This chapter is also relevant to every approved person.

The rules in this chapter specify descriptions of controlled functions9 under section 59 of the Act (Approval for particular arrangements).

The directions in this chapter relate to the manner in which a firm must apply for the FSA's approval under section 59 of the Act and other procedures.

SUP 10.1.9 R reflects the provisions of section 59(8) of the Act and, in relation to an incoming Treaty firm and a UCITS qualifier, the Treaty and the UCITS Directive. It preserves the principle of Home State prudential regulation. In relation to an incoming EEA firm exercising an EEA right, or an incoming Treaty firm exercising a Treaty right, the effect is to reserve to the Home State regulator the assessment of the fitness and propriety of a person performing a function in the exercise of that right. A member of the governing body, or the notified UKbranchmanager, of an incoming EEA firm, acting in that capacity, will not therefore have to be approved by the FSA under the Act.

But an incoming EEA firm, or incoming Treaty firm, will have had to consider the impact of the Host State rules with which it is required to comply when carrying on a passported activity or Treaty activity through a branch in the United Kingdom. An incoming EEA firm will have been notified of those provisions under Part II of Schedule 3 to the Act in the course of satisfying the conditions for authorisation in the United Kingdom.

An incoming EEA firm will have to consider, for example, the position of a branch manager based in the United Kingdom who may also be performing a function in relation to the carrying on of a regulated activity not covered by the EEA right of the firm. In so far as the function is within the description of a controlled function, the firm will need to seek approval for that person to perform that controlled function.

9If an incoming EEA firm carries on designated investment business which consists of8MiFID business8only, the EEA investment business oversight function and the compliance oversight function will not apply to that firm.8

8If an incoming EEA firm carries on designated investment business which consists of both MiFID business and other regulated activities, the EEA investment business oversight function and the compliance oversight function (SUP 10.1.13 R (1) and SUP 10.1.13 R (2)) will apply to that firm, but only in relation to that part of the business which is not MiFID business.

It will be a matter of fact in each case whether, having regard to all the circumstances, including in particular where the balance of the business lies, a firm's principal purpose is to carry on activities other than regulated activities. If a firm wishes to rely on SUP 10.1.21 R, it should be in a position to demonstrate that its principal purpose is to carry on activities other than regulated activities.

The immediate purpose of SUP 10.3 to SUP 10.10 is to specify, under section 59 of the Act, descriptions of the 221controlled functions which are listed in SUP 10.4.5 R. The underlying purpose is to establish, and mark the boundaries of, the "approved persons regime".

Sections 59(1) and (2) of the Act provide that approval is necessary in respect of a controlled function which is performed under an arrangement entered into by a firm, or its contractor (typically an appointed representative), in relation to a regulated activity.

Arrangement is defined in section 59(10) of the Act as any kind of arrangement for the performance of a function which is entered into by a firm or any of its contractors with another person and includes the appointment of a person to an office, his becoming a partner, or his employment (whether under a contract of service or otherwise). For the provisions in this chapter relating to outsourcing, see SUP 10.12.3 G and SUP 10.12.4 G.

If, however, a firm is a member of a group, and the arrangements for the performance of a controlled function of the firm are made by, say, the holding company, the person performing the function will only require approval if there is an arrangement (under section 59(1)) or a contract (under section 59(2)) between the firm and holding company permitting this. This need not be a written contract but could arise, for example, by conduct, custom and practice.

The arrangement must be "in relation to" the carrying on of a regulated activity. Regulated activities are defined in the Glossary by reference to the Regulated Activities Order. This order prescribes the activities which are regulated activities for the purposes of the Act.

The fact that a person may be approved for one purpose does not have the effect of bringing all his activities within that controlled function.

The significant influence functions, which are specified in SUP 10.4.1 R, comprise the governing functions (see SUP 10.6), the required functions (see SUP 10.7), the systems and controls function1 (see SUP 10.8) and the significant management functions (see SUP 10.9). SUP 10.5 applies to each of the significant influence functions.

SUP 10.5.2 R gives effect to section 59(5) of the Act (where this provision is referred to as the first condition).

