SUP Supervision manual

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SUP 1

The FSA's
approach to supervision

SUP 1.1

Application and purpose

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Application

SUP 1.1.1

handbook-guidance
This chapter applies to every firm, except that its relevance for an ICVC is limited as the FSA does not intend to carry out an assessment of an ICVC that is specific to that ICVC.
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Purpose

SUP 1.1.2

handbook-guidance
The Act requires the FSA to "maintain arrangements designed to enable it to determine whether persons on whom requirements are imposed by or under this Act are complying with them" (paragraph 6(1) of Schedule 1 to the Act).

SUP 1.1.3

handbook-guidance
The design of these arrangements is shaped by the regulatory objectives. These are set out in section 2 of the Act (The Authority's general duties) and are:
(1) maintaining confidence in the financial system;
(2) promoting public understanding of the financial system;
(3) securing the appropriate degree of protection for consumers; and
(4) reducing the extent to which it is possible for a business carried on by a regulated person, or in contravention of the general prohibition, to be used for a purpose connected with financial crime.

SUP 1.1.4

handbook-guidance
In designing its approach to supervision, the FSA has regard to the principles of good regulation set out in section 2(3) of the Act. In particular, the FSA's regulatory approach aims to focus and reinforce the responsibility of the management of each firm (section 2(3)(b) of the Act) to ensure that it takes reasonable care to organise and control the affairs of the firm responsibly and effectively and develops and maintains adequate risk management systems. It is the responsibility of management to ensure that the firm acts in compliance with its regulatory requirements. The FSA will have regard to the principle that a burden or restriction which is imposed on a firm should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction (section 2(3)(c) of the Act).
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SUP 1.2

Introduction

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SUP 1.2.1

handbook-guidance
(1) The Authorisation manual (AUTH), the Supervision manual (SUP), the Enforcement manual (ENF) and the Decision making manual (DEC) form the regulatory processes part of the Handbook.
(2) AUTH sets out the relationships between the FSA and applicants for Part IV permission and persons wishing to exercise EEA rights, Treaty rights or UCITS Directive rights.
(3) SUP sets out the relationship between the FSA and authorised persons (referred to in the Handbook as firms). As a general rule, material that is of continuing relevance after authorisation is in SUP.
(4) ENF describes the FSA's enforcement powers under the Act and sets out its policies for using those powers.
(5) DEC is principally concerned with, and sets out, the FSA's decision making procedures for decisions that involve the giving of statutory notices.

SUP 1.2.2

handbook-guidance
For a firm which undertakes business internationally (or is part of a group which does), the FSA will have regard to the context in which it operates, including the nature and scope of the regulation to which it is subject in jurisdictions other than the United Kingdom. For a firm with its head office outside the United Kingdom, the regulation in the jurisdiction where the head office is located will be particularly relevant. As part of its supervision of such a firm, the FSA will usually seek to cooperate with relevant overseas regulators, including exchanging information on the firm. Different arrangements apply for an incoming EEA firm, an incoming Treaty firm and a UCITS qualifier. The arrangements applying for an incoming EEA firm and an incoming Treaty firm are addressed in SYSC App 1. For UCITS qualifiers see also COLLG, and CIS 2.3, CIS 16, and CIS 17.

SUP 1.2.3

handbook-guidance
The FSA continues to develop the risk assessment approach set out in this chapter. The approach will not be introduced for all firms at commencement. For those firms where the approach is not introduced at commencement, the FSA continues to operate the risk assessment approach of the firm's previous regulator.
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SUP 1.3

The FSA's risk based approach to supervision

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Purpose

SUP 1.3.1

handbook-guidance
The purpose of taking a risk-based approach to supervision is to focus the FSA's resources on the mitigation of risks to the regulatory objectives, and to have regard to the need to use the FSA's resources in the most efficient and economic way. The approach to risk assessment of firms is based on the extent to which they pose risks to the FSA meeting the regulatory objectives. This extent encompasses both the impact of such risks were they to crystallise and the probability of their doing so. The probability of risks crystallising depends on the inherent risks run by firms, the environment within which they operate and the internal systems and controls designed to mitigate such risks. This approach permits a matching of the intensity of the FSA's supervisory effort with the degree of risk posed by firms to meeting the regulatory objectives.
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Impact and probability assessment

SUP 1.3.2

handbook-guidance
The FSA uses a standard risk assessment process applied consistently across all its activities. It involves assessing the risk posed by the firm against a number of impact and probability factors, both initially and on a continuing basis.
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SUP 1.3.3

handbook-guidance
The impact of a firm is assessed by reference to a range of factors derived from the regulatory objectives, including:
(1) the degree to which risks related to the firm, were they to materialise, would damage market confidence;
(2) the extent to which the firm may pose risks to the achievement of the objective of promoting public understanding;
(3) the extent to which consumers may be adversely affected either directly or indirectly by the firm as a result of prudential failure, misconduct, market malfunction, market manipulation or the need to contribute to the financial reconstitution of compensation schemes;
(4) the incidence and materiality of any financial crime which may be perpetrated through or by the firm.

SUP 1.3.4

handbook-guidance
The probability of a firm posing a risk to meeting the regulatory objectives is, where applicable, assessed in terms of "risk groups". These are discrete sources of risks to meeting the regulatory objectives which arise from:
(1) the firm's strategy;
(2) the firm's business risk: those risks (such as credit, market and operational risk) which are inherent in the business;
(3) the financial soundness of the firm;
(4) the nature of the firm's customers and the products and services it offers;
(5) the internal systems and controls and the compliance culture of the firm; and
(6) the organisation of the firm and the role played by its governing body, management and staff in effectively mitigating risk.
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SUP 1.3.5

handbook-guidance
The impact and probability assessments are combined to give an overall judgment as to the firm's priority for the FSA and therefore the nature of the relationship which the FSA will seek to have with the firm (see 'A new regulator for the new millennium' and 'Building the new regulator, Progress report 1').
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SUP 1.3.6

handbook-guidance
In addition to assessing the firm in terms of these impact and probability factors, the FSA takes into account three further factors which may affect the choice of supervisory approach and activities:
(1) the level of confidence in the information on which the risk assessment is based;
(2) the quality of the home regulatory regime (for firms with their head office overseas); and
(3) any anticipated material change in impact and probability factors.
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The scope of the risk assessment process for firms

SUP 1.3.7

handbook-guidance
The risk assessment process applies to all firms, although the detail required may vary from firm to firm. Firms judged as high impact are likely to require a more detailed assessment. A peer review process within the FSA assists consistency.
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SUP 1.3.8

handbook-guidance
The main steps in the risk assessment process are:
(1) preliminary assessment of a firm's potential impact on the regulatory objectives;
(2) probability assessment - the level of detail depends on the impact rating and the complexity of the firm (in the case of low impact firms, the firm-specific probability analysis will be minimal);
(3) for a sample of firms, validation panel for peer review of risk grading and resource allocation;
(4) letter to firm regarding risk assessment and any remedial actions (see SUP 1.3.10 G); and
(5) continuing review of risk assessment as necessary.
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SUP 1.3.9

handbook-guidance
In order to create incentives for firms to raise standards and to maximise the success of the FSA's supervisory arrangements, it is important that a firm understands the FSA's evaluation of its risk so that it can take appropriate action.
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SUP 1.3.10

handbook-guidance
The FSA intends to communicate the outcomes of its risk assessment to the firm. In the case of firms in which risks have been identified which could have a material bearing on the FSA meeting the regulatory objectives, the FSA will also outline a programme intended to address these. The FSA considers that it would generally be inappropriate for the firm to disclose the FSA risk assessment to third parties, except those who have a right to be aware of it, for example external auditors. The assessment is directed towards a very specific purpose - to illustrate the risk posed by the firm to the regulatory objectives and to enable the FSA to allocate its resources accordingly. Using it for any other purpose might well be misleading. The FSA therefore discourages firms from disclosing their assessments.
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The nature of the FSA's relationship with firms

SUP 1.3.11

handbook-guidance
The FSA's relationship with firms has five main elements:
(1) Determining satisfaction of the threshold conditions: in order to carry on regulated activities, a firm must demonstrate that it can satisfy, initially and on a continuing basis, the threshold conditions (see COND) (for example, the need to maintain adequate resources).
(2) Baseline monitoring which is designed to ensure that firms comply, on a continuing basis, with the regulatory requirements which apply to them (see SUP 1.1.2 G): the FSA collects and analyses data supplied by firms (see for example SUP 16) and by third parties such as the Financial Ombudsman Service Limited, consumers, and by other regulators.
(3) Sectoral reviews and thematic work which will be used, for example, to validate information provided by a firm and to collect up to date information on a particular sector, in order to assess whether a firm meets required standards: thematic work is carried out to assess the risks posed by a particular issue (rather than by a sector or group of firms). The issues selected for such work are likely to be broader and proportionately more significant to the FSA's regulatory objectives.
(4) Programmes designed to mitigate specific risks in individual firms these programmes depend on the firm's priority for the FSA (see SUP 1.3.5 G).
(5) Work undertaken after particular risks have escalated or crystallised: once the FSA has identified an issue, it will need to use its regulatory judgment to determine how it should respond, if at all.
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SUP 1.3.12

handbook-guidance
The exact mixture of elements will thus vary with the firm's risk categorisation. Moreover, the elements being used at a particular time will depend on the firm's circumstances - for example, whether it is applying for permission to conduct other regulated activities, or is being investigated by the FSA.
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SUP 1.4

Tools of supervision

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SUP 1.4.1

handbook-guidance
In order to meet the regulatory objectives and address identified risks to those objectives, the FSA has a range of supervisory tools available to it.
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SUP 1.4.2

handbook-guidance
The FSA classifies these tools under four headings:
(1) diagnostic: designed to identify, assess and measure risks;
(2) monitoring: to track the development of identified risks, wherever these arise;
(3) preventative: to limit or reduce identified risks and so prevent them crystallising or increasing; and
(4) remedial: to respond to risks when they have crystallised.
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SUP 1.4.3

handbook-guidance
Tools may serve more than one purpose. For example, supervisory powers can be used to address risks which have materialised or to assist in preventing risks from escalating. In the first instance they are remedial, in the second, preventative.
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SUP 1.4.4

handbook-guidance
Certain of these tools, for example the use of public statements to deliver messages to firms or consumers of financial services, do not involve the FSA in direct oversight of the business of firms. Other tools do involve a direct relationship with firms. The FSA also has powers to act on its own initiative to impose individual requirements on a firm (see SUP 7).
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SUP 1.4.5

handbook-guidance
The FSA uses a variety of tools to monitor whether a firm, once authorised, remains in compliance with regulatory requirements. These tools include:
(1) desk-based reviews;
(2) liaison with other agencies or regulators;
(3) meetings with management and other representatives of a firm;
(4) on-site inspections;
(5) reviews and analysis of periodic returns and notifications;
(6) reviews of past business;
(7) transaction monitoring;
(8) use of auditors;
(9) use of skilled persons.
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SUP 1.4.6

handbook-guidance
The FSA also uses a variety of tools to address specific risks identified in firms. These tools include:
(1) making recommendations for preventative or remedial action;
(2) giving other individual guidance to a firm;
(3) imposing individual requirements;
(4) varying a firm's permission in another way.
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SUP 1.4.7

handbook-guidance
For further discussion of the FSA's regulatory approach, see publications on the FSA website (www.fsa.gov.uk): in particular, 'A new regulator for the new millennium' and 'Building the new regulator, Progress report 1'.
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SUP 1.5

Lead supervision

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Application

SUP 1.5.1

handbook-guidance
This section applies to a firm which is a member of a group with more than one supervisory contact at the FSA.
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Purpose

SUP 1.5.2

handbook-guidance
The FSA has developed arrangements for lead supervision in order to achieve more efficient and more effective supervision of firms and their groups. Lead supervision is designed to deliver a coordinated approach to the supervision of groups with more than one supervisory contact at the FSA, assisting the FSA to monitor them effectively and respond to the risks that arise.
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Process

SUP 1.5.3

handbook-guidance
The FSA appoints a lead supervisor for a group with more than one supervisory contact at the FSA. The choice of lead supervisor depends principally on the predominant business of the group.
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SUP 1.5.4

handbook-guidance
The lead supervisor has three key responsibilities:
(1) to produce an overall assessment of the group: this comprises an assessment of the strengths and weaknesses of the business of the group and each of the firms within a group and a risk assessment of the group as a whole;
(2) to coordinate the supervision programme: based on the overall assessment, the coordinated supervision programme is a single, risk-based supervision plan for the whole group for a specified period; and
(3) to act as the central point of contact for the group with the FSA, where the group decides to use the lead supervisor in this way; this removes the need for duplicate communication between the FSA and firms in groups on group-wide issues.
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Export chapter as

SUP 2

Information gathering by the FSA on its own initiative

SUP 2.1

Application and purpose

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Application

SUP 2.1.1

handbook-rule
The application of this chapter is the same as the application of Principle 11 (Relations with regulators).

SUP 2.1.2

handbook-guidance
PRIN 3 (Rules about application) specifies to whom, to what and where Principle 11 applies.
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Purpose

SUP 2.1.3

handbook-guidance
Achieving the regulatory objectives involves the FSA informing itself of developments in firms and in markets. The Act requires the FSA to monitor a firm's compliance with requirements imposed by or under the Act (paragraph 6 (1) of Schedule 1). The Act also requires the FSA to take certain steps to cooperate with other regulators (section 354). For these purposes, the FSA needs to have access to a broad range of information about a firm's business.

SUP 2.1.4

handbook-guidance
The FSA receives the information in SUP 2.1.3 G through a variety of means, including notifications by firms (see SUP 15) and regular reporting by firms (see SUP 16). This chapter is concerned with the methods of information gathering that the FSA may use on its own initiative in the discharge of its functions under the Act. This chapter does not deal with the information gathering powers that the FSA has under the Unfair Terms Regulations. These are dealt with in ENF 20.3.5 G .

SUP 2.1.5

handbook-guidance
Part XI of the Act (Information Gathering and Investigations) gives the FSA statutory powers, including:
(1) to require the provision of information (see section 165 and ENF 2 );
(2) to require reports from skilled persons (see section 166 and SUP 5);
(3) to appoint investigators (see sections 167, 168 and 169 of the Act and ENF 2 ); and
(4) to apply for a warrant to enter premises (see section 176 of the Act and ENF 2 ).

SUP 2.1.6

handbook-guidance
The FSA prefers to discharge its functions by working in an open and cooperative relationship with firms. The FSA will look to obtain information in the context of that relationship unless it appears that obtaining information in that way will not achieve the necessary results, in which case it will use its statutory powers. The FSA has exercised its rule-making powers to make Principle 11 which requires that a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.
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SUP 2.1.7

handbook-guidance
The FSA operates in the context of the Act and the general law. The purpose of SUP 2.2 is to explain how certain provisions of the Act and the general law are relevant to the FSA's methods of information gathering described in SUP 2.3 and SUP 2.4.
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SUP 2.1.8

handbook-guidance
The purpose of SUP 2.3 is to amplify Principle 11 in the context of information gathering by the FSA on its own initiative in the discharge of its functions under the Act. SUP 2.3 therefore sets out, in guidance on Principle 11 and in rules, how the FSA expects firms to deal with the FSA in that context, including the steps that a firm should take with a view to ensuring that certain connected persons should also cooperate with the FSA .
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SUP 2.1.9

handbook-guidance
The purpose of SUP 2.4 is to explain a particular method of information gathering used by the FSA , known as "mystery shopping". Information about how a firm sells financial products can be very difficult to obtain, and the purpose of this method is to obtain such information from individuals who approach a firm in the role of potential retail consumers on the FSA's initiative. The FSA may seek information about particular issues or the activities of individual firms by means of mystery shopping.
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SUP 2.2

Information gathering by the FSA on its own initiative: background

Link to the statutory information gathering and investigation powers

SUP 2.2.1

handbook-guidance
Breaching Principle 11, or the rules in this chapter, makes a firm liable to regulatory sanctions, including discipline under Part XIV of the Act (Disciplinary Measures), and may be relevant to the use of the FSA's other powers, including the statutory information gathering and investigation powers (see further PRIN 1.1.7 G to PRIN 1.1.9 G). But, unlike a breach of a requirement imposed under the statutory powers listed in SUP 2.1.5 G, a breach of Principle 11 or a rule:
(1) is not a criminal offence; and
(2) cannot lead to a person being treated as if in contempt of court (see section 177 of the Act (Offences).

SUP 2.2.2

handbook-guidance
Neither Principle 11 nor SUP 2.3.5 R (1) (Access to premises) enable the FSA to force access to premises.

Banking confidentiality and legal privilege

SUP 2.2.3

handbook-guidance
The FSA would not normally seek to gather information using the methods described in SUP 2.3 or SUP 2.4 in a situation where the FSA could not have obtained it under the powers in Part XI of the Act (Information Gathering and Investigations). In particular, the limitations in the following sections of the Act are relevant to this chapter:
(1) section 175(5) (Information and documents: supplementary powers) under which no person may be required under Part XI of the Act (Information Gathering and Investigations) to disclose information or produce a document subject to banking confidentiality (with exceptions); the FSA would not normally seek such information using the methods described in SUP 2.3 or SUP 2.4; and
(2) section 413 (Protected items), under which no person may be required under the Act to produce, disclose or permit the inspection of protected items; a firm would not breach Principle 11 or the rules in this chapter by not producing such items.
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Confidentiality of information

SUP 2.2.4

handbook-guidance
When the FSA obtains confidential information using the methods of information gathering described in SUP 2.3 or SUP 2.4, it is obliged under Part XXIII of the Act (Public Record, Disclosure of Information and Co-operation) to treat that information as confidential. The FSA will not disclose confidential information without lawful authority, for example if an exception applies under the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (SI 2001/2188) or with the consent of the person from whom that information was received and (if different) to whom the information relates.
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Admissibility of information in proceedings

SUP 2.2.5

handbook-guidance
Information obtained by the FSA using the methods described in SUP 2.3 and SUP 2.4 is admissible in evidence in any proceedings, so long as it complies with any requirements governing the admissibility of evidence in the circumstances in question.
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SUP 2.3

Information gathering by the FSA on its own initiative: cooperation by firms

Introduction: Methods of information gathering requiring cooperation

SUP 2.3.1

handbook-guidance
The FSA uses various methods of information gathering on its own initiative which require the cooperation of firms:
(1) Visits may be made by representatives or appointees of the FSA . These visits may be made on a regular basis, on a sample basis, for special purposes such as theme visits (looking at a particular issue across a range of firms), or when the FSA has a particular reason for visiting a firm. Appointees of the FSA may include persons who are not FSA staff, but who have been appointed to undertake particular monitoring activities for the FSA (paragraph 6(2) of Schedule 1 to the Act). The FSA needs to have access to a firm'sdocuments, personnel and business premises to carry out a visit.
(2) The FSA may seek meetings at the FSA's offices or elsewhere.
(3) The FSA may seek information or request documents by telephone, at meetings or in writing, including by electronic communication.
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SUP 2.3.2

handbook-guidance
The FSA expects to request meetings or access to business premises during reasonable business hours. The FSA also normally expects to be able to give reasonable notice to a firm or connected person when it seeks information, documents, meetings or access to business premises. On rare occasions, however, the FSA may seek access to premises without notice. The prospect of unannounced visits is intended to encourage firms to comply with the requirements and standards under the regulatory system at all times.

Access to a firm's documents and personnel

SUP 2.3.3

handbook-guidance
In complying with Principle 11, the FSA considers that a firm should, in relation to the discharge by the FSA of its functions under the Act:
(1) make itself readily available for meetings with representatives or appointees of the FSA as reasonably requested;
(2) give representatives or appointees of the FSA reasonable access to any records, files, tapes or computer systems, which are within the firm's possession or control, and provide any facilities which the representatives or appointees may reasonably request;
(3) produce to representatives or appointees of the FSA specified documents, files, tapes, computer data or other material in the firm's possession or control as reasonably requested;
(4) print information in the firm's possession or control which is held on computer or on microfilm or otherwise convert it into a readily legible document or any other record which the FSA may reasonably request;
(5) permit representatives or appointees of the FSA to copy documents or other material on the premises of the firm at the firm's reasonable expense and to remove copies and hold them elsewhere, or provide any copies, as reasonably requested; and
(6) answer truthfully, fully and promptly all questions which are reasonably put to it by representatives or appointees of the FSA .

SUP 2.3.4

handbook-guidance
In complying with Principle 11, the FSA considers that a firm should take reasonable steps to ensure that the following persons act in the manner set out in SUP 2.3.3 G:
(1) its employees, agents and appointed representatives; and
(2) any other members of its group, and their employees and agents.
(See also, in respect of appointed representatives, SUP 12.5.3 G (2)).

Access to premises

SUP 2.3.5

handbook-rule
(1) A firm must permit representatives of the FSA, or persons appointed for the purpose by the FSA, to have access, with or without notice, during reasonable business hours to any of its business premises in relation to the discharge of the FSA's functions under the Act.
(2) A firm must take reasonable steps to ensure that its agents, suppliers under material outsourcing arrangements and appointed representatives permit such access to their business premises. (See also, in respect of appointed representatives, SUP 12.5.3 G (2)).

SUP 2.3.6

handbook-guidance
The FSA normally expects to give reasonable notice of a visit (See SUP 2.3.2 G).

Suppliers under material outsourcing arrangements

SUP 2.3.7

handbook-rule
A firm must take reasonable steps to ensure that each of its suppliers under material outsourcing arrangements deals in an open and cooperative way with the FSA in the discharge of its functions under the Act in relation to the firm.

SUP 2.3.8

handbook-guidance
The cooperation that a firm is expected to procure from such suppliers is similar to that expected of the firm, in the light of the guidance in SUP 2.3.3 G to SUP 2.3.4 G, but does not extend to matters outside the scope of the FSA's functions in relation to the firm. SUP 2.3.5 R (2) also requires a firm to take reasonable steps regarding access to the premises of such suppliers.

SUP 2.3.9

handbook-guidance
When a firm appoints or renews the appointment of a supplier under a material outsourcing arrangement, it should satisfy itself that the terms of its contract with the supplier require the supplier to give the FSA access to its premises as described in SUP 2.3.5 R (2), and to cooperate with the FSA as described in SUP 2.3.7 R. The FSA does not consider that the 'reasonable steps' in SUP 2.3.7 R would require a firm to seek to change a contract, already in place when that rule was made by the FSA , until renewal of the contract.

SUP 2.3.10

handbook-guidance
The FSA will normally seek information from the firm in the first instance, but reserves the right to seek it from a supplier under a material outsourcing arrangement if the FSA considers it appropriate.

Information requested on behalf of other regulators

SUP 2.3.11

handbook-guidance
The FSA may ask a firm to provide it with information at the request of or on behalf of other regulators to enable them to discharge their functions properly. Those regulators may include overseas regulators or the Takeover Panel. The FSA may also, without notifying a firm, pass on to those regulators information which it already has in its possession. The FSA's disclosure of information to other regulators is subject to the obligation described in SUP 2.2.4 G (Confidentiality of information).

SUP 2.3.12

handbook-guidance
In complying with Principle 11, the FSA considers that a firm should cooperate with it in providing information for other regulators. Section 169 of the Act (Investigations etc. in support of overseas regulator) gives the FSA certain statutory powers to obtain information and appoint investigators for overseas regulators if required (see ENF 2 ).

SUP 2.4

'Mystery shopping'

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SUP 2.4.1

handbook-guidance
Representatives or appointees of the FSA (which may include individuals engaged by a market research firm) may approach a firm, its agents or its appointed representatives in the role of potential retail consumers with any authorisation under the Regulation of Investigatory Powers Act 2000 that is considered appropriate. This is known as 'mystery shopping'.

SUP 2.4.2

handbook-guidance
The FSA uses mystery shopping to help it protect consumers. This may be by seeking information about a particular practice across a range of firms (SUP 2.4.3 G (1)) or the practices of a particular firm (SUP 2.4.3 G (2)). One of the risks consumers face is that they may be sold financial products which are inappropriate to them. A problem in protecting consumers from this risk is that it is very difficult to establish after the event what a firm has said to a 'genuine' consumer in discussions. By recording what a firm says in discussions with a 'mystery shopper', the FSA can establish a firm's normal practices in a way which would not be possible by other means.
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SUP 2.4.3

handbook-guidance
The FSA may carry out mystery shopping:
(1) together with a programme of visits to obtain information about a particular practice, looking at a particular issue across a range of firms, when the FSA may advise the firms of the issues beforehand; the practice being scrutinised may be that of firms or a class of firms in carrying on regulated activities or ancillary activities or in communicating or approving financial promotions;
(2) together with focused visits (concentrating on particular aspects of a firm's business) to obtain information about the practices of a firm; these practices may be in carrying on regulated activities or ancillary activities or in communicating or approving financial promotions when the FSA has particular concerns about those practices;
(3) using recording devices, telephonic or other communications; the FSA may monitor and store the contents of the materials obtained by these devices or communications.
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SUP 2.4.4

handbook-guidance
Telephone calls and meetings held during mystery shopping will be recorded. The FSA expects that any mystery shopping it arranges will be conducted in accordance with the Market Research Society Code of Practice.
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Export chapter as

SUP 3

Auditors

SUP 3.1

Application

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SUP 3.1.1

handbook-rule
This chapter applies to:
(1) every firm within a category listed in column (1) of the table in SUP 3.1.2 R; and
(2) the external auditor of such a firm (if appointed under SUP 3.3 or appointed under or as a result of a statutory provision other than in the Act);
in accordance with column (2) or (3) of that table, except as described in the remainder of this section.

SUP 3.1.2

handbook-rule

Applicable sections (see SUP 3.1.1 R)

SUP 3.1.2A

handbook-guidance
If a firm falls within more than one row in column (1) of the table in SUP 3.1.2 R, SUP 3.1.1 R requires the firm and its external auditor to comply with all the sections referred to in column (2) or (3). For example, a bank which carries on designated investment business which is also a mortgage lender, falls in rows (4) and (9). Therefore, the bank must comply with SUP 3.1 to SUP 3.7, and its external auditor must comply with SUP 3.1, SUP 3.2, SUP 3.8 and SUP 3.10.

Incoming firms

SUP 3.1.3

handbook-rule
This chapter does not applyto an incoming EEA firmwithout a top-up permission or an auditor of such a firm.

SUP 3.1.4

handbook-guidance
The application of SUP 3.10 to the auditor of an incoming EEA firm with a top-up permission is qualified in SUP 3.10.3 R.

SUP 3.1.5

handbook-rule
This chapter does not apply to an incoming Treaty firm, which:
(1) does not have a top-up permission; and
(2) is not required to comply with the client asset rules.

SUP 3.1.6

handbook-guidance
The application of SUP 3.7 and SUP 3.9 to an incoming Treaty firm or an auditor of such a firm is further qualified in SUP 3.7.1 G and SUP 3.9.2 R.

Auditors of lead regulated firms

SUP 3.1.7

handbook-guidance
The application of SUP 3.9 and SUP 3.10 to the auditor of a lead regulated firm is qualified in SUP 3.9.2 R and SUP 3.10.3 R.

Authorised professional firms

SUP 3.1.8

handbook-guidance
This chapter applies to an authorised professional firm as set out in rows (1) to (3) of SUP 3.1.2 R:
(1) a firm in row (1) is treated in the same way as its equivalent in row (7);
(2) large parts of this chapter apply to a firm in row (2) and its auditor; the report on client assets under SUP 3.10 (Duties of auditors: notification and report on client assets) must cover compliance for the whole of the business within the scope of whichever of CASS 2 and CASS 4 is treated as applying; but there is no requirement for the auditor to prepare a report to the FSA on the firm'sfinancial statements;
(3) this chapter has limited application to a firm in row (3) and its auditor.

Material elsewhere in the Handbook

SUP 3.1.9

handbook-guidance
A firm which is a bank, building society, friendly society or other insurer, investment management firm, personal investment firm, securities and futures firm , the Society of Lloyd's or a Lloyd's managing agent in respect of each syndicate managed by it, should see the InterimPrudential sourcebooksfor further provisions on auditors as set out in SUP 3.1.10 G. For the categorisations employed in SUP 3.1.2 R and SUP 3.1.10 G see SUP App 1.

SUP 3.1.10

handbook-guidance

Enabling provision and application

SUP 3.1.11

handbook-guidance
The insurance market direction in this chapter is given under section 316(1) of the Act (Direction by Authority) and applies to members.

Purpose

SUP 3.1.12

handbook-guidance
The insurance market direction in this chapter is intended to enable the rules in SUP 3 and SUP 4 to be applied to a managing agent in respect of the insurance business of each syndicate which it manages.

Insurance market direction on rules concerning auditors and actuaries

SUP 3.1.13

handbook-directions
(1) With effect from 1 January 2005, Part XXII of the Act (Auditors and Actuaries) applies to the carrying on of insurance business by members as modified by paragraph (3).
(2) For the purposes of (1) "insurance business" means the regulated activities of effecting or carrying out contracts of insurance written at Lloyd's.
(3) Regulations made by the Treasury under section 342(5) and section 343(5) of Part XXII of the Act apply only to actuaries appointed by a managing agent in respect of the insurance business of a syndicate, in relation to the long-term insurance business of that syndicate.
(4) In Part XXII of the Act (Auditors and Actuaries) as applied by this insurance market direction:
(a) a reference to an auditor of an authorised person is to be read as including an auditor appointed by a managing agent in respect of the insurance business of a syndicate; and
(b) a reference to an actuary acting for an authorised person is to be read as including an actuary appointed by a managing agent in respect of the insurance business of a syndicate.

SUP 3.1.14

handbook-guidance
Part XXII (Auditors and Actuaries) is a core provision mentioned in section 317(1) of the Act (The core provisions).

SUP 3.1.15

handbook-guidance
Section 317(2) of the Act (The core provisions) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. The effect of this, and of the insurance market direction set out at SUP 3.1.13 D, is that Part XXII of the Act (Auditors and Actuaries), applies also to auditors and actuaries who are appointed to report on the underwriting business of members. Part XXII is modified in its application to members by paragraph (3) of SUP 3.1.13 D with the effect that the regulations made under sections 342(5) and 343(5) of the Act relating to communications by actuaries will only apply where the actuary is appointed to evaluate the long-term insurance business of the syndicate. The regulations made under sections 342(5) and 343(5) in relation to communications by auditors will apply in relation to both general insurance business and long-term insurance business.

SUP 3.1.16

handbook-guidance
SUP 3.3 sets out rules the effect of which is to require a managing agent to appoint an auditor in respect of its own business and the insurance business of each syndicate which it manages.

SUP 3.1.17

handbook-guidance
References in SUP 3, as applied by SUP 3.1.2 R, to a firm include, where appropriate:
(1) a managing agent; and
(2) one or more members carrying on insurance business at Lloyd's through a syndicate,
and references to an actuary of a firm should be read accordingly.

