on the website (www.fsa.gov.uk/pages/doing/events/workshops/) or phone the Industry Training booking line on 020 7066 0752.
  • 09/09/2005

SIFA 10.10.2

handbook-guidance
We launched a revised T&C CD for Investment Firms in the autumn of 2004 (CDs for mortgage and general insurance firms are also available.) These T&C CDs contain:

•audio material on the T&C sourcebook, including recorded sessions by FSA senior management; and•CD-ROM material on the T&C sourcebook relevant to the type of firm in question.
  • 09/09/2005

SIFA 10.10.3

handbook-guidance
You can order CDs by completing the order form either:

•on our website on the Industry Training web pages (under Distance Learning) at www.fsa.gov.uk/pages/Doing/Events/pdf/DL_TC_IF.pdf; or•on the flyers sent to firms - then fax it to us or send it by post.
  • 09/09/2005

SIFA 10.10.4

handbook-guidance
Firms (or their consultant advisers) should direct T&C queries to the Firms Contact Centre - telephone 0845 606 9966 or email fcc@fsa.gov.uk.
  • 09/09/2005

Export chapter as

SIFA 11

Complaints

SIFA 11.1

How to handle a complaint

  • 01/12/2004

SIFA 11.1.1

handbook-guidance
There are many reasons why clients complain to firms. Typically, complaints arise where:

•a firm makes unexpected or excessive charges; or•a firm does not draw attention to a particularly strict condition in a contract; or•a firm does not give a client adequate notice about changes to a contract; or•a client loses money because of a firm's slow administration; or•a firm does not warn a client adequately about the risks of a product.

SIFA 11.1.2

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

SIFA 11.1.3

handbook-guidance
An example of an eligible complainant is an individual who is classified as a private customer. Individuals who are private customers can refer a complaint to the Financial Ombudsman Service (FOS) if they are unhappy with a firm's final response.

SIFA 11.1.4

handbook-guidance
Your internal complaints-handling procedures must cover:

•receiving complaints;•responding to complaints;•referring complaints to other firms;•the appropriate investigation of complaints; and•notifying complainants of their right to go to the FOS, where relevant.

SIFA 11.1.5

handbook-guidance
A firm must have appropriate management controls to ensure that its complaints handling is managed effectively. The oversight of a firm's compliance must be allocated to a director or senior manager (SYSC 3.2.8 R). Your literature and correspondence relating to complaints should be in clear and plain language (DISP 1.2.14 G).

SIFA 11.1.6

handbook-guidance
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;•for referring to another firm, expressions of dissatisfaction about that firm's services if you market (or have marketed) that firm's financial services or if your financial services are marketed by the other firm (DISP 1.2.1 R); and•the procedures must be written down.

SIFA 11.1.7

handbook-guidance
If you receive a complaint that is the responsibility of another party to the transaction, you must have procedures in place to refer it to the appropriate party rather than simply reject it. See DISP 1.4 for more information.

SIFA 11.1.8

handbook-guidance
If the internal handling of complaints is inadequate, fewer complaints will be resolved at the earliest opportunity and the number of unresolved complaints that are referred to the FOS will increase. The FSA will act where it finds weaknesses in complaint handling that put consumers' interests at risk.

When and where should you publicise your procedures?

SIFA 11.1.9

handbook-guidance
You should publicise your procedures in the following ways:

•You must display a notice stating that the FOS covers your firm. The notice should be displayed in all of your branches or offices that your customers have access to.•Customers should be informed in the firm's IDD what to do if they have a complaint (or in its terms of business if that is provided on first contact with the customer).•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.•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.•All of your employees should be aware of the procedures.

How quickly do you need to deal with a complaint?

SIFA 11.1.10

handbook-guidance
You will want to resolve complaints quickly and efficiently, although 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:

SIFA 11.1.11

handbook-guidance
The steps are explained in more detail below:

SIFA 11.1.12

handbook-guidance
Where a firm has reasonable grounds to be satisfied that another firm may be solely or jointly responsible for the fault alleged in a complaint, it may refer the complaint to that other firm. If it does so, it must refer the complaint promptly and - in any event - within five business days of the date when it became satisfied that the other firm may be responsible for the subject matter of the complaint (DISP 1.4.18 R).

SIFA 11.1.13

handbook-guidance
On receiving a complaint referred by another firm, the standard time limits will apply from the date on which the firm receives the referral. In particular, the firm must send a written acknowledgement to the complainant within five working days. A firm should copy this acknowledgement to the firm that made the referral.

Exception to the rules: quick resolution of complaints

SIFA 11.1.14

handbook-guidance
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.

SIFA 11.1.15

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

•time limits; or•record keeping; or•reporting.
  • 09/09/2005

Charging customers for handling their complaints

SIFA 11.1.16

handbook-guidance
Any provision seeking to charge customers, or to recover costs, for dealing with complaints before the FOS, is unjustifiable, as this could deter customers from exercising their right to refer the dispute to the FOS. In most circumstances we would consider such a clause in a firm's terms of business to be unfair under the Unfair Terms in Consumer Contracts Regulations. In addition, such a clause is, in our view, inconsistent with Principle 6 of the FSA's Principles for Businesses, which requires that you must pay due regard to the interests of its customers and treat them fairly.
  • 09/09/2005

SIFA 11.1.17

handbook-guidance
We recognise that frivolous or vexatious complaints may raise unnecessary administrative burdens for both firms and the FOS alike. In these circumstances, we think it would be legitimate for firms, through their terms of business, to seek to reclaim costs and expenses reasonably incurred by the firm as a result of defending these complaints through the FOS.
  • 09/09/2005

