Related provisions for SYSC 22.8.1
1 - 20 of 205 items.
A UCITS investment firm19 must establish, implement and maintain adequate risk management policies and procedures, including effective procedures for risk assessment, which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm.19
The management body13 of a common platform firm must approve and periodically review the strategies and policies for taking up, managing, monitoring and mitigating the risks the firm is or might be exposed to, including those posed by the macroeconomic environment in which it operates in relation to the status of the business cycle.[Note: 13article 76(1) of CRD]1313
For a common platform firm included within the scope of SYSC 20 (Reverse stress testing), the strategies, policies and procedures for identifying, taking up, managing, monitoring and mitigating the risks to which the firm is or might be exposed include conducting reverse stress testing in accordance with SYSC 20. A common platform firm which falls outside the scope of SYSC 20 should consider conducting reverse stress tests on its business plan as well. This would further senior
A UCITS investment firm19 must monitor the following:(1) the adequacy and effectiveness of the firm's risk management policies and procedures;(2) the level of compliance by the firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with SYSC 7.1.3 R;(3) the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant
A UCITS investment firm19must, where appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of the investment services and activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:(1) implementation of the policies and procedures referred to in SYSC 7.1.2 R to SYSC 7.1.5 R; and(2) provision of reports and advice
Where a UCITS investment firm19 is not required under SYSC 7.1.6 R to maintain a risk management function that functions independently, it must nevertheless be able to demonstrate that the policies and procedures which it has adopted in accordance with SYSC 7.1.2 R to SYSC 7.1.5 R satisfy the requirements of those rules and are consistently effective.19
A BIPRUfirm must implement policies and processes to evaluate and manage the exposure to operational risk, including to low-frequency high severity events. Without prejudice to the definition of operational risk, BIPRUfirms must articulate what constitutes operational risk for the purposes of those policies and procedures.15
(1) 13The management body of a CRR firm has overall responsibility for risk management. It must devote sufficient time to the consideration of risk issues.(2) The management body of a CRR firm must be actively involved in and ensure that adequate resources are allocated to the management of all material risks addressed in the rules implementing the CRD and in the EU CRR as well as in the valuation of assets, the use of external ratings and internal models related to those risks.
(1) 17This guidance is relevant to an SMCR banking firm20 that has
appointed a head of the risk management function.(2) Taking account of the nature, scale and complexity of its activities,
the firm should have appropriate procedures to ensure that the
removal or any other disciplinary sanctioning of the head of the risk
management function does not undermine the independence of the
risk management function.(3) It will be appropriate, in many cases, for the procedures in (2) to
include
A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest as defined in SYSC 10.1.3 R from adversely affecting9 the interests of its clients.[Note: article 169(3) of MiFID and article 27 of the IDD12]3
(1) If arrangements made by a firm under SYSC 10.1.7 R9 are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must clearly disclose the following9 to the client before undertaking business for the client:93(a) the general nature or sources of conflicts of interest, or both; and9(b) the steps taken to mitigate those risks.9(2) The disclosure must:(a) be made in a durable medium; 9(b) clearly state
Firms3 should aim to identify and manage the conflicts of interest arising in relation to their various business lines and their group's activities under a comprehensive conflicts of interest policy. In particular, the disclosure of conflicts of interest by a firm should not exempt it from the obligation to maintain and operate the effective organisational and administrative arrangements under SYSC 10.1.7 R. While disclosure of specific conflicts of interest is required by SYSC
9A firm must treat disclosure of conflicts pursuant to SYSC 10.1.8R as a measure of last resort to be used only where the effective organisational and administrative arrangements established by the firm to prevent or manage its conflicts of interest in accordance with SYSC 10.1.7R are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.
(1) A 9management company5and an insurance intermediary12 must establish, implement and maintain an effective conflicts of interest policy89 that is set out in writing and is appropriate to the size and organisation of the firm and the nature, scale and complexity of its business.(2) Where the 9management company5or insurance intermediary12 is a member of a group, the policy must also take into account any circumstances, of which the firm is or should be aware, which may give
(1) The conflicts of interest policy must include the following content:(a) it must identify in accordance with SYSC 10.1.3 R, SYSC 10.1.4 R, SYSC 10.1.4BR and SYSC 10.1.4CR (as applicable),12 by reference to the specific services and activities carried out by or on behalf of the management company or insurance intermediary12 the circumstances which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of one or more clients;
3Other firms (except common platform firms, UCITS management companies and insurance intermediaries12 )9 should take account of the rules relating to conflicts of interest policies (see SYSC 10.1.10 R and SYSC 10.1.11 R) in accordance with SYSC 1 Annex 1.3.2BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R9.4
In drawing up a conflicts of interest policy which identifies circumstances which constitute or may give rise to a conflict of interest, a firm should pay special attention to the activities of investment research and advice, proprietary trading, portfolio management and corporate finance business, including underwriting or selling in an offering of securities and advising on mergers and acquisitions. In particular, such special attention is appropriate where the firm or a person
3The rules relating to:(1) types of conflict (see SYSC 10.1.4 R);(2) records of conflicts (see SYSC 10.1.6 R); and(3) conflicts of interest policies (see SYSC 10.1.10 R and SYSC 10.1.11 R);also apply to a firm which is not a common platform firm when it produces, or arranges for the production of, investment research that is intended or likely to be subsequently disseminated to clients of the firm or to the public10, and when it produces or disseminates non-independent research,10
(1) 5Where the organisational or administrative arrangements made by a management company for the management of conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the UCITS scheme or EEA UCITS scheme it manages or of its Unitholders will be prevented, the senior personnel or other competent internal body of the firm must be promptly informed in order for them to take any necessary decision to ensure that in
6If the organisational arrangements made by the AIFM to identify, prevent, manage and monitor conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to investors' interests will be prevented, the AIFM must:(1) clearly disclose the general nature or sources of conflicts of interest to the investors before undertaking business on their behalf; and(2) develop appropriate policies and procedures.[Note: article 14(2) of AIFMD]
SYSC 4.1.1 R requires every firm, including a credit union, to have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing
(1) The term 'internal audit function' in CREDS 2.2.10 E refers to the generally understood concept of internal audit within a firm, in other words the function of assessing adherence to and the effectiveness of internal systems and controls, procedures and policies. 5(2) Guidance on internal audit is given in CREDS 2.2.40 G to CREDS 2.2.50 G.