SUP 3.1.18

handbook-guidance
SUP 4.6 sets out rules the effect of which is to require a managing agent to appoint an actuary in respect of the insurance business of each syndicate which it manages.

SUP 3.2

Purpose

  • 01/12/2004

Purpose: general

SUP 3.2.1

handbook-guidance
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 report, where required, on the financial resources of the firm, the accuracy of its reports to the FSA and its compliance with particular rules, such as the Client asset rules.

SUP 3.2.2

handbook-guidance
The Act, together with other legislation such as the Companies Acts 1985 and 1989, the Building Societies Act 1986 and the Friendly Societies Act 1992, provides the statutory framework for firms' and auditors' obligations.

SUP 3.2.3

handbook-guidance
The requirements in SUP 3.9 represent an interim approach to the use of auditors, based mainly on the requirements which previous regulators applied to firms.
  • 21/06/2001

Limited application for certain types of firm and their auditors

SUP 3.2.4

handbook-guidance
SUP 3.1.1 R and SUP 3.1.2 R limit the application of this chapter in relation to:
(1) authorised professional firms to which COB 9.1 (Custody) and COB 9.3 (Client money) do not apply or which are not required by IPRU(INV) 2.1.2R to comply with chapter 3, 5, 10 or 13 of IPRU(INV);
(2) oil market participants, and energy market participants, to whom IPRU(INV) 3 does not apply;
(3) small personal investment firms;
(4) service companies;
(5) exempt insurance intermediaries;
(6) insurance intermediaries not subject to SUP 3.1.2 R (10);
(7) mortgage intermediaries; and
(8) mortgage administrators.
Such firms are not required, under this chapter, to appoint an auditor because SUP 3.3 (Appointment of auditors) does not apply. If such firms appoint an auditor under or as a result of a statutory provision other than in the Act, for example, under the Companies Act 1985, SUP 3.7 (Notification of matters raised by auditor) and SUP 3.8 (Rights and duties of all auditors) nevertheless apply to help the FSA discharge its functions under the Act. See SUP 3.1.2 R, Note 4, for further clarification concerning insurance intermediaries and those which qualify as exempt insurance intermediaries.
  • 20/09/2001

Insurance intermediaries and their auditors

SUP 3.2.5

handbook-guidance
It is the responsibility of an insurance intermediary's senior management to determine, on a continuing basis, whether the insurance intermediary is an exempt insurance intermediaryfor the purposes of this requirementand to appoint an auditor if management determines the firm is no longer exempt. SUP 3.7 (amplified by SUP 15) sets out what a firm should consider when deciding whether it should notify the FSA of matters raised by its auditor.

SUP 3.2.6

handbook-guidance
The rights and duties of auditors are set out in SUP 3.8 (Rights and duties of all auditors) and SUP 3.10 (Duties of auditors: notification and report on client assets). SUP 3.8.10 G includes the auditor's statutory duty to report certain matters to the FSA imposed by regulations made by the Treasury under sections 342(5) and 343(5) of the Act (information given by auditor or actuary to the FSA). An auditor should bear these rights and duties in mind when carrying out client asset report work, including whether anything should be notified to the FSA immediately.
  • 01/04/2005

SUP 3.3

Appointment of auditors

  • 01/12/2004

Purpose

SUP 3.3.1

handbook-guidance
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.

Appointment by firms

SUP 3.3.2

handbook-rule
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;
(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 time the vacancy arises or as soon as reasonably practicable after that; and
(5) notify the FSA of the appointment of an auditor, on the form in SUP 15 Ann 2R (Standing data form), in accordance with the instructions on the form, advising the FSA of the name and business address of the auditor appointed and the date from which the appointment has effect.

SUP 3.3.3

handbook-guidance
(1) SUP 3.3.2 R applies to every firm to which this section applies. That includes a firm which is under an obligation to appoint an auditor under an enactment other than the Act, such as the Companies Act 1985. Such a firm is expected to wish to have a single auditor who is appointed to fulfil both obligations. SUP 3.3.2 R is made under section 138 of the Act (General rule-making power), in relation to such firms, and under section 340(1) (Appointment) in relation to other firms.
(2) Building societies and friendly societies are reminded that they are subject to the provisions of Schedule 11 to the Building Societies Act 1986 and Schedule 14 to the Friendly Societies Act 1992 relating to auditors, in addition to the provisions in this chapter. In relation to SUP 3.3.2 R (2), such firms may give the FSA a single notification of a vacancy in the office of auditor provided that the notification complies with the requirements of the relevant Act and SUP 3.3.2 R (2).

Appointment by the FSA

SUP 3.3.7

handbook-rule
(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 firm appoints another auditor.

SUP 3.3.8

handbook-guidance
In addition, in the case of a building society or friendly society, Schedule 11 of the Building Societies Act 1986 and Schedule 14 of the Friendly Societies Act 1992 allow the FSA to appoint an auditor if this is not done at the society's annual general meeting.

SUP 3.3.9

handbook-guidance
SUP 3.3.7 R allows but does not require the FSA to appoint an auditor if the firm has failed to do so within the 28 day period. When it considers whether to use this power, the FSA will take into account the likely delay until the firm can make an appointment and the urgency of any pending duties of the appointed auditor.

SUP 3.3.10

handbook-rule
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 3.4

Auditors' qualifications

  • 01/12/2004

Purpose

SUP 3.4.1

handbook-guidance
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.

Qualifications

SUP 3.4.2

handbook-rule
Before a firm, to which SUP 3.3.2 R applies, appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to perform his functions under the regulatory system and that the auditor:
(1) is eligible for appointment as an auditor under Part II of the Companies Act 1989 or Part III of the Companies (Northern Ireland) Order 1990 (Eligibility for appointment) respectively; or
(2) if appointed under an obligation in another enactment, is eligible for appointment as an auditor under that enactment; or
(3) in the case of an overseas firm, is eligible for appointment as an auditor under any applicable equivalent laws of that country or territory.

SUP 3.4.3

handbook-guidance
Enactments within SUP 3.4.2 R (2) include the Building Societies Act 1986 and the Friendly Societies Act 1992.

SUP 3.4.4

handbook-guidance
An auditor which a firm proposes to appoint should have skills, resources and experience commensurate with the nature, scale and complexity of the firm's business and the requirements and standards under the regulatory system to which it is subject. A firm should have regard to whether its proposed auditor has expertise in the relevant requirements and standards (which may involve access to UK expertise) and possesses or has access to appropriate specialist skill, for example actuarial expertise in carrying out audits of insurance companies or friendly societies where appropriate. The firm should seek confirmation of this from the auditor concerned as appropriate.

Disqualified auditors

SUP 3.4.5

handbook-rule
A firm must not appoint as auditor a person who is disqualified by the FSAunder section 345 of the Act (Disqualification) from acting as an auditor either for that firm or for a relevant class of firm.

SUP 3.4.6

handbook-guidance
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 ENF 17 . 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).

Requests for information on qualifications by the FSA

SUP 3.4.7

handbook-rule
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 3.4.8

handbook-guidance
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 also the auditor's duty to cooperate under SUP 3.8.2 R).

SUP 3.5

Auditors' independence

  • 01/12/2004

Purpose

SUP 3.5.1

handbook-guidance
If an auditor is to carry out his duties properly, he needs to be independent of the firm he is auditing, so that he is not subject to conflicts of interest. Many firms are also subject to requirements under the Companies Act 1989, the Building Societies Act 1986 or the Friendly Societies Act 1992 on auditor's independence.

Independence

SUP 3.5.2

handbook-rule
A firm must take reasonable steps to ensure that the auditor which it appoints is independent of the firm.

SUP 3.5.3

handbook-rule
If a firm becomes aware at any time that its auditor is not independent of the firm, it must take reasonable steps to ensure that it has an auditor independent of the firm. The firm must notify the FSA if independence is not achieved within a reasonable time.

SUP 3.5.4

handbook-guidance
The FSA will regard an auditor as independent if his appointment or retention does not breach the ethical guidance in current issue from the auditor's recognised supervisory body on the appointment of an auditor in circumstances which could give rise to conflicts of interest.

SUP 3.5.5

handbook-guidance
Firms are reminded that the Building Societies Act 1986 and Friendly Societies Act 1992 provide that an auditor who is ineligible under section 27 of the Companies Act 1989 for appointment as auditor of a company (which is a subsidiary undertaking of a building society or a subsidiary of a friendly society) is ineligible for appointment as auditor to the building society or friendly society concerned.

SUP 3.6

Firms' cooperation with their auditors

  • 01/12/2004

SUP 3.6.1

handbook-rule
A firm must cooperate with its auditor in the discharge of his duties under this chapter.

Auditor's access to accounting records

SUP 3.6.2

handbook-guidance
In complying with SUP 3.6.1 R, a firm should give a right of access at all times to the firm's accounting and other records, in whatever form they are held, and documents relating to its business. A firm should allow its auditor to copy documents or other material on the premises of the firm and to remove copies or hold them elsewhere, or give him such copies on request.

SUP 3.6.3

handbook-guidance
Section 341 of the Act (Access to books etc.) provides that an auditor of a firm appointed under SUP 3.3.2 R:
(1) has a right of access at all times to the firm's books, accounts and vouchers; and
(2) is entitled to require from the firm's officers such information and explanations as he reasonably considers necessary for the performance of his duties as auditor.

SUP 3.6.4

handbook-guidance
Section 389A of the Companies Act 1985, section 79 of the Building Societies Act 1986 and section 75 of the Friendly Societies Act 1992 give similar rights to auditors of companies, building societies and friendly societies respectively.

SUP 3.6.5

handbook-guidance
Section 413 (Protected items), under which no person may be required under the Act to produce, disclose or permit the inspection of protected items, is relevant to SUP 3.6.1 R and SUP 3.6.3 G.

Access and cooperation: appointed representatives, material outsourcing, employees

SUP 3.6.6

handbook-guidance
In complying with SUP 3.6.1 R, a firm should take reasonable steps to ensure that each of its appointed representativesgives the firm's auditor the same rights of access to the books, accounts and vouchers of the appointed representativeand entitlement to information and explanations from the appointed representative'sofficers as are given in respect of the firm by section 341 of the Act (see also SUP 12.5.5 R (3)).

SUP 3.6.7

handbook-guidance
In complying with SUP 3.6.1 R, a firm should take reasonable steps to ensure that each of its suppliers under a material outsourcing arrangement gives the firm's auditor the same rights of access to the books, accounts and vouchers of the firm held by the supplier, and entitlement to information and explanations from the supplier's officers as are given in respect of the firm by section 341 of the Act.

SUP 3.6.8

handbook-guidance
In complying with SUP 3.6.1 R, a firm should take reasonable steps to ensure that all its employees cooperate with its auditor in the discharge of his duties under this chapter.

Provision of false or misleading information to auditors

SUP 3.6.9

handbook-guidance
Firms and their officers, managers and controllers are reminded that, under section 346 of the Act (Provision of false or misleading information to auditor or actuary), knowingly or recklessly giving false information to an auditor appointed under SUP 3.3.2 R constitutes an offence in certain circumstances, which could render them liable to prosecution. This applies even when an auditor is also appointed under an obligation in another enactment.

SUP 3.7

Notification of matters raised by auditor

  • 01/12/2004

Application

SUP 3.7.1

handbook-guidance
SUP 3.7 does not apply to an incoming Treaty firm which does not have a top-up permission.

Notification

SUP 3.7.2

handbook-guidance
A firm should consider whether it should notify the FSA under Principle 11 if:
(1) the firm expects or knows its auditor will qualify his report on the audited annual financial statements or add an explanatory paragraph; or
(2) the firm receives a written communication from its auditor commenting on internal controls (see also SUP 15.3).

SUP 3.8

Rights and duties of auditors

  • 01/12/2004

Purpose

SUP 3.8.1

handbook-guidance
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.

Cooperation with the FSA

SUP 3.8.2

handbook-rule
An auditor of a firm must cooperate with the FSA in the discharge of its functions under the Act.

SUP 3.8.3

handbook-guidance
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 3.8.4

handbook-rule
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)).

Auditor's independence

SUP 3.8.5

handbook-rule
An auditor of a firm must be independent of the firm in performing his duties in respect of that firm.

SUP 3.8.6

handbook-rule
An auditor of a firm must take reasonable steps to satisfy himself that he is free from any conflict of interest in respect of that firm from which bias may reasonably be inferred. He must take appropriate action where this is not the case.

SUP 3.8.7

handbook-guidance
SUP 3.5.4 G explains that an auditor whose appointment does not breach the ethical guidance in current issue from the auditor's recognised supervisory body will be regarded as independent by the FSA .

Auditors' rights to information

SUP 3.8.8

handbook-guidance
SUP 3.6.1 R requires a firm to cooperate with its auditor. SUP 3.6.3 G refers to the rights to information which an auditor is granted by the Act. SUP 3.6.4 G refers to similar rights granted by the Companies Act 1985, the Building Societies Act 1986 and the Friendly Societies Act 1992.

Communication between the FSA, the firm and the auditor

SUP 3.8.9

handbook-guidance
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 Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (SI 2001/2188) or with the consent of the person from whom that information was received and (if different) to whom the information relates.

Auditors' statutory duty to report

SUP 3.8.10

handbook-guidance
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 any functions of the FSA. These provisions continue to have effect after the end of the auditor's term of appointment. In relation to Lloyd's, an effect of the insurance market direction set out at SUP 3.1.13 D is that sections 342(5) and 343(5) of the Act (Information given by an auditor or actuary to the Authority) apply also to auditors appointed to report on the insurance business of members.

Termination of term of office, disqualification

SUP 3.8.11

handbook-rule
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 3.8.12

handbook-rule
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 3.9

Duties of auditors: reports on certain investment business firms

  • 01/12/2004

Purpose

SUP 3.9.1

handbook-guidance
The types of firm which an auditor is required to report on in this section generally have businesses and assets of a nature which lend themselves well to the use of standardised reports by auditors as a supervisory tool. To assist its supervision, the FSA therefore requires an auditor's report on these firms' financial statements and regulatory reporting in the format in SUP 3.9.5 R as a means of obtaining information about the firm's financial position, and the quality of its regulatory reporting.
  • 21/06/2001

Application

SUP 3.9.2

handbook-rule
In addition to those excluded under SUP 3.1, SUP 3.9 does not apply to the auditor of:
(1) a lead regulated firm; or
(2) an incoming Treaty firm, which does not have a top-up permission.
  • 21/06/2001

SUP 3.9.3

handbook-rule
Where this section requires the auditor of a firm to report on a firm's compliance with rules, this section applies to the auditor only to the extent that the firm is required to comply with the relevant rules.
  • 21/06/2001

The auditor's report: content

SUP 3.9.4

handbook-rule
An auditor of a firm must:
(1) submit a report addressed to the FSA, signed in his capacity as auditor, which states the matters set out in SUP 3.9.5 R;
(2) in preparing a report to the FSA under (1), carry out such investigations as are reasonably necessary in order to form an opinion as to the matters required to be stated in the report; and
(3) submit a letter to the firm annually commenting on the firm's internal controls or stating that he has no such comments, whichever is appropriate; such a letter need only cover matters which have come to the auditor's attention while undertaking the work to produce the reports required by (1) or SUP 3.10.4 R.
  • 21/06/2001

SUP 3.9.5

handbook-rule

Auditor's report

SUP 3.9.6

handbook-rule
In SUP 3.9.5 R(10)(b) and(c), a "Category A personal investment firm" is a personal investment firm which is an ISD investment firm and a "Category B personal investment firm" is a personal investment firm other than a category A personal investment firm.

The auditor's report: timing of submission

SUP 3.9.7

handbook-rule
An auditor of a firm must submit a report under SUP 3.9.4 R (1) after each accounting reference date of the firm and so as to be received by the FSA within:
(1) in the case of an auditor of a securities and futures firm, three months of the firm's accounting reference date;
(2) in the case of an auditor of a personal investment firm, a UCITS management company or an investment management firm, four months of the firm'saccounting reference date.
  • 13/02/2004

SUP 3.9.8

handbook-rule
If an auditor is unable to report to the FSA within the timetable set out in SUP 3.9.7 R, the auditor must notify the FSA and advise the FSA of the reasons why it has been unable to meet the requirements of SUP 3.9.7 R.
  • 21/06/2001

The auditor's report: requirements not met or inability to form opinion

SUP 3.9.9

handbook-rule
(1) If the report under SUP 3.9.4 R (1) states that one or more of the applicable requirements described in SUP 3.9.5 R(4) to (14) have not been met, the auditor must specify in the report those requirements and the respects in which they have not been met.
(2) If an auditor is unable to form an opinion as to whether one or more of the applicable requirements described in SUP 3.9.5 R(4) to (14) have been met, the auditor must specify in the report under SUP 3.9.4 R (1) those requirements and the reasons why the auditor has been unable to form an opinion.
  • 21/06/2001

Method of submission of reports

SUP 3.9.10

handbook-rule
An auditor of a firm must submit a report under SUP 3.9.2 R (1) in accordance with the rules in SUP 16.3.6 R to SUP 16.3.13 R as if those rules applied directly to the auditor.
  • 21/06/2001

Service of Notice Regulations

SUP 3.9.11

handbook-guidance
The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contains provisions relating to the service of documents on the FSA. They do not apply to reports required under SUP 3.9 because of the specific provisions in SUP 3.9.10 R.
  • 21/06/2001

SUP 3.10

Duties of auditors: notification and report on client assets

  • 01/12/2004

Application

SUP 3.10.1

handbook-rule
Where this section requires an auditor of a firm to report on a firm's compliance with rules, this section applies to the auditor only to the extent that the firm is required to comply with the relevant rules.
  • 21/06/2001

SUP 3.10.2

handbook-rule
An auditor of an authorised professional firm need not report under this section in relation to that firm's compliance with the client money rules(CASS 4), if that firm is regulated by:
(1) the Law Society (England and Wales);
(2) the Law Society of Scotland;
(3) the Law Society of Northern Ireland.

SUP 3.10.3

handbook-rule
SUP 3.10.5 R(3) does not apply to an auditor of a lead regulated firm or an incoming EEA firm.
  • 21/06/2001

Client assets report: content

SUP 3.10.4

handbook-rule
An auditor of a firm must submit a report addressed to the FSA , signed in his capacity as auditor, which:
(1) states the matters set out in SUP 3.10.5 R; or
(2) if the firm claims not to hold client money or custody assets, states whether anything has come to the auditor's attention that causes him to believe that the firm held client money or custody assets during the period covered by the report.

SUP 3.10.5

handbook-rule

Client assets report

Client assets report: period covered

SUP 3.10.6

handbook-rule
The period covered by a report under SUP 3.10.4 R must end not more than 53 weeks after the period covered by the previous report on such matters, or, if none, after the firm is authorised or becomes a firm to which SUP 3.10 applies.

Client assets report: timing of submission

SUP 3.10.7

handbook-rule
An auditor must deliver a report under SUP 3.10.4 R to the FSA so as to be received within four months of theend of each period covered, unless it is the auditor of a firm falling within category (10) of SUP 3.1.2 R.

SUP 3.10.8

handbook-rule
If an auditor is unable to report to the FSA within the timetable set out in SUP 3.10.7 R, the auditor must notify the FSA and advise the FSA of the reasons why it has been unable to meet the requirements of SUP 3.10.7 R.

SUP 3.10.8A

handbook-rule
The auditor of a firm falling within category (10) of SUP 3.1.2 R must deliver a report under SUP 3.10.4 R:
(1) to the firm so as to be received within four months of the end of each period covered; and
(2) to the FSA upon request within six years of the end of the period covered.
  • 01/04/2005

SUP 3.10.8B

handbook-guidance
The rights and duties of auditors are set out in SUP 3.8 (Rights and duties of all auditors) and SUP 3.10 (Duties of auditors: notification and report on client assets). SUP 3.8.10 G also refers to the auditor's statutory duty to report certain matters to the FSA imposed by regulations made by the Treasury under sections 342(5) and 343(5) of the Act (information given by auditor or actuary to the FSA). An auditor should bear these rights and duties in mind when carrying out client asset report work, including whether anything should be notified to the FSA immediately.
  • 01/04/2005

SUP 3.10.8C

handbook-guidance
It is the responsibility of an insurance intermediary's senior management to determine, on a continuing basis, whether the firm is an exempt insurance intermediary for the purposes of this requirement and to appoint an auditor if management determines the firm is no longer exempt. SUP 3.7 (amplified by SUP 15) sets out what a firm should consider when deciding whether it should notify the FSA of matters raised by its auditor.
  • 01/04/2005

Client assets report: requirements not met or inability to form opinion

SUP 3.10.9

handbook-rule
If the report under SUP 3.10.4 R states that one or more of the applicable requirements described in SUP 3.10.5 R have not been met, the auditor must specify in the report those requirements and the respects in which they have not been met.

SUP 3.10.10

handbook-rule
If an auditor is unable to form an opinion as to whether one or more of the applicable requirements described in SUP 3.10.5 R have been met, the auditor must specify in the report under SUP 3.10.4 R those requirements and the reasons why the auditor has been unable to form an opinion.
  • 21/06/2001

SUP 3.10.11

handbook-guidance
An auditor may at the firm's request include the matters required under this section in a separate report to that required under section SUP 3.9.
  • 21/06/2001

Method of submission of reports

SUP 3.10.12

handbook-rule
An auditor of a firm must submit a report under SUP 3.10.4 R in accordance with the rules in SUP 16.3.6 R to SUP 16.3.13 R as if those rules applied directly to the auditor.
  • 21/06/2001

Service of Notice Regulations

SUP 3.10.13

handbook-guidance
The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents on the FSA . They do not apply to reports required by SUP 3.10 because of the specific provisions in SUP 3.10.12 R.
  • 21/06/2001

Export chapter as

SUP 4

Actuaries

SUP 4.1

Application

  • 31/12/2004

SUP 4.1.1

handbook-rule
This chapter applies to:
(1) every firm within a category listed in column (1) of the table in SUP 4.1.3 R; and
(2) every actuary appointed under this chapter;
in accordance with column (2) of that table.

SUP 4.1.2

handbook-guidance
This chapter applies to long-term insurers (including friendly societies) and other friendly societies and to the Society of Lloyd's and managing agents at Lloyd's. This chapter does not apply to actuaries advising the auditors of long-term insurers under IPRU(INS) 9.35(1A) or IPRU(FSOC) 5.11(2A), as they are not appointed to act on behalf of the firm.

SUP 4.1.3

handbook-rule

Applicable sections

SUP 4.2

Purpose

  • 31/12/2004

SUP 4.2.1

handbook-guidance
Section 340 of the Act gives the FSA power to make rules requiring an authorised person, or an authorised person falling into a specified class, to appoint an actuary . Section 340 further empowers the FSA to make rules governing the manner, timing and notification to the FSAof such an appointment and, where an appointment is not made, for the FSA to make an appointment on the firm's behalf. The FSA's rule-making powers under section 340 of the Act also extend to an actuary's duties and to the cessation of an actuary's term of office.

SUP 4.2.2

handbook-guidance

This chapter defines the relationship between firms and their actuaries and clarifies the role which actuaries play in the FSA's monitoring of firms' compliance with the requirements and standards under the regulatory system. The chapter sets out rules and guidance on the appointment of actuaries, and the termination of their term of office, as well as setting out their respective rights and duties. The purpose of the chapter is to ensure that:

  1. (1) long-term insurers (other than certain friendly societies) have access to adequate actuarial advice, both in valuing their liabilities to policyholders and in exercising discretion affecting the interests of their with-profits policyholders; and
  2. (2) other friendly societies carrying on insurance business (and which have traditionally relied upon actuarial expertise) employ or use an actuary of appropriate seniority and experience to evaluate the liabilities of that business; and
  3. (3) managing agents of Lloyd's syndicates employ or use an actuary of appropriate seniority and experience to evaluate the liabilities associated with insurance business carried on at Lloyd's.

SUP 4.2.3

handbook-guidance
The functions described by SUP 4.2.2 G (1) are performed by one or more actuaries who are required to hold office continuously and must be approved persons. The principal duty of an actuary appointed to perform these functions is to advise the firm (see SUP 4.3.13 R to SUP 4.3.18 G for the rights and duties of such an actuary).

SUP 4.2.4

handbook-guidance
The function described by SUP 4.2.2 G (2) is performed by an appropriate actuary who is appointed to prepare the triennial investigation and interim certificate or statement required by IPRU(FSOC) 5.2(1) (see SUP 4.4.6 R and SUP 4.5.12 G to SUP 4.5.14 G for the rights and duties of an appropriate actuary).

SUP 4.2.5

handbook-guidance
Actuaries act as a valuable source of information to the FSA in carrying out its functions. For example, in determining whether a firm satisfies the threshold conditions, the FSA has regard to whether the firm has appointed an actuary with sufficient experience in the areas of business to be conducted by the firm (COND 2.5.7 G (11)).

SUP 4.2.6

handbook-guidance
In making appointments under this chapter and in allocating duties to actuaries, firms are reminded of their obligation under SYSC 2.1.1 R to maintain a clear and appropriate apportionment of significant responsibilities so that it is clear who has which of those responsibilities and that the business and affairs of the firm can be adequately monitored and controlled by the directors, relevant senior managers and governing body of the firm.

SUP 4.3

Appointment of actuaries

  • 31/12/2004

Appointment by firms

SUP 4.3.1

handbook-rule
A firm to which this section applies (see SUP 4.1) must:
(1) appoint one or more actuaries to perform:
(a) the actuarial function (see SUP 4.3.13 R) in respect of all classes of its long-term insurance business; and
(b) the with-profits actuary function (see SUP 4.3.16A R) in respect of all classes of its with-profits business (if any);
(2) notify the FSA , without delay, when it is aware that a vacancy in the office of any such actuary will arise or has arisen, giving the reason for the vacancy;
(3) appoint an actuary to fill any such vacancy that has arisen; and
(4) ensure a replacement actuary can take up office at the time the vacancy arises or as soon as is reasonably practicable after that.

SUP 4.3.2

handbook-guidance
The provisions relating to the duties of an actuary appointed to perform these functions are set out in SUP 4.3.13 R to SUP 4.3.18 G. The functions performed by actuaries appointed by a firm under SUP 4.3.1 R are specified as controlled functions (CF 12, the actuarial function, and CF 12A, the with-profits actuary function) in SUP 10 ( Approved persons). As a result, an application must be made to the FSA under section 60 of the Act (Applications for approval) for approval of the person proposing to take up such an appointment. Section 61(3) of the Act (Determination of applications) gives the FSA three months to grant its approval or give a warning notice that it proposes to refuse the application. A firm should not appoint an actuary until the FSA has approved the actuary. In order to comply with SUP 4.3.1 R, a firm should ensure it applies to the FSA as soon as practicable before the date when it needs the actuary to take office. The FSA will need time to consider the application before deciding whether to grant approval. See SUP 10 ( Approved persons).

Appointment by the FSA

SUP 4.3.3

handbook-rule
If a firm, which is required to appoint one or more actuaries under SUP 4.3.1 R, fails to do so within 28 days of a vacancy arising, the FSA may appoint one or more actuaries to perform any function corresponding to the actuarial function or the with-profits actuary function on the following terms:
(1) the actuary to be remunerated by the firm on the basis agreed between the actuary and the firm or, in the absence of agreement, on a reasonable basis; and
(2) the actuary to hold office until he resigns or the firm appoints another actuary.

SUP 4.3.4

handbook-guidance
SUP 4.3.3 R allows but does not require the FSA to appoint an actuary if the firm has failed to do so within the 28 day period. When it considers whether to use this power, the FSA will take into account the likely delay until the firm can make an appointment and the urgency of any pending duties of the actuary.

SUP 4.3.5

handbook-guidance
The FSA will not normally seek to appoint an actuary under SUP 4.3.3 R if a notification under SUP 10 ( Approved persons) has been received from the firm in relation to a proposed appointment of an actuary under SUP 4.3.1 R, and that application is still being considered.

SUP 4.3.6

handbook-rule
A firm must comply with and is bound by the terms on which an actuary has been appointed by the FSA under SUP 4.3.3 R.

SUP 4.3.7

handbook-guidance
If the FSA appoints an actuary under SUP 4.3.3 R, he will not be an approved person (not being appointed under SUP 4.3.1 R). However, the firm is still under an obligation to appoint an actuary under SUP 4.3.1 R and will need to seek prior approval of that person (even if the individual it proposes to appoint is the person who has been appointed by the FSA under SUP 4.3.3 R).

Actuaries' qualifications

SUP 4.3.8

handbook-guidance
The FSA is concerned to ensure that every actuary appointed by a firm under this section has the necessary skill and experience to provide the firm with appropriate actuarial advice. SUP 4.3.9 R to SUP 4.3.10 G set out the FSA's rules and guidance aimed at achieving this.

SUP 4.3.9

handbook-rule
Before a firm applies for approval of the person it proposes to appoint as an actuary under SUP 4.3.1 R, it must take reasonable steps to ensure that the actuary:
(1) has the required skill and experience to perform his functions under the regulatory system; and
(2) is a Fellow of the Institute of Actuaries or of the Faculty of Actuaries.

SUP 4.3.10

handbook-guidance
To comply with SUP 4.3.9 R and Principle 3, before an actuary takes up his appointment the firm should ensure that the actuary:
(1) has skills and experience appropriate to the nature, scale and complexity of the firm's business and the requirements and standards under the regulatory system to which it is subject; and
(2) has adequate qualifications and experience, which includes holding an appropriate practising certificate under the rules of the Institute of Actuaries or the Faculty of Actuaries;
and seek confirmation of these from the actuary, or the actuary's current and previous employers, as appropriate.

Disqualified actuaries

SUP 4.3.11

handbook-rule
A firm must not appoint under SUP 4.3.1 R an actuary who is disqualified by the FSA under section 345 of the Act (Disqualification) from acting as an actuary either for that firm or for a relevant class of firm.

SUP 4.3.12

handbook-guidance
If it appears to the FSA that an actuary 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 actuary is being considered or put into effect, see ENF 17 (Disqualification of auditors and actuaries). A list of actuaries who are disqualified by the FSA may be found on the FSA website (www.fsa.gov.uk).

SUP 4.3.12A

handbook-rule
A firm must take reasonable steps to ensure that an actuary who is to be, or has been, appointed under SUP 4.3.1 R:
(1) does not perform the function of chairman or chief executive of the firm, or does not, if he is to perform the with-profits actuary function, become a member of the firm's governing body; and
(2) does not perform any other function on behalf of the firm which could give rise to a significant conflict of interest.

SUP 4.3.12B

handbook-guidance
Both the actuarial function and the with-profits actuary function may be performed by employees of the firm or by external consultants, and performing other functions on behalf of the firm will not necessarily give rise to a significant conflict of interest. However, being a director, or a senior manager responsible, say, for sales or marketing in a firm (or for finance in a proprietary firm), is likely to give rise to a significant conflict of interest for an actuary performing the with-profits actuary function. He nevertheless retains direct access to the firm's governing body under SUP 4.3.17 R (2).