SIFA 11.1.18

handbook-guidance
The question of what is frivolous or vexatious would need to be determined on a case-by-case basis and is likely to be a very small minority of cases. In our view, if the FOS did not dismiss a case during its initial review on the grounds in DISP 3.3.1 R (2), the claim should not be regarded as frivolous or vexatious.
  • 09/09/2005

Cooperation with the financial ombudsman service

SIFA 11.1.19

handbook-guidance
A firm must cooperate fully with the FOS in the handling of complaints against it (DISP 1.6.1 R).
  • 09/09/2005

SIFA 11.1.20

handbook-guidance
Cooperation with the FOS includes, but is not limited to:

•producing requested documents;•adhering to any specified time limits;•attending hearings when requested to do so; and•complying promptly with any settlements or awards (DISP 1.6.2 R).
  • 09/09/2005

Mortgage endowment complaints

SIFA 11.1.21

handbook-guidance
We sent two Dear CEO letters to larger firms in April 2002 and January 2004. These letters set out the kind of investigation and standards that we expect in mortgage endowment complaint handling. You can find these letters on our website under FSA Library and Communication Documents:

www.fsa.gov.uk/pubs/ceo/ceo_letter_4apr02.pdf

www.fsa.gov.uk/pubs/ceo/ceo_letter_23jan04.pdf
  • 09/09/2005

Where are the relevant Handbook sections?

SIFA 11.1.22

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

•the general and additional requirements: DISP 1.2;•additional requirements for internal complaint-handling procedures: DISP 1.3;•the time limits for dealing with a complaint: DISP 1.4; and•who should deal with a complaint: DISP 1.2.16 R.
  • 09/09/2005

Record keeping requirements

SIFA 11.1.23

handbook-guidance
You must keep records for a minimum of three years from when you receive a complaint (DISP 1.5.1 R). This is so that you meet our requirements and are able to co-operate with the FOS if it asks for information about a complaint that is later referred to it. These are minimum requirements and you may decide to keep material for longer.
  • 09/09/2005

SIFA 11.2

Complaints reporting to the FSA

  • 01/12/2004

SIFA 11.2.1

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

Why do you need to submit a complaints report?

SIFA 11.2.2

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

When are the reporting periods?

SIFA 11.2.3

handbook-guidance
You must send a return to us twice each year. The reporting periods are:

•the six months immediately following a firm's accounting reference date; and•the six months immediately preceding a firm's accounting reference date.

SIFA 11.2.4

handbook-guidance
Returns have to be sent to us within 30 business days of the end of the relevant reporting period.

SIFA 11.2.5

handbook-guidance
All firms will have to collect complaint data in the new reporting format from 1 April 2005. However, we only expect firms to submit complaints data to us electronically from 1 July 2005. This means that data for the period 1 April 2005 to 30 June 2005 should be included in a firm's first return after 1 July 2005.

How do you submit a report?

SIFA 11.2.6

handbook-guidance
The returns will be submitted via the Firms Online system within 30 business days of the reporting period end date. Complaints returns are not part of the Retail Mediation Activities Return (RMAR) but will be submitted in the same way. The format of the return may be found at DISP 1 Annex 1 R.

•The returns are in a grid format that allows analysis of complaints by product and complaint type. There are separate returns for private individual complaints and small business complaints.•The returns also require information covering all customers of: the number of complaints considered, complaints upheld, complaints referred to the FOS, complaints resolved (and the time taken), outstanding complaints and the amount of redress paid.

Where are the relevant Handbook sections?

SIFA 11.2.7

handbook-guidance
The following sections of the Dispute Resolution: Complaints (DISP) sourcebook are relevant:

•an explanation of what an eligible complainant is: DISP 2.4.3 R;•the reporting periods: DISP 1.5.6 R;•the Financial Ombudsman Service funding rules: DISP 5; and•how to notify the FSA if you do not conduct business with eligible complainants: DISP 1.1.7 R to DISP 1.1.8 R.

Export chapter as

SIFA 12

Reporting and notifications

SIFA 12.1

Reporting requirements

  • 01/12/2004

SIFA 12.1.1

handbook-guidance
We need timely and accurate information from firms so that we can carry out our required duties under FSMA. You are required to send some information as regular reports and some as notifications if and when a particular event occurs. You may be subject to enforcement action if you fail to submit the returns on time (ENF 13.5).

SIFA 12.1.2

handbook-guidance
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.

SIFA 12.1.3

handbook-guidance
This is in line with Principle 11 (Relations with regulators) that requires a firm to deal with the FSA in an open and co-operative way and to disclose anything relating to the firm that we would reasonably expect notice of, and also Principle 4 (financial prudence).

Submission of reports

SIFA 12.1.4

handbook-guidance
The table below highlights the reports that your firm must send to us each year after 1 April 2005 - see SUP transitional provisions (SUP TP 1.1 12B) for details of your first reporting date. Firms that are required to submit an RMAR (Retail Mediation Activities Return) must do so by electronic means made available by FSA (SUP 16.7.6A R).

SIFA 12.1.5

handbook-guidance
The information that we are requesting from firms in the RMAR includes:

•financial (balance sheet, profit and loss account, client money and assets, regulatory capital, PII);•threshold conditions (resources, close links, approved persons, controllers);•training and competence (number of staff, advisers and supervisors);•conduct of business (sources of business, advertising, commission clawed back);•product sales data (data on sales of general insurance products); and•fees information.

Frequency and Timing of returns

SIFA 12.1.6

handbook-guidance
Generally firms will be required to submit returns to us electronically every six months. However the following exceptions apply.

