The Financial Services Authority (FSA) has today published a consultation paper (CP) that clarifies the FSA’s expectations of those within firms that perform a ‘significant influence’ function. The CP proposes amendments to the FSA handbook to extend the approved persons regime and sets out how the FSA is enhancing its scrutiny of senior management competence.
The Financial Services and Markets Act 2000 gives the FSA powers to regulate two different types of roles performed by individuals: those that have a ‘significant influence’ on a firm and those that deal with customers (or the property of customers). This CP focuses on individuals who have significant influence at a firm, and in particular, those who are responsible for corporate governance.
In its supervisory enhancement programme (SEP) the FSA stated that it would place greater emphasis on the role of senior management, including non-executive directors. The FSA is seeking to ensure that all directors and senior managers understand their regulatory obligations, have relevant experience and carry out their roles with integrity.
As part of this work, the FSA has already started to interview more applicants for 'significant influence’ posts at high impact firms. Once in post, where individuals fail to meet the required standards, the FSA will consider enforcement action.
The CP proposes to:
- extend the definition of the existing CF1 (director) and CF2 (non-executive director) controlled functions to include certain individuals in parent companies to which an authorised firm is accountable;
- clarify the role of non-executive directors to make clear that the FSA will, in future, look at non-executives more closely where it believes they should have intervened more actively with a firm’s management;
- extend the definition of CF29 (significant management function) to include all proprietary traders where they can exert a significant influence over a firm;
- amend the application of the approved persons regime to UK branches of overseas firms based outside the EEA; and
- extend the rule obliging firms to provide references for applicants of the CF30 (customer function) to all controlled functions if requested to do so.
Graeme Ashley-Fenn, director of permissions, decisions and reporting division, said:
"It is critical, not just for the firm, but for market confidence that our major institutions are soundly run by individuals who have clearly demonstrated that they have the necessary skills, experience and integrity.
"Our vetting process is not intended to be a substitute for a firm undertaking proper due diligence itself – responsibility for this still lies with a firm’s senior management. These proposals align with a shift in FSA focus: where a significant influence holder shows incompetence or dishonesty, we will consider enforcement action against him or her."
The consultation period closes on 31 March 2009. The FSA will then finalise the proposals and publish revised rules in a policy statement during the second quarter of 2009.