The actuarial function

SUP 4.3.13

handbook-rule

An actuary appointed to perform the actuarial function must, in respect of those classes of the firm's long-term insurance business which are covered by his appointment:

  1. (1) advise the firm's management, at the level of seniority that is reasonably appropriate, on the risks the firm runs in so far as they may have a material impact on the firm's ability to meet liabilities to policyholders in respect of long-term insurance contracts as they fall due and on the capital needed to support the business, including regulatory capital requirements;
  2. (2) monitor those risks and inform the firm's management, at the level of seniority that is reasonably appropriate, if he has any material concerns or good reason to believe that the firm:
    1. (a) is not meeting liabilities to policyholders under long-term insurance contracts as they fall due, or may not be doing so, or might not have done so, or might, in reasonably foreseeable circumstances, not do so;
    2. (b) is, or may be, effecting new long-term insurance contracts on terms under which the resulting income earned is insufficient, under reasonable actuarial methods and assumptions, and taking into account the other financial resources that are available for the purpose, to enable the firm to meet its liabilities to policyholders as they fall due (including reasonable bonus expectations);
    3. (c) does not, or may not, have sufficient financial resources to meet liabilities to policyholders as they fall due (including reasonable bonus expectations) and the capital needed to support the business, including regulatory capital requirements or, if the firm currently has sufficient resources, might, in reasonably foreseeable circumstances, not continue to have them;
  3. (3) advise the firm's governing body on the methods and assumptions to be used for the investigations required by IPRU(INS) 9.4R or IPRU(FSOC) 5.1R and the calculation of the with-profits insurance capital component under PRU 7.4 as applicable;
  4. (4) perform those investigations and calculations in (3), in accordance with the methods and assumptions determined by the firm's governing body;
  5. (5) report to the firm's governing body on the results of those investigations and calculations in (3); and
  6. (6) in the case of a friendly society to which this section applies, perform the functions of the appropriate actuary under section 87 (Actuary's report as to margin of solvency) of the Friendly Societies Act 1992.

SUP 4.3.14

handbook-guidance
IPRU(INS) 9.4R and IPRU(FSOC) 5.1R require firms to which this section applies to cause an investigation to be made at least yearly by the actuary or actuaries appointed to perform the actuarial function, and to report on the result of that investigation. PRU 7.4 requires realistic basis life firms to calculate the with-profits insurance component as part of their capital resources requirements.The firm is responsible for the methods and assumptions used to determine the liabilities attributable to its long-term insurance business. The obligation on friendly societies to obtain a report from the 'appropriate actuary' under section 87 of the Friendly Societies Act 1992 applies to a friendly society which is to receive a transfer of engagements under section 86 (transfer of engagements to or by a friendly society). The 'appropriate actuary' in this context is the actuary appointed to perform the actuarial function, rather than the appropriate actuary under SUP 4.4 (Appropriate actuaries).

SUP 4.3.15

handbook-guidance
SUP 4.3.13 R is not intended to be exhaustive of the professional advice that a firm should take whether from an actuary appointed under this chapter or from any other actuary acting for the firm. Firms should consider what systems and controls are needed to ensure that they obtain appropriate professional advice on financial and risk analysis; for example:
(1) risk identification, quantification and monitoring;
(2) stress and scenario testing;
(3) ongoing financial conditions;
(4) financial projections for business planning;
(5) investment strategy and asset-liability matching;
(6) individual capital assessment;
(7) pricing of business, including unit pricing;
(8) variation of any charges for benefits or expenses;
(9) discretionary surrender charges; and
(10) adequacy of reinsurance protection.

The with-profits actuary function

SUP 4.3.16A

handbook-rule

An actuary appointed to perform the with-profits actuary function must:

  1. (1) advise the firm's management, at the level of seniority that is reasonably appropriate, on key aspects of the discretion to be exercised affecting those classes of the with-profits business of the firm in respect of which he has been appointed;
  2. (2) where the firm is a realistic basis life firm advise the firm's governing body as to whether the assumptions used to calculate the with-profits insurance component under PRU 7.4 are consistent with the firm's PPFM in respect of those classes of the firm's with-profits business;
  3. (3) at least once a year, in respect of each financial year commencing on or after 1 January 2005, report to the firm's governing body on key aspects (including those aspects of the firm's application of its Principles and Practices of Financial Management on which the advice described in (1) has been given) of the discretion exercised in respect of the period covered by his report affecting those classes of with-profits business of the firm;
  4. (4) in respect of each financial year commencing on or after 1 January 2005, make a written report addressed to the relevant classes of the firm's with-profits policyholders, to accompany the firm's annual report under COB 6.11.9 R, as to whether, in his opinion and based on the information and explanations provided to him by the firm, the annual report and the discretion exercised by the firm in respect of the period covered by the report may be regarded as taking, or having taken, the interests of the relevant classes of the firm'swith-profits policyholders into account in a reasonable and proportionate manner;
  5. (5) request from the firm such information and explanations as he reasonably considers necessary to enable him properly to perform the duties in (1) to (4);
  6. (6) advise the firm as to the data and systems that he reasonably considers necessary to be kept and maintained to provide the duties in (5); and
  7. (7) in the case of a friendly society to which this section applies, perform the function of appropriate actuary under section 12 (Reinsurance) of the Friendly Societies Act 1992 or section 23A (Reinsurance) of the Friendly Societies Act 1974 as applicable, in respect of those classes of its with-profits business covered by his appointment.

SUP 4.3.16B

handbook-guidance
In advising or reporting on the exercise of discretion, an actuary performing the with-profits actuary function should cover the implications for the fair treatment of the relevant classes of the firm's with-profits policyholders. His opinion on any communication or report to them should also take into account their information needs and the extent to which the communication or report may be regarded as clear, fair and not misleading. Aspects of the business that should normally be included are:
(1) bonus rates to be applied to policies at maturity or on death of the policyholder, or when calculating the annual bonus;
(2) investment policy in the light of product descriptions disclosed to customers;
(3) surrender value methodology (including market value adjusters);
(4) new business plans and premium rates;
(5) allocation of expenses to with-profits business;
(6) investment fees to be charged to with-profits business;
(7) changes to the Principles and Practices of Financial Management; and
(8) communication with policyholders or potential policyholders on the issues in (1) to (7).

SUP 4.3.16C

handbook-guidance
The report in SUP 4.3.16AR (3)should be proportionate to the nature of the with-profits business. For smaller firms with fewer products, the extent of reporting would be proportionately less.

SUP 4.3.16D

handbook-guidance
Firms should normally obtain advice, from the actuary appointed to perform the with-profits actuary function in respect of the affected class or classes of with-profits business, whenever they are preparing to make key decisions based on the exercise of discretion affecting their with-profits business. Firms should also have risk management processes in place to ensure that all relevant matters are referred to the actuary for advice.
  • 31/12/2004

SUP 4.3.17

handbook-rule
A firm must require and allow any actuary appointed to perform the with-profits actuary function to perform his duties and must:
(1) keep him informed of the firm's business and other plans (including, where relevant, those of any related firm, to the extent it is aware of these);
(2) provide him with sufficient resources (including his own time and access to the time of others);
(3) hold such data and establish such systems as he reasonably requires;
(4) request his advice about the likely effect of material changes in the firm's business plans, practices or other circumstances on the fair treatment of the relevant classes of the firm'swith-profits policyholders; and
(5) pay due regard to his advice, whether provided in response to a request under (4) or on the actuary's own initiative; this will include, if he requests it, allowing him to present his advice directly to the firm's governing body (that is, the board of directors or, for a friendly society, the committee of management).

SUP 4.3.18

handbook-guidance
A firm's duty to keep an actuary appointed to perform the with-profits actuary function informed includes providing relevant information, even where the actuary does not ask for it. The firm needs to appreciate that the actuary may be unaware of certain business developments and so unable to request relevant information.
  • 31/12/2004

SUP 4.4

Appropriate actuaries

  • 01/12/2004

Appointment of an appropriate actuary

SUP 4.4.1

handbook-rule
A firm to which this section applies (see SUP 4.1) and required by IPRU(FSOC) 5.2(1) to ensure that an investigation is carried out must:
(1) appoint an actuary (the "appropriate actuary") to carry out the triennial investigation and prepare an abstract of the report as required by IPRU(FSOC) 5.2(2) and provide the interim certificate or statement as required by IPRU(FSOC) 5.2(3); and
(2) appoint a replacement for that actuary if he ceases to hold office before he has carried out the duty described in (1).

Appropriate actuaries' qualifications

SUP 4.4.2

handbook-rule
Before a friendly society appoints an appropriate actuary, it must take reasonable steps to ensure that the actuary is a Fellow of the Institute of Actuaries or of the Faculty of Actuaries.

SUP 4.4.3

handbook-guidance
An appropriate actuary should have skills and experience appropriate to the nature, scale and complexity of the firm's business and the requirements and standards under the regulatory system to which it is subject. In complying with Principle 3, a firm should have regard to whether its proposed appropriate actuary has adequate qualifications and experience, and seek confirmation of this from the actuary, or the actuary's current and previous employers, as appropriate.

SUP 4.4.4

handbook-rule
A firm must not appoint as appropriate actuary an actuary who has been disqualified by the FSA under section 345 of the Act (Disqualification) from acting as an actuary either for that firm or for a relevant class of firm.

SUP 4.4.5

handbook-guidance
If it appears to the FSA that an appropriate actuary 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 actuary is being considered or put into effect, see ENF 17 (Disqualification of auditors and actuaries). A list of actuaries who have been disqualified by the FSA may be found on the FSA website (www.fsa.gov.uk).

Specific duties of the appropriate actuary

SUP 4.4.6

handbook-rule
An appropriate actuary must carry out the triennial investigation and prepare an abstract of the report as required by IPRU(FSOC) 5.2(2) and provide the interim certificate or statement as required by IPRU(FSOC) 5.2(3).

SUP 4.5

Provisions applicable to all actuaries

  • 31/12/2004

Objectivity

SUP 4.5.1

handbook-rule
An actuary appointed under this chapter must be objective in performing his duties.

SUP 4.5.2

handbook-guidance
Objectivity requires the actuary to perform his duties in such a manner that he can have an honest belief in his work and does not compromise the quality of his work or his judgment. An actuary should not allow himself to be placed in situations where he feels unable to make objective professional judgments.

SUP 4.5.3

handbook-rule
An actuary appointed under this chapter must take reasonable steps to satisfy himself that he is free from bias, or from any conflict of interest from which bias may reasonably be inferred. He must take appropriate action where this is not the case.

SUP 4.5.4

handbook-guidance
The appropriate action may include asking the firm's governing body to re-assign temporarily some or all of his duties to another competent actuary. Where this is insufficient, the actuary should resign his office.

SUP 4.5.5

handbook-guidance
If the actuary is an employee of the firm, the ordinary incentives of employment, including profit-related pay, share options or other financial interests in the firm or any associate, give rise to a conflict of interest only where they are disproportionate, or exceptional, relative to those of other employees of equivalent seniority.

SUP 4.5.6

handbook-guidance
The guidance and professional conduct standards in current issue from the Institute of Actuaries and the Faculty of Actuaries are relevant to compliance with SUP 4.5.1 R and SUP 4.5.3 R.

Actuaries' statutory duty to report

SUP 4.5.7

handbook-guidance
Actuaries appointed under this chapter 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 or opinion is relevant to any functions of the FSA. These provisions continue to have effect after the end of the actuary's term of appointment. In relation to Lloyd's, an effect of the insurance market direction set out at SUP 3.1.13 D is that sections 342(5) and 343(5) of the Act (Information given by auditor or actuary to the FSA) apply also to actuaries who are appointed to evaluate the long-term insurance business of a syndicate.

Termination of term of office

SUP 4.5.8

handbook-guidance
SUP 4.5.9 R to SUP 4.5.11 G apply to a person who is or has been an actuary appointed under this chapter.

SUP 4.5.9

handbook-rule
An actuary appointed under this chapter 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 reappointed by a firm.

SUP 4.5.10

handbook-rule
An actuary who has ceased to be appointed under this chapter, or who has been formally notified that he will cease to be so appointed, must notify the FSA without delay:
(1) of any matter connected with the cessation which he thinks ought to be drawn to the FSA's attention; or
(2) that there is no such matter.

SUP 4.5.11

handbook-guidance
When an actuary appointed under SUP 4.3.1 R ceases to hold office, he ceases to perform a controlled function. A firm is therefore required under SUP 10.13.6 R to tell the FSA within seven business days of its actuary ceasing to hold office and to complete a withdrawal form (Form C, SUP 10 Annex 6 R ). Note also the requirement of SUP 10.13.7 R in relation to qualified withdrawals.

Rights and duties

SUP 4.5.12

handbook-guidance
Section 341 of the Act (Access to books etc.) provides that an actuary appointed under or as a result of the Act:
(1) has a right of access at all times to the firm's books, accounts and vouchers; and
(2) is entitled to require from the firm's officers such information and explanation as he reasonably considers necessary to perform his duties as actuary.

SUP 4.5.13

handbook-rule
When carrying out his duties, an actuary appointed under this chapter must pay due regard to generally accepted actuarial practice.

SUP 4.5.14

handbook-guidance
The standards and guidance issued from time to time by the Institute of Actuariesandthe Faculty of Actuaries are important sources of generally accepted actuarial practice.

SUP 4.6

Lloyd's

  • 01/01/2005

Appointment of the Lloyd's actuary and syndicate actuaries

SUP 4.6.1

handbook-rule
The Society must:
(1) appoint an actuary to perform the Lloyd's actuaryfunction;
(2) notify the FSA, without delay, when it is aware that a vacancy in the office of Lloyd's actuary will arise or has arisen, giving the reason for the vacancy;
(3) appoint an actuary to fill any vacancy in the office of Lloyd's actuary that has arisen; and
(4) ensure that the replacement actuary can take up office at the time the vacancy arises or as soon as reasonably practicable after that.

SUP 4.6.2

handbook-guidance
The functions performed by the actuary appointed as the Lloyd's actuary under SUP 4.6.1 R are specified as controlled functions in SUP 10 (Approved persons). As a result, an application must be made to the FSA under section 60 of the Act (Applications for approval) for approval of the person proposing to take up such an appointment. Section 61(3) of the Act (Determination of applications) gives the FSA three months to grant its approval or give a warning notice that it proposes to refuse the application. An actuary should not be appointed until the FSA has approved the actuary. In order to comply with SUP 4.6.1 R, the Society should ensure it applies to the FSA as soon as practicable before the date when it needs the actuary to take office. The FSA will need time to consider the application before deciding whether to grant approval.

Qualifications

SUP 4.6.3

handbook-rule
Before the Society applies for approval of its proposed appointment of the Lloyd's actuary under SUP 4.6.1 R, it must take reasonable steps to ensure that the actuary:
(1) has the required skill and experience to perform his functions under the regulatory system; and
(2) is a Fellow of the Institute of Actuaries or of the Faculty of Actuaries.

SUP 4.6.4

handbook-guidance
To comply with SUP 4.6.3 R and Principle 3, before the Lloyd's actuary takes up his appointment the Society should ensure that the actuary:
(1) has skills and experience appropriate to the nature, scale and complexity of the Society's business and the requirements and standards under the regulatory system to which it is subject; and
(2) has adequate qualifications and experience, which includes holding an appropriate practising certificate under the rules of the Institute of Actuaries or the Faculty of Actuaries;


and seek confirmation of these from the actuary, or the actuary's current and previous employers, as appropriate.

Disqualified actuaries

SUP 4.6.5

handbook-rule
The Society must not appoint under SUP 4.6.1 R as Lloyd's actuary an actuary who is disqualified by the FSA under section 345 of the Act (Disqualification) from acting:
(1) as an actuary for the Society; or
(2) as a syndicate actuary; or
(3) as an actuary for any other relevant class of firm.

SUP 4.6.6

handbook-guidance
If it appears to the FSA that an actuary 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 actuary is being considered or put into effect, see ENF 17 . A list of actuaries who are disqualified by the FSAmay be found on the FSA website.

Conflicts of interest

SUP 4.6.7

handbook-rule
The Society must take reasonable steps to ensure that an actuary who is to be, or has been, appointed under SUP 4.6.1 R:
(1) does not perform the function of chairman or chief executive of the Society; and
(2) does not perform any other function on behalf of the Society which could give rise to a significant conflict of interest.

The Lloyd's actuary function

SUP 4.6.8

handbook-rule
An actuary who has been appointed to perform the Lloyd's actuaryfunction must:
(1) prepare the statement required under LLD 15.9.1 R (2) to be annexed to the Lloyd's Return; and
(2) take reasonable steps to ensure that the general insurance businesstechnical provisions for each syndicate year have been reviewed by the syndicate actuary and that an appropriate opinion has been obtained under SUP 4.6.15 R; and
(3) where a syndicate actuary's opinion has not been provided, sets appropriate technical provisions and, within six months of the end of the financial year, submits a report to the FSA on the setting of those technical provisions.

Appointment of syndicate actuaries

SUP 4.6.9

handbook-rule
Each managing agent must, in respect of each syndicate it manages:
(1) appoint an actuary (the "syndicate actuary") to carry out the duties described in SUP 4.6.15 R or SUP 4.6.16 R; and
(2) appoint a replacement for that actuary if he ceases to hold office before he has carried out the duties described in SUP 4.6.15 R or SUP 4.6.16 R; and
(3) ensure that the replacement syndicate actuary can take up office at the time the vacancy arises or as soon as reasonably practicable after that.

SUP 4.6.10

handbook-guidance
(1) The insurance market direction and guidance set out in SUP 3.1.4 G to SUP 3.1.15 G is relevant to actuaries appointed to report on the insurance business of members.
(2) References in SUP 4, as applied by SUP 4.1.3 R, to a firm include, where appropriate:
(a) a managing agent; and
(b) one or more member carrying on insurance business at Lloyd's policy through a syndicate;


and references to an actuary of a firm should be read accordingly.

Syndicate actuaries' qualifications

SUP 4.6.11

handbook-rule
Before a managing agent appoints a syndicate actuary, it must take reasonable steps to ensure that the syndicate actuary:
(1) has the required skill and experience to perform his duties; and
(2) is a fellow of an actuarial body or (except for a syndicate actuary of a long-term insurance business syndicate) is a fellow of the Casualty Actuarial Society who is a member of an actuarial body.

SUP 4.6.12

handbook-guidance
To comply with SUP 4.6.11 R and Principle 3, before a syndicate actuary takes up his appointment a managing agent should ensure that the syndicate actuary:
(1) has skills and experience appropriate to the nature, scale and complexity of a syndicate's business and the requirements and standards under the regulatory system applicable to the activities of managing agents in relation to each syndicate which they manage; and
(2) has adequate qualifications and experience, which includes holding an appropriate practising certificate under the rules of the Institute of Actuaries or the Faculty of Actuaries;


and seeks confirmation of these from the syndicate actuary, or the syndicate actuary's current and previous employers, as appropriate.

Disqualified actuaries

SUP 4.6.13

handbook-rule
A managing agent must not appoint under SUP 4.6.9 R as syndicate actuary an actuary who is disqualified by the FSA under section 345 of the Act (Disqualification) from acting:
(1) as a syndicate actuary; or
(2) as a Lloyd's actuary; or
(3) as an actuary for a relevant class of firm.

SUP 4.6.14

handbook-guidance
If it appears to the FSA that an actuary 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 actuary is being considered or put into effect, see ENF 17 . A list of actuaries who are disqualified by the FSAmay be found on the FSA website.

Duties of syndicate actuaries

SUP 4.6.15

handbook-rule
The syndicate actuary of a long-term insurance business syndicate must:
(1) make an investigation at the end of each financial year into the financial condition of the business carried on through each syndicate year (other than a closed year);
(2) make an abstract of his report of the investigation; and
(3) prepare the certificate required under LLD 15.9.1 R (3) to be annexed to the Lloyd's Return.

SUP 4.6.16

handbook-rule
The syndicate actuary of a general insurance business syndicate must:
(1) review the technical provisions (both gross and net of reinsurance recoveries) of each syndicate year (other than a closed year); and
(2) provide his opinion confirming that the technical provisions for each syndicate year are no less prudent than his best estimate of the amounts required.

SUP 4.6.17

handbook-rule
If a managing agent becomes aware that the syndicate actuary of a general insurance business syndicate will or may be unable to produce an unqualified opinion under SUP 4.6.16 R, the managing agent must promptly inform the FSA that this is the case.

SUP 4.6.18

handbook-rule
In carrying out his duties a syndicate actuary must pay due regard to generally accepted actuarial best practice.

SUP 4.6.19

handbook-guidance
The standards and guidance issued by the Institute of Actuaries and the Faculty of Actuaries are important sources of actuarial best practice.

Export chapter as

SUP 5

Reports by skilled persons

SUP 5.1

Application and purpose

  • 01/12/2004

Application

SUP 5.1.1

handbook-rule
(1) This chapter applies to every firm.
(2) The rules, and the guidance on rules in SUP 5.5 (Duties of firms), do not apply to a UCITS qualifier.

SUP 5.1.2

handbook-guidance
This chapter (other than the rules, and guidance on rules, in SUP 5.5 (Duties of firms)) is also relevant to certain unauthorised persons within the scope of section 166 of the Act (Reports by skilled persons) (see SUP 5.2.1 G).

Purpose

SUP 5.1.3

handbook-guidance
The purpose of this chapter is to give guidance on the FSA's use of the power in section 166 of the Act (Reports by skilled persons). The purpose is also to make rules requiring a firm to include certain provisions in its contract with a skilled person and to give assistance to a skilled person. These rules are designed to ensure that the FSA receives certain information from a skilled person and that a skilled person receives assistance from a firm.

SUP 5.2

The FSA's power

Who may be required to provide a report?

SUP 5.2.1

handbook-guidance
Under section 166 of the Act (Reports by skilled persons), the FSA may, by giving a written notice, require any of the following persons to provide it with a report by a skilled person:
(1) a firm;
(2) any other member of the firm'sgroup;
(3) a partnership of which the firm is a member;
(4) a person who has at any relevant time been a person falling within (1), (2) or (3);
but only if the person is, or was at the relevant time, carrying on a business.

SUP 5.3

Policy on the use of skilled persons

  • 01/12/2004

SUP 5.3.1

handbook-guidance
The appointment of a skilled person to produce a report under section 166 of the Act (Reports by skilled persons) is one of the FSA's regulatory tools. The tool may be used:
(1) for diagnostic purposes, to identify, assess and measure risks;
(2) for monitoring purposes, to track the development of identified risks, wherever these arise;
(3) in the context of preventative action, to limit or reduce identified risks and so prevent them from crystallising or increasing; and
(4) for remedial action, to respond to risks when they have crystallised.
SUP 5 Annex 1 gives examples of circumstances in which the FSA may use the skilled persons tool.

SUP 5.3.2

handbook-guidance
The decision to require a report by a skilled personwill normally be prompted by a specific requirement for information, analysis of information, assessment of a situation or expert advice or recommendations. It will usually be part of the risk mitigation programme applicable to a firm, or the result of an event or development relating or relevant to a firm, or prompted by a need for verification of information provided to the FSA

SUP 5.3.3

handbook-guidance
When making the decision to require a report by a skilled person, the FSA will have regard, on a case-by-case basis, to all relevant factors. Those are likely to include:
(1) circumstances relating to the firm;
(2) alternative tools available, including other statutory powers;
(3) legal and procedural considerations;
(4) the objectives of the FSA's enquiries;
(5) cost considerations; and
(6) considerations relating to FSA resources.
SUP 5.3.4 G to SUP 5.3.10 G give further guidance on these listed factors.

Circumstances relating to the firm

SUP 5.3.4

handbook-guidance
The FSA will have regard to circumstances relating to the firm, for example:
(1) attitude of the firm: whether the firm is being cooperative;
(2) history of similar issues: whether similar issues have arisen in the past and, if so, whether timely corrective action was taken;
(3) quality of a firm's systems and records: whether the FSA has confidence that the firm has the ability to provide the required information;
(4) objectivity: whether the FSA has confidence in the firm's willingness and ability to deliver an objective report;
(5) conflicts of interest: whether the subject matter of the enquiries or the report involves actual or potential misconduct and it would be inappropriate for the FSA to rely on the firm itself to enquire into the matter; and
(6) knowledge or expertise available to the firm: whether it would be appropriate to involve a third party with the required technical expertise.

Alternative tools available, including other statutory powers

SUP 5.3.5

handbook-guidance
The FSA will have regard to alternative tools that may be available, including for example:
(1) obtaining what is required without using specific statutory powers (for example, by a visit by FSA staff or a request for information on an informal basis);
(2) requiring information from firms and others, including authorising an agent to require information, under section 165 of the Act (Authority's power to require information);
(3) appointing investigators to carry out general investigations under section 167 of the Act (Appointment of persons to carry out general investigations) (see ENF 2.5 for the FSA's policy on the use of this power); and
(4) appointing investigators to carry out investigations in particular cases under section 168 of the Act (Appointment of persons to carry out investigations in particular cases) (see ENF 2.5 for the FSA's policy on the use of this power).

Legal and procedural considerations

SUP 5.3.6

handbook-guidance
The FSA will have regard to legal and procedural considerations including:
(1) statutory powers: whether one of the other available statutory powers is more appropriate for the purpose than the power in section 166 of the Act (Reports by skilled persons);
(2) subsequent proceedings: whether it is desirable to obtain an authoritative and independent report for use in any subsequent proceedings; and
(3) application of the Handbookrules: whether it is important that the relevant rules in the Handbook should apply, for example SUP 5.5.1 R which obliges the firm to require and permit the skilled person to report specified matters to the FSA.

The objectives of the FSA's enquiries

SUP 5.3.7

handbook-guidance
The FSA will have regard to the objectives of its enquiries, and the relative effectiveness of its available powers to achieve those objectives. For example:
(1) historic information or evidence: if the objectives are limited to gathering historic information, or evidence for determining whether enforcement action may be appropriate, the FSA's information gathering and investigation powers under sections 165 (Authority's power to require information), 167 (Appointment of persons to carry out general investigations) and 168 (Appointment of persons to carry out investigations in particular cases) of the Act are likely to be more appropriate than the section 166 power (Reports by skilled persons); and
(2) expert analysis or recommendations: if the objectives include obtaining expert analysis or recommendations (or both) for diagnostic, monitoring, preventative or remedial purposes, the section 166 power (Reports by skilled persons) may be an appropriate power to use, instead of, or in conjunction with, the FSA's other available powers.

Cost considerations

SUP 5.3.8

handbook-guidance
In accordance with its general policy the FSA will have regard to the question of cost, which is particularly pertinent in relation to skilled persons because:
(1) if the FSA uses the section 166 power (Reports by skilled persons) the firm will appoint, and will have to pay for the services of, the skilled person;
(2) if the FSA uses its other information gathering and investigation powers, it will either authorise or appoint its own staff to undertake the information gathering or investigation (or both), or it will pay for the services of external competent persons to do so; in either case the costs will be recovered under the FSA's general fee scheme.

SUP 5.3.9

handbook-guidance
In having regard to the cost implications of using the section 166 power (Reports by skilled persons) alternative options (such as visits) or other powers, the FSA will take into account relevant factors, including:
(1) whether the firm may derive some benefit from the work carried out and recommendations made by the skilled person, for instance a better understanding of its business and its risk profile, or the operation of its information systems, or improvements to its systems and controls;
(2) whether the work to be carried out by the skilled person is work that should reasonably have been carried out by the firm, or by persons instructed by the firm on its own initiative; for instance a compliance review or the development of new systems;
(3) whether the firm's record-keeping and management information systems are poor and:
(a) the required information and documents are not readily available; or
(b) an analysis of the required information cannot readily be performed without expert assistance;
(4) whether the firm appears to have breached requirements or standards under the regulatory system or otherwise put the interests of consumers at risk, and it is unable or unwilling to review and remedy the matters of concern, or the FSA considers that it cannot rely on the firm to do so; and
(5) the perceived probability and seriousness of possible breaches of regulatory requirements and the possible need for further action.

Considerations relating to FSA resources

SUP 5.3.10

handbook-guidance
The FSA will have regard to FSA -related considerations including:
(1) FSA expertise: whether the FSA has the necessary expertise; and
(2) FSA resources: whether the resources required to produce a report or to make enquiries are available within the FSA , or whether the exercise will be the best use of the FSA's resources at the time.

SUP 5.4

Appointment and reporting process

  • 01/12/2004

Scope of report

SUP 5.4.1

handbook-guidance
The FSA will send a notice in writing requiring the person in SUP 5.2.1 G to provide a report by a skilled person on any matter if it is reasonably required in connection with the exercise of its functions conferred by or under the Act. The FSA may require the report to be in whatever form it specifies in the notice (SUP 5 Annex 2 summarises the appointment and reporting processes).

SUP 5.4.2

handbook-guidance
As part of the decision making process the FSA will normally contact the person in SUP 5.2.1 G to discuss its needs before finalising its decision to require a report by a skilled person. This will provide an opportunity for discussion about the appointment, whether an alternative means of obtaining the information would be better, what the scope of a report should be, who should be appointed, and the likely cost.

SUP 5.4.3

handbook-guidance
The FSA will give written notification to the person in SUP 5.2.1 G of the purpose of the report, its scope, the timetable for completion and any other relevant matters. The FSA will state the matters which the report is to contain as well as any requirements as to the report's format. For example, a report on controls may be required to address key risks, key controls and the control environment. The FSA attaches importance to there being a timetable for each report and to the skilled person, with the cooperation of the person in SUP 5.2.1 G, keeping to that timetable.

SUP 5.4.4

handbook-guidance
The written notification in SUP 5.4.3 G may be preceded or followed by a discussion of the FSA's requirements and the reasons for them. This may involve the FSA, the person in SUP 5.2.1 G and the person who has been, or is expected to be, appointed as the skilled person. The FSA recognises that there will normally be value in holding discussions involving the skilled person at this stage. These discussions may include others if appropriate.

SUP 5.4.5

handbook-guidance
The FSA will wish to conduct the discussion with the firm, its skilledperson and any others within a timescale appropriate to the circumstances of the case.

Appointment process

SUP 5.4.6

handbook-guidance
The skilled person is appointed by the person in SUP 5.2.1 G. The FSA will normally seek to agree in advance with the person in SUP 5.2.1 Gthe skilled person who will make the report. The Act requires that the skilled person be nominated or approved by the FSA:
(1) if the FSA decides to nominate the skilled person who is to make the report, it will notify the person in SUP 5.2.1 G accordingly; and
(2) alternatively, if the FSA is content to approve a skilled person selected by the person in SUP 5.2.1 G, it will notify the latter person of that fact.
The FSA may give the person in SUP 5.2.1 G a shortlist from which to choose.