Whether a controlled function1is likely to result in the person responsible for its performance exercising significant influence on the conduct of the firm's affairs is a question of fact in each case. The FSA has identified the significant influence functions as satisfying this condition.

SUP 10.5.5 R enables cover to be given for, say, holidays and emergencies and avoids the need for the precautionary approval of, for example, a deputy. However, as soon as it becomes apparent that a person will be performing a controlled function for more than 12 weeks, the firm should apply for approval.

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.

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

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) 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

4 6 10 MIPRU 2.2.1 R 6 10 provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm'sinsurance mediation activity.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.

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).

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.

[Deleted]10

1. (1)

   [Deleted]

2. (2)

   [Deleted]

3. (3)

   [Deleted]

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.

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).

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.

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

Any apportionment referred to in SUP 10.6.17 R (3)(b) 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 (see SYSC 2.2).

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.

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).

11In requiring someone to apportion responsibility, a common platform firm should not apply for that person or persons to be approved to perform the apportionment and oversight function (see SUP 10.7.1 R, SYSC 2.1.3 R and SYSC 1.1.3 R (5)).

The fact that there is a person performing the apportionment and oversight function, and who has responsibility for activities subject to regulation by the FSA, may have a bearing on whether a manager who is based overseas will be performing a controlled function. It is a factor to take into account when assessing the likely influence of the overseas manager.

Generally, in relation to a UK establishment of an overseas firm or a firm which is part of an overseas group, where an overseas manager's responsibilities in relation to the United Kingdom are strategic only, he will not need to be an approved person. However, where, in accordance with SYSC 3 or SYSC 4 to SYSC 1012, he is responsible for implementing that strategy in the United Kingdom, and has not delegated that responsibility to a senior manager in the United Kingdom, he is likely to be performing a controlled function, such as, for example, the chief executive function. This is subject to SUP 10.1.13A R, which applies where the firm is a MiFID investment firm and the only regulated activities carried out by it in the United Kingdom are MiFID business.12

4 9 12 MIPRU 2.2.1 R 9 12 provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity912MIPRU 2.2.2 R (2)912 provides that the firm may allocate this responsibility to the person performing the apportionment and oversight function.

4Where the person performing the apportionment and oversight function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see 912MIPRU 2.2.5 G912).

Where an overseas individual has not delegated this function to a senior manager in the United Kingdom, he is likely to be performing this controlled function. However, the FSA anticipates that any individual carrying out this function will normally be located in the United Kingdom. He may be the local chief executive or one or more of the individuals approved to perform the significant management (designated investment business) function. If the local chief executive (or other individual) is approved for this function, this does not mean that all his responsibilities are the concern of the FSA. SUP 10.1.9 R preserves the principle of Home State prudential regulation whenever it applies and in respect of each controlled function.1

8A firm's obligations in respect of its money laundering reporting officer are set out elsewhere in the Handbook (see SYSC 3.2.6I R and SYSC 6.3.9 R and for their scope, see the application provisions in SYSC 1.1 and SYSC 1.3).14

12A firm's obligations in respect of its money laundering reporting officer are set out in SYSC 3.2.6I R and SYSC 6.

2Where an employee performs the systems and controls function the FSA would expect the firm to ensure that the employee had sufficient expertise and authority to perform that function effectively. A director or senior manager would meet this expectation.

The FSA anticipates that there will be only a few firms needing to seek approval for an individual to perform the6significant management function. In most firms, those approved for the governing functions, required functions and, where appropriate, the systems and controls function,6 are likely to exercise all the significant influence at senior management level.

However, the scale, nature and complexity of the firm's business may be such that a firm apportions under SYSC 2.1.1 R a significant responsibility to an individual who is not approved to perform the governing functions, required functions or, where appropriate, the systems and controls function.6 If so,v the firm should consider whether the functions of that individual fall within the6significant management function. For the purposes of the description of the significant management functions, the following additional factors about the firm should be considered:

1. (1)

   the size and significance of the firm's business in the United Kingdom; for example, a firm carrying on designated investment business may have a large number of approved persons (for example, in excess of 100 individuals); or a firm carrying on general insurance business may have gross written premiums in excess of £100mn;

2. (2)

   the number of regulated activities carried on, or proposed to be carried on, by the firm and (if relevant) other members of the group;

3. (3)

   its group structure (if it is a member of a group);

4. (4)

   its management structure (for example matrix management); and

5. (5)

   the size and significance of its international operations, if any.