(1) The 5credit union'sgoverning body5has responsibility for ensuring that the credit union complies with the requirements of SYSC 4.1.1 R (see CREDS 2.2.1 G and CREDS 2.2.2 G). So, the governing body5 has overall responsibility for:(a) establishing objectives and formulating a business plan;(b) monitoring the financial position of the credit union;(c) determining and documenting policies and procedures;(d) directing and coordinating the work of all employees and volunteers, and
Responsibilities of connected persons (for example, relatives and other close relationships) should be kept entirely separate. They should not hold key posts at the same time as each other. Where this is unavoidable, a credit union should have a written policy for ensuring complete segregation of duties and responsibilities.
Documentation should not be restricted to "lower level" controls applied in processing transactions, but should also cover "high level" controls including:(1) identifying those powers to be exercised only by the governing body5, and the powers delegated to others;(2) the purpose, composition and reporting lines of sub-committees, and senior managers to whom responsibilities are delegated;(3) the specific roles and responsibilities of individual officers;(4) the timing, form and
The purposes of an internal audit are:(1) to ensure that the policies and procedures of the credit union are followed;(2) to provide the governing body5 with a continuous appraisal of the overall effectiveness of the control systems, including proposed changes;(3) to recommend improvements where desirable or necessary;(4) to determine whether the internal controls established by the governing body5 are being maintained properly and operated as laid down in the policy, and comply
The internal audit function (see CREDS 2.2.11G) should develop an audit plan, covering all aspects of the credit union's business. The audit plan should identify the scope and frequency of work to be carried out in each area. Areas identified as higher risk should be covered more frequently. However, over a set timeframe (likely to be one year) all areas should be covered. Care should be taken to avoid obvious patterns in assessing the different areas of the credit union's business,
The internal audit work programme should include items such as:(1) verification of cash (counting and reconciliation) without prior notification;(2) bank reconciliation (checking records against bank statements);(3) verification of passbooks or account statements;(4) checking for compliance with policies and procedures;(5) checking for compliance with relevant Acts, secondary legislation and rules;(6) checking minutes and reports of the governing body5 and other sub-committees
The policy and procedures manual should cover all aspects of the credit union's operations, including matters such as:(1) cash handling and disbursements;(2) collection procedures;(3) lending, (see CREDS 7.1 to CREDS 7.2)5;(4) arrears management (see CREDS 7.2.9 G to CREDS 7.2.10 G);(5) provisioning5;(6) liquidity management5;(7) financial risk management5;(8) money laundering prevention (see SYSC 6.3);(9) internal audit (see CREDS 2.2.40 G to CREDS 2.2.50 G);(10) information
5Failing to take reasonable steps adequately to inform themselves about the reason why significant breaches (whether suspected or actual) of the relevant requirements and standards of the regulatory system in respect of the regulated activities of the firm in question (as referred to in Statement of Principle 7) may have arisen (taking account of the systems and procedures in place) falls within APER 4.7.2G.
5Failing to take reasonable steps to ensure that procedures and systems of control are reviewed and, if appropriate, improved, following the identification of significant breaches (whether suspended or actual) of the relevant requirements and standards of the regulatory system relating to the regulated activities of the firm in question (as referred to in Statement of Principle 7) falls within APER 4.7.2G (see APER 4.7.13G and APER 4.7.14G).
