Related provisions for SUP 3.3.9

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SUP 3.8.1GRP
The auditor of a firm has various rights and duties to obtain information from the firm and both to enable and to require him to pass information to the FSA in specified circumstances. This section imposes or gives guidance on those rights and duties.
SUP 3.8.2RRP
An auditor of a firm must cooperate with the FSA in the discharge of its functions under the Act.
SUP 3.8.3GRP
The FSA may ask the auditor to attend meetings and to supply it with information about the firm. In complying with SUP 3.8.2 R, the auditor should attend such meetings as the FSA requests and supply it with any information the FSA may reasonably request about the firm to enable the FSA to discharge its functions under the Act.
SUP 3.8.4RRP
An auditor of a firm must give any skilled person appointed by the firm all assistance that person reasonably requires (see SUP 5 and section 166(5) of the Act (Reports by skilled persons)).
SUP 3.8.9GRP
Within the legal constraints that apply, the FSA may pass on to an auditor any information which it considers relevant to his function. An auditor is bound by the confidentiality provisions set out in Part XXIII of the Act (Public record, disclosure of information and cooperation) in respect of confidential information he receives from the FSA. An auditor may not pass on such confidential information without lawful authority, for example if an exception applies under the Financial
SUP 3.8.10GRP
Auditors are subject to regulations made by the Treasury under sections 342(5) and 343(5) of the Act (Information given by auditor or actuary to the FSA). These regulations oblige auditors to report certain matters to the FSA. Sections 342(3) and 343(3) of the Act provide that an auditor does not contravene any duty by giving information or expressing an opinion to the FSA, if he is acting in good faith and he reasonably believes that the information or opinion is relevant to
SUP 3.8.11RRP
An auditor must notify the FSA without delay if he:(1) is removed from office by a firm; or(2) resigns before his term of office expires; or(3) is not re-appointed by a firm.
SUP 3.8.12RRP
If an auditor ceases to be, or is formally notified that he will cease to be, the auditor of a firm, he must notify the FSA without delay:(1) of any matter connected with his so ceasing which he thinks ought to be drawn to the FSA's attention; or (2) that there is no such matter.
SUP 3.3.1GRP
This section requires a firm to appoint an auditor and supply the FSA with information about its auditor. The FSA requires such information to ensure that the firm has an auditor.
SUP 3.3.2RRP
A firm to which this section applies (see SUP 3.1) must:(1) appoint an auditor;(2) notify the FSA, without delay, on the form in SUP 15 Ann 2R (Standing data form), in accordance with the instructions on the form, when it is aware that a vacancy in the office of auditor will arise or has arisen, giving the reason for the vacancy;2(3) appoint an auditor to fill any vacancy in the office of auditor which has arisen; (4) ensure that the replacement auditor can take up office at the
SUP 3.3.7RRP
(1) Paragraph (2) applies to a firm which is not under an obligation to appoint an auditor imposed by an enactment other than the Act.(2) If a firm fails to appoint an auditor within 28 days of a vacancy arising, the FSA may appoint an auditor for it on the following terms:(a) the auditor to be remunerated by the firm on the basis agreed between the auditor and firm or, in the absence of agreement, on a reasonable basis; and(b) the auditor to hold office until he resigns or the
SUP 3.3.10RRP
A firm must comply with and is bound by the terms on which an auditor has been appointed by the FSA, whether under SUP 3.3.7 R, the Building Societies Act 1986 or the Friendly Societies Act 1992.
SUP 18.4.18GRP
The FSA may require confirmation from the auditors of either friendly society involved in the transfer or amalgamation about the reasonableness of any part of the information in the statement. For instance such confirmation would normally be required if the financial information relates to a date more than six months previously.
SUP 3.4.1GRP
The FSA is concerned to ensure that the auditor of a firm has the necessary skill and experience to audit the business of the firm to which he has been appointed. This section sets out the FSA's rules and guidance aimed at achieving this.
SUP 3.4.6GRP
If it appears to the FSA that an auditor of a firm has failed to comply with a duty imposed on him under the Act, it may disqualify him under section 345 of the Act. For more detail about what happens when the disqualification of an auditor is being considered or put into effect, see EG 151. A list of persons who are disqualified by the FSA under section 345 of the Act may be found on the FSA website (www.fsa.gov.uk).1
SUP 3.4.7RRP
A firm must take reasonable steps to ensure that an auditor, which it is planning to appoint or has appointed, provides information to the FSA about the auditor's qualifications, skills, experience and independence in accordance with the reasonable requests of the FSA.
SUP 3.4.8GRP
To enable it to assess the ability of an auditor to audit a firm, the FSA may seek information about the auditor's relevant experience and skill. The FSA will normally seek information by letter from an auditor who has not previously audited any firm. The firm should instruct the auditor to reply fully to the letter (and should not appoint an auditor who does not reply to the FSA). The FSA may also seek further information on a continuing basis from the auditor of a firm (see
BIPRU 7.10.14GRP
A visit will usually involve the FSA wishing to meet senior management and staff from the front office, financial control, risk management, operations, systems development, information technology and internal audit areas.
SUP 3.2.1GRP
This chapter sets out rules and guidance on the role auditors play in the FSA's monitoring of firms' compliance with the requirements and standards under the regulatory system. In determining whether a firm satisfies the threshold conditions, the FSA has regard to whether the firm has appointed auditors with sufficient experience in the areas of business to be conducted by the firm (COND 2.5.7 G (11)). Auditors act as a source of information for the FSA in its supervision. They
SUP 13A.9.5GRP
(1) The purpose of the precautionary measure rule is to ensure that an incoming EEA firm is subject to the standards of MiFID and the MiFID implementing Directive to the extent that the Home State has not transposed MiFID or the MiFID implementing Directive by 1 November 2007. It is to 'fill a gap'.(2) The rule is made in the light of the duty of the United Kingdom under Article 62 of MiFID to adopt precautionary measures to protect investors. (3) The rule will be effective for
SUP 4.5.7GRP
Actuaries appointed under this chapter2 are subject to regulations made by the Treasury under section 342(5) and 343(5) of the Act (Information given by auditor or actuary to the Authority). These regulations oblige actuaries to report certain matters to the FSA. Sections 342(3) and 343(3) of the Act provide that an actuary does not contravene any duty by giving information or expressing an opinion to the FSA, if he is acting in good faith and he reasonably believes that the information
SYSC 8.1.8RRP
A common platform firm must in particular take the necessary steps to ensure that the following conditions are satisfied:(1) the service provider must have the ability, capacity, and any authorisation required by law to perform the outsourced functions, services or activities reliably and professionally;(2) the service provider must carry out the outsourced services effectively, and to this end the firm must establish methods for assessing the standard of performance of the service provider;(3)
SYSC 2.1.6GRP