SUP 5.4.7

handbook-guidance
A skilled person must appear to the FSA to have the skills necessary to make a report on the matter concerned. A skilled person may be an accountant, lawyer, actuary or person with relevant business, technical or technological skills.

SUP 5.4.8

handbook-guidance
When considering whether to nominate or approve a skilled person to make a report, the FSA will have regard to the circumstances of the case, including whether the proposed skilledperson appears to have:
(1) the skills necessary to make a report on the matter concerned;
(2) the ability to complete the report within the time expected by the FSA;
(3) any relevant specialised knowledge, for instance of the person in SUP 5.2.1 G, the type of business carried on by the person in SUP 5.2.1 G, or the matter to be reported on;
(4) any professional difficulty or potential conflict of interest in reviewing the matters to be reported on, for instance because the matters to be reported on may involve questions reflecting on the quality or reliability of work previously carried out by the proposed skilled person; and
(5) enough detachment, bearing in mind the closeness of an existing professional or commercial relationship, to give an objective opinion on matters such as:
(a) matters already reported on by the skilled person (for example, on the financial statements of the person in SUP 5.2.1 G or in relation to their systems and controls);
(b) matters that are likely to be contentious and may result in disciplinary or other enforcement action against the person in SUP 5.2.1 G, its management, shareholders or controllers; or
(c) matters that the skilled person has been involved in, in another capacity (for example, when a skilled person has been involved in developing an information system it may not be appropriate for him to provide a subsequent opinion on the adequacy of the system).

SUP 5.4.9

handbook-guidance
In appropriate circumstances, it may be cost effective for the FSA to nominate or approve the appointment of a skilled person who has previously acted for, or advised, the person in SUP 5.2.1 G. For example, the FSA may nominate, or approve the appointment of, the auditor of a person in SUP 5.2.1 G to prepare a report taking into account, where relevant, the considerations set out in SUP 5.4.7 G.

Reporting process

SUP 5.4.10

handbook-guidance
The FSA will normally require the person in SUP 5.2.1 G to appoint the skilled person to report to the FSA through that person. In the normal course of events the FSA expects that the person in SUP 5.2.1 G will be given the opportunity to provide written comments on the report prior to its submission to the FSA (SUP 5 Annex 2 summarises the reporting process).

SUP 5.4.11

handbook-guidance
The FSA may enter into a dialogue with the skilled person, and is ready to discuss matters relevant to the report with him, during the preparation of the report. Such discussions will normally involve or be through the person in SUP 5.2.1 G.

SUP 5.4.12

handbook-guidance
The FSA will normally specify a time limit within which it expects the skilled person to deliver the report. The skilled person should, in complying with its contractual duty under SUP 5.5.1 R, take reasonable steps to achieve delivery by that time. If the skilled person becomes aware that the report may not be delivered on time, he should inform the FSA and the person in SUP 5.2.1 G as soon as possible. If the skilled person becomes aware that there may be difficulties delivering the report within cost estimates, he will no doubt wish to advise the firm.

SUP 5.4.13

handbook-guidance
The FSA may meet with the person in SUP 5.2.1 G and the skilled person together to discuss the final report. The FSA may also wish to discuss the final report with the skilled person present but without the person in SUP 5.2.1 G.

SUP 5.5

Duties of firms

  • 01/12/2004

Contract with the skilled person

SUP 5.5.1

handbook-rule
When a firm appoints a skilled person to provide a report under section 166 of the Act (Reports by skilled persons), the firm must, in a contract with the skilled person:
(1) require and permit the skilled person during and after the course of his appointment:
(a) to cooperate with the FSA in the discharge of its functions under the Act in relation to the firm; and
(b) to communicate to the FSA information on, or his opinion on, matters of which he has, or had, become aware in his capacity as skilled person reporting on the firm in the following circumstances:
(i) the skilled person reasonably believes that, as regards the firm concerned (A) there is or has been, or may be or may have been, a contravention of any relevant requirement that applies to the firm concerned; and (B) that the contravention may be of material significance to the FSA in determining whether to exercise, in relation to the firm concerned, any functions conferred on the FSA by or under any provision of the Act other than Part VI. (Official Listing); or
(ii) the skilled person reasonably believes that the information on, or his opinion on, those matters may be of material significance to the FSA in determining whether the firm concerned satisfies and will continue to satisfy the threshold conditions; or
(iii) the skilled person reasonably believes that firm is not, may not be or may cease to be a going concern;
(2) require the skilled person to prepare a report, as notified to the firm by the FSA, within the time specified by the FSA; and
(3) waive any duty of confidentiality owed by the skilled person to the firm which might limit the provision of information or opinion by that skilled person to the FSA in accordance with (1) or (2). (See also SUP 5.5.13 G and SUP 5.6)

SUP 5.5.2

handbook-guidance
In complying with the contractual duty in SUP 5.5.1 R (1) the FSA expects that a skilled person appointed under section 166 of the Act (Reports by skilled persons) will cooperate with the FSA by, amongst other things, providing information or documentation about the planning and progress of the report and its findings and conclusions, if requested to do so. A firm should therefore ensure that the contract it makes with the skilled person requires and permits the skilled person to provide the following to the FSA if requested to do so:
(1) interim reports;
(2) source data, documents and working papers;
(3) copies of any draft reports given to the firm; and
(4) specific information about the planning and progress of the work to be undertaken (which may include project plans, progress reports including percentage of work completed, details of time spent, costs to date, and details of any significant findings and conclusions).

SUP 5.5.3

handbook-guidance
If the FSA is considering asking for the information specified in SUP 5.5.2 G it will take into consideration the cost of the skilled person complying with the request, and the benefit that the FSA may derive from the information. For example, in most cases, the FSA will not need to request a skilled person to give it source data, documents and working papers. However, the FSA may do so when it reasonably believes that this information will be relevant to any investigation it may be conducting, or any action it may need to consider taking against the firm.

SUP 5.5.4

handbook-guidance
In complying with the contractual duty in SUP 5.5.1 R, the FSA expects that, in the case of substantial or complex reports, the skilled person will give a periodic update on progress and issues to allow for a re-focusing of the report if necessary. The channel of communication would normally be directly between the skilled person and the FSA . However, the FSA would also expect firms normally to be informed about the passage of information, and the skilled person would usually be expected to keep the firm informed of any communication between the skilled person and the FSA.

SUP 5.5.5

handbook-rule
A firm must ensure that the contract required by SUP 5.5.1 R:
(1) is governed by the laws of a part of the United Kingdom;
(2) expressly
(a) provides that the FSA has a right to enforce the provisions included in the contract under SUP 5.5.1 R and SUP 5.5.5 R (2);
(b) provides that, in proceedings brought by the FSA for the enforcement of those provisions, the skilled person is not to have available by way of defence, set-off or counterclaim any matter that is not relevant to those provisions;
(c) (if the contract includes an arbitration agreement) provides that the FSA is not, in exercising the right in (a), to be treated as a party to, or bound by, the arbitration agreement; and
(d) provides that the provisions included in the contract under SUP 5.5.1 R and SUP 5.5.5 R (2) are irrevocable and may not be varied or rescinded without the FSA's consent; and
(3) is not varied or rescinded in such a way as to extinguish or alter the provisions referred to in (2)(d).

SUP 5.5.6

handbook-guidance
The Contracts (Rights of Third Parties) Act 1999, or Scots common law, enables the FSA to enforce the rights conferred on it under the contract against the skilled person.

SUP 5.5.7

handbook-guidance
If the FSA considers it appropriate, it may request the firm to give it a copy of the draft contract before it is made with the skilled person. The FSA will inform the firm of any matters that it considers require further clarification or discussion before the contract is finalised.

SUP 5.5.8

handbook-guidance
The FSA expects the firm, in complying with Principle 11, to give the FSA information about the cost of the skilled persons report. This may include both an initial estimate of the cost as well as the cost of the completed report. This information is required to help inform the FSA's decision making in the choice of regulatory tools. Information about the number and cost of reports by skilled persons will be published by the FSA.

Assisting the skilled person

SUP 5.5.9

handbook-rule
A firm must provide all reasonable assistance to any skilled person appointed to provide a report under section 166 of the Act (Reports by skilled persons).

SUP 5.5.10

handbook-guidance
In providing reasonable assistance under SUP 5.5.9 R, a firm should take reasonable steps to ensure that, when reasonably required by the skilled person, each of its appointed representativeswaives any duty of confidentiality and provides reasonable assistance as though SUP 5.5.1 R (3) and SUP 5.5.9 R applied directly to the appointed representative.

SUP 5.5.11

handbook-guidance
Reasonable assistance in SUP 5.5.9 R should include:
(1) access at all reasonable business hours for the skilled person to the firm's accounting and other records in whatever form;
(2) providing such information and explanations as the skilled person reasonably considers necessary or desirable for the performance of his duties; and
(3) permitting a skilled person to obtain such information directly from the firm's auditor as he reasonably considers necessary or desirable for the proper performance of his duties.

Responsibility for delivery

SUP 5.5.12

handbook-guidance
In complying with Principle 11, a firm is expected to take reasonable steps to ensure that a skilled person delivers a report in accordance with the terms of his appointment.

Assistance to skilled persons from others

SUP 5.5.13

handbook-guidance
Section 166(5) of the Act (Authority's power to require information) imposes a duty on certain persons to give assistance to a skilled person. The persons on whom this duty is imposed are those who are providing, or have at any time provided, services to any person falling within SUP 5.2.1 G. They include suppliers under material outsourcing arrangements.

SUP 5.6

Confidential information and privilege

  • 01/12/2004

Confidential information

SUP 5.6.1

handbook-guidance
Within the legal constraints that apply, the FSA may pass on to a skilled person any information which it considers relevant to the skilled person's function. A skilled person, being a primary recipient under section 348 of the Act (Restrictions on disclosure of confidential information by Authority etc.), is bound by the confidentiality provisions in Part XXIII of the Act (Public record, disclosure of information and cooperation) as regards confidential information he receives from the FSA or directly from a firm or other person. A skilled person may not pass on confidential information without lawful authority, for example, where an exception applies under the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (SI 2001/2188) or with the consent of the person from whom that information was received and (if different) to whom the information relates. The FSA will indicate to a skilled person if there is any matter which cannot be discussed with the person in SUP 5.2.1 G

Banking confidentiality and legal privilege

SUP 5.6.2

handbook-guidance
The limitations in the following sections of the Act are relevant to this chapter:
(1) section 175(5) (Information and documents: supplemental provisions) under which a person may be required under Part XI of the Act (Information Gathering and Investigations) to disclose information or produce a document subject to banking confidentiality (with exceptions); and
(2) section 413 (Protected items), under which no person may be required to produce, disclose or allow the inspection of protected items.

SUP 5 Annex 1

Examples of when the FSA may use the skilled person tool (This Annex belongs to SUP 5.3.1G)

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 5 Annex 2

An overview of the appointment and report development process

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handbook-guidance
An overview of the appointment and report development process
  • 21/06/2001

Export chapter as

SUP 6

Applications to vary and cancel Part IV permission

SUP 6.1

Application and purpose

Application

SUP 6.1.1

handbook-guidance
This chapter applies to every firm with a Part IV permission which wishes to:
(1) vary its Part IV permission; or
(2) cancel its Part IV permission and end its authorisation.

SUP 6.1.2

handbook-guidance
If appropriate, a firm which is the manager of a collective investment scheme should also refer to COLL 7 and CIS 14 for guidance on the termination of ICVCs and AUTs and on winding up schemesthat are not commercially viable.

SUP 6.1.3

handbook-guidance
This chapter applies to an incoming firm or a UCITS qualifier only in respect of a top-up permission. An incoming firm or a UCITS qualifier should refer to SUP 14 (Variation of passport rights by incoming EEA firms and ending authorisation) for the procedures for changes to permission granted under Schedules 3, 4 or 5 of the Act.

Purpose

SUP 6.1.4

handbook-guidance
This chapter explains:
(1) how a firm with Part IV permission can apply to the FSA to vary that permission;
(2) how a firm which has ceased to carry on any of the regulated activities for which it has Part IV permission, or which expects to do so in the short term (normally less than six months), should apply to the FSA to cancel that permission completely;
(3) the additional procedures that apply to a firm carrying on regulated activities which create long term obligations to customers (for example, effecting contracts of insurance, carrying out contracts of insurance or accepting deposits) that needs to wind down (run off) its business over a long term period (normally more than six months) and the applications it should make with a view to ultimately cancelling its permission; and
(4) how the FSA assesses those applications.

SUP 6.1.5

handbook-guidance
This chapter also outlines the FSA's powers to withdraw authorisation from a firm whose Part IV permission has been cancelled at the firm's request. It does not, however, cover the FSA's use of its own-initiative powers to vary or cancel a firm's Part IV permission (see SUP 7 (Individual requirements) and ENF 5 (Cancellation of Part IV permission on the FSA's own initiative and withdrawal of authorisation)).

SUP 6.2

Introduction

  • 01/12/2004

SUP 6.2.1

handbook-guidance
A firm authorised under Part IV of the Act (Permission to carry on regulated activity) has a single Part IV permission granted by the FSA. A firm's Part IV permission specifies all or some of the following elements (as detailed in AUTH 3.3.3 G (When is Part IV permission required and what does it contain?)):
(1) a description of the activities the firm may carry on, including any limitations;
(2) the specified investments involved; and
(3) if appropriate, requirements.

SUP 6.2.2

handbook-guidance
Under section 20(1) of the Act (Authorised persons acting without permission), a firm is prohibited from carrying on a regulated activity in the United Kingdom (or purporting to do so) otherwise than in accordance with its permission.

SUP 6.2.3

handbook-guidance
If a firm wishes to change its Part IV permission, it can apply to the FSA under section 44 of the Act (Variation etc. at request of authorised person) for a variation or cancellation of its Part IV permission. SUP 6.2.5 G sets out the differences between these types of application and the circumstances in which they should be made and SUP 6 Annex 1 gives an overview of the considerations in these cases.
  • 21/06/2001

SUP 6.2.4

handbook-guidance
A firm intending to expand its business should assess, taking appropriate professional advice where necessary, whether it will need to apply to the FSA to vary its Part IV permission before making any changes to its business.

SUP 6.2.5

handbook-guidance

Variation and cancellation of Part IV permission. See ofSUP 6.2.3 G

SUP 6.2.6

handbook-guidance
A firm which is seeking to:
(1) vary its Part IV permission substantially; or
(2) cancel its Part IV permission;
should discuss its plans with its usual supervisory contact at the FSA as early as possible before making an application, in order to comply with Principle 11 (see SUP 15.3.7 G (Notifications to the FSA)). These discussions will help the FSA and the firm to agree the correct approach for the firm.

SUP 6.2.7

handbook-guidance
If a firm intends to cease carrying on one or more regulated activities permanently, it should give prompt notice to the FSA to comply with Principle 11 (see SUP 15.3.8 G (1)(d)). A firm should consider whether it needs to notify the FSA before applying to vary or cancel its Part IV permission.

Firms with long term liabilities to customers

SUP 6.2.8

handbook-guidance
Discussions with the FSA are particularly relevant where the firm has to discharge obligations to its customers or policyholders before it can cease carrying on a regulated activity. This may be the case, for example, where the firm is an insurer, a bank or, as is often the case, holding client money or customer assets.

SUP 6.2.9

handbook-guidance
If an insurer or a bank wishes to cease carrying on all regulated activities for which it has Part IV permission, it will usually be necessary to wind down the business over a long term period which is normally more than six months. This may also be the case for a firm holding client money or customer assets. In these circumstances, it will usually be appropriate for the firm to apply for variation of its Part IV permission before commencing the wind-down. A firm should only make an application for cancellation of permission when it expects to complete its wind-down (run-off) within six months.

SUP 6.2.10

handbook-guidance
A firm which is winding down (running off) its activities should contact its usual supervisory contact at the FSA to discuss its circumstances. The FSA will discuss the firm's winding down plans and the need for the firm to vary or cancel its Part IV permission. Following these discussions, an application for variation or cancellation of Part IV permission, as appropriate, should usually be made by the firm, although, in certain circumstances, the FSA may use its own-initiative powers under section 45 of the Act (Variation etc. on the FSA's own initiative) (see SUP 7 and and ENF 3 (Variation of Part IV permission on the FSA's own initiative)).

SUP 6.2.11

handbook-guidance
(1) Specific guidance on the additional procedures for a firm winding down (running off) its business in the circumstances discussed in SUP 6.2.8 G is in SUP 6 Annex 4.
(2) The guidance in SUP 6 Annex 4 applies to any firm that is applying for variation of Part IV permission before it applies for cancellation of Part IV permission to enable it to wind down (run off) its business over a long term period of six months of more. It will apply to most insurers and banks and, in some circumstances,as advised by the FSA, to firms holding client money or customer assets.
(3) If a firm wishes to cease carrying on some of its regulated activities, or the specified investments in respect of which the activities are carried on, the FSA may consider it appropriate for the firm to comply with the additional procedures in SUP 6 Annex 4. This would depend on the scale and nature of the regulated activities concerned. This might be the case, for example, if the firm is ceasing a significant part of its business in respect of which it has outstanding obligations to customers and the FSA believes that the additional procedures would protect consumers.

UK firms exercising EEA or Treaty rights

SUP 6.2.12

handbook-guidance
A UK firm should assess the effect of any change to its Part IV permission on its ability to continue to exercise any EEA right or Treaty right and discuss any concerns with its usual supervisory contact at the FSA. A variation of Part IV permission may also change the applicable provisions with which it is required to comply by a Host State.

SUP 6.2.13

handbook-guidance
A UK firm which, as well as applying to vary or cancel its Part IV permission, wishes to vary or terminate any business which it is carrying on in another EEA State under one of the Single Market Directives, should follow the procedures in SUP 13 (Exercise of passport rights by UK firms) on varying or terminating its branch or cross border services business.

The Lloyd's market

SUP 6.2.14

handbook-guidance
A firm making an application to vary or cancel its Part IV permission which requires any approval from the Society of Lloyd's should apply to the Society for this at the same time as applying to the FSA for the variation or cancellation. See SUP 6 Annex 4 for additional procedures.

SUP 6.3

Applications for variation of permission

What is a variation of permission?

SUP 6.3.1

handbook-guidance
Under section 44 of the Act, a firm may apply to the FSA to vary its Part IV permission to:
(1) allow it to carry on further regulated activities; or
(2) reduce the number of regulated activities it is permitted to carry on; or
(3) vary the FSA's description of its regulated activities (including by the removal or variation of any limitations); or
(4) cancel any requirement applied for by the firm or imposed by the FSA under section 43 of the Act (Imposition of requirements); or
(5) vary any such requirement.
  • 21/06/2001

SUP 6.3.2

handbook-guidance
An application for variation of Part IV permission may include one or more of SUP 6.3.1 G(1)-(5). For example, a firm may apply to vary its Part IV permission to add a new regulated activity and at the same time remove a regulated activity for which it currently has permission.
  • 21/06/2001

SUP 6.3.3

handbook-guidance
In applying for a variation of Part IV permission, a branch of a firm from outside the EEA should be mindful of any continuing requirements referred to in AUTH 3.18 and, for insurers, AUTH 3.12.

Applications to add additional regulated activities

SUP 6.3.4

handbook-guidance
In determining the activities and specified investments for which a Part IV permission is required, and whether to apply for a variation of that permission, a firm may need to take professional advice and may also wish to discuss this with its usual supervisory contact at the FSA.

SUP 6.3.5

handbook-guidance
Before applying to vary its permission, a firm should determine whether there are any statutory restrictions that do not allow combinations of certain types of regulated activity, particularly for insurance business or UCITS managers. For example, the FSA will not grant a variation of Part IV permission to allow a friendly society to carry on reinsurance business (see AUTH 3.12.5 G). A firm should refer to AUTH 3 for details of any restrictions or discuss its plans with its usual supervisory contact at the FSA.

SUP 6.3.6

handbook-guidance
If a firm is seeking a variation of Part IV permission to add categories of regulated activities, it should be mindful of the directive requirements referred to at SUP 6.3.42 G relating to the need to commence new activities within 12 months.

Applications to remove certain regulated activities

SUP 6.3.7

handbook-guidance
If a firm wishes to cease carrying on an activity for which it has Part IV permission, it will usually apply to vary its Part IV permission to remove that activity. If a firm wishes to cease carrying on an activity in relation to any specified investment, it will usually apply to vary its Part IV permission to remove that specified investment from the relevant activity.

How a variation of permission may affect the firm's approved persons

SUP 6.3.8

handbook-guidance
(1) Where a firm is submitting an application for variation of Part IV permission which would lead to a change in the controlled functions of its approved persons, it should, at the same time and as appropriate:
(a) make an application to the FSA for an internal transfer of an approved person, Form E (Internal transfer), or make an application to the FSA for an individual to perform additional controlled functions, Form A (Application); see SUP 10.13.3 D to SUP 10.13.5 G;
(b) notify the FSA of any approved person who has ceased to perform a controlled function, Form C (Ceasing to perform controlled functions); see SUP 10.13.6 R to SUP 10.13.13 G.
(2) If the firm intends to recruit new individuals to perform controlled functions, it should apply to the FSA for approval of the individuals as approved persons as soon as possible using Form A (Application); see SUP 10.12.

How a variation of permission may change a firm's prudential category

SUP 6.3.9

handbook-guidance
A variation of Part IV permission may, in some cases, lead to a change in a firm's prudential category or sub-category (see SUP App 1). For example, an investment management firm which varies its Part IV permission to include accepting deposits and as a result meets the definition of a bank, would move to the prudential category for a bank (see SUP App 1.3.1 G).
  • 21/06/2001

SUP 6.3.10

handbook-guidance
Even if a variation of permission does not itself lead to a change in a firm's prudential category or sub-category, the FSA may use its own-initiative powers to require a firm to comply with a different category or sub-category of prudential rules where it considers this to be appropriate. For details of when and how the FSA may use its own-initiative powers in this context, see SUP 7.
  • 21/06/2001

Variation of permission involving insurance business

SUP 6.3.11

handbook-guidance
A firm with Part IV permission to carry on insurance business, which is applying for a variation of its Part IV permission to add further insurance activities or specified investments, will be required to submit particular information on its existing activities as part of its application. This includes the scheme of operations which is required to be submitted as part of the application pack (for further details on the scheme of operations, see SUP App 2 (Insurers: scheme of operations)).

SUP 6.3.12

handbook-guidance
In applying to vary its Part IV permission to add categories of specified investments, in relation to insurance business, a firm carrying on insurance business will need to determine the classes of specified investments relating to effecting and carrying out contracts of insurance for which variation of Part IV permission will be necessary, having regard to whether certain classes of contract may qualify to be effected or carried out on an ancillary or supplementary basis (see SUP 3.12.6G to SUP 3.12.12G).

SUP 6.3.13

handbook-guidance
The application for variation of Part IV permission will need to provide information about the classes of contract of insurance for which variation of Part IV permission is requested and also those classes qualifying to be carried on, on an ancillary or supplementary basis. For example, an insurer applying to vary its permission to include class 10 (motor vehicle liability, other than carrier's liability) must satisfy the FSA that it will meet, and continue to meet, threshold condition2A(Appointment of claims representatives). Firms should note that, as explained in AUTH 3.9.29 G (3), the FSA will not use the power described in AUTH 3.9.29 G (2) to grant Part IV permission for insurance business which has not been included in the application.

SUP 6.3.14

handbook-guidance
(1) A firm carrying on insurance business which is seeking to cease such business in respect of one or more classes of specified investment, but which is not intending to cease all insurance business, should apply to vary its Part IV permission to remove the activity of effecting contracts of insurance in respect of those specified investments in relation to which it no longer wishes to carry on business. A firm intending to cease all insurance business should refer to SUP 6 Annex 4.
(2) If the application for variation of Part IV permission is granted by the FSA, the firm will have Part IV permission only to carry out contracts of insurance in respect of the specified investments in relation to which it no longer wishes to carry on business (see SUP 6 Annex 4). This will allow the firm to run off this aspect of its business. When the business in question has been run-off completely, the firm should then apply to vary its Part IV permission to remove the relevant classes of specified investment.

The application for variation of permission

SUP 6.3.15

handbook-directions
  1. (1) If a firm wishes to apply for a variation of Part IV permission, it must complete and submit to the FSA the form in SUP 6 Annex 5 (Variation of permission application form).
  2. (2) A firm's application for variation of Part IV permission must be given or addressed, and delivered in the way set out in SUP 15.7.4 R to SUP 15.7.6 G (Form and method of notification).
  3. (3) Until the application has been determined, a firm which submits an application for variation of Part IV permission must inform the FSA of any significant change to the information given in the application immediately it becomes aware of the change.

SUP 6.3.16

handbook-guidance
(1) Section 51(2) of the Act (Applications under this Part) requires that the application for variation of Part IV permission must contain a statement:
(a) of the desired variation; and
(b) of the regulated activity or regulated activities which the firm proposes to carry on if its permission is varied.
(2) The full form and content of the application for variation of Part IV permission is a matter for direction by the FSA, who will determine the additional information and documentation required on a case by case basis.

SUP 6.3.17

handbook-guidance
(1) [deleted]
(2) A firm is advised to discuss its application with its usual supervisory contact at the FSA before submission, particularly if it is seeking a variation of permission within a short timescale. A firm is also advised to include as much detail as possible (including any additional information identified by its supervisors at this stage) with its application.

SUP 6.3.18

handbook-guidance
The FSA, as soon as possible after receipt of an application, will advise the firm of any additional information which is required as part of its application (see SUP 6.3.23 G to SUP 6.3.27 G). The amount of information the FSA will require will vary depending on the scale of the variation in the context of the firm as a whole, and the nature, risk profile and complexity of the variation.

Applications from firms winding down (running off) business over the long term

SUP 6.3.19

handbook-guidance
A firm which is making an application for variation of Part IV permission to wind down (run off) its business before applying for a cancellation of that permission (see SUP 6.2.9 G) should read SUP 6 Annex 4 for details of the additional procedures that apply.

Applications involving significant changes

SUP 6.3.20

handbook-guidance
In certain cases, FSA may consider that granting an application for variation of Part IV permission which includes adding further regulated activities or changing a requirement or limitation would cause a significant change in the firm's business or risk profile. In these circumstances, the FSA may require the firm to complete appropriate parts of the full application pack (see AUTH 3 ), as directed by the FSA. Applications for variation involving significant changes may be processed by the firm's usual supervisory contact at the FSA, in conjunction with the Corporate Authorisations department. Examples of an application for variation of Part IV permission which may represent a significant change include, but are not limited to, an application:
(1) to carry on new regulated activities such as accepting deposits;
(2) to extend the insurance business of a firm which already has Part IV permission which includes carrying out or effecting contracts of insurance (or both), to new classes of specified investment; or
(3) to remove a requirement preventing a firm from holding or controlling client money; or
(4) which causes the firm to change prudential category by, for example, removing a requirement relating to prudential category (see SUP App 1).

SUP 6.3.21

handbook-guidance
A firm that wishes to make a significant change to its business, or is unsure whether the changes it is proposing would be considered to be significant, should contact its usual supervisory contact at the FSA. The FSA will discuss with the firm whether it will be required to submit parts of the application pack and whether any reports from third parties may be required.

SUP 6.3.22

handbook-rule
If a firm applies for a variation of its Part IV permission, it must pay the fee specified in Part 3 of AUTH 4 Annex 1 in either of the following cases:
(1) if the variation is granted, the business of the firm will fall within one or more activity groups specified in Part 1 of SUP 20 Annex 1 not applicable before the grant of the variation, except the A.13 activity group if, before the variation, the A.12 activity group tariff applied to the firm's business; or
(2) any other circumstances specified in Part 3 of AUTH 4 Annex 1 apply.

SUP 6.3.22A

handbook-rule
The sum payable under SUP 6.3.22 G must be paid:
(1) by banker's draft, cheque or other payable order;
(2) in full without deduction;
(3) on or before the date on which the application is made.
  • 01/06/2004

SUP 6.3.22B

handbook-guidance
The appropriate fee is an integral part of an application for a variation of a Part IV permission. Any application received by the FSA without the accompanying appropriate fee, in full and without deduction (see SUP 6.3.22A R) will not be treated as an application made in accordance with section 44 of the Act. Where this is the case, the FSA will contact the applicant to point out that the variation cannot be progressed until the appropriate fee has been received. In the event that the appropriate fee, in full and without deduction, is not forthcoming, the application will be returned to the applicant and no application will have been made.
  • 01/06/2004

SUP 6.3.22C

handbook-guidance
Fees paid for an application to vary a Part IV permission are not refundable.
  • 01/06/2004

Information to be supplied to the FSA as part of the application

SUP 6.3.23

handbook-guidance
(1) The FSA may ask for any information it reasonably requires before determining the application. The information required will be determined on a case by case basis, taking into account the FSA's existing knowledge of the firm and the variation requested. The FSA will advise the firm of the information required at an early stage in the application process.
(2) The nature of the information and documents requested will be related to the risks posed to the FSA's regulatory objectives by the regulated activities and any unregulated activities that the firm is seeking to carry on. This information will be proportional to the nature of the business which the firm intends to carry on or the risks posed by the firm.

SUP 6.3.24

handbook-guidance
(1) The information the FSA may require includes, but is not limited to, the examples given in SUP 6.3.25 G:

SUP 6.3.25

handbook-guidance

Information which may be required. See SUP 6.3.24 G

SUP 6.3.26

handbook-guidance
Specific information may also be required by the FSA on the activities the firm intends to cease, or cease carrying on in relation to any specified investments (see SUP 6 Annex 4).

SUP 6.3.27

handbook-guidance
When determining whether to grant an application, the FSA may request further information, including reports from third parties such as the firm's auditors, and may require meetings with, and visits to, the firm. The FSA may also require a statement from members of the firm's governing body confirming, to the best of their knowledge, the completeness and accuracy of the information supplied. The FSA may also discuss the application with other regulators , exchanges.

When will the FSA grant an application for variation of permission?

SUP 6.3.28

handbook-guidance
(1) The FSA is required by section 41(2) of the Act to ensure that a firm applying to vary its Part IV permission satisfies and will continue to satisfy the threshold conditions in relation to all the regulated activities for which the firm has or will have Part IV permission after the variation. However, the FSA's duty under the Act does not prevent it, having regard to that duty, from taking such steps as it considers necessary in relation to a particular firm, to secure its consumer protection objective. This may include granting a firm's application for variation of Part IV permission when it wishes to wind down (run off) its business activities and cease to carry on new business as a result of no longer being able to satisfy the threshold conditions.
(2) In addition, the FSA may refuse the application if it appears that the interests of consumers, or a group of consumers, would be adversely affected if the application were to be granted and it is desirable in the interests of consumers, or that group of consumers, for the application to be refused.