•For the first year after the requirements are implemented we do not require smaller firms to submit financial information at their half-year end (i.e. for the six month period following their accounting reference date). This will give these firms more time to adapt to the requirements. However they must still submit the remaining RMAR sections half-yearly. For this purpose, we have defined small firms as those with an annual income of £60,000 or less.•Larger firms will be required to report financial information quarterly. Larger firms are those with an annual income of more than £5 million.

SIFA 12.1.7

handbook-guidance
Firms are required to collect data from 1 April 2005 and report it twice each year based on the firm's accounting reference date (ARD). You will have to submit data to cover the two six-month periods before and after your firm's ARD. We require the information within 30 business days of the end of each period.

SIFA 12.1.8

handbook-guidance
For example, if a firm has an ARD of 31 December, it must report twice a year based on the following periods:

•1 January - 30 June, and•1 July - 31 December.


A firm with an ARD of 31 March would have the following reporting periods:

•1 April - 30 September, and•1 October - 31 March.

SIFA 12.1.9

handbook-guidance
As the reporting requirements do not come into effect until 1 April, the first reporting period may be less than a full six month period for some firms. For example, one of the returns for a firm with an ARD of 31 December would normally cover the period from 1 January - 30 June. However, the first return will cover the period from 1 April 2005 to 30 June 2005 only. You will be able to view your firm's submission timetable by accessing the reporting timetable on the Firms Online system from July 2005. You can access Firms Online at: www.fsa.gov.uk/Pages/Doing/Regulated/Firms/Index.shtml

SIFA 12.1.10

handbook-guidance
We will require the information within 30 business days of the end of each period. The reporting requirements are subject to strict time limits under our rules. If firms do not meet these time limits, we are proposing to charge firms an administration fee of £250.

Where Will You Find The Reports

SIFA 12.1.11

handbook-guidance
You will find the reports on our website under Integrated Regulatory Reporting. The IRR homepage is: www.fsa.gov.uk/Pages/Doing/Regulated/Returns/IRR/index.shtml

Other Reports

SIFA 12.1.12

handbook-guidance
You may also need to submit the following reports:

Pension Transfer and Opt-Out Report

SIFA 12.1.13

handbook-guidance
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.

SIFA 12.1.14

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

SIFA 12.1.15

handbook-guidance
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 COB 5.3.26 R (1A).

Where are the relevant Handbook sections?

SIFA 12.1.16

handbook-guidance
The following sections of the Handbook are relevant:

•notifications to the FSA: SUP 15; and•reporting to the FSA: SUP 16.

How do you submit the reports to us?

SIFA 12.1.17

handbook-guidance
The RMAR must be submitted electronically via Firms Online. Each firm's return will be generated on the day following the end of the reporting period. The firm has 30 business days to complete and submit it.

SIFA 12.1.18

handbook-guidance
You may be required to send other reports to us in a particular way. However, the following methods may usually be used:

•email;•post;•hand delivery; or•fax - (if you deliver by fax you must also send the report by one of the methods above within five working days, depending on the particular requirement for the report).

Other issues

SIFA 12.1.19

handbook-guidance
You should consider whether the following reporting requirements are relevant to your firm where it holds client money or assets:

• SUP 3.10 details when an auditor would need to submit a client assets report.•You should also check the notification requirements in CASS Sch 2.

SIFA 12.2

Notifications

  • 01/12/2004

SIFA 12.2.1

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

A. Matters having a serious regulatory impact:

B. Communications with us in line with Principle 11:

C. 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:

D. General notification requirements:

E. Other notification requirements:

When should you notify us?

SIFA 12.2.2

handbook-guidance
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 than the first business day after the end of the period. If a notification rule does not require notification within a specified period, then your firm should act reasonably in deciding when to notify us.

How do you notify us?

SIFA 12.2.3

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

SIFA 12.2.4

handbook-guidance
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.

SIFA 12.2.5

handbook-guidance
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 Firms Contact Centre.

SIFA 12.2.6

handbook-guidance
Through Firms Online you can access the forms to send us information quickly and reliably. There are electronic forms available for standing data, appointed representatives and other notifications.

Where are the relevant Handbook sections?

SIFA 12.2.7

handbook-guidance
The following Handbook sections are relevant:

•notification requirements: SUP 15;•the methods of delivery: SUP 15.7.5 R; and•notifications required for particular products or services: SUP 15.8.

Other considerations

SIFA 12.2.8

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

SIFA 12.2.9

handbook-guidance
Firms registered for Firms Online are able to see and update their standing data electronically. Standing data includes such information as address, contact details, regulated activities, auditors and accounting reference date. From 1 July 2005 firms will be required to check the data that we hold about them once a year and to let us know via Firms Online if any changes are required within 30 business days of the firm's accounting reference date.

SIFA 12.2.10

handbook-guidance
If we do not have accurate information about your firm, we may not be able to calculate your fees accurately - for example, if we have inaccurate information on your regulated activities or number of approved persons.