When considering whether a business unit is significant, the firm should take into account all relevant factors in the light of the firm's current circumstances and its plans for the future, including:

1. (1)

   the risk profile of the unit; or

2. (2)

   its use or commitment of a firm's capital; or

3. (3)

   its contribution to the profit and loss account; or

4. (4)

   the number of employees or approved persons in the unit; or

5. (5)

   the number of customers of the unit; or

6. (6)

   any other factor which makes the unit significant to the conduct of the firm's affairs so far as relating to the regulated activity.

The question may arise whether a manager who is based overseas will be performing the significant management function6 and should therefore be an approved person. This is especially true where the firm operates matrix management. The fact there is a person performing the apportionment and oversight function, and who has responsibility for activities subject to regulation by the FSA, may have a bearing on this. It is a factor to take into account when assessing the likely influence of the overseas manager.

Generally, in relation to a branch of a firm, or a firm which is part of an overseas group, where an overseas manager is responsible for strategy, he will not need to be an approved person. However, where he is responsible for implementing that strategy in the United Kingdom, and has not delegated that responsibility to a senior manager in the United Kingdom, he is likely to be performing a controlled function.

See also SUP 10.7.3 G to SUP 10.7.4B G6 in relation to matrix management.

6A senior manager with significant responsibility for a significant business unit that carries on activities other than designated investment business for the purposes of SUP 10.9.10 R (1)(a) could, for example, be the head of a unit carrying on the activities of: retail banking, personal lending, corporate lending, salvage or loan recovery, or proprietary trading; or a member of a committee (that is, a person who, together with others, has authority to commit the firm) making decisions in these functions. The senior manager could also be a proprietary trader whose trading limits are such that he may put, or potentially put, his firm at significant risk. This function would not extend to every proprietary trader.

3 5 6 MIPRU 2.2.1 R 5 6 provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity.56MIPRU 2.2.2 R (3))56 provides that the firm may allocate this responsibility to the person performing the significant management function.6

3Where the person performing the significant management function6is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see 56MIPRU 2.2.5 G56).

Without SUP 10.10.1 R the description of the customer function3 would extend to this function wherever it was3 performed. The effect of SUP 10.10.1 R is that the description is3limited, in relation to regulated activities with an overseas element, in a manner which is broadly consistent with the scope of conduct of business regulation.

The customer functions has3to do with giving advice on, dealing and arranging deals in and managing investments; it has3no application to banking business such as deposit taking and lending, nor to general insurance business.

SUP 10.10.4 R gives effect to sub-sections (6) and (7) of section 59 of the Act (referred to in that section as the second and third conditions).

The FSA interprets the phrase "dealing with" as including having contact with customers and extending beyond "dealing" as used in the phrase "dealing in investments". "Dealing in" is used in Schedule 2 to the Act to describe in general terms the regulated activities which are specified in Part II of the Regulated Activities Order.

3The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.1.9 R (2)4 provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.1.9 R (2)4 are disapplied in these circumstances (except for an individual who gives advice to retail clients on packaged products or is a broker fund adviser). The effect of this is that such individuals need not pass the relevant regulatory module of an appropriate examination (see TC 2.1.9 R (2)4).

3The customer function in SUP 10.10.7A R (5) does not extend to the individual who, on the instructions of the customer, simply inputs the customer's instructions into an automatic execution system where no discretion is or may be exercised by the individual performing the activity. Nor does it extend to merely introducing a customer to a firm or distributing advertisements.

3An individual may advise on investments prior to being assessed as competent in accordance with the rules in the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) and, where relevant, the Training and Competence sourcebook (TC). The firm shall record when that person subsequently becomes competent.4

The forms listed in SUP 10.11.2 G are referred to in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions).

