COND 2.5 Suitability15

15Paragraph 2E of Schedule 6 to the Act sets out the suitability threshold condition for firms carrying on, or seeking to carry on, regulated activities which do not consist of or include a PRA-regulated activity.

15Paragraph 3D of Schedule 6 to the Act sets out the suitability threshold condition which is relevant to the discharge by the FCA of its functions under the Act in relation to firms carrying on, or seeking to carry on, regulated activities which include a PRA-regulated activity.

15The guidance in COND 2.5 should be read as applying to both paragraph 2E of Schedule 6 to the Act and, as far as relevant to the discharge by the FCA of its functions under the Act in respect of firms carrying on, or seeking to carry on, a PRA-regulated activity, paragraph 3D of Schedule 6 of the Act.

15Firms carrying on, or seeking to carry on, a PRA-regulated activity, should note that the PRA is also responsible for assessing suitability under its own threshold conditions. Paragraphs 4E and 5E of Schedule 6 to the Act set out the suitability threshold conditions which are relevant to the discharge by the PRA of its functions under the Act in relation to firms carrying on, or seeking to carry on, a PRA-regulated activity. For the avoidance of doubt, this guidance does not apply to the threshold conditions set out in paragraph 4E and 5E of Schedule 6 to the Act.

1. (1)

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2. (2)

   The FCA15 will also take into consideration anything that could influence a firm's continuing ability to satisfy the threshold conditions set out in paragraphs 2E and 3D of Schedule 6 to the Act15. Examples include the firm's position within a UK or international group, information provided by overseas regulators about the firm, and the firm's plans to seek to vary its Part 4A permission15 to carry on additional regulated activities once it has been granted that permission.

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1. (1)

   The emphasis of the threshold conditions set out in paragraphs 2E and 3D of Schedule 6 of the Act15 is on the suitability of the firm itself. The suitability of each person who performs a controlled function will be assessed by the FCA and/or the PRA, as appropriate,15 under the approved persons regime (in relation to an FCA-approved person, 16see SUP 10A (FCA Approved Persons in Appointed Representatives19), SUP 10C (FCA senior managers regime for approved persons in SMCR firms)18 and FIT). In certain circumstances, however, the FCA15 may consider that the firm is not suitable because of doubts over the individual or collective suitability of persons connected with the firm.

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2. (2)

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3. (3)

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1. (1)

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2. (2)

   Examples of the kind of general considerations to which the FCA may have regard when assessing whether a firm will satisfy, and continue to satisfy, the threshold conditions set out in paragraphs 2E and 3D of Schedule 6 to the Act include, but are not limited to, whether the firm:15

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   1. (a)

      conducts, or will conduct, its business with integrity and in compliance with proper standards;

   2. (b)

      has, or will have, a competent and prudent management; and

   3. (c)

      can demonstrate that it conducts, or will conduct, its affairs with the exercise of due skill, care and diligence.

3. (3)

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4. (4)

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Examples of the kind of particular considerations to which the FCA may have regard when assessing whether a firm will satisfy, and continue to satisfy, this threshold condition include, but are not limited to, whether:15

1. (1)

   the firm has been open and co-operative in all its dealings with the FCA15and any other regulatory body (see Principle 11 (Relations with regulators)) and is ready, willing and organised to comply with the requirements and standards under the regulatory system (such as the detailed requirements of SYSC and, in relation to a firm not carrying on, or seeking to carry on, a PRA-regulated activity only, the Prudential Standards part of the FCA Handbook)15in addition to15 other legal, regulatory and professional obligations; the relevant requirements and standards will depend on the circumstances of each case, including the regulated activities which the firm has permission, or is seeking permission, to carry on;

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2. (1A)

   the firm has made arrangements to put in place an adequate system of internal control to comply with the requirements and standards for which the FCA is responsible under the regulatory system;15

3. (2)

   the firm has been convicted, or is connected with a person who has been convicted, of any criminal offence; this must include, where provided for by the Rehabilitation Exceptions Orders14 to the Rehabilitation of Offenders Act 1974 or the Rehabilitation of Offenders (Northern Ireland) Order 1978 (as applicable)14, any spent convictions; particular consideration will be given to offences of dishonesty, fraud, financial crime or an offence under legislation relating to companies, building societies, industrial and provident societies, credit unions, friendly societies, banking,14 other financial services, insolvency, consumer credit companies, insurance, consumer protection, money laundering, market manipulation and14 insider dealing8, whether or not in the United Kingdom1514;

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4. (3)

   the firm has been the subject of, or connected to the subject of, any existing or previous investigation or enforcement proceedings by the FCA,15 the Society of Lloyd's or by other regulatory authorities (including the FCA's15 predecessors), clearing houses or exchanges, professional bodies or government bodies or agencies; the FCA15 will, however, take both the nature of the firm's involvement in, and the outcome of, any investigation or enforcement proceedings into account in determining whether it is a relevant matter;