SIFA 12.3

Change of controller

  • 09/09/2005

SIFA 12.3.1

handbook-guidance
To monitor, and in some cases give prior approval to, a firm's controllers we must receive the information we need from firms. We also need to monitor the impact of any significant change in the circumstances of one or more of a firm's controllers - for example, in their financial standing. The full definition of 'controller' may be found in the Handbook Glossary. Broadly, it includes anyone with a shareholding of 10% or more or anyone who is able to exercise significant influence over the management of the firm.
  • 09/09/2005

SIFA 12.3.2

handbook-guidance
SUP 11 covers controllers and close links and applies to every firm apart from partnerships and sole traders. SUP 11.3 sets out the information which a controller must give us before becoming a controller or increasing the level of control held. The rules in SUP 11.4 to SUP 11.6 cover the notification requirements on firms. SUP 11.8 and SUP 11.9 require firms to notify us of changes in the circumstances of existing controllers and of changes in their close links.
  • 09/09/2005

SIFA 12.3.3

handbook-guidance
When an individual or corporate body is purchasing shares which take their holding over 10% of the shares in the firm, Part XII of FSMA requires the new controller to complete and submit a Controllers Form A. A change in control also occurs when an existing controller increases or decreases control through levels of 20%, 33% or 50% (SUP 11.3.7 D to SUP 11.3.9 D).
  • 09/09/2005

SIFA 12.3.4

handbook-guidance
If the proposed new controller is an individual they must also complete a Controllers Form B for approval. If the proposed new controller is a corporate body then the chief executive and one other director are each required to complete a Controllers Form B (SUP 11.3.7 D to SUP 11.3.9 D). These may not be required if these persons are approved persons who have completed an Approved Persons Form A within the previous 12 months.
  • 09/09/2005

SIFA 12.3.5

handbook-guidance
New controllers and increases in control through one of the above thresholds need to be approved by us before they happen. Applications should be submitted within 14 days of parties becoming aware of the planned change. Approval must be sought from us in advance of the change and can take up to three months. You can submit change in control forms using Firms Online.
  • 09/09/2005

SIFA 12.3.6

handbook-guidance
Should approval be granted, the new controller must also notify us when the change of control actually takes place (SUP 11.3.16 G).
  • 09/09/2005

SIFA 12.3.7

handbook-guidance
Firms are also required to notify a change in control (SUP 11.4.2 R). The rules about the content and timing of the notification are at SUP 11.4.7 R. A firm must also notify us when a change in control which was notified has actually taken place (SUP 11.6.4 R).
  • 09/09/2005

SIFA 12.3.8

handbook-guidance
In some cases separate notifications from both a firm and its controller would duplicate documentation. So we permit joint and shared notifications from both the firm and the controller (SUP 11.5.8 G to SUP 11.5.10 G and SUP 11.6.6 G).
  • 09/09/2005

SIFA 12.4

Change in legal entity

  • 09/09/2005

SIFA 12.4.1

handbook-guidance
FSA authorisation and the scope of permission granted attaches to each firm (the legal entity) individually. When a new firm is formed, it is a different legal entity and it is not possible for authorisation to move to the new firm. The new firm must apply for authorisation. There is a Simple Change of Entity Application Pack for use when the new firm is substantially the same as the old e.g. same staff and permission. This is available from our website.
  • 09/09/2005

SIFA 12.4.2

handbook-guidance
In the case of a two person partnership, if one partner leaves then the partnership is dissolved. If the firm wishes to continue in business the remaining partner will need to apply for authorisation as a sole trader. Other changes involving partners leaving a partnership could also result in a firm having to reapply for authorisation - such changes should be discussed with your usual supervisory contact.
  • 09/09/2005

Export chapter as

SIFA 13

Record Keeping

SIFA 13.1

General requirement

  • 01/12/2004

SIFA 13.1.1

handbook-guidance
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 promptly on paper in English. (SYSC 3.2.20 R).

SIFA 13.1.2

handbook-guidance
A firm should have appropriate systems and controls to fulfil its regulatory and statutory obligations on the adequacy, access to, 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 can be reproduced on paper.

SIFA 13.1.3

handbook-guidance
When you report data and submit forms to the FSA electronically you should save a version of what you have submitted for your own records. Firms should not rely on Firms Online for record-keeping purposes. The FSA is not your record keeper and record-keeping remains your responsibility.

SIFA 13.1.4

handbook-guidance
You will find detailed record keeping requirements throughout the Handbook. Schedule 1 to each of the sourcebooks is an overall summary of these requirements. These are minimum requirements and you may decide to keep material for longer.

SIFA 13.1.5

handbook-guidance
A firm's files are its first line of defence if it receives a complaint. An adviser should maintain their files to a standard that allows another similarly qualified adviser to read and understand the advice given quickly and easily.
  • 09/09/2005

SIFA 13.1.6

handbook-guidance
You should remember that the Guide deals only with our record-keeping requirements. Other parties such as HM Revenue and Customs, auditors and PII insurers may have different requirements which you must also understand and comply with.
  • 09/09/2005

Export chapter as

SIFA 14

Money Laundering

SIFA 14.1

Money Laundering

  • 01/12/2004

SIFA 14.1.1

handbook-guidance
FSMA gives us a statutory objective of reducing the extent to which regulated firms are used in connection with financial crime, including money laundering. FSMA gives us powers to make our own rules on money laundering, as well as prosecuting firms for breaches of the Money Laundering Regulations 2003. Both the rules and the Regulations are high level. They are complemented by more detailed industry guidance produced by an industry body, the Joint Money Laundering Steering Group (JMLSG). The JMLSG Guidance Notes aim to help firms to comply with the rules and the Regulations, in particular with customer identification requirements.

The Money Laundering sourcebook

SIFA 14.1.2

handbook-guidance
The Money Laundering (ML) sourcebook details our Rules and Guidance on anti-money laundering systems and controls that aim to reduce the opportunities for money laundering. Alongside these regulatory requirements, there are also requirements imposed by the criminal law and the Proceeds of Crime Act 2002. So, there are two parallel regulatory regimes and firms must comply with both.