A summary of the forms and their purposes is in SUP 10 Annex 2 G. A summary of FSA procedures is in SUP 10 Annex 3. For the method of notification to the FSA, see SUP 15.7 (Form and method of notification).

Unless the context otherwise requires, in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions) where reference is made to a firm, this also includes an applicant for Part IV permission, and other persons seeking to carry on regulated activities as an authorised person.

Forms B, C, D and E can only be submitted in respect of an approved person by the firm that submitted an approved person's original application (that is, the relevant 2Form A).

Copies of Forms A, B, C, D and E may be obtained from the FSA website or from the Individuals, Mutuals and Policy Department2. To contact the Individuals, Mutuals and Policy 2 Department1 for general enquiries:

1. (1)

   telephone 020 7066 0019; or

2. (2)

   fax 020 7066 0017; or

3. (3)

   write to:

   1221The Financial Services Authority25 The North ColonnadeCanary WharfLONDON E14 5HS; or
4. (4)

   e-mail iva@fsa.gov.uk

In accordance with section 59 of the Act (Approval for particular arrangements), where a candidate will be performing one or more controlled functions, a firm must take reasonable care to ensure that the candidate does not perform these functions unless he has prior approval from the FSA.

In accordance with section 60 of the Act (Applications for approval), applications must be submitted by, or on behalf of, the firm itself, not by the candidate. Usually this will be the firm that is employing the candidate to perform the controlled function. Where a firm has outsourced the performance of a controlled function, the details of the outsourcing determine where responsibility lies and whom the FSA anticipates will submit approved persons forms. SUP 10.12.4 G describes some common situations. The firm which is outsourcing is referred to as "A" and the person to whom the performance of the function has been outsourced, or which makes the arrangement for the function to be performed, is referred to as "B". In each situation, A must take reasonable care to ensure that, in accordance with section 59(2) of the Act, no person performs a controlled function under an arrangement entered into by its contractor in relation to the carrying on by A of a regulated activity, without approval from the FSA. See also SYSC 3.2.4 G and SYSC 8.1.1 R,35 and for insurersSYSC 13.93.1

Where the notification of an appointed representative (SUP 12.7.1 R) is linked to an application for approval (SUP 10.12 (Applications for approval and withdrawing an application for approval)), any delay in receiving the notification under SUP 12.7.1 R may delay the FSA's approval of the individuals employed by that appointed representative who will be performing controlled functions for the firm.

The Act allows the FSA three months from the time it receives a properly completed application to consider it and come to a decision. The FSA must either grant the application or, if it proposes not to grant an application, issue a warning notice (see DEPP 2). The FSA will deal with cases more quickly than this whenever circumstances allow and will try to meet the standard response times published on the website and in its Annual Report. However, if an application is incomplete when received, or the FSA has knowledge that, or reason to believe that, the information is incomplete, then the processing time will be longer than the published standard response times.

Application forms must always be completed fully and honestly. Further notes on how to complete the form are contained in each form. If forms are not completed fully and honestly, applications will be delayed and, in some cases, possibly rejected.A person who provides information to the FSA that is false or misleading may commit a criminal offence.

If there is a delay in processing the application within the standard response time, the FSA will tell the firm making the application as soon as this becomes apparent.

Before making a decision to grant the application or give a warning notice, the FSA may ask the firm for more information about the candidate. If it does this, the three month period in which the FSA must determine a completed application:

1. (1)

   will stop on the day the FSA requests the information; and

2. (2)

   will start running again on the day on which the FSA finally receives all the requested information.

The FSA may grant an application only if it is satisfied that the candidate is a fit and proper person to perform the controlled function stated in the application form. Responsibility lies with the firm making the application to satisfy the FSA that the candidate is fit and proper to perform the controlled function applied for.

For further guidance on criteria for assessing whether a candidate is fit and proper, see FIT.

Whenever it grants an application, the FSA will confirm this in writing to all interested parties.

