5 SUP 10C deals with the approved persons regime for SMCR firms themselves13.

This chapter is also relevant to18:5

1. (1)

   FCA-approved person of an appointed representative of an SMCR firm18; and5

   13
2. (2)

   18an appointed representative of an SMCR firm13.5

The rules in this chapter specify descriptions of FCA controlled functions 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 FCA's approval under section 59 of the Act and other procedures.

SUP 10A.1.7 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 FCA under the Act.513

1. (2)

   [deleted]

   5

Certain additional controlled functions apply to a firm in SUP 10A.1.16AR under SUP 10C (FCA senior managers regime for approved persons in SMCR firms).18

1. (1)

   5Under section 59(6A) of the Act, if the FCA is satisfied that, in relation to the carrying on of a regulated activity by an SMCR firm13, a controlled function is a senior management function, the FCA must designate the function in its rules as a senior management function.

2. (2)

   Generally, the FCA does not think that a person performing a function in this chapter18 will have sufficient responsibility for managing the affairs of the appointed representative’sprincipal (as opposed to managing the affairs of the appointed representative itself) to perform a senior management function.

3. (3)

   Therefore:

   1. (a)

      the FCA has not designated any of the functions in this chapter18 as a senior management function; and

   2. (b)

      none of the functions in this chapter18 are designated senior management functions.

4. (4)

   SUP 10C.1.8G (Appointed representatives13) explains that it is unlikely that SUP 10C (FCA senior managers13 regime for approved persons in SMCR firms13) will apply to approved persons working in appointed representatives of an SMCR firm13 in addition to this chapter.

For a firm that is exempt from MiFID under article 2(1)(j)10 and whose only permission is bidding in emissions auctions, the only FCA controlled functions that apply to it are:

1. (1)

   the FCA governing functions;

2. (2)

   the money laundering reporting function; and10

3. (3)

   the customer function.10

4. (4)

   [deleted]10

This is because the FCA-approved person regime specifies a number of functions by incorporation of requirements in SYSC; however, a firm carrying on auction regulation bidding is only subject to SYSC to a limited extent in relation to that activity. This means that the FCA required functions do not apply to auction regulation bidding, except for the money laundering reporting function. Similarly, the significant management function does not apply in relation to auction regulation bidding because, in carrying on that activity, a firm is not subject to 13SYSC 4.1.1 R and is not undertaking proprietary trading.

The immediate purpose of SUP 10A.3 to SUP 10A.11 is to specify, under section 59 of the Act, descriptions of the FCA controlled function which are listed in SUP 10A.4.4 R. The underlying purpose is to establish, and mark the boundaries of, the "FCA-approved persons regime” for appointed representatives2.

Sections 59(1) and (2) of the Act provide that approval is necessary in respect of an FCA 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, their1 becoming a partner, or their1 employment (whether under a contract of service or otherwise). 1

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 FCA-approved for one purpose does not have the effect of bringing all his activities within that FCA controlled function.

The FCA significant-influence functions, which are specified in SUP 10A.4.1 R, comprise the FCA governing functions (SUP 10A.6)3. SUP 10A.5 applies to each of the FCA significant-influence functions.

Whether an FCA controlled function is likely to result in the person responsible for its performance exercising significant influence is a question of fact in each case. 3

3A function is not a significant-influence function unless it also meets the requirements of SUP 10A.3.1R (Provisions related to the Act).

SUP 10A.5.6 R enables cover to be given for, as an example, 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 an FCA controlled function for more than 12 weeks, the authorised approved person employer of the approved person in question3 should apply for approval.

1. (1)

   Every appointed representative8 will have one or more persons responsible for directing its affairs. These persons will be performing the FCA governing functions and will be required to be FCA-approved persons unless the application provisions in SUP 10A.1, or the particular description of an FCA controlled function, provide otherwise. For example, each director of a company incorporated under the Companies Acts will perform an FCA governing function.5

   32
2. (2)

   [deleted]5

   332
3. (3)

   [deleted]5

   332

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

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

1. (1)

   The explanation in SUP 10C.5B.2G of the basis on which the group entity senior manager function is included as a controlled function for an SMCR firm is also relevant to7 the basis on which the director function and the non-executive director function are applied to persons who have a position with the appointed representative’s8parent undertaking or holding company under SUP 10A.6.8 R or SUP 10A.6.13 R.

2. (2)

   The guidance in SUP 10C.5B.3G to SUP 10C.5B.5G about when the group entity senior manager function applies to an SMCR firm is also relevant to when those who have a position with an appointed representative’s8parent undertaking or holding company may be performing a controlled function under7SUP 10A.6.8 R or SUP 10A.6.13 R7.

