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SUP 10.6 Governing functions

Introduction

SUP 10.6.1G

Every firm will have one or more persons responsible for directing its affairs. These persons will be performing the governing functions and will be required to be approved persons unless the application provisions in SUP 10.1, or the particular description of a controlled function, provide otherwise. For example, each director of a company incorporated under the Companies Acts will perform the governing function in relation to that company.

SUP 10.6.1AG

10A sole trader does not fall within the description of the governing functions.

What the governing functions include

SUP 10.6.2R

Each of the governing functions (other than the non-executive director function and the function described in SUP 10.6.4 R (2))13 includes where apportioned under SYSC 2.1.1 R or SYSC 4.3.1 R and SYSC 4.4.3 R:12

  1. (1)

    the systems and controls function;10 and

    10
  2. (2)

    the significant management function.10

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SUP 10.6.3G

The effect of SUP 10.6.2 R is that a person who is approved to perform a governing function (other than the non-executive function and the function described in SUP 10.6.4 R (2))13 will not have to be specifically approved to perform the systems and controls function or the significant management function10. A person who is approved to perform a governing function will have to be additionally approved before he can perform any of the required functions or the customer function.7

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SUP 10.6.3AG

4610A firm carrying on insurance mediation activity11, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity (MIPRU 2.2.1 R)11.610MIPRU 2.2.2 R (1)610 provides that the firm may allocate this responsibility to one or more of the persons performing a governing function (other than the non-executive director function)5.

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SUP 10.6.3BG

4Where a person performing a governing function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after the relevant controlled function (see 610MIPRU 2.2.5 G610).

Director function (CF1)

SUP 10.6.4R

If a firm is a body corporate (other than a limited liability partnership), the director function is the function of acting in the capacity of either a:13

13
  1. (1)

    director (other than non-executive director) of that firm; or

  2. (2)

    a person:

    1. (a)

      who is a director, partner, officer, member (if the parent undertaking or holding company is a limited liability partnership), senior manager, or employee (other than a non-executive director) of a parent undertaking or holding company (except where that parent undertaking or holding company has a Part IV permission or is regulated by an EEA regulator14); and13

      14
    2. (b)

      whose decisions or actions are regularly taken into account by the governing body of the firm.13

SUP 10.6.5G

Examples of where SUP 10.6.4 R (2) would apply include (but are not limited to):

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  1. (1)

    a chairman of an audit committee of a parent undertaking or holding company of a UK firm where that audit committee is working for that UK firm (that is, functioning as the audit committee for the group); or13

  2. (2)

    a director (other than a non-executive director) of a parent undertaking or holding company of a UK firm exercising significant influence by way of his involvement in taking decisions for that UK firm; or13

  3. (3)

    an individual (such as a senior manager) of a parent undertaking or holding company of a UK firm who is responsible for and/or has significant influence in setting the objectives for and the remuneration of executive directors of that UK firm; or13

  4. (4)

    an individual who is a director (other than a non-executive director) or a senior manager of a parent undertaking or holding company of a UK firm who is accustomed to influencing the operations of that UK firm, and acts in a manner in which it can reasonably be expected that an executive director or senior manager of that UK firm would act; or13

  5. (5)

    an individual of an overseas firm which maintains an establishment in the United Kingdom from which regulated activities are carried on where that individual has responsibilities for those regulated activities which are likely to enable him to exercise significant influence over the UK branch.13

SUP 10.6.6G

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SUP 10.6.7G

A director can be a body corporate and may accordingly require approval as an approved person in the same way as a natural person may require approval.

Non-executive director function (CF2)

SUP 10.6.8R
  1. (1)

    If a firm is a body corporate, the non-executive director function is the function of acting in the capacity of either a:13

    13
    1. (a)

      non-executive director of that firm ; or

    2. (b)

      non-executive director of a parent undertaking or holding company (except where that parent undertaking or holding company has a Part IV permission or is regulated by an EEA regulator14) whose decisions, or actions are regularly taken into account by the governing body of the firm.

      14
  2. (2)

    If a firm is a long-term insurer, the non-executive director function is also the function of acting in the capacity of an individual (other than an individual performing the director function or the non-executive director function under (1)) who, as a member of a committee having the purpose of a with-profits committee,9has responsibility in relation to governance arrangements for with-profits business under COBS 20.3 (Principles and Practices of Financial Management).9

    3999
SUP 10.6.9G

Examples of where SUP 10.6.8 R (1)(b) would apply include (but are not limited to):

1013
  1. (1)

    an individual who is a non-executive director of a parent undertaking or holding company who takes an active role in the running of the business of a UK firm, for example, as a member of a board or committee (on audit or remuneration) of that firm; or13

  2. (2)

    an individual who is a non-executive director of a parent undertaking or holding company having significant influence in setting and monitoring the business strategy of the UK firm; or13

  3. (3)

    an individual who is a non-executive director of a parent undertaking or holding company of a UK firm involved in carrying out responsibilities such as scrutinising the approach of executive management, performance, or standards of conduct of the UK firm; or13

  4. (4)

    an individual who is a non-executive director of a parent undertaking or holding company of a UK firm who is accustomed to influence the operations of the UK firm, and acts in a way in which it can reasonably be expected that a non-executive director of the UK firm would act; or13

  5. (5)

    an individual who is a non-executive director of an overseas firm which maintains a branch in the United Kingdom from which regulated activities are carried on where that individual has responsibilities for those regulated activities which are likely to enable him to exercise significant influence over the UK branch. 13

Guidance on CF1 and CF213

SUP 10.6.10G
1013
  1. (1)

    This paragraph explains the basis on which the director function and non-executive director function are applied to persons who have a position with the firm's parent undertaking or holding company under SUP 10.6.4 R (2) or SUP 10.6.8 R (1)(b).13