SIFA 14.2

Further rules to take into consideration

  • 09/09/2005

SIFA 14.2.1

handbook-guidance
You should also take the following rules into consideration:

•If you are a sole trader with no employees, not all the provisions in ML apply (ML 8.1).•Other areas of the FSA Handbook, which refer to money laundering, are detailed in ML 1.2.3 G. This includes rules in SYSC 3 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.
  • 09/09/2005

Export chapter as

SIFA 15

Variation and cancellation of permission

SIFA 15.1

Variation of permission (VOP)

  • 01/12/2004

SIFA 15.1.1

handbook-guidance
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. If your firm wishes to alter the regulated activities it undertakes, you must apply to us for a variation of permission. Rules and guidance on this are in SUP 6.

SIFA 15.1.2

handbook-guidance
You can see the permissions that you (or any other firm) currently hold by carrying out a 'Firm search' in the FSA Register. The FSA Register is available on our website.

SIFA 15.1.3

handbook-guidance
A firm can apply to us to vary its permission if it wants to do one or more of the following:

•carry on further regulated activities (such as general insurance and mortgages); or•reduce the number of regulated activities it is permitted to undertake; or•vary the description of its regulated activities (including the removal or variation of any limitations); or•add, remove or vary any requirement.

SIFA 15.1.4

handbook-guidance
Limitations and requirements are covered in AUTH 3.6 and AUTH 3.7 and are also described in Chapter 6 of the Guide. Our powers are described in SUP 7.

SIFA 15.1.5

handbook-guidance
Under section 45 of FSMA, we can also 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.

SIFA 15.1.6

handbook-guidance
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 VOP 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 smaller investment intermediaries is the Firms Contact Centre. A substantial variation of permission could mean that the firm falls into a different fee block (see Chapter 18 of the Guide). In these circumstances a non-refundable application fee will be due and must be submitted at the time the application is made (see SUP 6.3.21 G).

SIFA 15.1.7

handbook-guidance
If your firm applies for a VOP to add new regulated activities, you should bear in mind that a firm is required to begin the activity within 12 months of being granted a VOP. 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.

SIFA 15.1.8

handbook-guidance
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. Form A is required if your firm intends to recruit new people to undertake controlled functions. We require Form C for persons ceasing to perform controlled functions, and Form E is for the internal transfer of an approved person or for an approved person to perform additional controlled functions. For more information on Approved Persons see Chapter 7 of the Guide.

Application Procedure

SIFA 15.1.9

handbook-guidance
If your firm wishes to apply for a VOP, you should complete a variation of permission application form. You can access the form and submit it to us using Firms Online. The form is also available through the Handbook section of the CD-ROM under Forms. You are advised to discuss an application with your usual supervisory contact at the FSA before sending in your request. You must address and deliver the application to us as explained in SUP 15.7.4 R to SUP 15.7.6 G.

SIFA 15.1.10

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

SIFA 15.1.11

handbook-guidance
As soon as possible after receiving 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 up to six months from receipt during which to deal with a fully completed application. However, if the application is incomplete, the time limit is extended to 12 months.

SIFA 15.1.12

handbook-guidance
SUP 6 Annex 2 G provides a flowchart that summarises the procedures for applying for a variation of Part IV permission.

SIFA 15.2

Cancellation of permission

  • 01/12/2004

SIFA 15.2.1

handbook-guidance
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 while still carrying out business, as long as your firm has formal plans to cease all regulated activities in the short term (within six months from the date of application for the cancellation of permission).

SIFA 15.2.2

handbook-guidance
As with variation of permission (VOPs), we may cancel a firm's permission under our own-initiative powers.

SIFA 15.2.3

handbook-guidance
There is no fee for applying to cancel. If a firm wants to cancel some, but not all, of its regulated activities, it should apply to vary its permission instead.

SIFA 15.2.4

handbook-guidance
Before applying for its Part IV permission to be cancelled a firm must either:

•have ceased carrying on regulated activities; or•plan to cease doing so within six months of the application being made.

SIFA 15.2.5

handbook-guidance
The firm should have also:

•told its clients and its approved persons of its intention to cancel its permission;•paid all its outstanding fees;•filed any regulatory returns that are due;•resolved any complaints against it; and•made suitable arrangements to deal with any subsequent complaints and liabilities that might arise.

Cancellation Procedure

SIFA 15.2.6

handbook-guidance
If you wish to cancel your firm's permission, you must complete and submit the Cancellation of Part IV Permission application form. This may be done in several ways:

•you may access the Online form and send it to us using Firms Online;•you may access the form from our website under 'FSA Library - Forms'; or•you may obtain a form from the Firm Contact Centre.

SIFA 15.2.7

handbook-guidance
A cancellation application may also be delivered to us by any of the methods explained in SUP 15.7.4 R to SUP 15.7.6 G. If you have any questions, you should contact the Cancellation Team at the FSA. When we receive the application, we will send your firm an acknowledgement that will explain the cancellation process and detail the information required. We may ask for further information - depending on the type of firm, the type of clients and the manner of disposal of the business.

SIFA 15.2.8

handbook-guidance
The deletion of controlled functions is an automatic part of the process. A firm applying for cancellation does not also need to notify the withdrawal of persons who perform controlled functions using Form C.

SIFA 15.2.9

handbook-guidance
We will give the firm written notice if we grant the application, or a decision notice if we reject it. We may refuse to cancel a permission if it appears that cancellation would harm the interests of consumers or, in appropriate circumstances, we may apply additional procedures or require additional information. A firm may refer our decision notice rejecting its application to the independent tribunal.