If the FSA proposes to refuse an application in relation to one or more controlled functions, it must follow the procedures for issuing warning and decision notices to all interested parties. The requirements relating to warning and decision notices are in DEPP 2.6

Under section 61(5) of the Act (Determination of applications), the firm may withdraw an application only if it also has the consent of the candidate and the person by whom the candidate is or would have been employed, if this is not the firm making the application.

An approved person's job may change from time to time as a result, for instance, of a change in personal job responsibilities or a firm's regulated activities. Where the changes will involve the person performing one or more different controlled functions from those for which approval has already been granted, then an application must be made to the FSA for approval for the person to perform those controlled functions. The firm must take reasonable care to ensure that an individual does not begin performing a controlled function until the FSA has granted approved person status to that individual in respect of that controlled function. This applies to individuals seeking approval in respect of a controlled function within the firm for which they already perform controlled functions. If the approved person is ceasing to perform controlled functions, as well as applying for approval in respect of additional controlled functions, then refer to SUP 10.13.3 D.

The relevant 2Form A must be used to apply for an individual to perform further controlled functions for a firm for which he already performs a controlled function as an approved person (see SUP 10.12.2 D). It is not mandatory to complete all parts of the form. See the notes relevant2to each2form for full details.

If it is proposed that an approved person will no longer be performing a controlled function under an arrangement entered into by one firm or one of its contractors, but will be performing the same or a different controlled function under an arrangement entered into by a new firm or one of its contractors (whether or not the new firm is in the same group as the old firm), the new firm will be required to make a fresh application for the performance of the controlled function by that person.

In certain circumstances, when the FSA already has the information it would usually require, a shortened version of the relevant2 Form A may be completed. See the notes relevant2 to each2 form for full details.

Notification under SUP 10.13.7 R may be made by telephone, fax or email and should be made, where possible, within one business day of the firm becoming aware of the information. If the firm does not submit Form C, it should inform the FSA in due course of the reason. This could be done using Form D, if appropriate.

A firm is responsible for notifying the FSA if any approved person has ceased to perform a controlled function under an arrangement entered into by its appointed representative or former appointed representative

A firm can submit Form C or Form E to the FSA in advance of the cessation date. When a person ceases the arrangement under which he performs a controlled function, he will automatically cease to be an approved person in relation to that controlled function. A person can only be an approved person in relation to a specific controlled function. Therefore, a person is not an approved person during any period between ceasing to perform one controlled function (when he is performing no other controlled function) and being approved in respect of another controlled function.

Sending forms promptly will help to ensure that any fresh application can be processed within the standard response times.

A firm supplying a reference in accordance with SUP 10.13.12 R owes a duty to its former employee and the recipient firm to exercise due skill and care in the preparation of the reference. The reference should be accurate and based on documented fact. The firm may give frank and honest views, but only after taking reasonable care both as to factual content, and as to the opinions expressed, and verifying the information upon which they are based.

The duty to notify in SUP 10.13.14 R does not apply to changes to an approved person's private address.

The duty to notify in SUP 10.13.16 R extends to any circumstances that would normally be declared when giving the information required for section 5 of Form A or matters considered in FIT 2.

An example of where a firm should use Form D is when an individual who is appointed by one appointed representative becomes employed by another appointed representative but continues to perform the investment adviser function for the firm. The firm should notify the FSA by completing Section 1.07 of Form D.

The grandfathering arrangements applying to an approved person referred to in SUP 10.13.18 R are contained in Part VI (Approved persons) of the Financial Services and Markets Act (Transitional Provisions) (Authorised Persons etc.) Order 2001 (SI 2001/2636). Article 72 of that Order provides, in general terms, that, where a person was performing a function at the beginning of 1 December 2001 which became a controlled function under the Act, the continued performance of that function by that person was taken to be approved by the FSA. That person therefore became an approved person without the need for a Form A.

A list of frequently asked questions and answers is at SUP 10 Annex 1.

If the firm or its advisers have further questions, they should contact the FSA's2 Individuals, 2Mutuals and Policy2Department1(see SUP 10.11.6 G).

This annex consists only of one or more forms. Forms are to be found through the following address:

Supervision forms - SUP 10 Annex 8