SUP 6.3.29

handbook-guidance
In determining whether the firm satisfies and continues to satisfy the threshold conditions, the FSA will consider whether the firm is ready, willing and organised to comply with the regulatory requirements it will be subject to if the requested variation of Part IV permission is granted.

SUP 6.3.30

handbook-guidance
The FSA will also consider the specific requirements that apply to certain types of activity (see AUTH 3.11 to AUTH 3.20) as these may not allow certain combinations of activity.

SUP 6.3.31

handbook-guidance
In considering whether to grant a firm's application to vary its Part IV permission, the FSA will also have regard, under section 49(1) of the Act (Persons connected with an applicant), to any person appearing to be, or likely to be, in a relationship with the firm which is relevant (see AUTH 3.9.22 G to AUTH 3.9.24 G (Connected persons)). The Financial Groups Directive Regulations make special consultation provisions where the FSA is exercising its functions under Part IV of the Act (Permission to carry on regulated activities) for the purposes of carrying on supplementary supervision - see AUTH 3.9.22 G (1A) .

The FSA's powers in respect of application for variation of Part IV permission

SUP 6.3.32

handbook-guidance
The FSA's power to vary a Part IV permission after it receives an application from a firm extends to including in the Part IV permission as varied any provision that could be included as though a fresh permission was being given in response to an application under section 40 of the Act (Application for permission), see AUTH 3. Under sections 42 (Giving permission) and 43 of the Act (Imposition of requirements), the FSA may:
(1) incorporate in the description of a regulated activity a limitation (for example, as to the circumstance in which a regulated activity may or may not be carried on); or
(2) specify a narrower or wider description of regulated activity than the firm applied for in the application for variation of Part IV permission (see SUP 3.9.29G(3) for restrictions on insurers); or
(3) require the firm not to take a specified action (for example, not to hold client money); or
(4) require the firm to take a specified action (for example, to submit financial returns more frequently than normal).

SUP 6.3.33

handbook-guidance
Thus, when determining an application for variation of Part IV permission, the FSA can, therefore:
(1) include new limitations and vary existing limitations, either on application from the firm (for example, the customer categories with which a firm may carry on a specified activity), or if considered appropriate by the FSA under section 42(7)(a) of the Act; or
(2) include any new requirements and vary existing requirements, either on application from the firm or where considered appropriate by the FSA under section 43 of the Act to ensure that the firm satisfies and continues to satisfy the threshold conditions.
  • 21/06/2001

SUP 6.3.34

handbook-guidance
If limitations or requirements are varied or imposed by the FSA which were not included in the firm's application for variation of Part IV permission, the FSA will be required to issue the firm with a warning notice and decision notice (see SUP 6.3.39 G).

How long will an application take?

SUP 6.3.35

handbook-guidance
Under section 52(1) of the Act (Determination of applications), the FSA has six months to consider a completed application from the date of receipt.

SUP 6.3.36

handbook-guidance
If the FSA receives an application which is incomplete (that is, if information or a document required as part of the application is not provided), section 52(2) of the Act requires the FSA to determine that incomplete application within 12 months of the initial receipt of the application.

SUP 6.3.37

handbook-guidance
Within these time limits, however, the length of the process will relate directly to the complexity of the variation requested. The FSA publishes standard response times on its website at www.fsa.gov.uk setting out how long the application process is expected to take in practice. From time to time, the FSA also publishes its performance against these times.

SUP 6.3.38

handbook-guidance
At any time after receiving an application and before determining it, the FSA may require the applicant to provide additional information or documents. The circumstances of each application will dictate what additional information or procedures are appropriate.

How will the FSA make the decision?

SUP 6.3.39

handbook-guidance
A decision to grant an application for variation of Part IV permission, as applied for, will be taken by appropriately experienced FSA staff. However, if the FSA staff dealing with the application recommend that a firm's application for variation of Part IV permission be either refused or granted subject to limitations or requirements or a narrower description of regulated activities than applied for, the decision will be taken by either the RDC or executive procedures.

SUP 6.3.40

handbook-guidance
DEC gives guidance on the FSA's decision making procedures including the procedures it will follow if it proposes to refuse an application for variation of Part IV permission either in whole or in part (for example, an application granted by the FSA but subject to limitations or requirements not applied for).

Commencing new regulated activities

SUP 6.3.41

handbook-guidance
If the variation of Part IV permission is given, the FSA will expect a firm to commence a new regulated activity in accordance with its business plan (revised as necessary to take account of changes during the application process) or scheme of operations for an insurer. Firms should take this into consideration when determining when to make an application to the FSA.

SUP 6.3.42

handbook-guidance
(1) Firms should be aware that the FSA may exercise its own-initiative power to vary or cancel their Part IV permission if they do not:
(a) commence a regulated activity for which they have Part IV permission within a period of at least 12 months from the date of being given; or
(b) carry on a regulated activity for which they have Part IV permission for a period of at least 12 months (irrespective of the date of grant).
(2) If the FSA considers that such a variation or cancellation of the firm's Part IV permission is appropriate, it will discuss the proposed action with the firm and its reasons for not commencing or carrying on the regulated activities concerned.

SUP 6.3.43

handbook-guidance
When a firm commences new regulated activities following a variation of a Part IV permission , it should have particular regard to the requirements of Principle 11 (Relations with regulators) (see SUP 15.3.8 G (1)(c)).

SUP 6.4

Applications for cancellation of permission

  • 01/12/2004

SUP 6.4.1

handbook-guidance
Under section 44(2) of the Act (Variation etc. at request of authorised person), if an authorised person with a Part IV permission applies to the FSA, the FSA may cancel that permission. Cancellation applies to a firm's entire Part IV permission, that is to every activity and every specified investment and not to the individual elements such as specified investments. Changes to the individual elements of a permission would require a variation.
  • 21/06/2001

SUP 6.4.2

handbook-guidance
Under section 44(3) of the Act, the FSA may refuse an application from a firm to cancel its Part IV permission if it appears that:
(1) the interests of consumers, or potential consumers, would be adversely affected if the application were to be granted; and
(2) it is desirable in the interests of consumers, or potential consumers, for the application to be refused.

SUP 6.4.3

handbook-guidance
(1) A firm may apply to the FSA to cancel its Part IV permission before it has ceased carrying on all regulated activities. However, where a firm makes a formal application for cancellation of its permission when it has not yet ceased carrying on regulated activities, the FSA will expect the firm:
(a) to cease those regulated activities within the short term (normally no more than six months from the date of application for cancellation); and
(b) to have formal plans to cease its regulated activities in an orderly manner.
(2) Firms should note, however, that the FSA will not grant an application for cancellation of Part IV permission until the firm can demonstrate that it has ceased carrying on all regulated activities (SUP 6.4.19 G).
(3) The FSA may apply additional procedures or require additional information, as if the firm had entered into a long term wind down of business (see SUP 6 Annex 4), if it considers it appropriate to the circumstances of the firm.

SUP 6.4.4

handbook-guidance
Additional guidance for a firm carrying on insurance business, accepting deposits or which holds client money or customer's assets is given in SUP 6 Annex 4. As noted in SUP 6.2.9 G, it will usually be appropriate for a firm to apply for variation of its Part IV permission while winding down (running off) its regulated activities and before applying to cancel its Part IV permission .

The application for cancellation of permission

SUP 6.4.5

handbook-directions
  1. (1) If a firm wishes to cancel its Part IV permission, it must complete and submit to the FSA the form in SUP 6 Annex 6 (Cancellation of permission application form).
  2. (2) A firm's application for cancellation of Part IV permission must be:
    1. (a) given to a member of, or addressed for the attention of, the Cancellations Team at the FSA; and
    2. (b) delivered to the FSA by one of the methods in SUP 15.7.5 R (Form and method of notification).
  3. (3) [deleted]
  4. (4) Until the application has been determined, a firm which submits an application for cancellation of Part IV permission must inform the FSA of any significant change to the information given in the application immediately it becomes aware of the change.

SUP 6.4.6

handbook-guidance
(1) In addition to applying for cancellation of Part IV permission in accordance with SUP 6.4.5 D, a firm may discuss prospective cancellations with its usual supervisory contact at the FSA. Alternatively a firm can contact the Firms Contact Centre on 0845 606 9966.
(2) To contact the Cancellations Team:
(a) write to: Cancellations Team, The Financial ServicesAuthority, 25 The North Colonnade, Canary Wharf, London, E14 5HS; or
(b) email cancellation.team@fsa.gov.uk
(3) If a firm which has applied for cancellation decides to remain authorised it should inform the FSA immediately using one of the methods in SUP 6.4.6 G (2).

SUP 6.4.7

handbook-guidance
When an application is received, the FSA will send the firm a written acknowledgement. The firm will be required to provide information which, in the opinion of the FSA, is necessary for it to determine whether to grant or refuse the application for cancellation of Part IV permission. The CancellationsTeam will work with the firm's usual supervisory contact at the FSA during this process.

Information to be supplied to the FSA as part of the application for cancellation of permission

SUP 6.4.8

handbook-guidance
The information which the FSA may request on the circumstances of the application for cancellation and the confirmations which the FSA may require a firm to provide will differ according to the nature of the firm and the activities it has Part IV permission to carry on.

SUP 6.4.9

handbook-guidance
A firm will be expected to demonstrate to the FSA that it has ceased carrying on regulated activities. The FSA may require, as part of the application, a report from the firm that includes, but is not limited to, the confirmations referred to in SUP 6.4.12 G (as appropriate to the firm's business). The FSA may also require additional information to be submitted with the report including, in some cases, confirmation or verification from a professional adviser on certain matters to supplement the report (see SUP 6.4.15 G).

SUP 6.4.10

handbook-guidance
(1) If a firm is subject to the complaints rules in DISP, the FSA may request confirmation from the firm that there are no unresolved, unsatisfied or undischarged complaints against the firm from a customer of the firm.
(2) If there are unresolved or undischarged complaints against a firm from a customer of the firm, the FSA may request confirmation, as appropriate, of the steps (if any) which have been taken under the firm's complaints procedures and the amount of compensation claimed. The FSA may also request an explanation of the arrangements made for the future consideration of such complaints.
  • 21/06/2001

SUP 6.4.11

handbook-guidance
If the firm is carrying on designated investment business with private customers , the FSA may request confirmation that the firm has written, or intends to write, to all private customers with, or for whom, the firm has conducted regulated activities within a certain period.

Confirmations and resolutions

SUP 6.4.12

handbook-guidance
The FSA will usually require the report in SUP 6.4.9 G to be signed by a director or other officer with authority to bind the firm. It may include confirmations from the firm that, in relation to business carried on under its Part IV permission, it has:
(1) ceased carrying on all regulated activities;
(2) properly disbursed funds in its client bank accounts and closed those accounts;
(3) discharged all insurance or deposit liabilities; and
(4) properly transferred all investments, title documents and other property that it held on behalf of clients.

SUP 6.4.13

handbook-guidance
The FSA may also require a resolution from the firm's governing body, for example to support the application for cancellation of permission, expressed to be irrevocable, and to give the signatory the authority to sign the formal report to the FSA.

SUP 6.4.14

handbook-guidance
Under section 397 of the Act (Misleading statements and practices), it is an offence, in purported compliance with a requirement imposed by or under the Act (including the directions in SUP 6.4.5 D), for a person to knowingly or recklessly give the FSA information that is false or misleading. If necessary, a firm should take appropriate professional advice when supplying information required by the FSA. An insurer, for example, may ask an actuary to check assumptions in respect of future claims made under contracts of insurance.

Reports from professionals

SUP 6.4.15

handbook-guidance
The FSA may require additional information, including professional advice, to supplement or support the report in SUP 6.4.9 G where it considers this appropriate. Examples of reports that may be requested by the FSA include, but are not limited to those detailed in SUP 6.4.16 G.

SUP 6.4.16

handbook-guidance

Types of reports. See SUP 6.4.15 G

SUP 6.4.17

handbook-guidance
If a firm is transferring its business, the FSA may require a professional opinion in respect of certain aspects of the transfer. For example, the FSA may require a legal opinion on the validity of arrangements to transfer regulated activities, client money, client deposits, custody assets or any other property belonging to clients, to another authorised person. Alternatively, an auditor or reporting accountant may be requested to verify that a transfer has been properly accounted for in the firm's books and records. Transfers of insurance and banking business are subject to statutory requirements (see SUP 18).

Approved persons

SUP 6.4.18

handbook-guidance
A firm which is applying for cancellation of Part IV permission and which is not otherwise authorised by, or under, the Act should, at the same time, comply with SUP 10.13.6 R and notify the FSA of persons ceasing to perform controlled functions. These forms should give the effective date of withdrawal, if known (see SUP 10 (Approved persons)).

When will the FSA grant an application for cancellation of permission?

SUP 6.4.19

handbook-guidance
The FSA will usually not cancel a firm's Part IV permission until the firm can demonstrate that, in relation to business carried on under that permission, it has, as appropriate:
(1) ceased carrying on regulated activities or fully run off or transferred all insurance liabilities;
(2) repaid all client money and client deposits;
(3) discharged custody assets and any other property belonging to clients; and
(4) discharged, satisfied or resolved complaints against the firm.

SUP 6.4.20

handbook-guidance
If it is not possible for a firm to demonstrate a relevant matter referred to in SUP 6.4.19 G, for example, depositors are uncontactable, the firm will be expected to have satisfied the FSA that it has made adequate provisions for discharging any liabilities to clients which do not involve the firm carrying on regulated activities.

SUP 6.4.21

handbook-guidance
Before the FSA cancels a firm's Part IV permission, the firm will be expected to be able to demonstrate that it has ceased or transferred all regulated activities under that permission. For example, the firm may be asked to provide evidence that a transfer of business (including, where relevant, any client money, customer assets or deposits or insurance liabilities) is complete. As noted in SUP 6.4.9 G, the FSA may require the firm to confirm this by providing a report, in a form specified by the FSA:
(1) as part of the application for cancellation of permission, if the firm has ceased carrying on all regulated activities under its Part IV permission at the time of application (see SUP 6.4.9 G); or
(2) after the application but before its determination, if the firm has not ceased carrying on regulated activities under its Part IV permission at the time of application.

SUP 6.4.22

handbook-guidance
In deciding whether to cancel a firm's Part IV permission, the FSA will take into account all relevant factors in relation to business carried on under that permission, including whether:
(1) there are unresolved, unsatisfied or undischarged complaints against the firm from any of its customers;
(2) the firm has complied with CASS 4.3.99 R and CASS 5.5.80 R (Client money: discharge of fiduciary duty) and CASS 4.3.104 R (Client money: allocated but unclaimed client money) if it has ceased to hold client money; these rules apply to both repayment and transfer to a third party;
(3) the firm has ceased to hold or control custody assets in accordance with instructions received from clients (including instructions set out in an agreement entered into in accordance with CASS 2.3.2 R (Custody: client agreement));
(4) the firm has repaid all client deposits, if it is ceasing to carry on regulated activities including accepting deposits;
(5) the FSA or another regulator has commenced an investigation against the firm or continuing enforcement action against the firm;
(6) there are any matters affecting the firm which should be investigated before a decision on whether the firm should have its Part IV permission cancelled by the FSA or be disciplined;
(7) the firm has unsettled or unexpired liabilities to consumers, for example, outstanding contracts (such as deposits or insurance liabilities);
(8) the firm has settled all its debts to the FSA; and
(9) the factors set out in SUP 6.4.19 G apply.

The FSA's enforcement and investigation powers against a former authorised person

SUP 6.4.23

handbook-guidance
If the FSA has granted an application for cancellation of Part IV permission and withdrawn a firm's status as an authorised person (see SUP 6.5) it will retain certain investigative and enforcement powers in relation to the firm as a former authorised person. These include:
(1) information gathering and investigation powers in Part XI of the Act (Investigation gathering and investigations) (see ENF 2 (Information gathering and investigation powers));
(2) powers to apply to court for injunctions and restitution orders in Part XXV of the Act (Injunctions and restitution) (see ENF 6 (Injunctions) and ENF 9 (Restitution and redress));
(3) powers in Part XXIV of the Act (Insolvency) to petition for administration orders or winding up orders against companies or insolvent partnerships, or bankruptcy orders (or in Scotland sequestration awards) against individuals (see ENF 10 (Insolvency proceedings and orders against debt avoidance));
(4) powers in Part XXVII of the Act (Offences) to prosecute offences under the Act and other specified provisions (see ENF 15 (Prosecution of criminal offences)).

SUP 6.4.24

handbook-guidance
However, the FSA will not be able to use the following powers against former authorised persons:
(1) powers to take disciplinary action against firms by publishing statements of misconduct under section 205 of the Act (Public censure) or imposing financial penalties under section 206(1) of the Act (Financial penalties); and
(2) the power to require firms to make restitution under section 384 of the Act (Power of the FSA to require restitution).

SUP 6.4.25

handbook-guidance
Consequently, the FSA considers that it will have good reason not to grant a firm's application for cancellation of permission where:
(1) it proposes to exercise any of the powers described in SUP 6.4.24 G; or
(2) it has already begun disciplinary and restitution proceedings against the firm by exercising either or both of these powers against the firm.

SUP 6.4.26

handbook-guidance
The FSA's use of those powers is outlined in ENF 11 (Discipline of authorised firms and approved persons: The FSA's general approach).

How long will an application take?

SUP 6.4.27

handbook-guidance
(1) Under section 52(1)of the Act (Determination of applications), the FSA has six months to consider a completed application.
(2) If the FSA receives an application which is incomplete, that is, where information or a document required as part of the application is not provided, section 52(2) of the Act requires the FSA to determine the incomplete application within 12 months of the initial receipt of the application.
(3) Within these time limits, however, the length of the process will relate directly to the complexity of variation requested and whether the firm has fully wound down (run off) its activities at the time it applies. The FSA publishes standard response times on its website setting out how long the application process is expected to take in practice. From time to time, the FSA also publishes its performance against these times.

How will FSA make the decision?

SUP 6.4.28

handbook-guidance
A decision to grant an application for cancellation of permission will be taken by appropriately experienced FSA staff. Where, however, the FSA staff dealing with the application recommend that a firm's application for cancellation of Part IV permission be refused, the decision will be taken by the RDC.

SUP 6.4.29

handbook-guidance
See DEC for guidance on the FSA's decision making procedures, including the procedures it will follow if it proposes to refuse an application for cancellation of Part IV permission.

SUP 6.5

Ending authorisation

  • 01/12/2004

SUP 6.5.1

handbook-guidance
Under section 33(2) of the Act (Withdrawal of authorisation by the FSA), if the FSA cancels a firm's Part IV permission, and as a result there is no regulated activity for which the firm has permission, the FSA is required to give a direction withdrawing the firm's status as an authorised person.

SUP 6.5.2

handbook-guidance
If the FSA concludes that it should grant a firm's application for cancellation of permission and end its authorisation, the FSA will:
(1) cancel the firm's Part IV permission under section 44(2) of the Act;
(2) withdraw the firm's authorised status under section 33(2) of the Act by giving the firm a direction in writing; and
(3) update the firm's entry in the FSA register to show it has ceased to be authorised.
  • 21/06/2001

SUP 6 Annex 1

Applications for variation and cancellation of Part IV permission

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 6 Annex 2

Summary of procedures on application for variation of Part IV permission

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 6 Annex 3

Summary of procedures on application for cancellation of Part IV permission

  • 01/12/2004

SUP 6 Annex 3.

handbook-guidance
  • 21/06/2001

SUP 6 Annex 4

Additional guidance for a firm winding down (running off) its business

  • 01/12/2004

SUP 6 Annex 4.1

handbook-guidance

SUP 6 Annex 4.2

handbook-guidance

SUP 6 Annex 4.3

handbook-guidance

SUP 6 Annex 4.4

handbook-guidance

SUP 6 Annex 4.5

handbook-guidance

SUP 6 Annex 5

Variation of permission application form

  • 01/12/2004

handbook-directions
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - FSA/form_links.jsp#supAnc

SUP 6 Annex 6

Cancellation of permission application form

  • 01/12/2004

handbook-directions
This annex consists only of one or more forms. Forms are to be found through the following address:



Cancellation of permission application form - sup/cancellation_form.doc and sup/cancellation_mgi.pdf

Export chapter as

SUP 7

Individual requirements

SUP 7.1

Application and purpose

  • 01/12/2004

Application

SUP 7.1.1

handbook-guidance
This chapter applies to every firm which has a Part IV permission.
  • 21/06/2001

SUP 7.1.2

handbook-guidance
The application of this chapter to an incoming EEA firm, incoming Treaty firm or UCITS qualifier with a Part IV permission (a "top-up permission") is limited as explained in SUP 7.2.4 G.
  • 21/06/2001

Purpose

SUP 7.1.3

handbook-guidance
The Handbook primarily contains provisions which apply to all firms or to certain categories of firm. However, a firm may apply for a waiver or modification of rules in certain circumstances as set out in SUP 8; or it may receive individual guidance on the application of the rules, as set out in SUP 9.
  • 21/06/2001

SUP 7.1.4

handbook-guidance
The FSA , in the course of its supervision of a firm, may sometimes judge it necessary or desirable to impose additional requirements on a firm or in some way amend or restrict the activities which the firm has permission to undertake. The guidance in this chapter describes when and how the FSA will seek to do this.
  • 21/06/2001

SUP 7.1.5

handbook-guidance
By waiving or modifying the requirements of a rule or imposing an additional requirement or limitation, the FSA can ensure that the rules, and any other requirements or limitations imposed on a firm, take full account of the firm's individual circumstances, and so assist the FSA in meeting the regulatory objectives (for example, to protect consumers and maintain market confidence).

SUP 7.2

The FSA's powers to set individual requirements on its own initiative

  • 01/12/2004

SUP 7.2.1

handbook-guidance
The FSA has the power under section 45of the Act(Variation on the Authority's own initiative) to vary a firm's Part IV permission.This includes imposing a statutory requirement or limitation on that Part IV permission. (See AUTH 3.6 and AUTH 3.7 for a further explanation of potential limitations and requirements on a firm's permission.)

SUP 7.2.2

handbook-guidance
The circumstances in which the FSA may vary a firm's Part IV permission on its own initiative under section 45 of the Act include where it appears to the FSA that:
(1) one or more of the threshold conditions is or is likely to be no longer satisfied; or
(2) it is desirable to vary a firm's permission in order to protect the interests of consumers or potential consumers.

SUP 7.2.3

handbook-guidance
The FSA may also use its powers under section 45 for enforcement purposes. ENF 3 sets out in detail the FSA's powers under section 45 and the circumstances under which the FSA may vary a firm's permission in this way, whether for enforcement purposes or as part of its day to day supervision of firms. This chapter provides additional guidance on when the FSA will use these powers for supervision purposes.

SUP 7.2.4

handbook-guidance
The FSA may use its powers under section 45 of the Act only in respect of a Part IV permission ; that is, a permission granted to a firm under section 42 of the Act (Giving permission) or having effect as if so given. In respect of an incoming EEA firm, an incoming Treaty firm, or a UCITS qualifier, this power applies only in relation to any top-up permission that it has. There are similar but more limited powers under Part XIII of the Act in relation to the permission of an incoming EEA firm or incoming Treaty firm under Schedules 3 or 4 to the Act (see ENF 4 ).

SUP 7.2.5

handbook-guidance
If the FSA exercises its powers under section 45 of the Act, it will do so by issuing a supervisory notice. The procedure that will be followed is set out in DEC 3 and a flowchart is provided in DEC 3 Annex 2.

SUP 7.2.6

handbook-guidance
A firm has a right of referral to the Financial Services and Markets Tribunal (see DEC 5) in respect of the exercise by the FSA of its powers to vary, on its own initiative, the firm's Part IV permission.

SUP 7.3

Criteria for varying a firm's permission

  • 01/12/2004

SUP 7.3.1

handbook-guidance
The FSA expects to maintain a close working relationship with certain types of firm and expects that routine supervisory matters arising can be resolved during the normal course of this relationship by, for example, issuing individual guidance where appropriate (see SUP 9.3). However, the FSA may seek to vary a firm's Part IV permission:
(1) in circumstances where it considers it appropriate for the firm to be subject to a formal requirement, breach of which could attract enforcement action; or
(2) if a variation is needed to enable the firm to comply with the requirement, due to agreements the firm may have with third parties. (For example a firm may be under a contractual obligation to do something, but only if it can do so lawfully. In this case, if the FSA considers the firm must not do it, then the FSA would need to prevent it doing so through a variation in its Part IV permission to enable the firm to avoid breaching the contractual obligation.)
  • 21/06/2001

SUP 7.3.2

handbook-guidance

The FSA may seek to vary a firm's Part IV permission on its own initiative in certain situations including the following:

  1. (1) If the FSA determines that a firm's management, business or internal controls give rise to material risks that are not fully addressed by its rules, the FSA may seek to vary the firm's Part IV permission and impose an additional requirement or limitation on the firm.
  2. (2) If a firm becomes or is to become involved with new products or selling practices which present risks not adequately addressed by existing requirements, the FSA may seek to vary the firm's Part IV permission in respect of those risks.
  3. (3) If there has been a change in a firm's structure, controllers, activities or strategy which generate material uncertainty or create unusual or exceptional risks, then the FSA may seek to vary the firm's Part IV permission. (See also SUP 11.7.14 G to SUP 11.7.18 G for a description of the FSA's ability to vary a firm's Part IV permission on a change in control under section 46 of the Act.)
  4. (4) If a firm is a member of a financial conglomerate and the FSA is implementing supplementary supervision under the Financial Groups Directive with respect to that financial conglomerate by imposing obligations on the firm. Further material on this can be found in PRU 8.4 (Cross sector groups) and SUP 16.7.82 R to SUP 16.7.83 R (reporting requirements with respect to financial conglomerates).

SUP 7.3.3

handbook-guidance
The FSA may seek to impose requirementsor limitations which include but are not restricted to:
(1) requiring a firm to submit regular reports covering, for example, trading results, management accounts, customer complaints, connected party transactions;
(2) requiring a firm to maintain prudential limits, for example on large exposures, foreign currency exposures or liquidity gaps;
(3) requiring a firm to submit a business plan (or for an insurer, a scheme of operations (see SUP App 2 ));
(4) limiting the firm's activities;
(5) requiringa firm to maintain a particular amount or type of financial resources.
  • 21/06/2001

SUP 7.3.4

handbook-guidance
The FSA will seek to give a firm reasonable notice of an intent to vary its permission and to agree with the firm an appropriate timescale. However, if the FSA considers that a delay may be prejudicial to the interest of consumers, the FSA may need to act immediately using its powers under section 45 of the Actto vary a firm's Part IV permissionwith immediate effect.

Export chapter as

SUP 8

Waiver and modification of rules

SUP 8.1

Application and purpose

  • 01/12/2004

SUP 8.1.1

handbook-rule
This chapter applies to every:
(1) firm that wishes to apply for, consent to, or has been given a modification of or waiver of the FSA'srules;
(2) person, as respects a particular AUT or ICVC, who wishes to apply for, or consent to, or has been given a modification of or waiver of the rules in COLL or, as the case may be, CIS.

SUP 8.1.1A

handbook-guidance
This chapter is relevant to an applicant for a Part IV permission , as if that applicant were a firm. Where the chapter refers to usualsupervisory contact, the applicant should read this as being the usual contact inCorporate Authorisation.

SUP 8.1.2

handbook-guidance
A recognised body should see REC 3.3 for information on waivers of rules in REC under section 294 of the Act.
  • 21/06/2001

SUP 8.1.3

handbook-guidance
This chapter is not relevant to the functions of the UKLA, that is the FSA acting in its capacity as the competent authority for the purposes of Part VI of the Act (Official Listing).

Purpose

SUP 8.1.4

handbook-guidance
This chapter explains how the regime for the waiver or modificationof rules works.

SUP 8.2

Introduction

  • 01/12/2004

Waivers under section 148 of the Act

SUP 8.2.1

handbook-guidance
Under section 148of the Act (Modification or waiver of rules), the FSA may, on the application or with the consent of a firm, direct that certain rules (see SUP 8.2.6 G to SUP 8.2.8 G):
(1) are not to apply to the firm; or
(2) are to apply to the firm with such modifications as may be specified.

SUP 8.2.2

handbook-guidance
The directions referred to in SUP 8.2.1 G (1) and SUP 8.2.1 G (2) are collectively referred to in the Handbook as waivers.

Waivers of rules in CIS

SUP 8.2.3

handbook-guidance
Section 250 of the Act and regulation 7 of the OEIC Regulations allow the FSA to waive the application of certain rules in COLL and CIS to:
(1) a person, as respects a particular AUT or ICVC, on the application or with the consent of that person; and
(2) an AUT or ICVC on the application or with the consent of the manager and trustee (in the case of an AUT) or the ICVC and its depositary (in the case of an ICVC).

SUP 8.2.4

handbook-guidance
Those persons to whom section 250 and regulation 7 of the OEIC Regulations are relevant, but who are not firms, should follow SUP 8 as if they were firms.
  • 21/06/2001

SUP 8.2.5

handbook-guidance
Section 250 of the Act and regulation 7 of the OEIC Regulations work by giving effect to section 148of the Act in respect of waivers given under section 250(2) and (3) and regulation 7(1) and (2) of the OEIC Regulations.
  • 21/06/2001

Rules which can be waived

SUP 8.2.6

handbook-guidance
The rules which the FSA can waive are listed in section 148(1) and 250(1) of the Act and regulation 7 of the OEIC Regulations, and are set out in SUP 8.2.7 G.
  • 21/06/2001

SUP 8.2.7

handbook-guidance

Rules which can be waived (see SUP 8.2.6 G)

SUP 8.2.8

handbook-guidance
Schedule 6 identifies those rules that can and cannot be waived.
  • 21/06/2001

SUP 8.3

Applying for a waiver

  • 01/12/2004

Conditions for giving a waiver

SUP 8.3.1

handbook-guidance
Under section 148(4) of the Act, the FSA may not give a waiver unless it is satisfied that:
(1) compliance by the firm with the rules, or with the rules as unmodified, would be unduly burdensome, or would not achieve the purpose for which the rules were made; and
(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.

SUP 8.3.1A

handbook-guidance
Even if the conditions in section 148(4) of the Act are satisfied, the FSA will consider other relevant factors before giving a waiver, such as whether the waiver would be compatible with European law, including relevant EC Directives.

Publication of waivers

SUP 8.3.2

handbook-guidance
The FSA is required by section 148(6) of the Act to publish a waiver unless it is satisfied that it is inappropriate or unnecessary to do so (see SUP 8.6).