5In the case of an approved person performing an accountable higher management function responsible for compliance in respect of the following provisions8, failing to take reasonable steps to ensure that appropriate compliance systems and procedures are in place falls within APER 4.7.2G:8(1) [deleted]98(2) SYSC 6.1.4R; or8(3) article 22(3) of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex
An approved person performing an accountable higher management function5 need not themselves5 put in place the systems of control in their5 business (APER 4.7.4G5). Whether he does this depends on his role and responsibilities. He should,
however, take reasonable steps to ensure that the business for which he is
responsible has operating procedures and systems which include well-defined
steps for complying with the detail of relevant requirements and standards
of the regulatory
Where the approved person performing an accountable higher management function5 becomes aware of actual or suspected problems that involve possible breaches of relevant requirements and standards of the regulatory system falling within their5 area of responsibility, then they5 should take reasonable steps to ensure that they are dealt with in a timely and appropriate manner (APER 4.7.7G5). This may involve an adequate investigation to find out what systems
or procedures may have
Where independent reviews of systems and procedures have been undertaken and result in recommendations for improvement, the approved person performing an accountable higher management function5 should ensure that, unless there are good reasons not to, any reasonable recommendations are implemented in a timely manner (APER 4.7.8G95). What is reasonable will depend on the nature of the inadequacy and the cost of the improvement. It will be reasonable for the approved person performing
10A management company, a full-scope UK AIFM and an incoming EEA AIFMbranch14 must have, and employ effectively, the resources and procedures that are necessary for the proper performance of its business activities.[Note: articles 12(1)(a) and 14(1)(c) of the UCITS Directive and article 12(1)(c) of AIFMD14]
A firm (with the exception of a common platform firm and a 21sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements))3 must, taking into account the nature, scale and complexity of the business of the firm, and the nature and range of the financial services and activities 3undertaken in the course of that business:310(1) (if it is 21a management company)10 establish, implement and maintain decision-making
3A firm that is not a common platform firm or a management company10 should take into account the decision-making procedures and effective internal reporting rules (SYSC 4.1.4R (1),10(3) and (4))10 as if they were guidance (and as if "should" appeared in those rules21 instead of "must") as explained in SYSC 1 Annex 1 3.3 R(1)21.5
A 21management company10 must establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question.[Note: 21 article 4(2) of the UCITS implementing Directive]10
A CRR firm21 and a management company10 must establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to its systems and procedures, that any losses are limited, the preservation of essential data and functions, and the maintenance of its regulated activities, or, in the case of a management company, its collective portfolio management activities,10 or, where that is not possible, the timely recovery of such data
A 21management company10 must establish, implement and maintain accounting policies and procedures that enable it, at the request of the FCA20, to deliver in a timely manner to the FCA20 financial reports which reflect a true and fair view of its financial position and which comply with all applicable accounting standards and rules.[Note: 21article 4(4) of the UCITS implementing Directive]10
(1) A listed company must present all financial information that is disclosed in a class 1 circular in a form that is consistent with the accounting policies adopted in its own latest annual consolidated accounts.(2) The requirement set out in (1) does not apply when financial information is presented in accordance with:22(a) DTR 4.2.6 R, in relation only to financial information for the listed company presented for periods after the end of its last published annual accounts;
A listed company must ensure that a financial information table includes, for each of the periods covered by the table:(1) a balance sheet and its explanatory notes;(2) an income statement and its explanatory notes;(3) a cash flow statement and its explanatory notes;(4) a statement showing either all changes in equity or changes in equity other than those arising from capital transactions with owners and distributions to owners;(5) the accounting policies; and(6) any additional
(1) LR 13.5.27R (2) applies where the target is:22(a) admitted to trading on a regulated market; or2(b) a company whose securities are either listed on an investment exchange that is not a regulated market or admitted to a multilateral trading facility, where appropriate standards as regards the production, publication and auditing of financial information are in place;22and none of the financial information included in the target'sfinancial information table is subject to a modified
If a class 1 circular includes half-yearly or quarterly or other interim financial information for the target, the financial information should be presented in accordance with LR 13.5.4R (1) and be accompanied by a confirmation from the directors of the consistency of the accounting policies with those of the issuer, except:22(1) where LR 13.5.27R (1) applies, the financial information should be presented in accordance with LR 13.5.27R (2) except that no accountant’s opinion is
2Where a change of accounting policies has occurred during the period covered by the financial information table required by LR 13.5.30B R the financial information must be presented on the basis of both the original and amended accounting policies for the year prior to that in which the new accounting policy is adopted unless the change did not require a restatement of the comparative. Therefore the financial information table should have four columns (or more where changes have
If a listed company includes a profit forecast or a profit estimate in a class 1 circular it must:(1) comply with the requirements for a profit forecast or profit estimate set out in Annex 1 of the PD Regulation except that a listed company does not need to include a report on the forecast or estimate from an accountant in the class 1 circular; and(2) include a statement confirming that the profit forecast or profit estimate has been properly compiled on the basis of assumptions