  2. (2)

    The basic position is set out in SUP 10.3.4 G. As is the case with all controlled functions, SUP 10.6.4 R (2) and SUP 10.6.8 R (1)(b) are subject to the overriding provisions in SUP 10.3.1 R, which sets out the requirements of sections 59(1) and (2) of the Act. This means that unless the firm has an arrangement or a contract permitting the performance of these roles by the persons concerned, these persons will not be performing these controlled functions. Therefore, the FSA accepts that there will be cases in which a person performing these roles will not require approval.13

  3. (3)

    However the FSA expects that in general a person who performs these roles will perform the director function or the non-executive director function. This is because the FSA would expect that a firm that allows major decisions to be taken by a group decision-making body will do so on the basis of a formal delegation from the firm's governing body. This delegation will amount to an arrangement for the purposes of section 59 of the Act.13

Chief executive function (CF3)

SUP 10.6.11R

The chief executive function is the function of acting in the capacity of a chief executive of a firm.

SUP 10.6.12G

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SUP 10.6.13G

This function is having the responsibility, alone or jointly with one or more others, under the immediate authority of the governing body, for the conduct of the whole of the business (or relevant activities); or, in the case of a branch in the United Kingdom of an overseas firm, for all of the activities subject to the UK regulatory system.

SUP 10.6.14G

For a branch in the United Kingdom of an overseas firm, the FSA would not normally expect the overseas chief executive of the firm as a whole to be approved for this function where there is a senior manager under him with specific responsibility for those activities of the branch which are subject to the UKregulatory system. In some circumstances, the person within the firm responsible for UK operations may, if the function is likely to enable him to exercise significant influence over the branch, also perform the chief executive function (see SUP 10.7.4 G).

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SUP 10.6.15G

A person performing the chief executive function may be a member of the governing body but need not be. If the chairman of the governing body is also the chief executive, he will be discharging this function. If the responsibility is divided between more than one person but not shared, there is no person exercising the chief executive function. But if that responsibility is discharged jointly by more than one person, each of those persons will be performing the chief executive function.

SUP 10.6.16G

Note that a body corporate may be a chief executive. If so, it will need to be approved to perform the chief executive function.

Partner function (CF4)

SUP 10.6.17R
  1. (1)

    If a firm is a partnership, the partner function is the function of acting in the capacity of a partner in that firm.

  2. (2)

    If the principal purpose of the firm is to carry on one or more regulated activities, each partner performs the partner function.

  3. (3)

    If the principal purpose of the firm is other than to carry on regulated activities:

    1. (a)

      a partner performs the partner function to the extent only that he has responsibility for a regulated activity; and

    2. (b)

      a partner in a firm will be taken to have responsibility for each regulated activity except where the partnership has apportioned responsibility to another partner or group of partners.

SUP 10.6.18G

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10
SUP 10.6.19G

Any apportionment referred to in SUP 10.6.17 R (3)(b) will have taken place under SYSC 2.1.1 R or SYSC 4.3.1 R and SYSC 4.4.3 R.12 The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (see SYSC 2.2).

SUP 10.6.20G

The effect of SUP 10.1.18 R is that regulated activity in SUP 10.6.17 R (and elsewhere) is to be taken as not including an activity that is a non-mainstream exempt regulated activity. Therefore, a partner whose only regulated activities are incidental to his professional services, in a partnership whose principal purpose is to carry on other than regulated activities, need not be an approved person. What amounts to the principal purpose of the firm is a matter of fact in each case having regard to all the circumstances, including the activities of the firm as a whole. Any regulated activities which such a partner carries on are not within the description of the partner function.

SUP 10.6.21R

If a firm is a limited liability partnership, the partner function extends to the firm as if the firm were a partnership and a member of the firm were a partner.

SUP 10.6.22G

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SUP 10.6.23R

If a partnership is registered under the Limited Partnership Act 1907, the partnerfunction does not extend to any function performed by a limited partner.

Director of unincorporated association function (CF5)

SUP 10.6.24R

If a firm is an unincorporated association, the director of unincorporated association function is the function of acting in the capacity of a director of the unincorporated association.

SUP 10.6.25G

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Small friendly society function (CF6)

SUP 10.6.26R
  1. (1)

    If a firm is a non-directive friendly society, the small friendly society function is the function of directing its affairs, either alone or jointly with others.

  2. (2)

    If the principal purpose of the firm is to carry on regulated activities, each person with responsibility for directing its affairs performs the controlled function.

  3. (3)

    If the principal purpose of the firm is other than to carry on regulated activities, a person performs the small friendly society function only to the extent that he has responsibility for a regulated activity.

    1
SUP 10.6.27G

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SUP 10.6.28R
  1. (1)

    Each person on the non-directive friendly society's governing body will be taken to have responsibility for its regulated activities, unless the firm has apportioned this responsibility to one particular individual to whom it is reasonable to give this responsibility.

  2. (2)

    The individual need not be a member of the governing body.

SUP 10.6.29G
  1. (1)

    Typically a non-directive friendly Society will appoint a "committee of management" to direct its affairs. However, the governing arrangements may be informal and flexible. If this is the case, the FSA would expect the society to resolve to give responsibility for the carrying on of regulated activities to one individual who is appropriate in all the circumstances. That individual may, for example, have the title of chief executive or similar. The individual would have to be an approved person under SUP 10.6.26 R.

  2. (2)

    Any apportionment of responsibilities will have taken place under SYSC 2.1.1 R. The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (seeSYSC 2.2).

SUP 10.6.30R
  1. (1)

    [deleted]

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  2. (2)

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SUP 10.6.31G

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SUP 10.6.32G

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