Form and method of application

SUP 8.3.3

handbook-directions
If a firm wishes to apply for a waiver, it must complete and submit the form in SUP 8 Annex 2 (Application form for a waiver or modification). The application must be given or addressed, and delivered, in the way set out in SUP 15.7.4 R to SUP 15.7.9 G (Form and method of notification).
(1) [Deleted]
(2) [Deleted]
(3) [Deleted]
(4) [Deleted]
(5) [Deleted]
(6) [Deleted]
(7) [Deleted]
(a) [Deleted]
(b) [Deleted]

SUP 8.3.3A

handbook-guidance
(1) The FSA's preferred method of submission for waiver applications is by e-mail or by online submission at www.fsa.gov.uk.
(2) The form is available on the FSA's website (see FSA/docs/sup/w_form.doc).

SUP 8.3.4

handbook-guidance
Before sending in a waiver application, a firm may find it helpful to discuss the application with its usual supervisory contact at the FSA. However, the firm should still ensure that all relevant information is included in the application.

Procedure on receipt of an application

SUP 8.3.5

handbook-guidance
The FSA will acknowledge an application promptly and if necessary will seek further information from the firm. The time taken to determine an application will depend on the issues it raises. However, the FSA will aim to give waiver decisions within 20 business days of receiving an application which includes sufficient information. If the FSA expects to take longer, it will tell the firm and give an estimated decision date.A firm should make it clear in the application if it needs a decision within a specific time.
  • 21/06/2001

SUP 8.3.5A

handbook-guidance
The FSA will treat a firm's application for a waiver as withdrawn if it does not hear from the firm within 20 business days of sending a communication which requests or requires a response from the firm. The FSA will not do this if the firm has made it clear to the FSA in some other way that it intends to pursue the application.

SUP 8.3.6

handbook-guidance
In some cases, the FSA may give a modification of a rule rather than direct that the rule is not to apply. The FSA may also impose conditions on a waiver, for example additional reporting requirements. A waiver may be given for a specified period of time only, after which time it will cease to apply. A firm wishing to extend the duration of a waiver should follow the procedure in SUP 8.3.3 D. A waiver will not apply retrospectively.

SUP 8.3.7

handbook-guidance
If the FSA decides not to give a waiver, it will give reasons for the decision.

SUP 8.3.8

handbook-guidance
A firm may withdraw its application at any time up to the giving of the waiver. In doing so, a firm should give the FSA its reasons for withdrawing the application.

SUP 8.3.9

handbook-guidance
If the FSA believes that a particular waiver given to a firm may have relevance to other firms, it may publish general details about the possible availability of the waiver. For example, IPRU(INV) 3-80(10)G explains that a firm that wishes to use its own internal model to calculate its position risk requirement (PRR) will need to apply for a waiver of the relevant rules.

Giving a waiver with consent rather than on an application

SUP 8.3.10

handbook-guidance
Under section 148(2) of the Act the FSA may give a waiver with the consent of a firm. This power may be used by the FSA in exceptional circumstances where the FSA considers that a waiver should apply to a number of firms (for example, where a rule unmodified may not meet the particular circumstances of a particular category of firm). In such cases the FSA will inform the firms concerned that the waiver is available, either by contacting firms individually or by publishing details of the availability of the waiver on the FSA's website The firms concerned will not have to make a formal application but will have to give their written consent for the waiver to apply.

Waiver of an evidential provision

SUP 8.3.11

handbook-guidance
An application for a waiver of an evidential provision will normally be granted only if a breach of the underlying binding rule is actionable under section 150 of the Act. Individual guidance would normally be a more appropriate response (see SUP 9 (Individual Guidance)) if there is no right of action.

SUP 8.3.12

handbook-guidance
An application for a waiver of the presumption of compliance created by an evidential provision would not normally be granted.

SUP 8.3.13

handbook-guidance
For an application for a waiver of the presumption of contravention of a binding rule, which is actionable under section 150 of the Act, the FSA would normally wish to be satisfied that the evidential rule is itself unduly burdensome or does not achieve the purpose of the rule.

Waiver of a two-way evidential provision

SUP 8.3.14

handbook-guidance
In the case of an application for a waiver of a two-way evidential provision relating to an actionable binding rule, the policy in SUP 8.3.12 G would apply to the presumption of compliance and the policy in SUP 8.3.13 G would apply to the presumption of contravention. In other words, any modification is likely to be in relation to the second presumption only.

SUP 8.4

Reliance on waivers

  • 01/12/2004

Application of waived rules

SUP 8.4.1

handbook-guidance
If the FSA gives a firm a waiver, then the relevant rule no longer applies to the firm. But:
(1) if a waiver directs that a rule is to apply to a firm with modifications, then contravention of the modified rule could lead to FSA enforcement action and (if applicable) a right of action under section 150 of the Act (Actions for damages); and
(2) if a waiver is given subject to a condition, it will not apply to activities conducted in breach of the condition, and those activities, if in breach of the original rule, could lead to FSA enforcement action or such a right of action.

The effect of rule changes on waivers

SUP 8.4.2

handbook-guidance
Substantive changes to the rules (this would not include simple editorial changes) in the Handbook may affect existing waivers, changing their practical effect and creating a need for a change to the original waiver. The FSA will consult on proposed rule changes. A firm should note proposed rule changes and discuss the impact on a waiver with its usual supervisory contact at the FSA.

SUP 8.5

Notification of altered circumstances relating to waivers

  • 01/12/2004

SUP 8.5.1

handbook-rule
A firm which has applied for or has been granted a waiver must notify the FSA immediately if it becomes aware of any matter which could affect the continuing relevance or appropriateness of the application or the waiver.

SUP 8.5.2

handbook-guidance
Firms are also referred to SUP 15.6 (Inaccurate, false or misleading information). This requires, in SUP 15.6.4 R, a firm to notify the FSA if false, misleading, incomplete or inaccurate information has been provided. This would apply in relation to information provided in an application for a waiver.

SUP 8.6

Publication of waivers

  • 01/12/2004

Requirement to publish

SUP 8.6.1

handbook-guidance
The FSA is required by section 148(6) of the Act to publish a waiver unless it is satisfied that it is inappropriate or unnecessary to do so. If the FSA publishes a waiver, it will not publish details of why a waiver was required or any of the supporting information given in a waiver application.

Matters for consideration

SUP 8.6.2

handbook-guidance
When considering whether it is satisfied under section 148(6), the FSA is required by section 148(7) of the Act:
(1) to take into account whether the waiver relates to a rule contravention of which is actionable under section 150 of the Act (Actions for damages); Schedule 5 identifies such rules;
(2) to consider whether its publication would prejudice, to an unreasonable degree, the commercial interests of the firm concerned, or any other member of its immediate group; and
(3) to consider whether its publication would be contrary to an international obligation of the United Kingdom (for example, the confidentiality obligations in the Single Market Directives)

SUP 8.6.3

handbook-guidance
Waivers can affect the legal rights of third parties, including consumers. In the FSA's view it is important that the fact and effect of such waivers should be transparent. So the fact that a waiver relates to a rule that is actionable under section 150 of the Act (see SUP 8.6.2 G (1)) will tend to argue in favour of publication.

SUP 8.6.4

handbook-guidance
In making waiver applications under section 250 of the Act or regulation 7 of the OEIC Regulations, SUP 8.6.2 G (2) should be read in application to rules in COLL or CIS as if the word "commercial" were omitted.

SUP 8.6.5

handbook-guidance
In considering whether commercial interests would be prejudiced to an unreasonable degree (see SUP 8.6.2 G (2)), the FSA will weigh the prejudice to firms' commercial interests against the interests of consumers, markets and other third parties in disclosure. In doing so the FSA will consider factors such as the extent to which publication of the waiver would involve the premature release of proprietary information to commercial rivals, for example relating to a product innovation, or reveal information which could reasonably be regarded as the firm's own intellectual property. In line with section 148(8) of the Act, the FSA will also consider whether prejudice to a firm's commercial interests could be avoided or mitigated by publication of the waiver without disclosing the identity of the firm.

SUP 8.6.6

handbook-guidance
The FSA may consider publication unnecessary where, for example, the waiver relates to a minor matter that does not affect any third party and is unlikely to be of relevance or interest to other firms.

Firm's objection to publication

SUP 8.6.7

handbook-guidance
If, after taking into account the matters in SUP 8.3.3 D to SUP 8.6.6 G, a firm believes there are good grounds for the FSA either to withhold publication or to publish the waiver without disclosing the identity of the firm, it should make this clear in its application (see SUP 8.3.3 D (7)). If the FSA proposes to publish a waiver against the wishes of the firm, the FSA will give the firm the opportunity to withdraw its application before the waiver is given.

Withholding publication for a limited period

SUP 8.6.8

handbook-guidance
A decision to withhold a waiver or identity of a firm from publication may be for a limited period only, usually as long as the duration of the relevant grounds for non-publication. If the FSA proposes to publish information about a waiver that had previously been withheld, it will first give the firm an opportunity to make representations.

Means of publication

SUP 8.6.9

handbook-guidance
The principal means of publication of waiver information will be the FSA's website (www.fsa.gov.uk).

SUP 8.7

Varying waivers

  • 01/12/2004

SUP 8.7.1

handbook-guidance
Once the FSA has given a waiver, it may vary it with the firm's consent, or on the firm's application. If a firm wishes the FSA to vary a waiver, it should follow the procedures in SUP 8.3.3 D, giving reasons for the application. In a case where a waiver has been given to a number of firms (see SUP 8.3.10 G), if the FSA wishes to vary such waivers with the consent of those firms, it will follow the procedures in SUP 8.3.10 G.

SUP 8.7.2

handbook-guidance
If the waiver that has been varied has previously been published, the FSA will publish the variation unless it is satisfied that it is inappropriate or unnecessary to do so, having regard to any representation made by the firm.

SUP 8.8

Revoking waivers

  • 01/12/2004

SUP 8.8.1

handbook-guidance
The FSA may revoke a waiver at any time. In deciding whether to revoke a waiver, the FSA will consider whether the conditions in section 148(4) of the Act are no longer satisfied (see SUP 8.3.1 G), and whether the waiver is otherwise no longer appropriate. The FSA may revoke a waiver with immediate effect, if it considers that this is necessary, for example, in order to prevent undue risk to consumers.

SUP 8.8.2

handbook-guidance
If the FSA proposes to revoke a waiver, or revokes a waiver with immediate effect, it will:
(1) give the firm written notice either of its proposal, or of its action, giving reasons;
(2) state in the notice a reasonable period (usually 28 days) within which the firm can make representations about the proposal or action; if a firm wants to make oral representations, it should inform the FSA as quickly as possible , specify who will make the representations and which matters will be covered; the FSA will inform the firm of the time and place for hearing the representations and may request a written summary;
(3) after considering any representations, in the case of a proposed revocation, give the firm written confirmation of its decision to revoke the waiver or not; or, in the case of a revocation that has already taken effect, either confirm the revocation or seek the firm's consent to a new waiver.

SUP 8.8.3

handbook-guidance
If the waiver that has been revoked has previously been published, the FSA will publish the revocation unless it is satisfied that it is inappropriate or unnecessary to do so, having regard to any representations made by the firm.

SUP 8.9

Decision making

  • 01/12/2004

SUP 8.9.1

handbook-guidance
The waivers regime is overseen by a staff committee. Its responsibility is to ensure that the giving of waivers is in accordance with the requirements of the Act, of the guidance in SUP 8 and of other relevant guidance. Decisions on individual applications are made under arrangements designed to result in rapid, responsive and well-informed decision making. The arrangements include arrangements for collective decision making to set general policies, and, as necessary, determine cases for applications with substantially common characteristics (for example, waivers in relation to the same rule or related rules or by firms in a similar position). It also includes arrangements for decision making by individuals within established precedents and policies.

SUP 8.9.2

handbook-guidance
If the FSA , in the course of carrying on supplementary supervision of a financial conglomerate, is considering exercising its powers under section 148 of the Act (Modification or waiver of rules), regulation 4 of the Financial Groups Directive Regulations contains special provisions. The FSA must, in broad terms, do two things. Where required by those regulations, it must obtain the consent of the relevant competent authorities of the group. And, where required by those Regulations, it must consult those competent authorities.

SUP 8 Annex 1

SUP 8: Waiver and modification of rules

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 8 Annex 2

Application form for a waiver or modification of rules

  • 01/12/2004

handbook-directions
This annex consists only of one or more forms. Forms are to be found through the following address:



Waiver Application form - Forms/sup/w_form.doc

Export chapter as

SUP 9

Individual guidance

SUP 9.1

Application and purpose

  • 01/12/2004

Application

SUP 9.1.1

handbook-guidance
(1) This chapter applies to every firm and to persons generally
(2) SUP 9.3 (Giving individual guidance to a firm on the FSA's own initiative) is, however, only relevant to a firm.
(3) This chapter does not apply in relation to guidance requested from, or given by, the UKLA, that is the FSA acting in its capacity as the competent authority for the purposes of Part VI of the Act (Official Listing).

Purpose

SUP 9.1.2

handbook-guidance
Individual guidance is guidance that is not given to persons or regulated persons generally or to a class of regulated person. It will normally be given to one particular person, which relates to its own particular circumstances or plans. It may be oral or written. Individual guidance will not be published but may at the FSA's discretion be converted to general guidance and published in the Handbook. Written individual guidance will often be labelled as such
  • 15/11/2001

SUP 9.1.3

handbook-guidance
A person may need to ask the FSA for individual guidance on how the rules and general guidance in the Handbook, the Act or other regulatory requirements apply in their particular circumstances. This chapter describes how a person may do this. Section 157 of the Act gives the FSA the power to give guidance consisting of such information and advice as it considers appropriate.
  • 21/06/2001

SUP 9.1.4

handbook-guidance
The FSA may at times also consider it appropriate to give a firm individual guidance on its own initiative, for example on how it considers a firm should comply with a rule. SUP 9.3 describes when and how the FSA will seek to do this.
  • 21/06/2001

SUP 9.2

Making a request for individual guidance

  • 01/12/2004

How to make a request

SUP 9.2.1

handbook-guidance
Requests for individual guidance may be made in writing or orally. If oral queries raise complex or significant issues, the FSA will normally expect the details of the request to be confirmed in writing. Simple requests for guidance may often be dealt with orally, although it is open to a person to seek a written confirmation from the FSA of oral guidance given by the FSA .

Who to address a request to

SUP 9.2.2

handbook-guidance
A firm and its professional advisers should address requests for individual guidance to the firm's usual supervisory contact at the FSA , with the exception of requests for guidance on the Code of Market Conduct (MAR 1) which should be addressed to the specialist team within the Markets and ExchangesDivision. A firm may wish to discuss a request for guidance with the relevant contact before making a written request.
  • 21/06/2001

SUP 9.2.3

handbook-guidance
A person who is not a firm should address his request for individual guidance to the appropriate department within the FSA . A person who is unsure of where to address his request may address his enquiry to the FSA , making clear the nature of the request.
  • 21/06/2001

Discussions on a no-names basis

SUP 9.2.4

handbook-guidance
The FSA does not expect to enter into discussions on a 'no-name' basis about the affairs of an individual person.

The FSA's response to a reasonable request

SUP 9.2.5

handbook-guidance
The FSA will aim to respond quickly and fully to reasonable requests. The FSA will give high priority to enquiries about areas of genuine uncertainty or about difficulties in relating established requirements to innovative practices or products. What constitutes a 'reasonable request' is a matter for the FSA . It will depend on the nature of the request and on the resources of the firm or other person making it. The FSA will expect the person to have taken reasonable steps to research and analyse a topic before approaching the FSA for individual guidance. The FSA should not be viewed as a first port of call for guidance, except where it is only the FSA that can give the guidance, for example in confirming non-standard reports that it wishes to receive from a firm.
  • 21/06/2001

Information required by the FSA

SUP 9.2.6

handbook-guidance
The FSA will always need sufficient information and time before it can properly evaluate the situation and respond to a request. If a request is time-critical, the person or its professional adviser should make this clear. The more notice a person can give the FSA , the more likely it is that the FSA will be able to meet the person's timetable. However, the time taken to respond will necessarily depend upon the complexity and novelty of the issues involved. In making a request, a person should identify the rule, general guidance, or other matter on which individual guidance is sought, and provide a description of the circumstances relating to the request. The FSA may request further information if it considers that it does not have sufficient information.
  • 21/06/2001

SUP 9.3

Giving individual guidance to a firm on the FSA's own initiative

  • 01/12/2004

SUP 9.3.1

handbook-guidance
Business and internal control risks vary from firm to firm, according to the nature and complexity of the business. The FSA's assessment of these risks is reflected in how its rules apply to different categories of firm as well as in the use of its other regulatory tools. One of the tools the FSA has available is to give a firm individual guidance on the application of the requirements or standards under the regulatory system in the firm's particular circumstances.
  • 21/06/2001

SUP 9.3.2

handbook-guidance

The FSA may give individual guidance to a firm on its own initiative if it considers it appropriate to do so. For example:

  1. (1) the FSA may consider that general guidance in the Handbook does not appropriately fit a firm's particular circumstances (which may be permanent or temporary) and therefore decide to give additional individual guidance to the firm;
  2. (2) some of the FSA's requirements are expressed in general terms; however, there may be times when the FSA will wish to respond to a firm's particular circumstances by giving individual guidance on the application of the general requirement in these circumstances;
  3. (3) the FSA may consider that a firm should be given more detailed guidance than that contained in the Handbook; for example, where a firm holds positions in instruments of a non-standard form it may be appropriate to give the firm additional or more detailed guidance on how the FSA considers that it should calculate its financial resources requirement;
  4. (4) in some instances a rule allows a firm to select which requirement, within a range of alternative requirements, a firm should comply with; in many instances, the Handbook gives guidance setting out the circumstances in which compliance with a particular requirement is appropriate; the FSA may sometimes consider it necessary to give additional individual guidance to tell a firm which requirement it considers appropriate;
  5. (5) in relation to the maintenance of adequate financial resources, the FSA may give a firm individual guidance on the amount or type of financial resources the FSA considers appropriate, for example on individual capital ratios for banks and building societies; further guidance on how and when the FSA may give individual guidance on financial resources is contained in the Interim Prudential sourcebooks and in PRU:
    1. (a) for a bank: IPRU(BANK) CO4;
    2. (b) for a building society: IPRU(BSOC) 1.5 and IPRU(BSOC) Ann 1J;
    3. (c) for a securities and futures firm (or other firm required to comply with IPRU(INV) 3 or IPRU(INV) 10): IPRU(INV)10-74Rand IPRU(INV) App 48; and
    4. (d) for an insurer: PRU 2.3.13 G and PRU 2.3.14 G

SUP 9.3.3

handbook-guidance
If the FSA intends to give a firm individual guidance on its own initiative, it will normally seek to discuss the issue with the firm and agree suitable individual guidance.
  • 21/06/2001

SUP 9.3.4

handbook-guidance
Individual guidance given to a firm on the FSA's own initiative will normally be given in writing.
  • 21/06/2001

SUP 9.4

Reliance on individual guidance

  • 01/12/2004

Reliance by recipient of individual guidance

SUP 9.4.1

handbook-guidance
If a person acts in accordance with current individual written guidance given to him by the FSA in the circumstances contemplated by that guidance, then the FSA will proceed on the footing that the person has complied with the aspects of the rule or other requirement to which the guidance relates.
  • 21/06/2001

SUP 9.4.2

handbook-guidance
The extent to which a person can rely on individual guidance given to him will depend on many factors. These could include, for example, the degree of formality of the original query and the guidance given, and whether all relevant information was submitted with the request. Individual guidance is usually given in relation to a set of particular circumstances which exist when the guidance is given. If the circumstances later change, for example, because of a change in the circumstances of the person or a change in the underlying rule or other requirement, and the premises upon which individual guidance was given no longer apply, the guidance will cease to be effective.
  • 21/06/2001

SUP 9.4.3

handbook-guidance
If the circumstances relating to individual guidance change it will be open to a person to ask for further guidance.
  • 21/06/2001

Effect on rights of third parties

SUP 9.4.4

handbook-guidance
Rights conferred on third parties (such as a firm'sclients) cannot be affected by guidance given by the FSA . Guidance on rules, the Act or other legislation represents the FSA's view, and does not bind the courts, for example in relation to an action for damages brought by a private person for breach of a rule (section 150 of the Act (Actions for damages)) or in relation to enforceability of a contract if the general prohibition is breached (sections 26 and 27 of the Act (Enforceability of agreements)). A person may need to seek his own legal advice.
  • 21/06/2001

Export chapter as

SUP 10

Approved
persons

SUP 10.1

Application

  • 01/12/2004

General

SUP 10.1.1

handbook-rule
This chapter applies to every firm.
  • 21/06/2001

SUP 10.1.2

handbook-guidance
This chapter is also relevant to every approved person.
  • 21/06/2001

SUP 10.1.3

handbook-guidance
The rules in this chapter specify descriptions of functions under section 59 of the Act (Approval for particular arrangements). The effect of these rules, and the provisions of Part V of the Act (Performance of Regulated Activities), is that every firm, except an overseas firm to which SUP 10.1.6 R applies, must apply to the FSA for the approval of one or more persons to perform a controlled function on its behalf.

SUP 10.1.4

handbook-guidance
The directions in this chapter relate to the manner in which a firm must apply for the FSA's approval under section 59 of the Act and other procedures.
  • 21/06/2001

SUP 10.1.5

handbook-guidance
  • 21/06/2001

Overseas firms: UK services

SUP 10.1.6

handbook-rule
This chapter does not apply to an overseas firm in relation to regulated activities which are carried on in the United Kingdom other than from an establishment maintained by it or its appointed representative in the United Kingdom.
  • 21/06/2001

Overseas firms: UK establishments

SUP 10.1.7

handbook-rule
Only the following controlled functions apply to an overseas firm which maintains an establishment in the United Kingdom from which regulated activities are carried on:
(1) the chief executive function;
(2) the required functions;
(3) the significant management (designated investment business) function;
(4) the significant management (settlements) function in so far as the activities relate to designated investment business; and
(5) the customer functions .

SUP 10.1.8

handbook-guidance
  • 21/06/2001

Incoming EEA firms, incoming Treaty firms and UCITS qualifiers

SUP 10.1.9

handbook-rule
This chapter does not apply to:
(1) an incoming EEA firm; or
(2) an incoming Treaty firm; or
(3) a UCITS qualifier;
if and in so far as the question of whether a person is fit and proper to perform a particular function in relation to that firm is reserved, under any of the Single Market Directives, the Treaty or the UCITS Directive to an authority in a country or territory outside the United Kingdom.

SUP 10.1.10

handbook-guidance
SUP 10.1.9 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 FSA under the Act.
  • 21/06/2001

SUP 10.1.11

handbook-guidance
But an incoming EEA firm, or incoming Treaty firm, will have had to consider the impact of the Host State rules with which it is required to comply when carrying on a passported activity or Treaty activity through a branch in the United Kingdom. An incoming EEA firm will have been notified of those provisions under Part II of Schedule 3 to the Act in the course of satisfying the conditions for authorisation in the United Kingdom.

SUP 10.1.12

handbook-guidance
An incoming EEA firm will have to consider, for example, the position of a branch manager based in the United Kingdom who may also be performing a function in relation to the carrying on of a regulated activity not covered by the EEA right of the firm. In so far as the function is within the description of a controlled function, the firm will need to seek approval for that person to perform that controlled function.
  • 21/06/2001

Incoming EEA firms: passported activities from a branch

SUP 10.1.13

handbook-rule

Incoming EEA firms etc with top-up permission activities from a UK branch

SUP 10.1.14

handbook-rule
In relation to the activities of a firm for which it has a top-up permission, only the following controlled functions apply:
(1) the required functions, other than the apportionment and oversight function;
(2) the significant management (designated investment business) function;
(3) the significant management (settlements) function in so far as the activities relate to designated investment business; and
(4) the customer functions.

SUP 10.1.15

handbook-guidance
An incoming EEA firm may require a Part IV permission in respect, for example, of its commodities business. The list of controlled functions which apply mirror those which apply to overseas firms, without the chief executive function. In the case of a firm with top-up permission, the FSA anticipates that the equivalent responsibility of the chief executive for the relevant business would be assumed by the person performing the EEA investment business oversight function.

Appointed representatives

SUP 10.1.16

handbook-rule
The descriptions of the following functionsapply to an appointed representative of a firm, except an introducer appointed representative, as they apply to a firm:
(1) the governing functions, subject to SUP 10.1.16A R; and
(2) the customer functions other than the investment management function.

SUP 10.1.16A

handbook-rule
(1) SUP 10.1.16 R is modified in relation to an appointed representative meeting the conditions in (2) so that only one of the following governing functions:
(a) director function; or
(b) chief executive function; or
(c) partner function; or
(d) director of unincorporated association function;


applies, as appropriate, to an individual within that appointed representative who will be required to be an approved person.
(2) The conditions are that:
(a) the scope of appointment of the appointed representative includes insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity, and
(b) the principal purpose of the appointed representative is to carry on activities other than regulated activities.
  • 21/06/2001

SUP 10.1.17

handbook-guidance
(1) The effect of SUP 10.1.16 R is that the directors (or their equivalent) and senior managers (or their equivalent) of an appointed representative must also be approved under section 59 of the Act for the performance of certain controlled functions.
(2) SUP 10.1.16 R has a limited application to an appointed representative appointed by a firm to carry on insurance mediation activity or mortgage mediation activity . The description of the customer functions do not apply to such an appointed representative as these functions do not apply to a firm carrying on these regulated activities.
(3) The effect of SUP 10.1.16A R is that only one director (or equivalent) of an appointed representative to which that rule applies must be approved under section 59 of the Act for the performance of a governing function.

Members of a profession

SUP 10.1.18

handbook-rule
This chapter, except in respect of the required functions, does not apply to an authorised professional firm in respect of its non-mainstream regulated activities.

SUP 10.1.19

handbook-guidance
SUP 10.1.18 R is relevant to the person, such as a partner in a professional firm, whose only regulated activities are incidental to his professional services, and where the principal purpose of the firm is to carry on activities which are not regulated activities. Any regulated activities which that person carries on are not within the description of a controlled function (except with respect to the required functions).
  • 21/06/2001

SUP 10.1.20

handbook-guidance
For further guidance on the supervision and regulation of activities carried on by a member of a designated professional body, see PROF 5.
  • 21/06/2001

Oil market participants, service companies, energy market participants, subsidiaries of local authorities or registered social landlords and insurance intermediaries.

SUP 10.1.21

handbook-rule
The descriptions of significant influence functions, other than the required functions, do not extend to activities carried on by a firm whose principal purpose is to carry on activities other than regulated activities and which is:
(1) an oil market participant; or
(2) a service company; or
(3) an energy market participant; or
(4) a wholly owned subsidiary of:
(a) a local authority; or
(b) a registered social landlord; or
(5) a firm with permission to carry on insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity.

SUP 10.1.22

handbook-guidance
It will be a matter of fact in each case whether, having regard to all the circumstances, including in particular where the balance of the business lies, a firm's principal purpose is to carry on activities other than regulated activities. If a firm wishes to rely on SUP 10.1.21 R, it should be in a position to demonstrate that its principal purpose is to carry on activities other than regulated activities.
  • 20/09/2001

Committees of the Society of Lloyd's

SUP 10.1.23

handbook-rule
(1) For the purpose of SUP 10.6.4 R (the director function), "director" includes an executive member of a committee to which the Council of the Society of Lloyd's directly delegates authority to carry out the Society's regulatory functions.
(2) For the purpose of SUP 10.6.8 R (the non-executive director function), "non-executive director" includes a non-executive member of a committee to which the Council of the Society of Lloyd's directly delegates authority to carry out the Society's regulatory functions.
  • 21/06/2001

SUP 10.1.24

handbook-guidance
The effect of SUP 10.6.4 R is that the function of an executive member of the Council of the Society of Lloyd's comes within the description of the director function. SUP 10.1.23R (1) provides that the function of an executive member of certain committees of the Society of Lloyd's with regulatory functions also comes within the description of the director function. SUP 10.6.8 R and SUP 10.1.23R (2) are the equivalent provisions for the non-executive member of certain committees of the Society of Lloyd's with regulatory functions.
  • 21/06/2001

SUP 10.1.25

handbook-guidance
  • 21/06/2001

Insolvency practitioners

SUP 10.1.26

handbook-rule
This chapter does not apply to a function performed by:
(1) a person acting as an insolvency practitioner within the meaning of section 388 of the Insolvency Act 1986; or
(2) a person acting as a nominee in relation to a voluntary arrangement under Parts I (Company Voluntary Arrangements) and VIII (Individual Voluntary Arrangements) of the Insolvency Act 1986; or
(3) a person acting as an insolvency practitioner within the meaning of Article 3 of the Insolvency (Northern Ireland) Order 1989; or
(4) a person acting as a nominee in relation to a voluntary arrangement under Parts II (Company Voluntary Arrangements) and VIII (Individual Voluntary Arrangements) of the Insolvency (Northern Ireland) Order 1989.
  • 21/06/2001

SUP 10.2

Purpose

  • 01/12/2004

SUP 10.2.1

handbook-guidance
The immediate purpose of SUP 10.3 to SUP 10.10 is to specify, under section 59 of the Act, descriptions of the 27 controlled functions which are listed in SUP 10.4.5 R. The underlying purpose is to establish, and mark the boundaries of, the "approved persons regime". An approved person is a person, generally an individual, who is approved to perform a controlled function.

SUP 10.2.2

handbook-guidance
The controlled functions which have been specified in this chapter are those functions which the FSA sees as key to the operation of the provisions of Part V of the Act (Performance of Regulated Activities) and the provisions made under Part V. Those provisions include:
(1) the Statements of Principle and Code of Practice for Approved Persons issued under section 64 of the Act (see APER); and
(2) the fit and proper test referred to in section 61 of the Act (see FIT).
  • 21/06/2001

SUP 10.2.3

handbook-guidance
The purpose of the direct regulation of an individual (and in some cases a body corporate) is to complement the regulation of the authorised person, that is the firm for which the approved person performs the function.
  • 21/06/2001

SUP 10.2.4

handbook-guidance
SUP 10.11 to SUP 10.14 set out the procedures for applying for approval, changing the details held by the FSA concerning an approved person, and withdrawing from approval.
  • 21/06/2001

SUP 10.3

Provisions related to the act

  • 01/12/2004

Arrangements and regulated activities

SUP 10.3.1

handbook-rule
A function is a controlled function only to the extent that it is performed under an arrangement entered into by:
(1) a firm; or
(2) a contractor of the firm;
in relation to the carrying on by the firm of a regulated activity.
  • 21/06/2001

SUP 10.3.2

handbook-guidance
Sections 59(1) and (2) of the Act provide that approval is necessary in respect of a 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.
  • 21/06/2001

SUP 10.3.3

handbook-guidance
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, his becoming a partner, or his employment (whether under a contract of service or otherwise). For the provisions in this chapter relating to outsourcing, see SUP 10.12.3 G and SUP 10.12.4 G.
  • 01/12/2002

SUP 10.3.4

handbook-guidance
If, however, a firm is a member of a group, and the arrangements for the performance of a controlled function of the firm are made by, say, the holding company, the person performing the function will only require approval if there is an arrangement (under section 59(1)) or a contract (under section 59(2)) between the firm and holding company permitting this. This need not be a written contract but could arise, for example, by conduct, custom and practice.
  • 21/06/2001

SUP 10.3.5

handbook-guidance
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.
  • 21/06/2001

SUP 10.4

Specification of functions

  • 01/12/2004

SUP 10.4.1

handbook-rule
Each of the functions described in SUP 10.4.5 R (the table of controlled functions) is a controlled function.
  • 01/12/2002

SUP 10.4.2

handbook-guidance
SUP 10.4.1 R, together with the table of controlled functions in SUP 10.4.5 R, specifies, in brief terms, the descriptions of the controlled functions. Other rules in this chapter contain the detail of the description for each function. Further rules in this chapter contain provisions which will apply to each description as indicated in those rules: see in particular SUP 10.1 for the application provisions.
  • 01/12/2002

SUP 10.4.3

handbook-guidance
The fact that a person may be approved for one purpose does not have the effect of bringing all his activities within that controlled function.
  • 01/12/2002

SUP 10.4.4

handbook-guidance
Certain controlled functions expressly include other controlled functions: see SUP 10.6.2 R in relation to governing functions; SUP 10.10.7 R in relation to the investment adviser function; and SUP 10.10.20 R in relation to the investment management function. In view of broad descriptions of the significant management functions (CF16 to CF20), these are expressed so as not to include other controlled functions.
  • 21/06/2001

SUP 10.4.5

handbook-rule

Controlled functions

SUP 10.5

Significant influence functions

  • 01/12/2004

What are the significant influence functions?