SIFA 15.2.10

handbook-guidance
As with VOPs, until the cancellation has been approved, your firm must inform us immediately if it becomes aware of any significant changes in the information you have submitted.
  • 09/09/2005

SIFA 15.2.11

handbook-guidance
To contact the Cancellation Team:

•email cancellation.team@fsa.gov.uk;•telephone on 020 7066 1102;•fax on 020 7066 9798; or•write to: Cancellation Team, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS
  • 09/09/2005

SIFA 15.2.12

handbook-guidance
There is guidance on the forms. SUP 6 Annex 3 G provides a flowchart that summarises the procedures for applying for a cancellation of Part IV permission. There is more detail at SUP 6.4 of the Handbook.
  • 09/09/2005

Export chapter as

SIFA 16

Waivers and rule modifications

SIFA 16.1

General approach

  • 01/12/2004

SIFA 16.1.1

handbook-guidance
We may, on the application or with the consent of your firm, state that certain rules:

•are not to apply to your firm; or•are to apply to your firm with specified modifications.

SIFA 16.1.2

handbook-guidance
Under FSMA we can only grant a waiver where we are satisfied that:

•compliance by your firm with the rule would be unduly burdensome or would not achieve the purpose for which the rule was made; and•the waiver would not result in undue risk to persons whose interests the rules are intended to protect.

SIFA 16.1.3

handbook-guidance
SUP 8 sets out our approach to waivers. Most but not all rules can be waived (see SUP 8.2.6 G to SUP 8.2.8 G). Schedule 6 to each sourcebook identifies the rules in that sourcebook that can and cannot be waived.

SIFA 16.1.4

handbook-guidance
Unless there are exceptional circumstances, we normally publish the details of waivers we have given. You can view the details of published waivers through the FSA Register which we update monthly. Before you do so, you will need to know the name of the firm or the rule that has been waived. You can access the FSA Register from our website.

SIFA 16.2

Application for a Waiver

  • 09/09/2005

SIFA 16.2.1

handbook-guidance
You must use the standard form on our website if you apply for a waiver (referred to at SUP 8.3.3 D and SUP 8 Annex 2 D). You can access the form and submit it to us using Firms Online.
  • 09/09/2005

SIFA 16.3

Waiver by Consent

  • 09/09/2005

SIFA 16.3.1

handbook-guidance
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.
  • 09/09/2005

Export chapter as

SIFA 17

Individual guidance, whistleblowing,
auditors

SIFA 17.1

Individual Guidance

SIFA 17.1.1

handbook-guidance
A firm or an individual may ask us for individual guidance on how the rules and general guidance in the Handbook, FSMA 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 smaller investment intermediaries this will usually be the Firm 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.

SIFA 17.1.2

handbook-guidance
If a firm acts in line with current individual written guidance that we give to it, then we will proceed on the basis that the firm has complied with the aspects of the rule or other requirement to which the guidance relates.

SIFA 17.1.3

handbook-guidance
SUP 9.4.2 G explains that the extent to which a firm can rely on individual guidance will depend on many factors such as the degree of formality of the original query and the guidance given and whether all relevant information was submitted with the request.

SIFA 17.1.4

handbook-guidance
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.

SIFA 17.2

Whistleblowing

  • 09/09/2005

SIFA 17.2.1

handbook-guidance
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:

•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;•reasonably believe the information and any allegations in it are substantially true; and•reasonably believe the FSA is responsible for the issue in question.
  • 09/09/2005

SIFA 17.2.2

handbook-guidance
SYSC 4.2.2 G (2)(b) describes what may be appropriate internal procedures for smaller firms so that employees can raise concerns. Our direct whistleblowing telephone number is 020 7066 9200 and our direct email address is whistle@fsa.gov.uk. Letters may also be sent to Authorisation Enquiries Department (Ref: PIDA) at the FSA. Further information is available from our website under 'Whistleblowing'.
  • 09/09/2005

SIFA 17.3

Auditors

  • 09/09/2005

SIFA 17.3.1

handbook-guidance
Small personal investment firms are exempt from the requirement to appoint an auditor (SUP 3.1), but nonetheless where such a firm is a limited company or limited liability partnership it must produce audited accounts for statutory purposes. Sole traders and partnerships do not need to produce statutory audited accounts. An authorised firm cannot take advantage of the small company's audit exemption.
  • 09/09/2005

SIFA 17.3.2

handbook-guidance
Financial data included in the Retail Mediation Activities Reports does not have to be audited. The requirement to report within 30 business days of the period end will not usually allow sufficient time to complete an audit.
  • 09/09/2005

SIFA 17.3.3

handbook-guidance
A firm should consider whether it should notify us under Principle 11 if:

•the firm expects or knows its auditor will qualify their report on the audited annual financial statements or add an explanatory paragraph (SUP 3.7); or•the firm receives a written communication from its auditors commenting on internal controls (SUP 3.7).
  • 09/09/2005

Export chapter as

SIFA 18

Fees

SIFA 18.1

Fees

  • 01/12/2004

SIFA 18.1.1

handbook-guidance
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.

SIFA 18.1.2

handbook-guidance
Broadly, we use three main types of fee to finance our activities:

•periodic fees;•application fees; and•special project fees.

SIFA 18.1.3

handbook-guidance
Periodic fees are paid annually, to provide most of the funding we require to undertake our statutory functions.

SIFA 18.1.4

handbook-guidance
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.

SIFA 18.1.5

handbook-guidance
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.