A firm's execution policy should determine the relative importance of each of the execution factors or establish a process by which the firm will determine the relative importance of the execution factors. The relative importance that the firm gives to those execution factors must be designed to obtain the best possible result for the execution of its client orders. Ordinarily, the FCA would expect that price will merit a high relative importance in obtaining the best possible
The obligation to deliver best execution for a retail client where there are competing execution venues is not intended to require a firm to compare the results that would be achieved for its client on the basis of its own execution policy and its own commissions and fees, with results that might be achieved for the same client by any other firm on the basis of a different execution policy or a different structure of commissions or fees. Nor is it intended to require a firm to
The order execution policy must include, in respect of each class of financial instruments, information on the different execution venues where the firm executes its client orders and the factors affecting the choice of execution venue. It must at least include those execution venues that enable the firm to obtain on a consistent basis the best possible result for the execution of client orders.4
(1) When establishing its execution policy, a firm should determine the relative importance of the execution factors, or at least establish the process by which it determines the relative importance of these factors, so that it can deliver the best possible result to its clients.(2) In order to give effect to that policy, a firm should select the execution venues that enable it to obtain on a consistent basis the best possible result for the execution of client orders.(3) A firm
A firm should not induce a client to instruct it to execute an order in a particular way, by expressly indicating or implicitly suggesting the content of the instruction to the client, when the firm ought reasonably to know that an instruction to that effect is likely to prevent it from obtaining the best possible result for that client. However, this should not prevent a firm inviting a client to choose between two or more specified trading venues, provided that those venues
2A full-scope UK AIFM and an incoming EEA AIFM branch4 must make available appropriate information on its execution policy required under article 27(3) of the AIFMD level 2 regulation (Execution of decisions to deal on behalf of the managed AIF)4 and on any material changes to that policy to the investors in4 of each AIF4 it manages.4
(1) A firm must review annually its execution policy, as well as its order execution arrangements.(2) This review must also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for the execution of its client orders on a consistent basis using the venues included in its execution policy.42
16For a common platform firm:
- (1)
the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and
- (2)
the rules and guidance apply as set out in the table below:
Subject
Applicable rule or guidance
Adequate policy and procedures
Compliance function
Internal audit
Financial crime
1A firm must establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives (or where applicable, tied agents)3 with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime.2[Note: article 1616(2) of MiFID and article 12(1)(a) of the UCITS Directive]8242
A 16management company8 must, taking into4account the nature, scale and complexity of its business, and the nature and range of financial services and activities8 undertaken in the course of that business, establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under the regulatory system, as well as associated risks, and put in place adequate measures and procedures designed to minimise
A 16management company8 must maintain a permanent and effective compliance function which operates independently and which has the following responsibilities:(1) to monitor and, on a regular basis, to assess the adequacy and effectiveness of the measures and procedures put in place in accordance with SYSC 6.1.2 R, and the actions taken to address any deficiencies in the firm's compliance with its obligations; and8(2) to advise and assist the relevant persons responsible for carrying
(1) 15This guidance is relevant to an SMCR firm17 required to
appoint a compliance officer under SYSC 6.1.4R or article 22(3) of the MiFID Org Regulation as applicable16.(2) Taking account of the nature, scale and complexity of its activities,
the firm should have appropriate procedures to ensure that the
removal or any other disciplinary sanctioning of the compliance
officer does not undermine the independence of the compliance
function.(3) In the FCA's view, it will be appropriate,
Unless LR 15.4.8A R applies, a6closed-ended investment fund must :666166(1) submit any proposed material change to its published investment policy to the FCA for approval; and6(2) having obtained the FCA's approval, obtain the prior approval of its shareholders to any material change to its published investment policy.6
6A closed-ended investment fund is not required to seek the FCA’s approval for a material change to its published investment policy if:(1) the change is proposed to enable the winding up of the closed-ended investment fund; and(2) the winding up: (a) is in accordance with the constitution of the closed-ended investment fund; and(b) will be submitted for approval by the shareholders of the closed-ended investment fund at the same time as the proposed material change to the investment
In considering what is a material change to the published investment policy, the closed-ended investment fund should have regard to the cumulative effect of all the changes since its shareholders 1last had the opportunity to vote on the investment policy or, if they have never voted, since the admission to listing.1
(1) No more than 10%, in aggregate, of the value of the total assets of an applicant1 at admission may be invested in other listed5closed-ended investment funds.15(2) The restriction in (1) does not apply to investments in closed-ended investment funds which themselves have published investment policies to invest no more than 15% of their total assets in other listed5closed-ended investment funds.5
1(1) If an applicant principally invests its funds in another company or fund that invests in a portfolio of investments (a "master fund"), the applicant must ensure that:1(a) the master fund's investment policies are consistent with the applicant's published investment policy and provide for spreading investment risk; and1(b) the master fund in fact invests and manages its investments in a way that is consistent with the applicant's published investment policy and spreads investment
The information in the investment policy, including quantitative information concerning the exposures mentioned in LR 15.2.7 R, should be sufficiently precise and clear as to enable an investor to:(1) assess the investment opportunity;(2) identify how the objective of risk spreading is to be achieved; and(3) assess the significance of any proposed change of investment policy.
