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FSA extends approved persons regime

Financial Services Authority



The Financial Services Authority (FSA) has announced an extension to its approved persons regime, under which individuals who perform controlled functions on behalf of an authorised firm must be ‘fit and proper’ to carry out those functions. FSA had previously stated in its supervisory enhancement programme (SEP) that it would be placing greater emphasis on senior management and Non-Executive Directors (NEDs).

This new policy statement extends the significant influence provisions under the approved persons regime to bring those who are likely to exert a significant influence on a firm within its reach, including those working for holding companies or for firms based outside the EEA.

To do this FSA has extended the scope and application of CF1, director function, and CF2, Non-Executive Director, to include those persons employed by an unregulated parent undertaking or holding company, whose decisions or actions are regularly taken into account by the governing body of a regulated firm.

In addition the CF29 significant management controlled function is extended to include all proprietary traders who are not senior managers but who are likely to exert significant influence on a firm. The application of the approved persons regime is also now extended to UK branches of overseas firms based outside the EEA.

This new extension of the regime follows SEP, which closed earlier this year and was a part of the FSA general review following its flawed supervision of Northern Rock. One aim of SEP was to clarify FSA’s expectations of individuals who perform significant influence functions at regulated firms.

In the original SEP proposals FSA said it would be clarifying the role of NEDs and be looking more closely at them where it believes that they should have intervened more actively within a firm’s management. In the current announcement FSA has decided to await the recommendations of both the Walker Review of Corporate Governance of UK Banking Industry and the Financial Reporting Council’s review of the Combined Code on Corporate Governance before making a final decision on this NED issue. The results of the decision are expected to be announced in a further consultation paper on governance, to be published by FSA in Q4 2009.

Graeme Ashley-Fenn, director of permissions, decisions and reporting division at FSA, said:

“It is important that directors and senior managers at firms understand their regulatory obligations and have the relevant competencies and experience to carry out their roles with integrity.

“Since October 2008, the FSA has carried out 115 interviews for ‘significant influence’ posts at high impact firms. Nine applications have been withdrawn as a result. Once in post, where individuals fail to meet the required standards the FSA will consider enforcement action.”

These changes will come into effect on 6 August 2009 with a transitional period of six months. FSA has said firms should now begin assessing which individuals require approval under this new policy extension and submit timely applications to comply with the end of the transitional period.

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