SIFA 18.2

Periodic Fees

  • 09/09/2005

SIFA 18.2.1

handbook-guidance
Fundamentally, three things decide the fees that organisations have to pay us:

•what kind of activities they undertake (a firm's permission);•the costs we incur in regulating that class, or classes, of activities; and•the scale on which they undertake those activities.
  • 09/09/2005

SIFA 18.2.2

handbook-guidance
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.
  • 09/09/2005

SIFA 18.2.3

handbook-guidance
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.
  • 09/09/2005

SIFA 18.2.4

handbook-guidance
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.
  • 09/09/2005

SIFA 18.2.5

handbook-guidance
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)
  • 09/09/2005

SIFA 18.2.6

handbook-guidance
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).
  • 09/09/2005

SIFA 18.2.7

handbook-guidance
The tariff-base for this fee-block is the number of approved persons, in customer functions 21, 22, 24, 25 and 26. So firms falling into this fee-block would pay periodic fees based on this measure, multiplied by the fee tariff-rates for the fee-block. The number of approved persons used in the calculations is measured as at 31 December in the year before the period to which the fee applies. For 2005/06 fees the date is 31 December 2004.
  • 09/09/2005

SIFA 18.2.8

handbook-guidance
The fee tariff-rates for each fee-block are in the FSA Handbook, in the Supervision Manual (SUP 20 Annex 1 R). SUP 20.3 sets out the rules about the information on which fees are calculated. A firm must send us any information required to calculate that firm's fee. In most cases a firm will provide this information as part of its compliance with other provisions of SUP.
  • 09/09/2005

SIFA 18.3

Application Fees

  • 09/09/2005

SIFA 18.3.1

handbook-guidance
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.
  • 09/09/2005

SIFA 18.3.2

handbook-guidance
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:

•straightforward;•moderately complex; and•complex.
  • 09/09/2005

SIFA 18.3.3

handbook-guidance
The complexity of an application is determined by the fee-block(s) to which an applicant would be allocated if the application were successful.
  • 09/09/2005

SIFA 18.3.4

handbook-guidance
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 allocate them to either fee-block A.12 or A.13. Applications for the activities covered by these fee-blocks are deemed to be straightforward.
  • 09/09/2005

SIFA 18.3.5

handbook-guidance
An authorised firm may seek to significantly vary its 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).
  • 09/09/2005

SIFA 18.3.6

handbook-guidance
Application fee rates for each fee-block are located in the FSA Handbook, in the Authorisation Manual (AUTH 4 Annex 1 RR).
  • 09/09/2005

SIFA 18.4

Where Are The Relevant Handbook Sections?

  • 09/09/2005

SIFA 18.4.1

handbook-guidance
The main sections of the FSA Handbook relating to fees that small firms should be aware of are:

•general provisions regarding fees: GEN 3;•application fee rules and current rates per fee-block: AUTH 4, AUTH 4 Annex 1 R;•periodic fee rules, current rates per fee-block and fee-block definitions: SUP 20, SUP 20 Annex 1 R; and•variations of permission: SUP 6.
  • 09/09/2005

SIFA 18.5

Further Information

  • 09/09/2005

SIFA 18.5.1

handbook-guidance
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). This paper now includes levy consultations for the FOS and FSCS. 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.
  • 09/09/2005

SIFA 18.5.2

handbook-guidance
In June each year, we update our Consolidated Policy Statement on our fee-raising arrangements. This document provides further detail on our fee policy, and you will find it in the 'FSA Library' section of our website.
  • 09/09/2005

SIFA 18.5.3

handbook-guidance
We currently send one bill to firms covering both our fees and the FOS and FSCS levies. We are working in partnership with the FOS and FSCS on plans that will allow firms to pay their fees by instalments. In our Consultation Paper CP05/2 we requested feedback from the industry to gauge the level of demand for a facility whereby firms could pay by instalments. We received a positive response from firms and trade associations. A working group of representatives from the FSA, FSCS and the Small Business Practitioner Panel has taken forward this initiative after meeting with interested trade associations and credit providers. In CP05/2 we are also providing a clearer indication, through examples, of what firms' fees and levies will be - so firms can budget more effectively.
  • 09/09/2005

SIFA 18.5.4

handbook-guidance
We are helping minimum fee-payers by implementing minimum fee discounts. Firms pay only 50% of the minimum fee where they hold permissions for activities they carry out as a minimal part of their business. This means that a firm will not pay high fees if it does a small amount of business in a fee-block in addition to its main source of business.
  • 09/09/2005

SIFA 18.5.5

handbook-guidance
Our website contains further information and questions and answers about the level of this year's fees - under 'Paying Fees' and 'Fees for IFAs'.
  • 09/09/2005

Export chapter as

SIFA 19

Further information

SIFA 19.1

FSA contacts

  • 01/12/2004

a) Handbook and publications

SIFA 19.1.1

handbook-guidance
Printed copies of publications and Handbook subscriptions and amendments are available from The Stationery Office Online at www.tso.co.uk/bookshop or from the helpline number 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

b) FSA website: www.fsa.gov.uk

SIFA 19.1.2

handbook-guidance
Our website is an essential resource for firms and provides fully updated information and help. For example, clicking on 'Doing business with the FSA', gives you access to 'Information for small firms'. This dedicated section contains information specifically relevant to smaller investment intermediaries. The site includes information on topics about which the Firms Contact Centre frequently receives questions from firms.

SIFA 19.1.3

handbook-guidance
Our website also gives access to electronic reporting via Firms Online.

SIFA 19.1.4

handbook-guidance
You will find the FSA Register on the website. The Register lists the permission of every FSA-authorised firm, their appointed representatives and the controlled functions allocated to every approved person.

c) FSA Industry Training Courses, FSA Events and Conferences

SIFA 19.1.5

handbook-guidance
FSA Industry Training: see our website for further details of an extensive range of workshops: www.fsa.gov.uk/Pages/Doing/Events/index.shtml or telephone 020 7066 0752. Under Distance Learning we offer CDs on MCOB, ICOB, Training & Competence, Effective Complaints Handling and Introduction to the FSA which may be of interest to small firms.