The board of directors or equivalent body of the applicant must be able to act independently:11(1) of any investment manager appointed to manage investments of the applicant; and11(2) if the applicant (either directly or through other intermediaries) has an investment policy of principally investing its funds in another company or fund that invests in a portfolio of investments ("a master fund"), of the master fund and of any investment manager of the master fund.11
Articles 12(3) and (4) of the Financial Promotion Order (subject to article 12(5) – see PERG 8.12.8 G) have the effect that, where a financial promotion is directed from a place outside the United Kingdom, it will be conclusive proof that it is not directed at persons in the United Kingdom even if it is received by a person in the United Kingdom, if:(1) the financial promotion is not referred to in or directly accessible from another communication (for example, an advertisement
There is no definition in the Financial Promotion Order of what ‘proper systems and procedures’ are, and the matter will ultimately be for the courts to determine. This is unsurprising as systems and procedures may take many different forms depending upon the precise circumstances in which financial promotions are made. But it is clear that persons seeking conclusive proof that the exemption applies must consciously make arrangements to prevent their dealing with certain recipients
Article 19(4) sets out conditions which, if all are satisfied, offer conclusive proof that a financial promotion is directed only at investment professionals. These conditions relate to indications accompanying the financial promotion and the existence of proper systems and procedures. The guidance about proper systems and procedures in PERG 8.12.6 G applies equally to article 19. Article 19(6) specifically states that a financial promotion may be treated as made only to or directed
The effect of PERG 8.12.27G (1) is that a journalist will not breach section 21 by not disclosing a financial interest, providing that the publication, service or broadcast concerned operates proper systems and procedures. As with the exemption in article 12 of the Financial Promotion Order (see PERG 8.12.6 G), what proper systems and procedures are will be a matter ultimately for the courts to determine and may vary according to the medium used. It will depend upon all the circumstances
Persons such as experts or analysts may be approached to contribute at very short notice and may be overseas. In such cases, the systems and procedures referred to in PERG 8.12.29 G may not be practical. It is the FCA's opinion that, where occasional contributors are concerned, proper systems and procedures may include arrangements for ensuring that the need for disclosure (or the avoidance of financial interests) is drawn to the contributor’s attention before the communication
It appears to the FCA, however, that there will be situations when it may not be practical for the persons who are responsible for a publication, service or broadcast to apply proper systems and procedures to every person who may, whilst acting in the capacity of a journalist, communicate a financial promotion. For example where persons are asked to stand in at the last moment. In such cases, it is the FCA's opinion that the benefit of the exclusion will not be lost as respects
A firm must address and control, by means which include written policies and procedures, the concentration risk arising from:(1) exposures to each counterparty, including central counterparties, groups of connected counterparties and counterparties in the same economic sector, geographic region or from the same activity or commodity;(2) the application of credit risk mitigation techniques; and(3) risks associated with large indirect credit exposures, such as a single collateral
A firm must evaluate and address through appropriate policies and procedures the risks arising from securitisation transactions in relation to which a firm is investor, originator or sponsor, including reputational risks, to ensure, in particular, that the economic substance of the transaction is fully reflected in risk assessment and management decisions.[Note: article 82(1) of CRD]
A firm must implement policies and processes to evaluate and manage the exposure to operational risk, including model risk and to cover low-frequency high severity events. Without prejudice to the definition of operational risk, a firm must articulate what constitutes operational risk for the purposes of those policies and procedures.[Note: article 85(1) of CRD]
(1) A firm must have policies and procedures in place for the identification, management and monitoring of the risk of excessive leverage.(2) Those policies and procedures must include, as an indicator for the risk of excessive leverage, the leverage ratio determined in accordance with article 429 of the EU CRR (Calculation of the leverage ratio) and mismatches between assets and obligations.[Note: article 87(1) of CRD]
Where a firm is exposed to market risk, the time horizon over which stress tests and scenario analyses should be carried out will depend on, among other things, the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this will depend upon:(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily
(1) In identifying an appropriate range of adverse circumstances and events in accordance with IFPRU 2.2.37 R (2):(a) a firm will need to consider the cycles it is most exposed to and whether these are general economic cycles or specific to particular markets, sectors or industries;(b) for the purposes of IFPRU 2.2.37 R (2)(a), the amplitude and duration of the relevant cycle should include a severe downturn scenario based on forward-looking hypothetical events, calibrated against
8(1) 8Subject to (3) and (4), this12 section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.(2) COLL 6.3.3A R to COLL 6.3.3D R (Accounting procedures):(a) apply to:(i) a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services; and(ii) an EEA UCITS management company providing collective portfolio
(1) 8An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure the employment of the accounting policies and procedures referred to in SYSC 4.1.9 R (Accounting policies), so as to ensure the protection of unitholders.(2) Accounting for the scheme shall be carried out in such a way that all assets and liabilities of the scheme can be directly identified at all times.(3) If the scheme is an umbrella, separate accounts must be
8An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must have accounting policies and procedures established, implemented and maintained, in accordance with the accounting rules of the UCITS Home State, so as to ensure that the calculation of the net asset value of each scheme it manages is accurately effected, on the basis of the accounting, and that subscription and redemption orders can be properly executed at that net asset
(1) 8The accounting policies and procedures referred to in COLL 6.3.3B R should enable the authorised fund manager of a UCITS scheme to value the scheme property accurately at each valuation point and to calculate dealingprices by reference to that valuation.(2) Where different share or unitclasses exist, it should be possible to extract from the accounting records the net asset value of each different class.[Note: recital (9) of the UCITS implementing Directive]
Table: This table belongs to COLL 6.3.2 G (2) (a) and COLL 6.3.3 R (Valuation)1.