This function is having the responsibility, alone or jointly with one or more others, under the immediate authority of the governing body:

1. (1)

   for the conduct of the whole of the business (or relevant activities); or

2. (2)

   in the case of a branch8 in the United Kingdom of a non-UKappointed representative8, for the conduct of all of the activities subject to the UKregulatory system.

For a branch8 in the United Kingdom of a non-UKappointed representative8, the FCA would not normally expect the overseas chief executive of the appointed representative8 as a whole to be FCA-approved for this function where there is a senior manager under them8 with specific responsibility for those activities of the branch8 which are subject to the UKregulatory system. In some circumstances, the person within the appointed representative8 responsible for UK operations may, if the function is likely to enable them8 to exercise significant influence over the branch8, also perform the chief executive function8.

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 5to perform the chief executive function.

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 or credit-related regulated activity1.

7A function is not included in the customer function unless it also meets the requirements of SUP 10A.3.1R (Provisions related to the Act).

The FCA interprets the phrase “dealing with” as including having contact with customers5 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.

The FCA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.1.9 R (2) (where it applies)7 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, gives advice on P2P agreements to retail clients4 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.

The forms listed in SUP 10A.12.2 G are referred to in SUP 10A.12 (Procedures relating to FCA-approved persons) to SUP 10A.16 (How to apply for approval and give notifications)7.

Unless the context otherwise requires, in SUP 10A.12 (Procedures relating to FCA-approved persons) to SUP 10A.16 (How to apply for approval and give notifications) 7where reference is made to a firm, this also includes an applicant for Part 4A 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 FCA-approved person by the firm that submitted an FCA-approved person's original application (the relevant Form A).

Copies of Forms A, B, C, D and E may be obtained from the FCA website. Credit unions can obtain copies from the FCA's Contact Centre. To contact the FCA's2 Contact Centre for approved persons enquiries:

1. (1)

   telephone 0300 500 0597;2or

   2
2. (2)

   e-mail firm.queries@fca.org.uk; or

3. (3)

   fax 020 7066 0017; or

4. (4)

   write to:

   Customer Contact Centre

   The Financial Conduct Authority

   12 Endeavour Square4

   London4

   E20 1JN.4

In accordance with section 59 of the Act (Approval for particular arrangements), where a candidate will be performing one or more FCA 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 FCA.

If a person performs an FCA controlled function without approval it is not only the firm that is accountable. Under section 63A of the Act (Power to impose penalties), if the FCA is satisfied that:

1. (1)

   a person (“P”) has at any time performed an FCA controlled function without approval; and

2. (2)

   at that time P knew, or could reasonably be expected to have known, that P was performing an FCA controlled function without approval;

it may impose a penalty on P of such amount as it considers appropriate.

SUP 10A.16.1 D explains how applications should be submitted.

1. (1)

   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:

   1. (a)

      the FCAcandidate; or

   2. (b)

      the appointed representative5.

2. (2)

   [deleted]5

   3

Where the notification of an appointed representative (SUP 12.7.1 R) is linked to an application for approval (SUP 10A.13 (Applications for approval and withdrawing an application for approval)), any delay in receiving the notification under SUP 12.7.1 R may delay the FCA's approval of the individuals employed by that appointed representative who will be performing FCA controlled functions for the firm.

The Act sets out the time that the FCA has to consider an application and come to a decision.

In any case where the application for approval is made by a person applying for permission under Part 4A of the Act, the FCA has until the end of whichever of the following periods ends last:

1. (1)

   the period within which an application for that permission must be determined; and

2. (2)

   the period of three months from the time it receives a properly completed application.

In any other case it is the period of three months from the time it receives a properly completed application.

The FCA must either grant the application or, if it proposes not to grant an application, issue a warning notice (see DEPP 2). The FCA 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 FCA 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 subject to investigation and the FCAcandidate's suitability to be approved to undertake an FCA controlled function will be called into question. A person who provides information to the FCA that is false or misleading may commit a criminal offence, and could face prosecution under section 398 of the Act regardless of the status of their application.

If there is a delay in processing the application within the standard response time, the FCA 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 FCA may ask the firm for more information about the FCA candidate. If it does this, the three-month period in which the FCA must determine a completed application:

1. (1)

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

2. (2)

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

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

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

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

If the FCA proposes to refuse an application in relation to one or more FCA 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.