SUP 10.5.1

handbook-guidance

The first condition

SUP 10.5.2

handbook-rule
Each significant influence function is one which is likely to result in the person responsible for its performance exercising a significant influence on the conduct of a firm's affairs, so far as relating to a regulated activity of the firm.
  • 21/06/2001

SUP 10.5.3

handbook-guidance
SUP 10.5.2 R gives effect to section 59(5) of the Act (where this provision is referred to as the first condition).
  • 21/06/2001

SUP 10.5.4

handbook-guidance
Whether a functionis likely to result in the person responsible for its performance exercising significant influence on the conduct of the firm's affairs is a question of fact in each case. The FSA has identified the significant influence functions as satisfying this condition. What amounts to exercising significant influence in any particular case will depend on the circumstances. The person performing one of these functions is likely to play a part in ensuring that effective governance structures, systems and controls are developed and operated. In relation to a firm as a whole, this is expected to include setting the business strategy, regulatory climate and ethical standards of the firm. In relation to a branch, this will include ensuring that the firm's strategy (as it affects the branch) is appropriate in the context of the UK regulatory system, and setting the regulatory climate and ethical standards of the branch in the United Kingdom.

Periods of less than 12 weeks

SUP 10.5.5

handbook-rule
If:
(1) a firm appoints an individual to perform a function which, but for this rule, would be a significant influence function;
(2) the appointment is to provide cover for an approved person whose absence is:
(a) temporary; or
(b) reasonably unforeseen; and
(3) the appointment is for less than 12 weeks in a consecutive 12 month period;
the description of the relevant significant influence function does not relate to those activities of that individual.
  • 21/06/2001

SUP 10.5.6

handbook-guidance
SUP 10.5.5 R enables cover to be given for, say, 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 a controlled function for more than 12 weeks, the firm should apply for approval.
  • 21/06/2001

SUP 10.6

Governing functions

  • 01/12/2004

Introduction

SUP 10.6.1

handbook-guidance
Every firm will have one or more persons responsible for directing its affairs. These persons will be performing the governing functions and will be required to be approved persons unless the application provisions in SUP 10.1, or the particular description of a controlled function, provide otherwise. For example, each director of a company incorporated under the Companies Acts will perform the governing function in relation to that company.
  • 21/06/2001

What the governing functions include

SUP 10.6.2

handbook-rule

SUP 10.6.3

handbook-guidance
The effect of SUP 10.6.2 R is that a person who is approved to perform a governing function (other than the non-executive function) will not have to be specifically approved to perform any of the systems and controls functions or the significant management functions. However, a firm may apply for the systems and controls function or significant management functions to be explicitly added for such persons, if it wishes. . A person who is approved to perform a governing function will have to be additionally approved before he can perform any of the required functions or customer functions.

SUP 10.6.3A

handbook-guidance
PRU 9.1.3 R provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm'sinsurance mediation activity.PRU 9.1.4 R provides that the firm may allocate this responsibility to one or more of the persons performing a governing function (other than the non-executive director function).

SUP 10.6.3B

handbook-guidance
Where a person performing a governing function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after the relevant controlled function (see PRU 9.1.7 G).

Director function (CF1)

SUP 10.6.4

handbook-rule
If a firm is a body corporate (other than a limited liability partnership), the director function is the function of acting in the capacity of a director (other than non-executive director) of that firm.

SUP 10.6.5

handbook-guidance
The definition of director includes a person in accordance with whose directions or instructions the directors are accustomed to act. Such a person is defined in section 741 of the Companies Act 1985 as a "shadow director". The directors of a holding company would not, as such, be shadow directors. However, where, for example, a member of a holding company board frequently gives instructions to directors of a firm, either on his own or through a committee which takes frequent executive decisions, the firm should consider carefully whether he (and other members of the committee) should be approved to perform this function. An individual is not a shadow director (or director) because his job description included the word "director". Whether a person is a director within the definition is a question of fact in each case.

SUP 10.6.6

handbook-guidance
Similarly, the fact that a person may have "director" in his title does not of itself make him a director within the meaning of the definition. Whether a person is a director will depend on the facts in each case.
  • 21/06/2001

SUP 10.6.7

handbook-guidance
A director can be a body corporate and may accordingly require approval as an approved person in the same way as a natural person may require approval.
  • 21/06/2001

Non-executive director function (CF2)

SUP 10.6.8

handbook-rule
(1) If a firm is a body corporate, the non-executive director function is the function of acting in the capacity of a non-executive director of that firm.
(2) If a firm is a long-term insurer, the non-executive director function is also the function of acting in the capacity of an individual (other than an individual performing the director function or the non-executive director function under (1)) who, as a member of a committee having the purpose of a With-profits Committee (see COB 6.11.6 G (1)), has responsibility in relation to governance arrangements for with-profits business under COB 6.11 (Reporting to with-profits policyholders on compliance with PPFM).

SUP 10.6.9

handbook-guidance
Examples of responsibilities of a non-executive director may include:
(1) playing his part, by providing an independent perspective to the overall running of the business, in setting and monitoring the firm's strategy;
(2) scrutinising the approach of executive management, the firm's performance and its standards of conduct; and
(3) carrying out other responsibilities as assigned by the firm: for example, as a member of a board committee on audit or remuneration or as a member of a committee having the purpose of a With-profits Committee (see COB 6.11.6 (1)).

SUP 10.6.10

handbook-guidance
The extent of the responsibilities of a particular non-executive director will be a matter of fact in each case but they will not extend to executive responsibilities.

Chief executive function (CF3)

SUP 10.6.11

handbook-rule
The chief executive function is the function of acting in the capacity of a chief executive of a firm.
  • 21/06/2001

SUP 10.6.12

handbook-guidance
The title given to a person performing the chief executive function is likely to be "Chief Executive Officer" or similar. However, the title, or absence of title, does not of itself determine whether the activities of a person amount to the chief executive function.
  • 21/06/2001

SUP 10.6.13

handbook-guidance
This function is having the responsibility, alone or jointly with one or more others, under the immediate authority of the governing body, for the conduct of the whole of the business (or relevant activities); or, in the case of a branch in the United Kingdom of an overseas firm, for all of the activities subject to the UK regulatory system.
  • 21/06/2001

SUP 10.6.14

handbook-guidance
For a branch in the United Kingdom of an overseas firm, the FSA would not normally expect the overseas chief executive of the firm as a whole to be approved for this function where there is a senior manager under him with specific responsibility for those activities of the branch which are subject to the UKregulatory system. In some circumstances, the person within the firm responsible for UK operations may, if the function is likely to enable him to exercise significant influence over the branch, also perform the chief executive function (see SUP 10.7.4 G). The senior manager may be called a Managing Director, UK Regional Head, Branch Manager, UK Country Head; or, in the case of a non-EEA insurer with a branch in the United Kingdom, UK chief executive.

SUP 10.6.15

handbook-guidance
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.
  • 21/06/2001

SUP 10.6.16

handbook-guidance
Note that a body corporate may be a chief executive. If so, it will need to be approved to perform the chief executive function.
  • 21/06/2001

Partner function (CF4)

SUP 10.6.17

handbook-rule
(1) If a firm is a partnership, the partner function is the function of acting in the capacity of a partner in that firm.
(2) If the principal purpose of the firm is to carry on one or more regulated activities, each partner performs the partner function.
(3) If the principal purpose of the firm is other than to carry on regulated activities:
(a) a partner performs the partner function to the extent only that he has responsibility for a regulated activity; and
(b) a partner in a firm will be taken to have responsibility for each regulated activity except where the partnership has apportioned responsibility to another partner or group of partners.
  • 21/06/2001

SUP 10.6.18

handbook-guidance
For the purpose of this chapter, the definition of partner has been extended to include a "shadow partner", that is, a person in accordance with whose directions or instructions the partners are accustomed to act. This brings the concept of a partner into line with the concept of a director.
  • 21/06/2001

SUP 10.6.19

handbook-guidance
Any apportionment referred to in SUP 10.6.17 R (3)(b) will have taken place under SYSC 2.1.1 R. The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (see SYSC 2.2).

SUP 10.6.20

handbook-guidance
The effect of SUP 10.1.18 R is that regulated activity in SUP 10.6.17 R (and elsewhere) is to be taken as not including an activity that is a non-mainstream exempt regulated activity. Therefore, a partner whose only regulated activities are incidental to his professional services, in a partnership whose principal purpose is to carry on other than regulated activities, need not be an approved person. What amounts to the principal purpose of the firm is a matter of fact in each case having regard to all the circumstances, including the activities of the firm as a whole. Any regulated activities which such a partner carries on are not within the description of the partner function.
  • 21/06/2001

SUP 10.6.21

handbook-rule
If a firm is a limited liability partnership, the partner function extends to the firm as if the firm were a partnership and a member of the firm were a partner.
  • 21/06/2001

SUP 10.6.22

handbook-guidance
The Limited Liability Partnerships Act 2000 provides for a legal entity to be formed under which every member of the limited liability partnership is the agent of the limited liability partnership. The effect of SUP 10.6.21 R is to treat a limited liability partnership as a partnership for the purposes of the partner function.
  • 21/06/2001

SUP 10.6.23

handbook-rule
If a partnership is registered under the Limited Partnership Act 1907, the partnerfunction does not extend to any function performed by a limited partner.
  • 21/06/2001

Director of unincorporated association function (CF5)

SUP 10.6.24

handbook-rule
If a firm is an unincorporated association, the director of unincorporated association function is the function of acting in the capacity of a director of the unincorporated association.
  • 21/06/2001

SUP 10.6.25

handbook-guidance
There are many kinds of unincorporated association. For example, it could be a committee of management of a property unit trust; or the board of trustees of an occupational pension scheme where the trustees themselves carry on regulated activities. The FSA would expect each member of the committee of management or board to be performing the director of unincorporated association function and therefore to need to be approved to do so.
  • 21/06/2001

Small friendly society function (CF6)

SUP 10.6.26

handbook-rule
(1) If a firm is a non-directive friendly society, the small friendly society function is the function of directing its affairs, either alone or jointly with others.
(2) If the principal purpose of the firm is to carry on regulated activities, each person with responsibility for directing its affairs performs the controlled function.
(3) If the principal purpose of the firm is other than to carry on regulated activities, a person performs the small friendly society function only to the extent that he has responsibility for a regulated activity.
  • 21/06/2001

SUP 10.6.27

handbook-guidance
A friendly society that is not subject to the Insurance Directives is often referred to as a non-directive friendly society. For the purposes of SUP 10 it is referred to as a small friendly society.
  • 21/06/2001

SUP 10.6.28

handbook-rule
(1) Each person on the non-directive friendly society's governing body will be taken to have responsibility for its regulated activities, unless the firm has apportioned this responsibility to one particular individual to whom it is reasonable to give this responsibility.
(2) The individual need not be a member of the governing body.
  • 21/06/2001

SUP 10.6.29

handbook-guidance
(1) Typically a non-directive friendly Society will appoint a "committee of management" to direct its affairs. However, the governing arrangements may be informal and flexible. If this is the case, the FSA would expect the society to resolve to give responsibility for the carrying on of regulated activities to one individual who is appropriate in all the circumstances. That individual may, for example, have the title of chief executive or similar. The individual would have to be an approved person under SUP 10.6.26 R.
(2) Any apportionment of responsibilities will have taken place under SYSC 2.1.1 R. The FSA may ask to see details of the apportionment but will not require, as a matter of course, a copy of the material which records this (seeSYSC 2.2).
  • 21/06/2001

Sole trader function (CF7)

SUP 10.6.30

handbook-rule
(1) If a firm is a sole trader, the sole trader function is the function of acting in the capacity of the sole trader.
(2) The sole trader function applies only to a sole trader who employs one or more approved persons.

SUP 10.6.31

handbook-guidance
Note that, in relation to a sole trader, governing body includes the sole trader.
  • 21/06/2001

SUP 10.6.32

handbook-guidance
If a sole trader does not employ an approved person, the sole trader himself will not have to be an approved person unless he seeks to perform any of the customer functions.
  • 21/06/2001

SUP 10.7

Required functions

  • 01/12/2004

Apportionment and oversight function (CF8)

SUP 10.7.1

handbook-rule
The apportionment and oversight function is the function of acting in the capacity of a director or senior manager responsible for either or both of the apportionment function and the oversight function set out in SYSC 2.1.3 R.

SUP 10.7.2

handbook-guidance
SYSC 2.1.3 R provides that a firm must appropriately allocate to one or more individuals the functions of dealing with the apportionment of responsibilities under SYSC 2.1.1 R, and of overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R. Where there is a chief executive, he or she must be one of the individuals to whom the functions are allocated (unless the functions are allocated to someone of greater seniority): see SYSC 2.1.6 G.
  • 21/06/2001

SUP 10.7.3

handbook-guidance
The fact that there is a person performing the apportionment and oversight function, and who has responsibility for activities subject to regulation by the FSA, may have a bearing on whether a manager who is based overseas will be performing a controlled function. It is a factor to take into account when assessing the likely influence of the overseas manager.
  • 21/06/2001

SUP 10.7.4

handbook-guidance
Generally, in relation to a UK establishment of an overseas firm or a firm which is part of an overseas group, where an overseas manager's responsibilities in relation to the United Kingdom are strategic only, he will not need to be an approved person. However, where, in accordance with SYSC 3, he is responsible for implementing that strategy in the United Kingdom, and has not delegated that responsibility to a senior manager in the United Kingdom, he is likely to be performing a controlled function, such as, for example, the chief executive function.

SUP 10.7.4A

handbook-guidance
PRU 9.1.3 R provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity PRU 9.1.4 R (2) provides that the firm may allocate this responsibility to the person performing the apportionment and oversight function.

SUP 10.7.4B

handbook-guidance
Where the person performing the apportionment and oversight function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see PRU 9.1.7 G).

SUP 10.7.5

handbook-guidance
See also SUP 10.9.5 G and SUP 10.9.6 G in relation to matrix management in the context of significant management functions.
  • 21/06/2001

EEA investment business oversight function (CF9)

SUP 10.7.6

handbook-rule
The EEA investment business oversight function is the function of acting in the capacity of an individual who is responsible, in accordance withSYSC 2.1.3 R (2), for overseeing the establishment and maintenance of systems and controls in relation to designated investment business carried on from a branch in the United Kingdom of an incoming EEA firm.
  • 21/06/2001

SUP 10.7.7

handbook-guidance
Where an overseas individual has not delegated this function to a senior manager in the United Kingdom, he is likely to be performing this controlled function. However, the FSA anticipates that any individual carrying out this function will normally be located in the United Kingdom. He may be the local chief executive or one or more of the individuals approved to perform the significant management (designated investment business) function. If the local chief executive (or other individual) is approved for this function, this does not mean that all his responsibilities are the concern of the FSA. SUP 10.1.9 R preserves the principle of Home State prudential regulation whenever it applies and in respect of each controlled function.
  • 21/06/2001

Compliance oversight function (CF10)

SUP 10.7.8

handbook-rule
The compliance oversight function is the function of acting in the capacity of a director or senior manager who is allocated the function set out in SYSC 3.2.8 R.

SUP 10.7.9

handbook-guidance
SYSC 3.2.8 R provides that a firm which carries on designated investment business with or for customers must allocate to a director or senior manager the function of having responsibility for oversight of the firm's compliance and reporting to the governing body in respect of that responsibility.

SUP 10.7.10

handbook-guidance
Compliance in SYSC 3.2.8 R means compliance with the rules in COB, COLL or CIS and CASS. The FSA anticipates that some firms will include oversight of compliance with PRIN, MAR, and other requirements and standards, within its compliance function. These other responsibilities would not, however, be brought within the compliance oversight function (see also SUP 10.4.3 G).
  • 01/04/2004

SUP 10.7.11

handbook-guidance
Some firms, particularly firms with complex structures or which are part of a group, may find it appropriate to seek approval for the group head of compliance and other persons to perform the compliance oversight function. Examples of other persons include the senior manager responsible for compliance in a firm which is a subsidiary within the group and a senior manager in a reporting line, where compliance is organised along product lines.
  • 21/06/2001

SUP 10.7.12

handbook-guidance
Although a firm may choose to use the services of an external compliance consultant, the responsibility for the compliance oversight function must, in accordance with SYSC 3.2.8 R, rest with one or more directors or senior managers of the firm.
  • 21/06/2001

Money laundering reporting function (CF11)

SUP 10.7.13

handbook-rule
The money laundering reporting function is the function of acting in the capacity of the money laundering reporting officer of a firm.
  • 21/06/2001

SUP 10.7.14

handbook-guidance
The rules in the Money Laundering sourcebook (ML) provide that a firm must have a money laundering reporting officer unless:
(1) it is a sole trader with no employees; or
(2) its regulated activities are certain insurance business only; or
(3) it is an incoming firm providing only services into the United Kingdom; or
(4) its regulated activities are insurance mediation activity in relation to a general insurance contract or pure protection contract or mortgage mediation activity.
  • 21/06/2001

SUP 10.7.15

handbook-guidance
The specific responsibilities of the money laundering reporting officer are set out in ML 7.1.
  • 21/06/2001

SUP 10.7.16

handbook-guidance
ML 7.1.9 R provides that a money laundering reporting officer must have a "sufficient level of seniority" within the firm, so that he can carry out his controlled function effectively.
  • 21/06/2001

Actuarial function (CF12) and with-profits actuary function (CF12A)

SUP 10.7.17

handbook-rule
The actuarial function is the function of acting in the capacity of an actuary appointed by a firm under SUP 4.3.1 R to perform the duties set out in SUP 4.3.13 R.
  • 31/12/2004

SUP 10.7.17A

handbook-rule
The with-profits actuary function is the function of acting in capacity of an actuary appointed by a firm under SUP 4.3.1 R to perform the duties set out in SUP 4.3.16A R.
  • 31/12/2004

SUP 10.7.18

handbook-guidance
The effect of SUP 4.1.1 R (Application) and SUP 4.3.1 R (Appointment of an actuary) is that a long-term insurer (unless it is a certain kind of friendly society) must appoint one or more actuaries to perform the actuarial function in respect of all classes of its long-term insurance business and the with-profits actuary function in respect of all classes of its with-profits business. The kinds of friendly society to which the provisions do not apply are:
(1) a registered friendly society which is a non-directive friendly society; and
(2) an incorporated friendly society that is a flat rate benefits business friendly society.
  • 31/12/2004

SUP 10.7.19

handbook-guidance
The appointment of an actuary to perform either of these functions is personal , and the appointee is typically either an employee of the firm or a partner or employee in a firm of actuaries.
  • 01/01/2005

SUP 10.7.20

handbook-guidance
The actuarial function and the with-profits actuary function do not extend to the giving of actuarial advice to a firm by an actuary who has not been appointed to perform these functions. A person who gives actuarial advice, whether occasionally or regularly, other than in his capacity as an actuary appointed to perform these functions would not be performing a controlled function.
  • 01/01/2005

SUP 10.7.21

handbook-guidance
The rules and guidance concerning the rights and duties of an actuary appointed to perform either of these functions are set out in SUP 4.3.13 R to SUP 4.3.18 G.
  • 31/12/2004

Lloyd's actuary function (CF12B)

SUP 10.7.22

handbook-rule
The Lloyd's actuary function is the function of acting in the capacity of the actuary appointed under SUP 4.6.1 R to perform the duties set out in SUP 4.6.7 R.

SUP 10.7.23

handbook-guidance
The effect of SUP 4.6.1 R is that the Society of Lloyd's must appoint an actuary (the "Lloyd's actuary").
  • 01/01/2005

SUP 10.8

Systems and control functions

Finance function (CF13)

SUP 10.8.1

handbook-rule
The finance function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body of a firm in relation to its financial affairs.

SUP 10.8.2

handbook-guidance
This function is often performed by a senior manager who is given the title of Financial Controller, Chief Finance Officer or Finance Officer. The individual may also be given the title of Finance Director but, if he is a director of the company, he should be approved to perform the director function (and not the finance function). The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function.
  • 21/06/2001

Risk assessment function (CF14)

SUP 10.8.3

handbook-rule
The risk assessment function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body of a firm in relation to setting and controlling its risk exposure.
  • 21/06/2001

SUP 10.8.4

handbook-guidance
Depending on the scale, nature and complexity of its business it may be appropriate for a firm to have a separate risk assessment function: see SYSC 3.2.10 G.
  • 21/06/2001

SUP 10.8.5

handbook-guidance
This function is often performed by a senior manager who is given the title of Head of Risk, or who is a member of a Risk Committee. Other examples of titles are Head of Credit Risk and Head of Market Risk (but the fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function).
  • 01/12/2002

Internal audit function (CF15)

SUP 10.8.6

handbook-rule
The internal audit function is the function of acting in the capacity of a senior manager with responsibility for reporting to the governing body, or the audit committee (or its equivalent), of a firm in relation to its adherence to internal systems and controls, procedures and policies.
  • 21/06/2001

SUP 10.8.7

handbook-guidance
Depending on the scale, nature and complexity of its business it may be appropriate for a firm to have a separate internal audit function: see SYSC 3.2.16 G. If it does, this will not require the person performing the function to have any special obligation towards the FSA (such as reporting directly on matters to the FSA) nor will this cause the FSA to call for all internal audit reports as a matter of routine.
  • 21/06/2001

SUP 10.8.8

handbook-guidance
This function is often performed by a senior manager who is given the title of Head of Internal Audit or Internal Auditor (but the fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function).
  • 21/06/2001

SUP 10.9

Significant management functions

  • 01/12/2004

Application

SUP 10.9.1

handbook-rule
SUP 10.9 applies only to a firm which, under SYSC 2.1.1 R, apportions a significant responsibility, within the description of a significant management function, to a senior manager of a significant business unit.

SUP 10.9.2

handbook-guidance
The FSA anticipates that there will be only a few firms needing to seek approval for an individual to perform a significant management function . In most firms, those approved for the governing functions, required functions and, where appropriate, the systems and controls functions are likely to exercise all the significant influence at senior management level.

SUP 10.9.3

handbook-guidance
However, the scale, nature and complexity of the firm's business may be such that a firm apportions under SYSC 2.1.1 R a significant responsibility to an individual who is not approved to perform the governing functions, required functions or, where appropriate, the systems and controls functions. If so,v the firm should consider whether the functions of that individual fall within a significant management function. For the purposes of the description of the significant management functions, the following additional factors about the firm should be considered:
(1) the size and significance of the firm's business in the United Kingdom; for example, a firm carrying on designated investment business may have a large number of approved persons (for example, in excess of 100 individuals); or a firm carrying on general insurance business may have gross written premiums in excess of £100mn;
(2) the number of regulated activities carried on, or proposed to be carried on, by the firm and (if relevant) other members of the group;
(3) its group structure (if it is a member of a group);
(4) its management structure (for example matrix management); and
(5) the size and significance of its international operations, if any.

SUP 10.9.4

handbook-guidance
When considering whether a business unit is significant, the firm should take into account all relevant factors in the light of the firm's current circumstances and its plans for the future, including:
(1) the risk profile of the unit; or
(2) its use or commitment of a firm's capital; or
(3) its contribution to the profit and loss account; or
(4) the number of employees or approved persons in the unit; or
(5) the number of customers of the unit; or
(6) any other factor which makes the unit significant to the conduct of the firm's affairs so far as relating to the regulated activity.
  • 21/06/2001

SUP 10.9.5

handbook-guidance
The question may arise whether a manager who is based overseas will be performing a controlled function (such as the significant management (designated investment business) function) and should therefore be an approved person. This is especially true where the firm operates matrix management. The fact there is a person performing the apportionment and oversight function, and who has responsibility for activities subject to regulation by the FSA, may have a bearing on this. It is a factor to take into account when assessing the likely influence of the overseas manager.

SUP 10.9.6

handbook-guidance
Generally, in relation to a branch of a firm, or a firm which is part of an overseas group, where an overseas manager is responsible for strategy, he will not need to be an approved person. However, where he is responsible for implementing that strategy in the United Kingdom, and has not delegated that responsibility to a senior manager in the United Kingdom, he is likely to be performing a controlled function.

SUP 10.9.7

handbook-guidance
See also SUP 10.7.3 G to SUP 10.7.5 G in relation to matrix management.

Reporting requirement

SUP 10.9.8

handbook-rule
A firm must, by no later than 31 July each year, provide the FSA with:
(1) the name of every individual who is approved to perform any of its significant management functions; and
(2) brief details of the job performed by that individual, as at 30 June of that year;
unless it has, within the 12 months preceding 30 June, already provided the FSA with that information.
  • 21/06/2001

SUP 10.9.9

handbook-guidance
The broad description of each significant management function means that an individual may perform a different function within the significant management function without needing prior approval. However, the FSA does require a notification of the job performed by such people once a year. Typically, a firm will give this information to the FSA as a matter of routine during the year but, if not, SUP 10.9.8 R requires it to do so by 31 July. The rule requires the firm to provide a report only in respect of individuals performing a significant management function: if there are none, there is no need to provide a report.
  • 21/06/2001

Significant management (designated investment business) function (CF16)

SUP 10.9.10

handbook-rule
(1) The significant management (designated investment business) function is the function of acting as a senior manager with significant responsibility for a significant business unit which carries on designated investment business other than dealing in investments as principal, disregarding article 15 of the Regulated Activities Order (Absence of holding out etc), (and agreeing to do so).
(2) This function does not include any of the activities described in any other controlled function.

SUP 10.9.11

handbook-guidance
Where SUP 10.9.1 R and SUP 10.9.10 R apply, the FSA would expect the senior manager of a significant trading department, such as equities in a large international firm, possibly with the title of Chief InvestmentOfficer, to be performing this function. Other examples are senior managers with responsibility for investment banking, fixed income, derivatives, commodities, trading, custody, asset management, marketing and sales. The Regional Heads of Sales of an insurer are also likely to be performing this function. The senior manager may, for example, be responsible for about 100 individuals approved to perform the investment adviser function. The FSA would not expect an individual below this level to need to be approved to perform the significant management (designated investment business) function. The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function. Whether he does so depends on the circumstances of the firm and the application of SUP 10.9.1 R. For the position in relation to proprietary traders, see SUP 10.9.13 G.
  • 15/11/2001

Significant management (other business operations) function (CF17)

SUP 10.9.12

handbook-rule
(1) The significant management (other business operations) function is the function of acting as a senior manager with significant responsibility for a significant business unit which carries on:
(a) dealing in investments as principal, disregarding article 15 of the Regulated Activities Order (Absence of holding out etc), (or agreeing to do so); or
(b) an activity which is not designated investment business.
(2) A person may be a senior manager for the purposes of this rule even if he is not managing any or any substantial number of staff, provided he has responsibility for managing all, or a very substantial proportion, of the assets or exposures or decision making of the unit.
(3) This function does not include any of the activities described in any other controlled function.
  • 01/05/2003

SUP 10.9.13

handbook-guidance
Where SUP 10.9.1 R and SUP 10.9.12 R apply, the senior manager could, for example, be the head of a unit carrying on the activities of: retail banking, personal lending, corporate lending; leasing assets, issuing credit cards, trade finance, loan syndicates or debt, salvage or loan recovery, or proprietary trading; or a member of a committee (that is, a person who, together with others, has authority to commit the firm) making decisions in these functions. The senior manager could also be a proprietary trader whose trading limits are such that he may put, or potentially put, his firm at significant risk. This function would not extend to every proprietary trader.
  • 01/12/2002

SUP 10.9.13A

handbook-guidance
PRU 9.1.3 R provides that an insurance intermediary, other than a sole trader, must allocate to a director or senior manager the responsibility for the firm's insurance mediation activity.PRU 9.1.4 R provides that the firm may allocate this responsibility to the person performing the significant management (other business operations) function.

SUP 10.9.13B

handbook-guidance
Where the person performing the significant management (other business operations) function is also responsible for the firm's insurance mediation activity, the words "(insurance mediation)" will be inserted after this controlled function (see PRU 9.1.7 G).