Valuation and pricing |
||
1 |
The valuation of scheme property |
|
(1) |
Where possible, investments should be valued using a reputable source. The reliability of the source of prices should be kept under regular review. |
|
(2) |
For some or all of the investments comprising the scheme property, different prices may quoted according to whether they are being bought (offer prices) or sold (bid prices). The valuation of a single-priced authorised fund should reflect the mid-market value of such investments. In the case of a dual-priced authorised fund, the issue basis of the valuation will be carried out by reference to the offer prices of investments and the cancellation basis by reference to the bid prices of those same investments. The prospectus should explain how investments will be valued for which a single price is quoted for both buying and selling.1 1 |
|
3(2A) |
Schemes investing in approved money-market instruments5should value such instruments on an amortised cost basis on condition that:5
|
|
[Note:CESR's UCITS eligible assets guidelines with respect to article 4(2) of the UCITS eligible assets Directive] |
||
(2B) |
[deleted]12 7 |
|
| 7 | ||
(3) |
Any part of the scheme property of an authorised fund that is not an investment should be valued at a fair value, but for immovables this is subject to COLL 5.6.20 R (3) (f) (Standing independent valuer and valuation). |
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(4) |
For the purposes of (2) and (3), any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable on acquiring or disposing of the investment or other part of the scheme property should, in the case of a single-priced authorised fund,2 be excluded from the value of an investment or other part of the scheme property. In the case of a dual-priced authorised fund, any such payments should be added to the issue basis of the valuation, or subtracted from the cancellation basis of the valuation, as appropriate. Alternatively, the prospectus of a dual-priced authorised fund may prescribe any other method of calculating unitprices that ensures an equivalent treatment of the effect of these payments.2 |
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(5) |
Where the authorised fund manager has reasonable grounds to believe that:
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(6) |
The circumstances which may give rise to a fair value price being used include:
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(7) |
In determining whether to use such a fair value price , the authorised fund manager should include in his consideration:
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4(7A) |
Where the authorised fund manager, the depositary or the standing independent valuer have reasonable grounds to believe that the most recent valuation of an immovable does not reflect the current value of that immovable, the authorised fund manager should consult and agree with the standing independent valuer a fair and reasonable value for the immovable. |
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(8) |
The authorised fund manager should document the basis of valuation (including any fair value pricing policy) and, where appropriate, the basis of any methodology and ensure that the procedures are applied consistently and fairly. |
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(9) |
Where a unit price is determined using properly applied fair value prices in accordance with policies in (8), subsequent information that indicates the price should have been different from that calculated will not normally give rise to an instance of incorrect pricing. |
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2 |
The pricing controls of the authorised fund manager |
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(1) |
An authorised fund manager needs to be able to demonstrate that it has effective controls over its calculations of unit prices. |
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(2) |
The controls referred to in (1) should ensure that:
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(3) |
In exercising its pricing controls, the authorised fund manager may exercise reasonable discretion in determining the appropriate frequency of the operation of the controls and may choose a longer interval, if appropriate, given the level of activity on the authorised fund1or the materiality of any effect on the price. |
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(4) |
Evidence of the exercise of the pricing controls should be retained. |
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(5) |
Evidence of persistent or repetitive errors in relation to these matters, and in particular any evidence of a pattern of errors working in an authorised fund manager's favour, will make demonstrating effective controls more difficult. |
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(6) |
Where the pricing1function is delegated to a third party, COLL 6.6.15 R (1) (Committees and delegation) will apply. |
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3 |
The depositary's review of the authorised fund manager's systems and controls |
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(1) |
This section provides details of the types of checks a depositary should carry out to be satisfied that the authorised fund manager adopts systems and controls which are appropriate to ensure that prices of units are calculated in accordance with this section and to ensure that the likelihood of incorrect prices will be minimised. These checks also apply where an authorised fund manager has delegated all or some of its pricing1 functions to one or more third parties5. 5 |
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(2) |
A depositary should thoroughly review an authorised fund manager's systems and controls to confirm that they are satisfactory. The depositary's review should include an analysis of the controls in place to determine the extent to which reliance can be placed on them. |
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(3) |
A review should be performed when the depositary is appointed and thereafter as it feels appropriate given its knowledge of the robustness and the stability of the systems and controls and their operation. |
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(4) |
A review should be carried out more frequently where a depositary knows or suspects that an authorised fund manager's systems and controls are weak or are otherwise unsatisfactory. |
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(5) |
Additionally, a depositary should from time to time review other aspects of the valuation of the scheme property of each authorised fund for which it is responsible, verifying, on a sample basis, if necessary, the assets, liabilities, accruals, units in issue1, securities prices (and in particular the prices of OTC derivatives,5unapproved securities and the basis for the valuation of unquoted securities) and any other relevant matters, for example an accumulation factor or a currency conversion factor. |
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(6) |
A depositary should ensure that any issues, which are identified in any such review, are properly followed up and resolved. |
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4 |
The recording and reporting of instances of incorrect pricing |
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(1) |
An authorised fund manager should record each instance where the price of a unit is incorrect as soon as the error is discovered, and report the fact to the depositary together with details of the action taken, or to be taken, to avoid repetition as soon as practicable. |
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(2) |