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 FCA-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'sregulated activities. Where the changes will involve the person performing one or more FCA controlled functions different from those for which approval has already been granted, then an application must be made to the FCA for approval for the person to perform those FCA controlled functions. The firm must take reasonable care to ensure that an individual does not begin performing an FCA controlled function until the FCA has granted FCA-approved person status to that individual in respect of that FCA controlled function. 5

If:7

1. (1)

   a firm is applying for approval for someone to perform a controlled function under this chapter; and 7

2. (2)

   that person is also ceasing to perform FCA controlled functions or a PRA controlled function in relation to the same firm or in relation to a firm in the same group;7

the firm should generally use Form E. Further details can be found in SUP 10A.14.4D.7

If a person is to perform an FCA controlled function under this chapter in relation to7 a firm for which they5 already perform an5FCA controlled function as an approved person (whether under this chapter or SUP 10C (FCA senior managers regime for approved persons in SMCR firms))7 but they are5 not at the same time ceasing to perform an FCA controlled function or PRA controlled function for the firm or a firm in the same group5, a firm should use Form A. See SUP 10A.13.3D and SUP 10A.13.3AD for further5 details.

7See SUP 10A.14.23G for circumstances in which a firm should use Form D rather than Form A or E.

SUP 10A.16.1 D explains how applications should be submitted.

If it is proposed that an FCA-approved person will no longer be performing an FCA controlled function under an arrangement entered into by the appointed representative of one principal7, but will be performing the same or a different FCA controlled function under an arrangement entered into by the appointed representative of a new principal7, the new principal7 will be required to make a fresh application for the performance of the FCA controlled function by that person. This applies even if the new principal is in the same group as the old principal or the appointed representative is the same.7

SUP 10A.16.2 R explains how notifications should be submitted.

Notification under SUP 10A.14.10 R may be made by telephone, email or fax 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 FCA in due course of the reason. This could be done using Form D, if appropriate.

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

A firm can submit Form C or Form E 6to the FCA in advance of the cessation date. When a person ceases the arrangement under which they perform4 an FCA controlled function, they4 will automatically cease to be an FCA-approved person in relation to that FCA controlled function. A person can only be an FCA-approved person in relation to a specific FCA controlled function. Therefore, a person is not an FCA-approved person during any period between ceasing to perform one FCA controlled function (when they are4 performing no other FCA controlled function) and being approved in respect of another FCA controlled function.

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

The duty to notify in SUP 10A.14.15 R does not apply to changes to an FCA-approved person's private address.

SUP 10A.16.2 R applies to the submission of Form D.

Failing to disclose relevant information to the FCA may be a criminal offence under section 398 of the Act.

1. (1)

   If, in relation to a firm which has completed the relevant Form A (SUP 10C Annex 3D7), any of the details relating to arrangements and FCA controlled functions are to change, the firm must notify the FCA on Form D (SUP 10C Annex 6R5).

2. (2)

   The notification under (1) must be made as soon as reasonably practicable after the firm becomes aware of the proposed change.

3. (3)

   This also applies in relation to an FCA controlled function for which an application was made using Form E.

4. (4)

   This rule also applies to a firm in respect of an approved person, to whom the grandfathering arrangements relating to the coming into force of the Act applied as if the firm had completed the relevant Form A for that person.

SUP 10A.16.2 R also applies to the submission of Form D under SUP 10A.14.21 G.

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 customer function for the firm. The firm should notify the FCA by completing Section 1.07 of Form D.

1. (1)

   1SYSC 22 (Regulatory references) says that if1 a firm (A):

   1. (a)

      is considering appointing a person (P)1 to perform any1controlled function or certain other functions1;

   2. (b)

      requests1 a reference from a firm (B) that is P’s1 current or former employer1; and

   3. (c)

      indicates to B the purpose of the request;

   B should1, as soon as reasonably practicable, give a reference to A1.

2. (2)

   SYSC 22.8.3R and SYSC 22.8.4R (Appointed representatives) say that this applies to B’s appointed representatives as well as to B.4

   331
3. (3)

   [deleted]3

   1

The obligations to supply information to1 the FCA under either SUP 10A.14.8R or SUP 10A.14.10R1 apply notwithstanding any agreement (for example a 'COT 3' Agreement settled by the Advisory, Conciliation and Arbitration Service (ACAS)) or any other arrangements entered into by a firm or its appointed representative4 and an employee upon termination of the employee's employment. A firm should not (and should ensure that its appointed representatives do not)4 enter into any such arrangements or agreements that could conflict with its obligations under this section.

Failing to disclose relevant information to the FCA may be a criminal offence under section 398 of the Act.