Frequently asked questions about allocation of functions in SYSC 2.1.3 R

This table belongs to SYSC 2.1.5 G

Question

Answer

1

Does an individual to whom a function is allocated under SYSC 2.1.3 R need to be an approved person?

An individual to whom a function is allocated under SYSC 2.1.3 R will be performing the apportionment and oversight function (CF 8, see SUP 10.7.1 R) and an application must be made to the FSA for approval of the individual before the function is performed under section 59 of the Act (Approval for particular arrangements). There are exceptions from this in SUP 10.1 (Approved persons - Application). In particular, an incoming EEA firm is referred to the EEA investment business oversight function (CF 9, see SUP 10.7.6 R).

2

If the allocation is to more than one individual, can they perform the functions, or aspects of the functions, separately?

If the functions are allocated to joint chief executives under SYSC 2.1.4 R, column 2, they are expected to act jointly. If the functions are allocated to an individual under SYSC 2.1.4 R, column 2, in addition to individuals under SYSC 2.1.4 R, column 3, the former may normally be expected to perform a leading role in relation to the functions that reflects his position. Otherwise, yes.

3

What is meant by "appropriately allocate" in this context?

The allocation of functions should be compatible with delivering compliance with Principle 3, SYSC 2.1.1 R and SYSC 3.1.1 R. The FSA considers that allocation to one or two individuals is likely to be appropriate for most firms.

4

If a committee of management governs a firm or group, can the functions be allocated to every member of that committee?

Yes, as long as the allocation remains appropriate (see Question 3).If the firm also has an individual as chief executive, then the functions must be allocated to that individual as well under SYSC 2.1.4 R, column 2 (see Question 7).

5

Does the definition of chief executive include the possessor of equivalent responsibilities with another title, such as a managing director or managing partner?

Yes.

6

Is it possible for a firm to have more than one individual as its chief executive?

Although unusual, some firm may wish the responsibility of a chief executive to be held jointly by more than one individual. In that case, each of them will be a chief executive and the functions must be allocated to all of them under SYSC 2.1.4 R, column 2 (see also Questions 2 and 7).

7

If a firm has an individual as chief executive, must the functions be allocated to that individual?