FSA Events and Conferences: Some information is on our website (listed above). Alternatively, contact the FSA Events team by phone on 020 7066 0098, by fax on 020 7676 0063 or email at events@fsa.gov.uk.

d) FSA Authorisation and Approved Persons

SIFA 19.1.6

handbook-guidance
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 on our website. You can also contact the Authorisation & Approvals Helpline by telephone 020 7066 3954 or by email corporate.authorisation@fsa.gov.uk.

You can download the Application Pack and Guidance notes from our website free of charge (www.fsa.gov.uk/Pages/Doing/How/index.shtml) or you can order a printed copy from our Publications Helpline 0845 0608 2372 (at a charge).

On our website you will find application packs tailored for specific types of firms/situations i.e. for applications from small firms, sole traders and currently authorised firms wishing to make a simple change to their legal entity status.

SIFA 19.1.7

handbook-guidance
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.

e) FSA Register

SIFA 19.1.8

handbook-guidance
The FSA Register is a public record of financial services firms, individuals and other bodies which fall under the FSA's regulatory jurisdiction. It includes information from 1 December 2001 when FSMA came into force. The FSA Register is provided online from our website to enable firms and consumers to conduct ad hoc searches for firms and individuals.

f) FSA fees

SIFA 19.1.9

handbook-guidance
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. There is also information on our website.

g) The Firms Contact Centre

SIFA 19.1.10

handbook-guidance
The Firms Contact Centre provides a helpline for firms that do not have a relationship manager. This is where you should direct queries on issues that are more complicated or where you cannot find the information you need from our website. You can reach the Contact Centre as follows:

•by email at fcc@fsa.gov.uk;•by telephone 0845 606 9966 (local rate). Lines are open between 9.00am and 5.00pm Monday to Thursday and 10.30am to 5.00pm on Friday;•by letter to Firms Contact Centre, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or•by fax 020 7066 0991.

h) Forms

SIFA 19.1.11

handbook-guidance
Several forms are mentioned in this publication. Forms are available to be downloaded from our website, can be completed on Firms Online in many cases, or may be found in the Handbook section of the CD-ROM under Forms.

i) Firms Online

SIFA 19.1.12

handbook-guidance
Firms Online is a new system that is available to authorised firms through our website. You can log onto the system and use it to:

•view your 'firm profile' i.e. a summary of information such as standing data, regulated activities and approved persons;•access various electronic forms; and•(from July 2005) submit regulatory returns.


You can access Firms Online at:

www.fsa.gov.uk/pages/doing/regulated/firms/index.shtml

Further information about how to register for Firms Online is available on our website:

www.fsa.gov.uk/pubs/other/IRR_factsheet.pdf

j) Financial Promotions Hotline

SIFA 19.1.13

handbook-guidance
As a regulated firm, you can help us to investigate misleading advertisements. If you see an advertisement that you feel is unfair, unclear or misleading, please tell us so that we may take action. You can report an advertisement in two ways:

•call our dedicated Hotline on 08457 300 168; or•fill in our reporting form located on our website. The form may be completed online or printed and posted to us.

k) Complaints against the FSA

SIFA 19.1.14

handbook-guidance
If you wish to make a complaint against the FSA you may do so by phone on 020 7066 9870 or by email to complaints@fsa.gov.uk

l) FSA switchboard

SIFA 19.1.15

handbook-guidance
Whilst every effort has been made to ensure that the telephone numbers and links within The Guide are correct, they are subject to change. If you are unable to find the number you need, please call our Switchboard on 020 7066 1000.

m) FSA service standards

SIFA 19.1.16

handbook-guidance
The Performance Account provides information about our service standards and performance and adds to the information in our Annual Report. It may be found on our website in 'FSA Library' and then 'Corporate documents'.

Other Contacts: Financial Ombudsman Service (FOS)

SIFA 19.1.17

handbook-guidance
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.
  • 09/09/2005

SIFA 19.1.18

handbook-guidance
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.
  • 09/09/2005

Financial Services Compensation Scheme (FSCS)

SIFA 19.1.19

handbook-guidance
Contact by email: enquiries@fscs.org.uk or telephone 020 7892 7300.
  • 09/09/2005

Joint Money Laundering Steering Group (JMLSG)

SIFA 19.1.20

handbook-guidance
The JMLSG website www.jmlsg.org.uk explains where you can get the JMLSG Guidance Notes. AIFA is a member of the Steering Group.
  • 09/09/2005

The Financial Services Skills Council (FSSC)

SIFA 19.1.21

handbook-guidance
The Financial Services Skills Council maintains a list of appropriate examinations. The FSSC web site is www.fssc.org.uk and the list of examinations is at:

www.fssc.org.uk/cgi-bin/go.pl/exams/index.html.

Alternatively you can contact the FSSC by telephone on 020 7216 7366.
  • 09/09/2005

Export chapter as

SIFA App 1

Appendix A: Brief
definitions of terms in the guide

SIFA App 1.1

Appendix A: Brief definitions of terms in the guide

SIFA App 1.1.1

handbook-guidance
The following are brief definitions of terms used in the Guide. Before taking any action you should also check the FSA Handbook Glossary.

Export chapter as

SIFA App 2

Appendix B: Own funds - worked examples

SIFA App 2.1

Appendix B: Own funds - worked examples

  • 09/09/2005

SIFA App 2.1.1

handbook-guidance
  • 09/09/2005

SIFA App 2.1.2

handbook-guidance
  • 09/09/2005

SIFA App 2.1.3

handbook-guidance
  • 09/09/2005

SIFA App 2.1.4

handbook-guidance
  • 09/09/2005

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