SUP 10A.10 Customer-dealing functions
Introduction
SUP 10A.10 applies with respect to activities carried on from an establishment maintained by the firm (or by its appointed representative) in the United Kingdom.
Without SUP 10A.10.1 R, the description of the customer function would extend to this function wherever it was performed. The effect of SUP 10A.10.1 R is that the description is limited, 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 function has to do with giving advice on, dealing and arranging deals in and managing investments; it has no application to banking business such as deposit taking and lending, nor to general insurance business.
The basic rule about the customer function
The customer function is one which comes within the definition of a customer-dealing function.
Section 59(7A) of the Act (Approval for particular arrangements) says that the customer-dealing function, in relation to the carrying on of a regulated activity by a firm (“A”), means a function that will involve the person performing it in dealing with:
in a manner substantially connected with the carrying on of the activity.
The FCA 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.
Customer function (CF 30)
The customer function is the function of:
- (1)
advising on investments other than a non-investment insurance contract (but not where this is advising on investments in the course of carrying on the activity of giving basic advice on a stakeholder product) and performing other functions related to this such as dealing and arranging;
- (2)
giving advice to clients solely in connection with corporate finance business and performing other functions related to this;
- (3)
giving advice or performing related activities in connection with pension transfers or opt-outs for retail clients;
- (4)
giving advice to a person to become, or continue or cease to be, a member of a particular Lloyd's syndicate;
- (5)
dealing, as principal or as agent, and arranging (bringing about) deals in investments other than a non-investment insurance contract with, for, or in connection with customers where the dealing or arranging deals is governed by COBS 11 (Dealing and managing);
- (6)
acting in the capacity of an investment manager and carrying on functions connected to this ;
- (7)
in relation to bidding in emissions auctions, acting as a ‘bidder’s representative’ within the meaning of subparagraph 3 of article 6(3) of the auction regulation.
The customer function does not extend to an individual who is performing the functions in SUP 10A.10.7R (1) to SUP 10A.10.7R (2) or SUP 10A.10.7R (5) to (7) and who is based overseas and who, in a 12-month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.
The FCA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.1.9 R (2) provides that the firm will have to be satisfied that the individual has at least three years of up-to-date, relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.1.9 R (2) are disapplied in these circumstances (except for an individual who gives advice to retail clients on retail investment products or is a broker fund adviser). The effect of this is that such individuals need not attain the relevant regulatory module of an appropriate qualification (see TC 2.1.9 R (2)).
The customer function in SUP 10A.10.7R (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.
An 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 should record when that person subsequently becomes competent.