Authorisation
General Prohibition
Punishment
The general prohibition (FSMA S.19) says it is an offense for someone to carry out a regulated activity unless authorised or exempt.
A breach may be a criminal offence, punishable by up to 2 years in jail and/or a fine.
Authorisation
Authorisation by PRA/FCA of firms previously authorised under old legislation
Firms authorised under old legislation were automatically authorised by the FSA for their previously authorised activities, and by the FCA & PRA since 1/4/13.
Authorisation
Who to appeal to if refused authorisation?
Can appeal to the Upper Tribunal (Tax and Chancery Chamber).
Authorisation
8 items in Part II of Regulated Activity Order (RAO)
- Banking
- Home Finance
- Insurer
- Scheme Operator
- Investment Intermediary
- Insurance Intermediary
- Investment Management
- Credit-related
Authorisation
Additional S.22 FSMA requirement for an activity to be a regulated activity
It must be carried out ‘by way of business’ to be a regulated activity.
Authorisation
3 types of exempt firm
Appointed Representatives have a contract drawn up with a regulated firm (the principal) who take responsibility for their actions. Can be a full advice AR or just an introducer appointed representative (IAR), restricted to making introductions and distributing advertisements.
Designated Professional Bodies (DPB) don’t need FCA authorisation for regulated activities which are incedental to their professional services. They’re known as Exempt Professional Firms (EPFs) and are listed separately on the Financial Services Register. If they want to do extra stuff they must register and become Authorised Professional Firms (APF).
Some specific bodies are exempt (BofE, ECB, local authorities, various government bodies).
Applications
Application type for regulated activities
Time limit for FCA response
Any person wishing to carry out one or more regulated activities must apply for Part 4A permission (unless they are exempt or can abide by terms of exclusion).
FCA have 6 months to respond, or 1 year if there was information missing from the application.
Applications
Insurance Firms
Which regulator do insurers apply to?
What the regulator assesses
Insurance firms apply to the PRA.
The PRA assess them from a prudential perspective and determine if they meet the threshold conditions.
The FCA assess them from a conduct perspective.
Applications
Change of legal entity
If a regulated firm has a change of legal entity type it must reapply for authorisation (between sole trader and partnership is fine).
Controlled Functions
Difference between an authorised person and an approved person
The authorised person is the business that carries on the regulated activity.
The approved person is the individual who has been approved to carry out a controlled function within the business.
Controlled Functions
Requirement for individuals carrying out controlled functions
3 types of controlled function
Must be individually approved and registered.
Controlled functions involve one of:
- A significant influence over the conduct of an authorised persons activities;
- Dealing with customers in connection with regulated activities; or
- Dealing with the property of customers in connection with regulated activities.
FCA Controlled Functions
5 high level controlled function types
- Governing Functions
- Required Functions
- Systems and Controls Functions
- Significant Management Functions
- Customer-dealing Functions
FCA Controlled Functions
Governing Functions - 3 groups
- Director (including Director, NED, CEO, director of unincorporated assocation)
- Partner
- Small friendly society
FCA Controlled Functions
6 Required Functions
- Apportionment and Oversight
- Compliance oversight
- CASS operational oversight
- Money laundering reporting
- Benchmark submission
- Benchmark administration
PRA Senior Management Functions
2 types
- Executive Functions
- Oversight Functions
PRA Senior Management Functions
7 Executive Functions
- Chief Executive
- Chief Finance
- Chief Risk
- Head of internal audit
- Head of key business area
- Group entity senior manager
- Credit union SMF
PRA Senior Management Functions
6 Oversight Functions
- Chairman
- Chair of risk committee
- Chair of audit committee
- Chair of remunderation committee
- Senior independent director
- Head of overseas branch
PRA Senior Management Functions
Individual Registration issue
Since PRA doesn’t have any customer functions (due to it’s nature as a regulator), individual registration may be necessary for some people.
This gives the FCA disciplinary powers over the individual as well as the firm.
Appointed Representatives
Typical activities
If already an authorised person?
Client assets
Typical activities are:
- Advising on investments;
- Arranging deals in investments.
There is no ‘dual status’, you can’t be an AR if you are already an authorised person.
You can’t hold client assets for longer than required to deal with them (28 day max), can NEVER hold client money.
Appointed Representatives
Appointment
3 requirements for the principal
Before appointing an AR the principal must establish on reasonable grounds that:
- the appointment doesn’t prevent the firm from satisfying threshold conditions;
- the person is solvent, suitable to act for the firm and has no close links preventing their effective supervision;
- the firm has adequate controls over ARs regulated activities and is ready and organised to comply with any applicable requirements.
Appointed Representatives
Appointment
Rules
Directors and senior managers of the AR must be approved persons.
Principal must accept responsibility in writing for the ARs activities. Must be signed by both parties before work starts.
Appointed Representatives
Appointment
Multi-principals
Termination
A firm carrying on investment business may only be the AR of one principal firm.
The contract can be terminated in writing by the principal. The FCA must be notified within 10 business days.
Record Keeping
COBs rules for record keeping
Indefinitely - Pension transfers, pension opt-outs and free standing additional voluntary contributions (FSAVCs).
Five years - Life policies and pension contracts, most other items.
Six years - Financial promotions for the above products.
Three years - Non-MiFID firms in some circumstances.
Reporting
Items to be reported to FCA
- Details of major holdings of limited companies (>10%);
- Details of organisations with close links (20% subsidiaries, sister companies);
- Financial resources, accounts etc;
- Complaints received by the firm.
Also
- Amounts held in client bank accounts and value of client discretionary fund assets;
- Types of business undertaken;
- Staff undertaking certain roles.
