The purpose of this chapter is to provide guidance on the provisions concerning approved persons as they relate to credit unions.

The full provisions are to be found in the following sourcebooks or manuals of the Handbook:

1. (1)

   The Statements of Principle and Code of Practice for Approved Persons (APER)

2. (2)

   Fitness and Propriety (FIT)

3. (3)

   Authorisation manual (AUTH)

4. (4)

   Supervision manual (SUP)

5. (5)

   Enforcement manual (ENF)

Guidance on all the provisions of the manuals concerning approved persons is provided below, but the following points summarise the key parts of the proposals:

1. (1)

   FSA has specified various functions which are seen as key to the operation of a credit union and which are referred to as controlled functions.

2. (2)

   A controlled function may be performed only by a person who is a fit and proper person to perform the function to which the approval relates.

3. (3)

   The purpose of these provisions is to complement the regulation of credit unions themselves.

4. (4)

   The manuals provide full details concerning all aspects of the application process, the criteria for assessment, the range of controlled functions and disciplinary action.

The purpose of this section is to provide a guide to the Statements of Principle and Code of Practice for Approved Persons (APER) which are issued for the guidance of approved persons in the conduct of their functions and follows the structure of the statements and code.

APER 1.1 provides that APER applies to approved persons.

APER 1.2 explains that section 64(2) of the Act provides that if the FSA issues Statements of Principles it must also issue a code of practice for the purpose of helping to determine whether a person's conduct complies with these Statements of Principle. The code has been issued for that purpose. It also sets out some guiding principles concerning the application of the Statements of Principle and the Code of Practice for Approved Persons. Statements of Principle 1, 2, 3 and 4 apply to all approved persons performing a controlled function for a credit union, and Statements of Principle 5, 6, and 7 apply to those approved to perform significant influence functions. All controlled functions performed for a credit union are significant influence functions (APER 1.2.4 G).

APER 2.1 sets out the seven Statements of Principle which apply to approved persons. These are all designed to ensure that approved persons undertake their roles efficiently and with integrity. All seven Principles may apply to approved persons performing functions for credit unions.

The table in APER 2.1.2 P sets out the full text of the Statements of Principle. These are repeated below for ease of reference.

1. (1)

   An approved person must act with integrity in carrying out his controlled function.

2. (2)

   An approved person must act with due skill, care and diligence in carrying out his controlled function.

3. (3)

   An approved person must observe proper standards of market conduct in carrying out his controlled function.

4. (4)

   An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice.

5. (5)

   An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively.

6. (6)

   An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.

7. (7)

   An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the regulatory requirements imposed on that business.

APER 3.1 provides an introduction to the Code of Practice for Approved Persons and provides guidance on its operation. The key points for those involved with credit unions are as follows:

1. (1)

   An approved person will be in breach of a Statement of Principle only where his conduct was deliberate or where his standard of conduct was below that which would be reasonable in the circumstances.

2. (2)

   All the Statements of Principle may apply to approved persons performing a controlled function for a credit union.

APER 3.2 - APER 3.3 set out factors to be taken into account in determining whether or not an approved person's conduct complies with the Statements of Principle. Since all controlled functions relevant to credit unions are significant influence functions, all these factors are relevant to credit unions.

APER 4.1 APER 4.7 set out the seven Statements of Principle in turn, and provide guidance on conduct which, in the opinion of the FSA, does not comply with each of the Statements of Principle or, in the case of APER 4.3, conduct which will tend to show compliance with the relevant Statement of Principle.

Details of the disciplinary measures which may be taken against approved persons are located in ENF 11ENF 13. Approved persons should note that disciplinary action may be taken either for their personal misconduct or for conduct which results in a credit union breaching any provisions to which it is subject.

The purpose of this section is to provide a guide to those parts of the Supervision manual (SUP) concerning approved persons as they apply to credit unions, and follows the structure of that manual. This section should be read in conjunction with SUP 10.

SUP 10.1.1 R - SUP 10.1.26 R provides an introduction to the application of the approved persons regime. The effect of the rules is that a credit union must apply to the FSA for the approval of one or more individuals to perform the functions which are known as controlled functions. In broadest outline these controlled functions are roles which enable an individual to exert significant influence on the conduct of the credit union's affairs. A complete list of these functions is set out in SUP 10.4.5 R, although not all of these are relevant to credit unions. This guide concentrates only on the controlled functions which are relevant for the majority of credit unions. The largest credit unions should consider whether a wider range of controlled functions is relevant to them.