In accordance with COLL 6.6.11 G (Duty to inform the FCA), the depositary should report any breach of the rules in COLL 6.3 immediately to the FCA. However, notification should relate to instances which the depositary considers material only. |
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(3) |
A depositary should also report to the FCA immediately any instance of incorrect pricing1where the error is 0.5% or more of the price of a unit, where a depositary believes that reimbursement or payment is inappropriate and should not be paid by an authorised fund manager. |
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(4) |
In accordance with SUP 16.6.8 R, a depositary should also make a return to the FCA on a quarterly basis which summarises the number of instances of incorrect pricing1 during a particular period. |
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5 |
The rectification of pricing breaches |
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(1) |
COLL 6.6.3R(3)(c)10(Functions of the authorised fund manager) places a duty on the authorised fund manager to take action to reimburse affected unitholders, former unitholders, and the scheme itself, for instances of incorrect pricing1, except if it appears to the depositary that the breach is of minimal significance. |
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(2) |
A depositary may consider that the instance of incorrect pricing1is of minimal significance if:
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(3) |
In determining (2), if the instance of incorrect pricing1 is due to one or more factors or exists over a period of time, each price should be considered separately. |
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(4) |
If a depositary deems it appropriate, it may, in spite of the circumstances outlined in (2), require a payment from the authorised fund manager or from the authorised fund to the unitholders, former unitholders, the authorised fund or the authorised fund manager (where appropriate). |
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(5) |
The depositary should satisfy itself that any payments required following an instance of incorrect pricing1 are accurately and promptly calculated and paid. |
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(6) |
If a depositary considers that reimbursement or payment is inappropriate, it should report the matter to the FCA, together with its recommendation and justification. The depositary should take into account the need to avoid prejudice to the rights of unitholders, or the rights of unitholders in a class of units. |
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(7) |
It may not be practicable, or in some cases legally permissible, for the authorised fund manager to obtain reimbursement from unitholders, where the unitholders have benefited from the incorrect price. |
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(8) |
In all cases where reimbursement or payment is required, amounts due to be reimbursed to unitholders for individual sums which are reasonably considered by the authorised fund manager and depositary to be immaterial, need not normally be paid. |
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3The authorised fund manager should advise the depositary when the mark to market value of a qualifying money market fund12valuing scheme property on an amortised cost basis 7varies from its amortised cost value by 0.1%, 0.2% and 0.3% respectively. The authorised fund manager of a qualifying money market fund12 should agree procedures with the depositary designed to stabilise the value of the scheme in these events.7
A firm must put in place, and operate in accordance with, a written policy (which may be contained in more than one document), approved by its governing body, setting out the factors it will take into account in assessing a customer's ability to pay the sums due. The policy must address the following matters:(1) how income and expenditure is to be assessed, including (except as provided in MCOB 11.6.32R (1) and MCOB 11.6.39R (1)): (a) details of the types of income which are acceptable;
A firm must ensure that its compliance with the responsible lending or financing policy required by MCOB 11.6.20 R is reviewed at least once per calendar year: (1) in any case where the firm has an internal audit function or outsourced equivalent, by that function; and (2) in any other case, by the firm's internal compliance function or an outsourced equivalent.
Where a firm chooses, in accordance with MCOB 11.6.25 R, to apply the provisions of MCOB 11.6.26 R to MCOB 11.6.31 R in place of MCOB 11.6.5 R to MCOB 11.6.19 G: (1) its policy in MCOB 11.6.20R (1) need not address each of the matters prescribed in sub-paragraphs (a) to (e) of that rule;(2) MCOB 11.6.23 G does not apply; and (3) in each case the record-keeping requirements in MCOB 11.6.60R (2)(a) to (d) apply only to the extent relevant, but the record in MCOB 11.6.60R (1) must
Where a firm chooses, in accordance with MCOB 11.6.33 R, to apply the provisions of MCOB 11.6.34 R to MCOB 11.6.38 R in place of MCOB 11.6.5 R to MCOB 11.6.19 G:(1) its policy in MCOB 11.6.20R (1) need not address each of the matters prescribed in sub-paragraphs (a) to (e) of that rule;(2) MCOB 11.6.23 G does not apply; and (3) in each case the record-keeping requirements in MCOB 11.6.60R (2)(a) to MCOB 11.6.60R (2)(d) apply only to the extent relevant, but the record in MCOB
A mortgage lender which enters intointerest-only mortgages (unless they are only lifetime mortgages) must include in the policy which is required by MCOB 11.6.20 R (Responsible lending and financing policy) a policy on interest-only mortgages, setting out its processes and procedures for ensuring compliance with MCOB 11.6.41R (1) and for safeguarding the interests of customers during the term of interest-only mortgages. This policy must include:(1) details of the mortgage lender's
(1) The controls in MCOB 11.6.50R (2) may include, where appropriate: maximum loan to value limits; minimum equity requirements; regional factors such as property prices; or other eligibility requirements.(2) The policy and procedures for safeguarding the interests of a customer under an interest-only mortgage should not permit the mortgage lender to change the interest-only mortgage to a repayment mortgage, extend the term or otherwise change the features of the interest-only
MCOB 11.6.50 R sets out requirements for mortgage lenders to have appropriate procedures for managing interest-only mortgages in order to safeguard the interests of customers. Firms are reminded of the rules and guidance in SYSC (notably SYSC 7.1) relating to systems and controls for the management of risks to which firms themselves are exposed. Firms will need to consider whether their systems and controls are adequate in relation to the management of risks arising from interest-only
(1) A firm must make, in paper or electronic form, an adequate record of the steps it takes to comply with the rules in this chapter in relation to each customer.(2) The record in (1) must include the information taken into account in each affordability assessment, so that it is possible to understand from the record the basis of the mortgage lender's or home purchase provider's lending or financing decision, including (except as provided in MCOB 11.6.32R (3) and MCOB 11.6.39R
(1) A credit union may make a loan to a member for a business purpose. However, this does not mean that a credit union may make a loan to a member who merely intends to transmit that loan to another body that will actually carry out the purpose.(2) A credit union should not make loans to members who are acting together to achieve an aggregate loan that exceeds the limits in the lending policy2.
