SIFA 5
FSA Principles, Systems and Controls
SIFA 5.1
FSA Principles
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SIFA 5.1.1
See Notes
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.
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SIFA 5.1.2
See Notes
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.
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SIFA 5.1.3
See Notes
Table:
| • | Authorise firms that satisfy the necessary conditions (the threshold conditions) by granting permission to carry on specified regulated activities; |
| • | Approve individuals to carry on controlled functions in firms as being fit and proper to carry out these functions; |
| • | Answer technical enquiries about whether firms require authorisation or individuals require approval; |
| • | Seek to ensure that investment business is not being carried out by unauthorised firms; and |
| • | Collect and maintain intelligence information about authorised firms and individuals. |
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SIFA 5.1.4
See Notes
Before granting Part IV permission (permission
for a firm to carry on regulated activities under the Financial Services and
Markets Act 2000 (the Act)) we must ensure that the applicant satisfies and
will continue to satisfy the threshold conditions. These are as follows:
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SIFA 5.1.5
See Notes
| Threshold Conditions | |
| • | Legal status - can be a sole trader, partnership, limited liability partnership or a limited company. |
| • | The head office and registered office must be in the UK if your firm is a body corporate formed in the UK. |
| • | Close links with connected persons such as directors, controllers or partners must not impede FSA supervision. |
| • | A firm must have adequate financial resources. |
| • | Suitability - the applicant must be fit and proper. |
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SIFA 5.1.6
See Notes
The threshold conditions are set out
in Schedule 6 of the Act. There is guidance on the conditions in COND. You
are responsible for ensuring that you continue to meet the threshold conditions
in order to retain your authorisation and scope of permission.
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SIFA 5.1.7
See Notes
Following a successful application, we
will grant an applicant Part IV permission. The scope of your firm's permission
is set out in a Scope of Permission Notice that defines the scope in terms
of regulated activities together with any limitations on customer type or
product and any other requirements or restrictions.
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SIFA 5.1.8
See Notes
Table:
| Typical investment business regulated activities for IFAs are: | |
| • | Arranging deals in investments. |
| • | Making arrangements with a view to transactions in investments. |
| • | Advising on investments. |
| • | Advising on pension transfers and opt-outs. |
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SIFA 5.1.9
See Notes
Your permission will specify the regulated
activities and the investments where you can do business with private customers.
A permission may also include one or more limitations or requirements as explained
in section 5.1.13 below.
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SIFA 5.1.10
See Notes
You are responsible on a continuing basis
for ensuring that your firm holds the correct permission that includes the
investment business activities that you wish to carry out.
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SIFA 5.1.11
See Notes
Both the Authorisation and Supervision
manuals are relevant.
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SIFA 5.1.12
See Notes
In the Authorisation manual (AUTH) there
is:
(1) An overview of the sourcebook in AUTH
chapter 1.
(2) An explanation of the authorisation process
and the permission regime in AUTH chapter 3. This includes the following sections:
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SIFA 5.1.13
See Notes
Table:
| • | Permission to carry on regulated activities: AUTH 3.4 |
| • | Information on specified investments: AUTH 3.5 |
| • | Information on limitations: AUTH 3.6. An example of a limitation is where we limit the number of clients a firm can deal with during an initial period until its systems are proven. |
| • | How we may impose requirements: AUTH 3.7. For example, some firms have a requirement to submit independent compliance reviews or not to hold client money. |
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SIFA 5.1.14
See Notes
After Part IV permission has been granted,
a firm can apply to vary or cancel that Part IV permission including any limitation
or requirement, at any time. The procedures that need to be followed are set
out in SUP chapter 6.
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SIFA 5.1.15
See Notes
Chapter 15 of this Overview covers Variation
and Cancellation of Permission.
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SIFA 5.1.16
See Notes
The Application Pack and Guidance notes
are available from our:
(1) Publications Helpline or our Enquiries
and Applications Department at a charge of £25.00 plus VAT; or
(2) from our website. (We plan to produce
enhanced guidance and a shorter version of the Application form to help smaller
firms with their applications. This should be available for firms to use in
the first quarter of 2004.)
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SIFA 5.1.17
See Notes
When we grant an application for Part
IV permission, we will update the FSA Register with the activities the firm
has permission to carry on. You can access the Register on our website.
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SIFA 5.1.18
See Notes
There are the following further issues
relating to authorisation:
(1) The scope of your firm's permission affects
the fees you pay us. Broadly, the wider the scope the higher the fees.
(2) The scope of your permission may also
affect the category of business into which your firm falls for financial resources
purposes.
(3) We consider the scope of a firm's permission
when deciding which risk category the firm falls into. We monitor firms in
a higher risk category more closely.
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SIFA 5.1.19
See Notes
Table:
|
The
following sections of this Overview are also relevant: •'FSA supervision of small firms' - Chapter 6; •'Approved persons' - Chapter 7; •'Variation of permission' - Chapter 15.1; •'Cancellation of permission' - Chapter 15.2; and •'Fees' - Chapter 18. |
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SIFA 5.2
Who do the Principles apply to and what is their purpose?
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SIFA 5.2.1
See Notes
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).
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SIFA 5.3
Where are the Principles in the Handbook?
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SIFA 5.3.1
See Notes
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:
| The Principles | |
| 1. | Integrity: A firm must conduct its business with integrity. |
| 2. | Skill, care and diligence: A firm must conduct its business with due skill, care and diligence. |
| 3. | Management and control: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. |
| 4. | Financial prudence: A firm must maintain adequate financial resources. |
| 5. | Market conduct: A firm must observe proper standards of market conduct. |
| 6. | Customers' interests: A firm must pay due regard to the interests of its customers and treat them fairly. |
| 7. | Communications with clients: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way, which is clear, fair, and not misleading. |
| 8. | Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. |
| 9. | Customers: relationships of trust: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement. |
| 10. | Clients' assets: A firm must arrange adequate protection for client's assets when it is responsible for them. |
| 11. | Relations with regulators: A firm must deal with its regulators in an open and co-operative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. |
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SIFA 5.4
Senior Management Arrangements, Systems and Controls
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SIFA 5.4.1
See Notes
These are set out in the Senior Management
Arrangements, Systems and Controls Sourcebook (SYSC). This part of the Handbook
expands the meaning of Principle 3.
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SIFA 5.4.2
See Notes
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.
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SIFA 5.4.3
See Notes
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:
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.
•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.
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SIFA 5.4.4
See Notes
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SIFA 5.5
Other Requirements
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SIFA 5.5.1
See Notes
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).
| The following sections of the Guide are also relevant: | |
| • | Threshold Conditions in 'Authorisation' - Chapter 6 |
| • | 'Money Laundering' - Chapter 14 |
| If you do mortgage or general insurance business you should also refer to MIGI 3. | |
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