An authorised firm has approved persons and other staff. Approved persons carry out controlled functions and so have responsibilities for the firm complying with and working within the FSA Handbook of Rules and Guidance.

Controlled functions are functions that meet the conditions under section 59 of FSMA. These conditions are that the function:

• allows the person responsible to exercise a significant influence over the firm's affairs, or
• involves the person responsible in dealing with i.e. having contact with, customers; or
• involves the person responsible in dealing with customers' property.

We must approve a person before they perform one or more controlled functions for your firm. The purpose of the direct approval of people who perform controlled functions is to complement the regulation of the authorised firm for which the approved person(s) performs the functions.

You need to apply to have a person approved to perform a controlled function as follows:

• before a firm is authorised we must approve the individuals who are going to carry out controlled functions and then register them for the appropriate controlled functions; and
• you need to complete and submit a new form to obtain FSA approval if someone joins the firm (including as a partner or director), changes a controlled function or moves to a different firm.There is a special provision to cover absence of up to 12 weeks for senior functions where approval is not required (SUP 10.5.5 R and SUP 10.5.6 G).

The full list of controlled functions can be found under SUP 10.4.5 R. The functions with most relevance to small firms are likely to be the:

• governing functions (CF 1-7) e.g. director, chief executive, partner, sole trader;
• required functions (CF 8-12) e.g. apportionment and oversight, compliance officer, money laundering reporting officer; and
• customer functions (CF 21-27) e.g. investment adviser.

The most common controlled customer functions in smaller investment intermediaries are CF21 (Investment adviser function) and CF22 (Investment adviser trainee function). But some may also have functions CF23 (Corporate finance adviser function), CF24 (Pension transfer specialist function), and CF27 (Investment management function).

The 'governing functions' and the 'required functions' are also known as 'significant influence functions' because the persons performing these functions are likely to exercise significant influence over the business.

SYSC 2.1.3 R provides that a firm must allocate to an individual (usually the chief executive) the functions of apportioning responsibilities and of overseeing the establishment and maintenance of systems and controls. SYSC 3.2.8 R provides that a firm must allocate to a director or senior manager the function of overseeing the firm's compliance. The Money Laundering Sourcebook (ML) provides that a firm must have a money laundering reporting officer (unless it is a sole trader with no employees).

The number of approved persons carrying out controlled functions CF21-27 registered by a firm is a factor in the level of fees the firm pays.

Under section 61 of FSMA, we must respond to applications to be an approved person within three months. In practice, the guideline time scale is much shorter, with the majority of applications being processed within seven working days.

It is important that you satisfy yourself that the individual is fit and proper for his role before submitting the form to us. You are responsible for the accuracy of the data and completion of the form. You must also ensure that all the questions on the form are answered completely, as failure to disclose information will prejudice the person's approval.

Full details of the approved persons regime and the application process are in Chapter 6 of the Authorisation manual (AUTH) and Chapter 10 of the Supervision manual (SUP). For example, you may wish to refer to the following sections:

• SUP 10.11.2 G and SUP 10 Annex 2 G highlight which form you should use and when.
• SUP 10.3 to SUP 10.10 describe the 27 controlled functions and the boundaries of the approved persons regime.
• SUP 10.11 to SUP 10.14 set out the procedures for applying for approval, changing the details that we hold about an approved person, and withdrawing from approval.
• AUTH 6 Annex 1 G and SUP 10 Annex 1 G answer frequently asked questions on the requirements of the approved persons regime.

Approval is only granted by the FSA if it is satisfied that the individual candidate is a fit and proper person to perform the controlled function applied for. The minimum standards for becoming and remaining an approved person are set out in the Fit and Proper test for Approved Persons module of the Handbook (FIT).

The main assessment criteria are set out at FIT Chapter 2. The 'fit and proper' test takes into consideration an individual's:

• honesty, integrity and reputation;
• competence and capability; and
• financial soundness.

In determining a person's competence and capability the FSA will have regard (among other matters) to whether:

• The person satisfies the relevant requirements of the Training and Competence sourcebook (TC) in relation to the controlled function the person is intended to perform.
• The person has demonstrated by experience and training that they will be able to perform the controlled function. For example, you must demonstrate previous experience in the type of business for which you are applying. For a small firm of investment intermediaries we would generally expect that at least one of the principals or directors had at least three years in the financial services industry, with at least one of these years in the independent market.

In assessing whether individuals are fit and proper, we also take into account regulated activities of the firm which the individual will perform, the permissions applied for by that firm and the markets in which it operates.

The Principles for firms (see Chapter 5 of the Guide) are matched by a set of seven principles for Approved Persons. The Statements of Principle and Code of Practice for Approved Persons sourcebook (APER) includes the Statements of Principle in APER 2 and the Code of Practice in APER 3. APER 4 provides guidance on the factors, which in our opinion, should be taken into account when assessing whether an approved person has complied with the Statements of Principle.

If you cannot find an answer to your question from the information and factsheets on our website, you should contact our Individual Vetting and Applications Department by telephone on 020 7066 0019 or by email iva@fsa.gov.uk.

Frequently, firms give their chief executive the function of apportioning responsibilities and overseeing the establishment and maintenance of systems and controls (SYSC 2.1).