SUP 10.2 outlines the purpose of the direct regulation of individuals which is to supplement the regulation of credit unions themselves. Individuals will need to be approved to undertake tasks which are key to the operation of a credit union.

SUP 10.3 provides, in this context, that a function is a controlled function only when it is undertaken by a credit union in relation to a regulated activity. Controlled functions fall within two groups. The significant influence functions describe the roles performed by the governing body and senior managers of the firm who exert a significant influence over the regulated activities of the firm. The customer functions describe the roles of individuals who deal with customers or with the property of customers. These customer functions do not extend to activities in relation to accepting deposits or general insurance and therefore will not be relevant to credit unions with permission for accepting deposits only.

SUP 10.4 specifies all the controlled functions and provides that its requirements apply only in relation to the performance of the controlled functions for which an individual is approved.

The complete list of all controlled functions is located in SUP 10.4.5 R. Guidance on those controlled functions most likely to be relevant to credit unions is provided below:

SUP 10.6 : the governing functions:

1. (1)

   SUP 10.6.4 R: the Director functionThis is the function of acting in the capacity of a director of a credit union.

2. (2)

   SUP 10.6.8 R: the non-executive director functionIt is unusual for a credit union to appoint non-executive directors as such. But this function would include membership of a credit union's supervisory committee and any other committee which scrutinises the approach of executive management, the credit union's performance, and its standards of conduct.

3. (3)

   SUP 10.6.11 R: the chief executive functionActing in the capacity of chief executive, whether or not using that title. This role includes anyone having the responsibility, alone or jointly with one or more others, under the immediate authority of the committee of management, for the conduct of the whole of the business.

SUP 10.7 : the required functions:

1. (1)

   SUP 10.7.1 R: the apportionment and oversight function. The apportionment of responsibilities (see CRED 4.2 andSYSC 2.1.1 R).The function of dealing with apportionment of responsibilities under SYSC 2.1.1 R, and of overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R.

2. (2)

   SUP 10.7.13 R: the money laundering reporting function.The function of acting in the capacity of the money laundering reporting officer of a credit union.

SUP 10.8: the systems and controls functions:

1. (1)

   SUP 10.8.1 R the finance functionThe function of acting in the capacity of a senior manager with responsibility for reporting to the committee of management in relation to its financial affairs.

2. (2)

   SUP 10.8.3 R: the risk assessment functionThe function of acting in the capacity of a senior manager with responsibility for reporting to the committee of management on the setting and controlling of its risk exposure.

3. (3)

   SUP 10.8.6 R: the internal audit functionThe function of acting in the capacity of a senior manager with responsibility for reporting to the committee of management in relation to its adherence to internal systems and controls, procedures and policies.

SUP 10.9 : the significant management functions:These controlled functions will only apply to the credit union if the functions are not being performed by a member of the committee of management and the credit union has followed the guidance in SUP 10.9.3 G.

SUP 10.10.11 R : gives guidance on forms and procedures relating to approved persons.

SUP 10.12 outlines procedures concerning the application for approval and withdrawing an application for approval. Applications should be made by the credit union and not by individual applicants. Details are provided concerning the procedure that FSA will adopt when granting or refusing applications.

SUP 10.13 outlines procedures concerning changes to an approved person's details. Where changes to an approved person's role involve the person performing one or more different controlled functions from those for which they have been given approval, then a new application must be made to FSA. This will be for approval to perform the new controlled functions.

SUP 10.14 points readers in the direction of frequently asked questions and answers, in particular which part of the FSA to approach with any questions which remain unanswered.

The purpose of this section is to set out and describe the criteria that the FSA will consider when assessing the fitness and propriety of a person in respect of whom an application is being made for approval to undertake a controlled function under the approved persons regime (SUP 10). The criteria specified here will also be used to assess the continuing fitness and propriety of persons who have already been approved.

1. (1)

   FIT 1.2 explains that the FSA may grant an application for approval for a person to perform a controlled function only if it is satisfied that the candidate is fit and proper to perform the controlled function to which the application relates.

2. (2)

   It also indicates that the FSA may withdraw its approval if it considers that an individual is no longer fit and proper to perform the controlled function to which the approval relates.

FIT 1.3 explains that the FSA will have regard to a range of factors when assessing the fitness and propriety of a person to perform a particular controlled function, but that the most important criteria will be the person's:

1. (1)

   honesty, integrity and reputation;

2. (2)

   competence and capability; and

3. (3)

   financial soundness.

FIT 2.1 -FIT 2.3 provide further details of the criteria referred to in CRED 6.4.3 G and the primary matters which FSA will take account in assessing them.