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5. (4)

   the firm has contravened, or is connected with a person who has contravened, any provisions of the Act or any preceding financial services legislation, the regulatory system or the rules, regulations, statements of principles or codes of practice (for example the Society of Lloyd's Codes) of other regulatory authorities (including the FCA's15 predecessors), clearing houses or exchanges, professional bodies, or government bodies or agencies or relevant industry standards (such as the Non-Investment Products Code); the FCA15 will, however, take into account both the status of codes of practice or relevant industry standards and the nature of the contravention (for example, whether a firm has flouted or ignored a particular code);

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6. (5)

   the firm, or a person connected with the firm, has been refused registration, authorisation, membership or licence to carry out a trade, business or profession or has had that registration, authorisation, membership or licence revoked, withdrawn or terminated, or has been expelled by a regulatory or government body; whether the FCA15 considers such a refusal relevant will depend on the circumstances;

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7. (6)

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8. (7)

   the firm has put in place procedures which are reasonably designed to:

   1. (a)

      ensure that it has made its employees aware of, and compliant with, those requirements and standards under the regulatory system that apply to the firm for which the FCA is responsible15 and the regulated activities for which it has, or will have permission;

   2. (b)

      ensure that its approved persons and18 the rest of its conduct rules staff 16are aware of those requirements and standards under the regulatory system applicable to them, whether or not they are employed by the firm;16

   3. (c)

      determine that its employees are acting in a way compatible with the firm adhering to those requirements and standards; and

   4. (d)

      determine that its approved persons and18 the rest of its conduct rules staff, 16are adhering to those requirements and standards;

9. (8)

   the firm or a person connected with the firm has been dismissed from employment or a position of trust, fiduciary relationship or similar or has ever been asked to resign from employment in such a position; whether the FCA15 considers a resignation to be relevant will depend on the circumstances, for example if a firm is asked to resign in circumstance that cast doubt over its honesty or integrity;

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10. (9)

    the firm or a person connected with the firm has ever been disqualified from acting as a director;15

11. (10)

    the governing body of the firm is made up of individuals with an appropriate range of skills and experience to understand, operate and manage the firm's regulated activities;15

12. (11)

    where appropriate, the governing body of the firm includes non-executive representation, at a level which is appropriate for the control of the regulated activities proposed, for example, as members of an audit committee;15

13. (12)

    those persons who perform controlled functions under certain arrangements entered into by the firm or its contractors (including appointed representatives or, where applicable, tied agents) act with due skill, care and diligence in carrying out their controlled function (see APER 4.2 (Statement of Principle 2) or COCON 2.1.2R18 or managing the business for which they are responsible (see APER 4.7 (Statement of Principle 7) or COCON 2.2.2R, as applicable18);15

14. (13)

    the firm, or a person connected with the firm, has been a director, partner or otherwise concerned in the management of a company, partnership or other organisation or business that has gone into insolvency, liquidation or administration while having been connected with that organisation or within one year of such a connection;15

15. (14)

    the governing body of the firm is organised in a way that enables it to address and control the regulated activities of the firm, including those carried on by managers to whom particular functions have been delegated;15

16. (15)

    the firm has developed human resources policies and procedures that are reasonably designed to ensure that it employs only individuals who are honest and committed to high standards of integrity in the conduct of their activities;15

17. (16)

    the firm has taken reasonable care to ensure that robust information and reporting systems have been developed, tested and properly installed;15

18. (17)

    the firm has in place appropriate systems and controls against financial crime, including, for example, money laundering;15

19. (18)

    in the case of a firm that carries on insurance distribution17 activity:

    1. (a)

       employees or other persons17 within its management structure who are responsible for the firm’s insurance distribution activities17; and15

    2. (b)

       employees or17 other persons directly involved in the carrying on of the firm’s insurance distribution activities; and17

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    3. (ba)

       employees or other persons responsible for the supervision of a relevant employee acting in the capacity as set out in (b),17

    demonstrate the appropriate17 knowledge and ability in order to complete their tasks and perform17 their duties adequately (see competent employee rule and SYSC 28 (Insurance distribution: specific knowledge; ability and good repute requirements))17; and15

    1. (c)

       all the persons in the firm's management structure and any staff directly involved in insurance distribution17 activity are of good repute (see SYSC 28.3 (Good repute)17);

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    2. (d)

       natural persons working in the firm, responsible for ancillary insurance distribution activities are of good repute (see SYSC 28.3.3R); and17

20. (18A)

    20in the case of a firm that carries on regulated funeral plan activities:

    1. (a)

       all the persons in the firm’s management structure and any staff directly involved in regulated funeral plan activities are of good repute (see SYSC 28A.2 (Good repute)); and

21. (19)

    where appropriate, the firm has appointed auditors and actuaries, who have sufficient experience in the areas of business to be conducted.15