Normally, yes, under SYSC 2.1.4 R, column 2.

But if the firm is a body corporate and a member of a group, the functions may, instead of to the firm's chief executive, be allocated to a director or senior manager from the group responsible for the overall management of the group or of a relevant group division, so long as this is appropriate (see Question 3). Such individuals willnevertheless require approval by the FSA (see Question 1).

If the firm chooses to allocate the functions to a director or senior manager responsible for the overall management of a relevant group division, the FSA would expect that individual to be of a seniority equivalent to or greater than a chief executive of the firm for the allocation to be appropriate.

See also Question 14.

8

If a firm has a chief executive, can the functions be allocated to other individuals in addition to the chief executive?

Yes. SYSC 2.1.4 R, column 3, permits a firm to allocate the functions, additionally, to the firm's (or where applicable the group's) directors and senior managers as long as this is appropriate (see Question 3).

9

What if a firm does not have a chief executive?

Normally, the functions must be allocated to one or more individuals selected from the firm's (or where applicable the group's) directors and senior managers under SYSC 2.1.4 R, column 3.

But if the firm:

(1) is a body corporate and a member of a group; and

(2) the group has a director or senior manager responsible for the overall management of the group or of a relevant group division;

then the functions must be allocated to that individual (together, optionally, with individuals from column 3 if appropriate) under SYSC 2.1.4 R, column 2.2

10

What do you mean by "group division within which some or all of the firm's regulated activities fall"?

A "division" in this context should be interpreted by reference to geographical operations, product lines or any other method by which the group's business is divided.

If the firm's regulated activities fall within more than one division and the firm does not wish to allocate the functions to its chief executive, the allocation must, under SYSC 2.1.4 R, be to:

(1) a director or senior manager responsible for the overall management of the group; or

(2) a director or senior manager responsible for the overall management of one of those divisions;

together, optionally, with individuals from column 3 if appropriate. (See also Questions 7 and 9.)

11

How does the requirement to allocate the functions in SYSC 2.1.3R apply to an overseas firm which is not an incoming EEA firm, incoming Treaty firm or UCITS qualifier?

The firm must appropriately allocate those functions to one or more individuals, in accordance with SYSC 2.1.4 R, but:

(1) The responsibilities that must be apportioned and the systems and controls that must be overseen are those relating to activities carried on from a UK establishment with certain exceptions (see SYSC 1.1.7 R). Note that SYSC 1.1.10 R does not extend the territorial scope of SYSC 2 for an overseas firm.

(2) The chief executive of an overseas firm is the person responsible for the conduct of the firm's business within the United Kingdom (see the definition of "chief executive"). This might, for example, be the manager of the firm's UK establishment, or it might be the chief executive of the firm as a whole, if he has that responsibility.

The apportionment and oversight function applies to such a firm, unless it falls within a particular exception from the approved persons regime (see Question 1).

12

How does the requirement to allocate the functions in SYSC 2.1.3R apply to an incoming EEA firm or incoming Treaty firm?

SYSC 1.1.1 R (2) and SYSC 1.1.7 R restrict the application of SYSC 2.1.3 R for such a firm. Accordingly:

(1) Such a firm is not required to allocate the function of dealing with apportionment in SYSC 2.1.3 R (1).

(2) Such a firm is required to allocate the function of oversight in SYSC 2.1.3 R (2). However, the systems and controls that must be overseen are those relating to matters which the FSA, as Host State regulator, is entitled to regulate (there is guidance on this in SUP 13A Annex 2 G3). Those are primarily, but not exclusively, the systems and controls relating to the conduct of the firm's activities carried on from its UK branch.

(3) Such a firm need not allocate the function of oversight to its chief executive; it must allocate it to one or more directors and senior managers of the firm or the firm's group under SYSC 2.1.4 R, row (2).

(4) An incoming EEA firm which has provision only for cross border services is not required to allocate either function if it does not carry on regulated activities in the United Kingdom; for example if they fall within the overseas persons exclusions in article 72 of the Regulated Activities Order.

See also Questions 1 and 15.1

3

13

What about a firm that is a partnership or a limited liability partnership?

The FSA envisages that most if not all partners or members will be either directors or senior managers, but this will depend on the constitution of the partnership (particularly in the case of a limited partnership) or limited liability partnership. A partnership or limited liability partnership may also have a chief executive (see Question 5). A limited liability partnership is a body corporate and, if a member of a group, will fall within SYSC 2.1.4 R, row (1) or (2).

14

What if generally accepted principles of good corporate governance recommend that the chief executive should not be involved in an aspect of corporate governance?