A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk over the appropriate set of time horizons for its business activities, to ensure that it maintains adequate levels of liquidity resources. These strategies, policies, processes, and systems must be appropriate to the firm's business lines, currencies in which it operates, and its group companies and must include adequate allocation
(1) A firm must deal fairly with any customer who:(a) has a payment shortfall4 on a regulated mortgage contract or home purchase plan;141(b) has a sale shortfall; or11(c) is otherwise in breach of a home purchase plan.(2) A firm must put in place, and operate in accordance with, a written policy (agreed by its respective governing body) and procedures for complying with (1). Such policy and procedures must reflect the requirements of MCOB 13.3.2A R and MCOB 13.3.4A R.3
(1) 5Customers who have mental health difficulties or mental capacity limitations may fall into the category of particularly vulnerable customers.(2) In developing procedures and policies for dealing with customers who may not have the mental capacity to make financial decisions, a firm may wish to have regard to the principles outlined in the Money Advice Liaison Group (MALG) Guidelines "Good Practice Awareness Guidelines for Consumers with Mental Health Problems and Debt".
The requirement in MCOB 13.3.1 R(2) for a written policy and procedures is intended to ensure that a firm has addressed the need for internal systems to deal fairly with any customer in financial difficulties. MCOB 13.3.1 R(2) does not oblige a firm to provide customers with a copy of the written policy and procedures. Nor, however, does it prevent a firm from providing customers with either these documents or a more customer-orientated version.
(1) A firm must monitor both the quality of the purchased receivables and the financial condition of the seller and servicer. In particular a firm must comply with the remaining provisions of this rule.(2) A firm must assess the correlation among the quality of the purchased receivables and the financial condition of both the seller and servicer, and have in place internal policies and procedures that provide adequate safeguards to protect against such contingencies, including
A firm must have systems and procedures for detecting deteriorations in the seller's financial condition and purchased receivables quality at an early stage, and for addressing emerging problems proactively. In particular a firm must have clear and effective policies, procedures, and information systems to monitor covenant violations, and clear and effective policies and procedures for initiating legal actions and dealing with problem purchased receivables.[Note: BCD Annex VII
A firm must have clear and effective policies and procedures governing the control of purchased receivables, credit, and cash. In particular, written internal policies must specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and the way cash receipts are to be handled. These elements must take appropriate account of all relevant and material factors, including the
A firm must have an effective internal process for assessing compliance with all internal policies and procedures. The process must include regular audits of all critical phases of the firm's receivables purchase programme, verification of the separation of duties between, firstly, the assessment of the seller and servicer and the assessment of the obligor and, secondly, between the assessment of the seller and servicer and the field audit of the seller and servicer and evaluations
(1) A firm must validate its rating systems. Its validation process must include, as a minimum, the elements set out in (2) - (8).(2) A firm must establish and define standards of objectivity, accuracy, stability and conservatism that it designs its ratings systems to meet. It must have processes that establish whether its rating systems meet those standards.(3) A firm must establish and define standards of accuracy of calibration (i.e. whether outcomes are consistent with estimate)
(1) This paragraph contains guidance on BIPRU 4.3.43 R and more general guidance about the governance of rating systems.(2) In determining the assignment referred to in BIPRU 4.3.43 R, a firm should have regard to the sensitivity of the rating to movements in fundamental risk drivers.(3) A firm should, for any rating system, be able to demonstrate that it acts appropriately or has an appropriate policy, as applicable, with respect to:(a) any deficiencies caused by its not being
(1) A firm must have a rigorous and well documented process for:(a) assessing the effects, if any, of economic downturn conditions on recovery rates; and(b) producing LGD estimates consistent with downturn conditions as referred to in BIPRU 4.3.103 R.(2) That process must include the following, which may be included in an integrated manner:(a) identification of appropriate downturn conditions for each IRB exposure class within each jurisdiction;(b) identification of adverse dependencies,
In arriving at estimates of conversion factors a firm must consider its specific policies and strategies adopted in respect of account monitoring and payment processing. A firm must also consider its ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events.[Note:BCD Annex VII Part 4 point 90]
As part of the process for dealing with an application for a VaR model permission the following may be reviewed: organisational structure and personnel; details of the firm's market position in the relevant products; revenue and risk information; valuation and reserving policies; operational controls; information technology systems; model release and control procedures; risk management and control framework; risk appetite and limit structure; future developments relevant to model
3The determination of the appropriate liquidity horizon for a position or set of positions is subject to a floor of three months. The determination of the appropriate liquidity horizon for a position or set of positions must take into account a firm's internal policies relating to valuation adjustments and the management of stale positions.
(1) A firm must frequently conduct a rigorous programme of stress testing. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.(2) The programme must particularly address:(a) concentration risk;(b) illiquidity of markets in stressed market conditions;(c) one way markets;(d) event and jump to default risks;(e) non linearity of products;(f) deep out of the money positions;(g) positions subject to the gapping of
At least once a year, a firm must conduct, as part of its regular internal audit process, a review of its risk management process. This review must include both the activities of the business trading units and of the independent risk control unit, and must be undertaken by suitably qualified staff independent of the areas being reviewed. This review must consider, at a minimum:(1) the adequacy of the documentation of the risk management system and process;(2) the organisation