03. Fitness and Propriety

Fit and Proper

Under the Financial Services and Markets Act 2000 (FSMA), every firm conducting investment business must be fit and proper and ensure that its affairs are conducted soundly and prudently.

Senior Managers Regime (SMR)

Individuals will be in a position where they control and manage the firm’s business (on a day-to-day basis) and are responsible for the firm’s regulatory obligations. Individuals will be approved by the regulator.

Senior Managers & Certification Regime (SM&CR) essence.

Introduced by PRA & FCA to bring individual accountability to staff working in the banking industry

Senior Managers & Certification Regime (SM&CR) three parts:

Senior Managers Regime. | Certification Regime. | Conduct Rules.

Appointed Representative

An individual or a company, who must be a party to a contract with an authorised person that allows them to carry on certain regulated activities.

The SM&CR applies to all FSMA-authorised firms, except ...?

Appointed Representatives | and Benchmark Administrators.

Certification Regime

Individuals will not be approved by the regulators, rather they will be given a ‘certificate’ by their firm to confirm that they are ‘fit and proper’ to perform their role.

Conduct Rules

All UK-based employees of relevant firms will be subject to highlevel conduct rules. There are additional conduct rules for individuals who are classified as a senior manager.

FCA applied the SM&CR to ‘solo-regulated’ firms it implemented a proportionate regime, introducing three types of firms with different levels of application:

Core scope. | Limited scope. | Enhanced scope.

A set of Conduct Rules apply to

apply to all relevant employees based in the UK, | or who deal with customers in the UK.

Money Laundering Reporting Officer (MLRO)

A senior employee who is responsible for the prevention of financial crime, for assessing internal suspicion reports, and for reporting those suspicions to the National Crime Agency (NCA).

Approved Persons (APER)

Individuals who are approved by FCA to undertake controlled functions.

Senior Managers Regime (SMR) captures certain individuals performing defined senior management functions (SMFs). These individuals typically comprise: ___

Chief executive officer, chief risk officer and chief finance officer –

Certain individuals holding an SMF may also be apportioned specific ‘___’ identified by the PRA and FCA.

specific ‘prescribed responsibilities’ identified by the PRA and FCA.

An individual may only perform a Senior Management Function after the regulator has granted them ___?

has granted them 'approved person' status.

FSMA imposes a statutory obligation on the FCA and PRA to reach a determination on a person’s fitness and propriety as SMF within __ days of receiving 'Form A'.

within 90 days of receiving 'Form A'.

Requirements and classifications the SM&CR:

Prescribed Responsibilities. | Management Responsibilities Map. | Duty of Responsibility.

Prescribed Responsibilities must __?

must be allocated to the most senior individuals of those performing SMFs.

Management Responsibilities Map essence:

Documents a firm’s management and governance arrangements, including how the prescribed responsibilities have been allocated.

Duty of Responsibility requires SMF holders,

to fulfil any prescribed responsibilities | and prevent breaches.

SMF for UK Banks. FCA functions:

Executive Director function. | Chair of the Nominations Committee function. | Compliance Oversight function. | Money Laundering Reporting function. | Other Overall Responsibility function.

SMF for UK Banks. PRA functions:

Chief Executive function.| Chief Finance.| Chief Risk.| Head of Internal Audit.| Head of Key Business Area.| Group Entity Senior Manager.| Credit Union SMF. | Chairman. | Chair of the Risk Committee.| Chair of the Audit Committee.

Application to FCA Solo-Regulated Firms. Limited Scope Firm examples:

sole traders, | service companies, | energy market participants, | oil market participants, | authorised professional firms

Limited Permission Consumer Credit firms that would have had an CF8 under APER:

SMF29

Sole traders with no employees

SMF16

Authorised professional firms whose only regulated activities are non-mainstream regulated activities:

SMF16, SMF17 & SMF29

Oil market participants, service companies, energy market participants, subsidiaries of local authorities or registered social landlords:

SMF16 and SMF17

Insurance intermediaries whose principal business is not insurance intermediation:

SMF29

Core and Enhanced Firms:

SMF1, 3, 9, 16, 17, 18, 27

Senior Managers have been tasked with the following where the Consumer Duty applies:

The Consumer Duty should be reflected in firm’s strategies, governance, leadership and people policies.

Individuals subject to the Certification Regime (CR) are not __?

are not approved by the regulators.

The CR requires firms to assess, both at the__ and on an __ thereafter, the fitness and propriety of certain employees within the firm who could pose a risk of significant harm to the firm

at the recruitment stage and | on an annual basis thereafter,

MRTs stands for:

‘material risk takers’

The Certification Regime. FCA approach includes individuals performing their function who:

previously performing a significant influence function (SIF) | are performing a significant harm function, | are in customer-facing roles, | supervise or manage a Certified Person, | is an individual is employed by a UK bank*

Significant-harm functions include:

CASS oversight, | Benchmark administration, | proprietary trader, | significant management, | material risk takers

‘Material risk taker’ is defined in the PRA Remuneration Rulebook as:

individual whose activities, carried out on behalf of the firm, could have a material impact on the firm’s risk profile.

CR. Firms must provide a ‘certificate’ to individuals __?

annually

The term ‘code staff’ refers to employees whose activities have __?

have a material impact on the firm’s risk profile.

The Conduct Rules are:

a framework of behavioural standards which are applicable to all individuals.

Individual Conduct Rules which all relevant employees are required to adhere to.

Integrity, | Due care, | Openness to cooperate with FCA & PRA, | Customers interest acting. | Market conduct observing.

Conduct Rules for Senior Managers (SC):

You must to ensure that the business is controlled effectively.| Business complies with relevant requirements and standards.| Ensure that delegation of your responsibilities is to an appropriate person.| Disclose any information of which the FCA & PRA.

SYSC 27 (Senior Management Arrangement, Systems and Controls) title:

Senior managers and certification regime: Certification regime.

Fit and Proper Test (FIT) essence:

Individuals performing SMFs are required to be approved by the regulator as fit and proper before taking on that function.

Fit and Proper Test (FIT). A person the regulator will look at a number of factors against a set of criteria:

Honesty and reputation, | Competence and capability,| Financial soundness.

Honesty and reputation. The FCA will have regard to whether a person has been:

Convicted of a criminal offence, | subject of an adverse finding in a civil case, | previous investigation by any regulator, | the subject of a justified complaint, | insolvent business, | disqualified as a director.

Competence and Capability. FCA will have particular regard to whether the person:

Satisfies the requirements from Training and Competence Sourcebook. | Has relevant experience and training. | Has adequate time to perform the controlled function

Financial Soundness. A regulator will have particular regard to whether the person:

Has been subject to any judgement to repay a debt. | Has filed for bankruptcy,

FCA Handbook. The document containing...

containing the FCA rules and guidance which authorised firms must comply. The Handbook is divided into a number of separate Sourcebooks.