The Note to SYSC 2.1.4 R provides that the chief executive or other executive director or senior manager need not be involved in such circumstances. For example, the Combined Code developed by the Committee on Corporate Governancerecommends that the board of a listed company should establish an audit committee of non-executive directors to be responsible for oversight of the audit. That aspect of the oversight function may therefore be allocated to the members of such a committee without involving the chief executive. Such individuals may require approval by the FSA in relation to that function (see Question 1).

15

What about incoming electronic commerce activities?

ECO 1.1.6 R has the effect that SYSC does not apply to an incoming ECA provider acting as such.1
DEPP 2.5.18GRP
Some of the distinguishing features of notices given under enactments other than the Act are as follows: (1) Building Societies Act 1986, section 36A: There is no right to refer a decision to issue a prohibition order under section 36A to the Tribunal. Accordingly, a decision notice under section 36A(5A) is not required to give an indication of whether any such right exists. A decision notice under section 36A(5A) may only relate to the issue of a prohibition order under section
REC 5.2.14GRP

Information and supporting documentation (see REC 5.2.4 G).

(1)

Details of the applicant's constitution, structure and ownership, including its memorandum and articles of association (or similar or analogous documents ) and any agreements between the applicant, its owners or other persons relating to its constitution or governance (if not contained in the information listed in REC 5.2.3A G)1.

(2)

Details of all business to be conducted by the applicant, whether or not a regulated activity (if not contained in the information listed in REC 5.2.3A G)1.

(3)

Details of the facilities which the applicant plans to operate, including details of the trading platform, settlement arrangements, clearing services and custody services which it plans to supply.

(4)

Copies of the last three annual reports and accounts and, for the current financial year, quarterly management accounts.

(5)

Details of its business plan for the first three years of operation as a UK recognised body (if not contained in the information listed in REC 5.2.3A G)1.

(6)

A full organisation chart and a list of the posts to be held by key individuals (with details of the duties and responsibilities) and the names of the persons proposed for these appointments when these names are available (if not contained in the information listed in REC 5.2.3A G)1.

(7)

Details of its auditors, bankers, solicitors and any persons providing corporate finance advice or similar services (such as reporting accountants) to the applicant.

(8)

Details of any relevant functions to be outsourced or delegated, with copies of relevant agreements.

(9)

Details of information technology systems and of arrangements for their supply, management, maintenance and upgrading, and security.

(10)

Details of all plans to minimise disruption to operation of its facilities in the event of the failure of its information technology systems.

(11)

Details of internal systems for financial control, arrangements for risk management and insurance arrangements to cover operational and other risks.

(12)

Details of its arrangements for managing any counterparty risks, including details of margining systems, guarantee funds and insurance arrangements.

(13)

Details of internal arrangements to safeguard confidential or privileged information and for handling conflicts of interest.

(14)

Details of arrangements for complying with the notification rules and other requirements to supply information to the FSA.

(15)

Details of the arrangements to be made for monitoring and enforcing compliance with its rules and with its clearing, settlement and default arrangements.

(16)

A summary of the legal due diligence carried out in relation to ascertaining the enforceability of its rules (including default rules)and arrangements for margin against any of its members based outside the United Kingdom, and the results and conclusions reached.

(17)

Details of the procedures to be followed for declaring a member in default, and for taking action after that event to close out positions, protect the interests of other members and enforce its default rules.

(18)

Details of membership selection criteria, rules and procedures.

(19)

Details of arrangements for recording transactions effected by, or cleared through, its facilities.

(20)

Details of arrangements for detecting financial crime and market abuse , including arrangements for complying with money laundering law.

(21)

Details of criteria, rules and arrangements for selecting specified investments to be admitted to trading on (or cleared by) an RIE, or to be cleared by an RCH and, where relevant, details of how information regarding specified investments will be disseminated to users of its facilities.

(22)

Details of arrangements for cooperating with the FSA and other appropriate authorities, including draft memoranda of understanding or letters.

(23)

Details of the procedures and arrangements for making and amending rules, including arrangements for consulting on rule changes.

(24)

Details of disciplinary and appeal procedures, and of the arrangements for investigating complaints.
SYSC 13.7.9GRP
Operating processes and systems at separate geographic locations may alter a firm's operational risk profile (including by allowing alternative sites for the continuity of operations). A firm should understand the effect of any differences in processes and systems at each of its locations, particularly if they are in different countries, having regard to:(1) the business operating environment of each country (for example, the likelihood and impact of political disruptions or