Significant management (insurance underwriting) function (CF18)

SUP 10.9.14

handbook-rule
(1) The insurance underwriting function is the function of acting in the capacity of a senior manager with significant responsibility for the effecting by an insurer, or by a managing agent on behalf of a member of the Society of Lloyd's, of contracts of insurance other than contractually based investments.
(2) This function does not include any of the activities described in any other controlled function.
  • 21/06/2001

SUP 10.9.15

handbook-guidance
Where SUP 10.9.1 R and SUP 10.9.14 R apply, the FSA would expect the senior manager with responsibility for a significant underwriting unit such as marine underwriting in a large insurer to be performing this function. Other examples are senior managers with underwriting responsibility for aviation, motor, property, third party liability, term insurance and health care.
  • 21/06/2001

Significant management (financial resources) function (CF19)

SUP 10.9.16

handbook-rule
(1) The significant management (financial resources) function is the function of acting in the capacity of a senior manager with significant responsibility for the making of material decisions on the commitment of a firm's financial resources, its financial commitments, its asset acquisitions, its liability management and its overall cash and capital planning.
(2) This function does not include any of the activities described in any other controlled function, including, in particular, the finance function.
  • 21/06/2001

SUP 10.9.17

handbook-guidance
Where SUP 10.9.1 R and SUP 10.9.16 R apply, the individual performing this function would typically be the Chief Treasurer, or a member of a high level committee (that is, a person who, together with others, has authority to commit the firm) such as an Asset and Liability Committee or an Executive Committee or Credit Committee. In the case of the Society of Lloyd's, it would include being a member of the Market Board (or a successor committee performing the functions of the Market Board).
  • 01/12/2002

Significant management (settlements) function (CF20)

SUP 10.9.18

handbook-rule
(1) The significant management (settlements) function is the function of acting in the capacity of a senior manager with significant responsibility for processing confirmations, payments, settlements, insurance claims, client money and similar matters.
(2) This function does not include any of the activities described in any other controlled function, including, in particular, the significant management (financial resources) function.
  • 21/06/2001

SUP 10.9.19

handbook-guidance
The tasks within this controlled function are often referred to as the back office functions. Where SUP 10.9.1 R and SUP 10.9.18 R apply, the person performing this function may be known, for example, as the Head of Payments, Head of Settlements, or Head of Claims. The fact that an individual may use one of these titles does not necessarily mean that he is performing a controlled function. Whether he does so depends on the circumstances of the firm and the application of SUP 10.9.1 R.
  • 21/06/2001

SUP 10.9.20

handbook-guidance
  • 19/01/2003

SUP 10.10

Customer functions

  • 01/12/2004

SUP 10.10.1

handbook-rule
SUP 10.10 ( Customer functions) applies with respect to activities carried on from an establishment maintained by the firm (or by its appointed representative) in the United Kingdom.

SUP 10.10.2

handbook-guidance
Without SUP 10.10.1 R the description of the customer functions would extend to functions wherever they are performed. The effect of SUP 10.10.1 R is that the descriptions arelimited, in relation to regulated activities with an overseas element, in a manner which is broadly consistent with the scope of conduct of business regulation.

SUP 10.10.3

handbook-guidance
The customer functions have to do with giving advice on, dealing and arranging deals in and managing investments; they have no application to banking business such as deposit taking and lending, nor to general insurance business.

The customer conditions (the second and third conditions)

SUP 10.10.4

handbook-rule
Each customer function is one which will involve the person performing it in dealing with customers, (and for the corporate finance adviser function, clients), or dealing with property of customers , of a firm in a manner substantially connected with the carrying on of a regulated activity of the firm.

SUP 10.10.5

handbook-guidance
SUP 10.10.4 R gives effect to sub-sections (6) and (7) of section 59 of the Act (referred to in that section as the second and third conditions). Customer is given the meaning in the Glossary (which is not the same as the definition given in section 59 (11) of the Act).

SUP 10.10.6

handbook-guidance
The FSA interprets the phrase "dealing with" as including having contact with customers and extending beyond "dealing" as used in the phrase "dealing in investments". "Dealing in" is used in Schedule 2 to the Act to describe in general terms the regulated activities which are specified in Part II of the Regulated Activities Order.
  • 21/06/2001

Investment adviser function (CF21)

SUP 10.10.7

handbook-rule
(1) The investment adviser function is the function of:
(a) advising on investments other than a non-investment insurance contract; and
(b) performing functions within the customer trading function in connection with advising on investments other than non-investment insurance contract.
(2) This function does not include:
(a) the investment adviser (trainee) function; and
(b) the pension transfer specialist function.
(3) This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.

SUP 10.10.8

handbook-guidance
The function of advising on investments would include, for example, giving advice to clients in connection with corporate finance business. It does not include managing investments (see the investment management function) or advising on syndicate participation at Lloyd's (see the adviser on syndicate participation at Lloyd's function).
  • 21/06/2001

SUP 10.10.9

handbook-guidance
When considering an application for approval in relation to this controlled function, the FSA may ask for evidence of the individual's competence. TC 2.4.1 R provides that a firm must ensure that an employee is not allowed to engage in an activity unless the employee has been assessed as competent in that activity, in accordance with TC 2.4.5 R, or is appropriately supervised. TC 2.4.5 R provides that a firm must, before an employee can be assessed as competent, ensure that the employee has been assessed as able to apply the knowledge and skills necessary to engage without supervision in the relevant activity and has passed an appropriate examination.
  • 01/07/2004

SUP 10.10.10

handbook-guidance
The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances (except for an individual who gives advice to private customers on packaged products or is a broker fund adviser). The effect of this is that the individual who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (see TC 2.5.5 R (3) and TC 2.5.5 R (4)).
  • 01/07/2004

Investment adviser (trainee) function (CF22)

SUP 10.10.11

handbook-rule
The investment adviser (trainee) function is the function of advising on investments other than a non-investment insurance contract where the individual performing the function has not yet been assessed as competent in accordance with the rules in the Training and Competence sourcebook (TC).
  • 21/06/2001

SUP 10.10.12

handbook-guidance
If a firm notifies the FSA that an individual who is performing the investment adviser (trainee) function has passed the appropriate examination, and has been assessed as competent, the FSA will treat this as an application for the individual to perform the investment adviser function. A Form E (SUP 10 Annex 8 G) may be used for this purpose.
  • 21/06/2001

Corporate finance adviser function (CF23)

SUP 10.10.13

handbook-rule
(1) The corporate finance adviser function is the function of:
(a) giving advice to clients solely in connection with corporate finance business; and
(b) performing functions within the customer trading function in connection with giving that advice.
(2) This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.
  • 01/12/2002

SUP 10.10.13A

handbook-guidance
The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances. The effect of this is that the individual, who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (seeTC 2.5.5 R (3) and (4)).
  • 01/07/2004

Pension transfer specialist function (CF24)

SUP 10.10.14

handbook-rule
The pension transfer specialist function is the function of giving advice or performing related activities in connection with:
(1) pension transfers; or
(2) opt-outs;
for private customers.
  • 21/06/2001

Adviser on syndicate participation at Lloyds's function (CF25)

SUP 10.10.15

handbook-rule
The adviser on syndicate participation at Lloyd's function is the function of giving advice to a person to become, or continue or cease to be, a member of a particular Lloyd's syndicate.
  • 21/06/2001

Customer trading function (CF26)

SUP 10.10.16

handbook-rule
  1. (1) The customer trading function is the function of dealing, as principal or as agent, and arranging (bringing about) deals in investments other than a non-investment insurance contract with or for, or in connection with, private customers and intermediate customers where:
    1. (a) the dealing or arranging deals is governed by COB 7 (Dealing and managing); and
    2. (b) the person performing the function is not advising on or managing investments unless approved to perform the investment adviser function or the investment management function.
  2. (2) This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.
  • 01/12/2002

SUP 10.10.17

handbook-guidance
A person who advises on or manages investments must be approved to perform the investment adviser function or the investment management function (see SUP 10.10.7 R and SUP 10.10.20 R) and does not need to be separately approved for the customer trading function (see SUP 10.10.16 R).
  • 21/06/2001

SUP 10.10.18

handbook-guidance
COB 7 applies to a firm conducting designated investment business. Where a firm's proprietary trader may deal with a private or intermediate customer, the firm should ensure that the trader is approved under the customer trading function.
  • 21/06/2001

SUP 10.10.19

handbook-guidance
The customer trading function 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 carrying out the activity. Nor does it extend to merely introducing a customer to a firm or distributing advertisements.
  • 21/06/2001

Investment management function (CF27)

SUP 10.10.20

handbook-rule
(1) The investment management function is the function of:
(a) acting in the capacity of an investment manager; and
(b) performing functions within:
(i) the investment adviser function; and
(ii) the customer trading function;
in connection with acting as an investment manager.
(2) This function does not extend to an individual who is based overseas and who, in a 12 month period, spends no more than 30 days in the United Kingdom to the extent that he is appropriately supervised by a person approved for this function.
  • 01/12/2002

SUP 10.10.21

handbook-guidance
Note that the definition of investment manager is a person who, in summary, manages designated investments on a discretionary or non-discretionary basis under the terms of a discretionary or non-discretionary management agreement. If a person seeks to perform the controlled function of advising on investments outside of the agreement, he will need to be approved for the investment adviser function.
  • 01/12/2002

SUP 10.10.22

handbook-guidance
The FSA would expect an individual from overseas to be accompanied on a visit to a customer. TC 2.5.5 R (1) provides that the firm will have to be satisfied that the individual has at least three years' up-to-date relevant experience obtained outside the United Kingdom. However, the remaining provisions of TC 2.5.5 R (1) are disapplied in these circumstances. The effect of this is that the individual, who may previously have been required to comply fully with the United Kingdom examination requirements, now need not pass the relevant regulatory module of an appropriate examination (see TC 2.5.5 R (3) and (4)).
  • 01/07/2004

SUP 10.11

Procedures relating to approved persons

  • 01/12/2004

Forms

SUP 10.11.1

handbook-guidance
The forms listed in SUP 10.11.2 G are referred to in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions).
  • 21/06/2001

SUP 10.11.2

handbook-guidance

Approved persons forms

SUP 10.11.3

handbook-guidance
A summary of the forms and their purposes is in SUP 10 Annex 2 G. A summary of FSA procedures is in SUP 10 Annex 3. For the method of notification to the FSA, see SUP 15.7 (Form and method of notification).

SUP 10.11.4

handbook-guidance
Unless the context otherwise requires, in SUP 10.11 (Procedures relating to approved persons) to SUP 10.14 (Further questions) where reference is made to a firm, this also includes an applicant for Part IV permission, and other persons seeking to carry on regulated activities as an authorised person.
  • 21/06/2001

SUP 10.11.5

handbook-guidance
Forms B, C, D and E can only be submitted in respect of an approved person by the firm that submitted an approved person's original application (that is, Form A).

SUP 10.11.6

handbook-guidance
Copies of Forms A, B, C, D and E may be obtained from the FSA website or from the Authorisation and Approvals Department. To contact the Authorisation and Approvals Department for general enquiries:
(1) telephone 020 7066 0019; or
(2) fax 020 7066 0017; or
(3) write to:
Authorisation and Approvals Department
The Financial Services Authority
25 The North Colonnade
Canary Wharf
LONDON E14 5HS; or
(4) e-mail iva@fsa.gov.uk

SUP 10.12

Application for approval and withdrawing an application for approval

  • 01/12/2004

When to apply for approval

SUP 10.12.1

handbook-guidance
In accordance with section 59 of the Act (Approval for particular arrangements), where a candidate will be performing one or more 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 FSA.
  • 21/06/2001

How to apply for approval

SUP 10.12.2

handbook-directions
An application by a firm for the FSA's approval under section 59 of the Act (Approval for particular arrangements) must be made by completing Form A.

Who should make the application?

SUP 10.12.3

handbook-guidance
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 the candidate. Usually this will be the firm that is employing the candidate to perform the controlled function. Where a firm has outsourced the performance of a controlled function, the details of the outsourcing determine where responsibility lies and whom the FSA anticipates will submit approved persons forms. SUP 10.12.4 G describes some common situations. The firm which is outsourcing is referred to as "A" and the person to whom the performance of the function has been outsourced, or which makes the arrangement for the function to be performed, is referred to as "B". In each situation, A must take reasonable care to ensure that, in accordance with section 59(2) of the Act, no person performs a controlled function under an arrangement entered into by its contractor in relation to the carrying on by A of a regulated activity, without approval from the FSA. See also SYSC 3.2.4 G and if applicable IPRU (BANK) OS, IPRU (BSOC) OS, and for insurers SYSC 3A.9 .

SUP 10.12.4

handbook-guidance

Outsourcing arrangements

SUP 10.12.4A

handbook-guidance
Where the notification of an appointed representative (SUP 12.7.1 R) is linked to an application for approval (SUP 10.12 (Applications for approval and withdrawing an application for approval)), any delay in receiving the notification under SUP 12.7.1 R may delay the FSA's approval of the individuals employed by that appointed representative who will be performing controlled functions for the firm.
  • 01/12/2002

Processing an application

SUP 10.12.5

handbook-guidance
The Act allows the FSA three months from the time it receives a properly completed application to consider it and come to a decision. The FSA must either grant the application or, if it proposes not to grant an application, issue a warning notice (see DEC 2 ). The FSA 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 FSA 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.

SUP 10.12.6

handbook-guidance
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 delayed and, in some cases, possibly rejected.A person who provides information to the FSA that is false or misleading may commit a criminal offence.

SUP 10.12.7

handbook-guidance
If there is a delay in processing the application within the standard response time, the FSA will tell the firm making the application as soon as this becomes apparent.
  • 21/06/2001

SUP 10.12.8

handbook-guidance
Before making a decision to grant the application or give a warning notice, the FSA may ask the firm for more information about the candidate. If it does this, the three month period in which the FSA must determine a completed application:
(1) will stop on the day the FSA requests the information; and
(2) will start running again on the day on which the FSA finally receives all the requested information.
  • 21/06/2001

SUP 10.12.9

handbook-guidance
The FSA may grant an application only if it is satisfied that the candidate is a fit and proper person to perform the controlled function stated in the application form. Responsibility lies with the firm making the application to satisfy the FSA that the candidate is fit and proper to perform the controlled function applied for.
  • 21/06/2001

SUP 10.12.10

handbook-guidance
For further guidance on criteria for assessing whether a candidate is fit and proper, see FIT.
  • 21/06/2001

Decisions on applications

SUP 10.12.11

handbook-guidance
Whenever it grants an application, the FSA will confirm this in writing to all interested parties.
  • 21/06/2001

SUP 10.12.12

handbook-guidance
If the FSA proposes to refuse an application in relation to one or more 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 and the process for referrals to the Financial Services and Markets Tribunal are in DEC 2 and DEC 5 respectively.

Withdrawing an application for approval

SUP 10.12.13

handbook-rule
A firm applying to withdraw an application must notify the FSA, using Form B.

SUP 10.12.14

handbook-guidance
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.
  • 21/06/2001

SUP 10.13

Changes to an approved person's details

  • 01/12/2004

Moving within a firm

SUP 10.13.1

handbook-guidance
An 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's regulated activities. Where the changes will involve the person performing one or more different controlled functions from those for which approval has already been granted, then an application must be made to the FSA for approval for the person to perform those controlled functions. The firm must take reasonable care to ensure that an individual does not begin performing a controlled function until the FSA has granted approved person status to that individual in respect of that controlled function. This applies to individuals seeking approval in respect of a controlled function within the firm for which they already perform controlled functions. If the approved person is ceasing to perform controlled functions, as well as applying for approval in respect of additional controlled functions, then refer to SUP 10.13.3 D.
  • 21/06/2001

SUP 10.13.2

handbook-guidance
Form A must be used to apply for an individual to perform further controlled functions for a firm for which he already performs a controlled function as an approved person (see SUP 10.12.2 D). It is not mandatory to complete all parts of the form. See the notes attachedto theform for full details.

SUP 10.13.3

handbook-directions
A firm must use Form E where an approved person is both ceasing to perform one or more controlled functions and needs to be approved in relation to one or more new controlled functions within the same firm or group.

Moving between firms

SUP 10.13.4

handbook-guidance
If it is proposed that an approved person will no longer be performing a controlled function under an arrangement entered into by one firm or one of its contractors, but will be performing the same or a different controlled function under an arrangement entered into by a new firm or one of its contractors (whether or not the new firm is in the same group as the old firm), the new firm will be required to make a fresh application for the performance of the controlled function by that person.
  • 21/06/2001

SUP 10.13.5

handbook-guidance
In certain circumstances, when the FSA already has the information it would usually require, a shortened version of Form A may be completed. See the notes attached to the form for full details.

Ceasing to perform a controlled function

SUP 10.13.6

handbook-rule
A firm must submit to the FSA a completed Form C no later than seven business days after an approved person ceases to perform a controlled function.

SUP 10.13.7

handbook-rule
(1) A firm must notify the FSA as soon as practicable after it becomes aware, or has information which reasonably suggests, that it will submit a qualified Form C in respect of an approved person.
(2) Form C is qualified if the information it contains:
(a) relates to the fact that the firm has dismissed, or suspended, the approved person from its employment; or
(b) relates to the resignation by the approved person while under investigation by the firm, the FSA or any other regulatory body; or
(c) otherwise reasonably suggests that it may affect the FSA's assessment of the approved person's fitness and propriety.
  • 01/12/2002

SUP 10.13.8

handbook-guidance
Notification under SUP 10.13.7 R may be made by telephone, fax or email 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 FSA in due course of the reason. This could be done using Form D, if appropriate.
  • 21/06/2001

SUP 10.13.9

handbook-guidance
A firm is responsible for notifying the FSA if any approved person has ceased to perform a controlled function under an arrangement entered into by its appointed representative or former appointed representative
  • 21/06/2001

SUP 10.13.10

handbook-guidance
A firm can submit Form C or Form E to the FSA in advance of the cessation date. When a person ceases the arrangement under which he performs a controlled function, he will automatically cease to be an approved person in relation to that controlled function. A person can only be an approved person in relation to a specific controlled function. Therefore, a person is not an approved person during any period between ceasing to perform one controlled function (when he is performing no other controlled function) and being approved in respect of another controlled function.
  • 21/06/2001

SUP 10.13.11

handbook-guidance
Sending forms promptly will help to ensure that any fresh application can be processed within the standard response times.
  • 21/06/2001

SUP 10.13.12

handbook-rule
(1) If a firm (A):
(a) is considering appointing a person to perform any of the customer functions ;
(b) requests another firm (B), as a former employer of that person, for a reference or other information in connection with that appointment; and
(c) indicates to B the purpose of the request;
B must, as soon as reasonably practicable, give to A all relevant information of which it is aware.
(2) When giving the information to A under (1), B must have regard to the purpose of the request and in particular to:
(a) any outstanding liabilities of that person from commission payments;
(b) any relevant outstanding or upheld complaint from an eligible complainant against that person;
(c) section 5 of Form A in SUP 10 Annex 4 (Application to perform controlled functions under approved persons regime);
(d) FIT 2 (Main assessment criteria); and
(e) if SUP 16.8.1 G (1) (Persistency reports from insurers) applies to B, the persistency of any life policies sold by that person.

SUP 10.13.13

handbook-guidance
A firm supplying a reference in accordance with SUP 10.13.12 R owes a duty to its former employee and the recipient firm to exercise due skill and care in the preparation of the reference. The reference should be accurate and based on documented fact. The firm may give frank and honest views, but only after taking reasonable care both as to factual content, and as to the opinions expressed, and verifying the information upon which they are based.
  • 21/06/2001

Changes to an approved person's personal details

SUP 10.13.14

handbook-rule
If an approved person's title, name or national insurance number changes, the firm for which the person performs a controlled function must notify the FSA on Form D of that change within seven business days of the firm becoming aware of the matter.

SUP 10.13.15

handbook-guidance
The duty to notify in SUP 10.13.14 R does not apply to changes to an approved person's private address.
  • 21/06/2001

SUP 10.13.16

handbook-rule
If a firm becomes aware of information which would reasonably be material to the assessment of an approved person's, or a candidate's, fitness and propriety (see FIT), it must inform the FSA on Form D as soon as practicable.

SUP 10.13.17

handbook-guidance
The duty to notify in SUP 10.13.16 R extends to any circumstances that would normally be declared when giving the information required for section 5 of Form A or matters considered in FIT 2.
  • 21/06/2001

SUP 10.13.18

handbook-rule
(1) If, in relation to a firm which has completed Form A (SUP 10 Annex 4), any of the details in section 3.01 (Arrangementsand controlled functions) are to change, the firm must notify the FSA on Form D .
(2) The notification must be made as soon as reasonably practicable after the firm becomes aware of the proposed change.
(3) Paragraphs (1) and (2) also apply to a firm in respect of an approved person, to whom the grandfathering arrangements applied as if the firm had completed a Form A for that person.

SUP 10.13.19

handbook-guidance
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 investment adviser function for the firm. The firm should notify the FSA by completing Section 1.07 of Form D.
  • 01/12/2002

SUP 10.13.20

handbook-guidance
The grandfathering arrangements applying to an approved person referred to in SUP 10.13.18 R are contained in Part VI (Approved persons) of the Financial Services and Markets Act (Transitional Provisions) (Authorised Persons etc.) Order 2001 (SI 2001/2636). Article 72 of that Order provides, in general terms, that, where a person was performing a function at the beginning of 1 December 2001 which became a controlled function under the Act, the continued performance of that function by that person was taken to be approved by the FSA. That person therefore became an approved person without the need for a Form A.
  • 01/12/2002

SUP 10.14

Further questions

  • 01/12/2004

SUP 10.14.1

handbook-guidance
A list of frequently asked questions and answers is at SUP 10 Annex 1.
  • 21/06/2001

SUP 10.14.2

handbook-guidance
If the firm or its advisers have further questions, they should contact the FSA'sIndividual Vetting and Approval department(see SUP 10.11.6 G).

SUP 10 Annex 1

Frequently asked questions

  • 01/12/2004

handbook-guidance

SUP 10 Annex 2

Approved person regime: summary of forms and their use

  • 01/12/2004

Approved person regime: summary of forms and their use

handbook-guidance
  • 21/06/2001

SUP 10 Annex 3

Summary of procedures on applications for approved status

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 10 Annex 4

Form A: Application to perform controlled functions under the approved person regime

  • 01/12/2004

handbook-directions
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - Notes from direction in SUP 10.12

SUP 10 Annex 5

Form B: Notice to withdraw an application to perform controlled functions under the approved persons regime

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - SUP 10 Annex 5
  • 01/07/2004

SUP 10 Annex 6

Form C: Notice of ceasing to perform controlled functions

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - SUP 10 Annex 6

SUP 10 Annex 7

Form D: Notification of changes in personal information or application details

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - SUP 10 Annex 7

SUP 10 Annex 8

Form E: Internal transfer of an approved person

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - SUP 10 Annex 8
  • 01/12/2002

Export chapter as

SUP 11

Controllers and close links

SUP 11.1

Application

  • 01/12/2004

Application to firms

SUP 11.1.1

handbook-rule
This chapter applies to every firm except:
(1) an ICVC;
(2) an incoming EEA firm;
(3) an incoming Treaty firm;
(4) [deleted]
(5) a sole trader;
(6) a UCITS qualifier;
as set out in the table in SUP 11.1.2 R.

SUP 11.1.2

handbook-rule

Applicable sections (see SUP 11.1.1 R)

SUP 11.1.3

handbook-guidance
This chapter may apply to directive friendly societies in the circumstances described in SUP 16.4.2 G (1) to (3).

Application to controllers

SUP 11.1.4

handbook-directions
SUP 11.1, SUP 11.2.1 G, SUP 11.33and SUP 11.7 apply to a controller or a proposed controller of a UK domestic firm not listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6).

SUP 11.1.5

handbook-guidance
This chapter may apply to controllers and proposed controllers of directive friendly societies in the circumstances described in SUP 16.4.2G (1) to (3).

SUP 11.2

Purpose

  • 01/12/2004

SUP 11.2.1

handbook-guidance
Part XII of the Act (Control over authorised persons) places an obligation on the controllers and proposed controllers of those UK domestic firms not listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6) to notify the FSA of changes in control. Furthermore, those persons are required to obtain the FSA's approval before becoming a controller or increasing the level of control held (in certain circumstances). SUP 11.3 is intended to assist those persons in complying with their obligations under Part XII of the Act and also sets out the information which a controller or proposed controller must provide to the FSA before becoming a controller or increasing the level of control held.

SUP 11.2.2

handbook-guidance
The rules in SUP 11.4 to SUP 11.6 are aimed at ensuring that the FSA receives information it needs from firms to assist the FSA with its responsibility to monitor and, in some cases, give prior approval to firms' controllers.

SUP 11.2.2A

handbook-guidance
Part XII of the Act does not place an obligation on a controller of a UK insurance intermediary to notify the FSA where it becomes or ceases to be a parent undertaking. Nevertheless, the rule in SUP 11.4.2AR (2) requires the UK insurance intermediary to notify the FSA of parent undertakings so that the FSA can monitor the firm's continuing satisfaction of the threshold conditions, which includes consideration of its controllers and parent undertakings (see COND).
  • 21/06/2001

SUP 11.2.3

handbook-guidance
As the approval of the FSA is not required under the Act for a new controller of an overseas firm, the notification rules on such firms are less prescriptive than they are for UK domestic firms. Nevertheless, the FSA still needs to monitor such an overseas firm's continuing satisfaction of the threshold conditions, which normally includes consideration of a firm's connection with any person, including its controllers and parent undertakings (see COND ). The FSA therefore needs to be notified of controllers and parent undertakings of overseas firms.

SUP 11.2.4

handbook-guidance
As part of the FSA's function of monitoring a firm's continuing satisfaction of the threshold conditions, the FSA needs to consider the impact of any significant change in the circumstances of one or more of its controllers, for example, in their financial standing and, in respect of corporate controllers, in their governing bodies. Consequently, the FSA needs to know if there are any such changes. SUP 11.8 therefore requires a firm to tell the FSA if it becomes aware of particular matters relating to a controller.

SUP 11.2.5

handbook-guidance
Similarly, the FSA needs to monitor a firm's continuing satisfaction of threshold condition 3 (Close links) (see COND 2.3), which requires that a firm's close links are not likely to prevent the FSA's effective supervision of that firm. Accordingly the FSA needs to be notified of any changes in a firm's close links. This requirement is contained in SUP 11.9.

SUP 11.2.6

handbook-guidance
Every firm, other than a firm listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6)or a firm excluded from the operation of SUP 16.4 or SUP 16.5 by SUP 16.1.3 R, is required to submit an annual report on its controllers and close links as set out in SUP 16.4 and SUP 16.5.

SUP 11.2.7

handbook-guidance
The requirements in SUP 11 implement certain provisions relating to changes in control and close links required under the Single Market Directives.

SUP 11.2.8

handbook-guidance
An event described in SUP 11.4.2 R (1) to SUP 11.4.2 R (4)[and R (1) and R (2)] is referred to in this chapter as a "change in control".

SUP 11.3

Requirements on controllers or proposed controllers under the Act

  • 01/12/2004

SUP 11.3.1

handbook-guidance
A summary of the notification requirements described in this section is given in SUP 11 Annex 1.

Requirement to notify a proposed change in control

SUP 11.3.2

handbook-guidance
Sections 178(1) and 190(1)of the Act require a person (whether or not he is an authorised person) to notify the FSA in writing if he proposestotake a step which would result in his acquiring control or increasing or reducing his control over a UK domestic firmin a way described in SUP 11.4.2 R (1) to SUP 11.4.2 R (4), or acquiring or reducing his control in a way described in SUP 11.4.2 R (1) and (2). Failure to notify is an offence under section 191(1) of the Act (Offences under this Part).

SUP 11.3.2A

handbook-guidance

The Treasury have made the following exemptions:

  1. (1) controllers and potential controllers of non-directive friendly societies are exempt from the obligation to notify a change in control (The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2001 (SI 2001/2638));
  2. (2) controllers and potential controllers of building societies are exempt from the obligation to notify a change in control unless the change involves the acquisition of a holding of a specified percentage of a society's capital or the increase or reduction by a specified percentage of a holding of a society's capital (The Financial Services and Markets Act 2000 (Controllers) (Exemption) (No.2) Order 2001 (SI 2001/3338.)). The "capital" of a society for these purposes consists of:
    1. (a) any shares of a class defined as deferred shares for the purposes of section 119 of the Building Societies Act 1986 which have been issued by the society (in practice, likely to be permanent interest bearing shares (PIBS)); and
    2. (b) the general reserves of the society.

Approval required before acquiring or increasing control

SUP 11.3.4

handbook-guidance
If a personproposesto acquire control or increase his control over a UK domestic firm in a way described in SUP 11.4.2 R(1) to (4)or acquire control in a way described in SUP 11.4.2AR (1), he must obtain the FSA's approval before doing so. Failure to obtain approvalis an offence under section 191(3) of the Act (Offences under this Part). The FSA has up to three months to consider whether to approve such a change in control: see SUP 11.7 for guidance on the approval procedures.

SUP 11.3.5

handbook-guidance
The FSA's approval is not required before a controller reduces his control over a UK domestic firm.

Pre-notification and approval for fund managers

SUP 11.3.5A

handbook-guidance
The FSA recognises that firms acting as investment managers may have difficulties in complying with the prior notification requirements in sections 178(1) and 190(1)of the Act as a result of acquiring or disposing of listed shares in the course of that fund management activity. To ameliorate these difficulties, the FSA may accept pre-notification of proposed changes in control, made in accordance with SUP D, and may grant approval of such changes for a period lasting up to a year.

SUP 11.3.5B

handbook-directions
The FSA may treat as notice given in accordance with sections 178(1) and 190(1)of the Act a written notification from a firm which contains the following statements:
(1) that the firm proposes to acquire and/or dispose of control, on one or more occasions, of any UK domestic firm whose shares or those of its ultimate parent undertaking are, at the time of the acquisition or disposal of control, listed or which are admitted to listing on a designated investment exchange;:
(2) that any such acquisitions and/or disposals of control will occur only in the course of the firm's business as an investment manager; and
(3) that the level of control the firm so acquires in the pre-approval period will at all times remain less than 20%.

SUP 11.3.5C

handbook-guidance
Where the FSA approves changes in control proposed in a notice given under SUP 11.3.5B D:
(1) the controller remains subject to the requirement to notify the FSA when a change in control actually occurs; and
(2) the notification of change in control should be made no later than five business days after the end of each month and set out all changes in the controller's control position for each UK domestic firm for the month in question.


At that stage, the FSA may seek from the controller further information, including that which would have been supplied under SUP 11.3.7 D (2).

Change in control without taking any step

SUP 11.3.6

handbook-guidance
If a change in control occurs without the person himself having taken any step, he must notify the FSA within 14 days of becoming aware of the change (sections 178(2) and 190(2) of the Act). Failure to notify is an offence under section 191(2) of the Act.
  • 01/12/2004

Custodians obtaining control

SUP 11.3.6A

handbook-guidance
The FSA considers that a custodian or its wholly-owned subsidiary nominee company, acting only in that capacity, does not itself take any step for the purposes of sections 178(2) and 190(2) of the Act when it becomes the controller of a UK domestic firm, its control of a UK domestic firm changes or it ceases to be the controller of a UK domestic firm as a result of acquiring or disposing of custody assets in the form of shares in accordance with its client's instructions.
  • 01/12/2004

SUP 11.3.6B

handbook-guidance
For the purposes of sections 178(2) and 190(2) of the Act and where there has been more than one change in control for each UK domestic firm in a fortnightly period, a custodian or its wholly-owned subsidiary nominee company to which SUP 11.3.6A G applies need only notify the FSA of its final control position for each UK domestic firm for that fortnight, so long as it also supplies the highest control position for each UK domestic firm it obtained during that period.
  • 01/12/2004

SUP 11.3.6C

handbook-guidance
Reporting by a custodian or its wholly-owned subsidiary nominee company does not relieve any other person with an interest in any custody assets from its control notification responsibilities under Part XII of the Act.
  • 01/12/2004

Form of notification when acquiring or increasing control

SUP 11.3.7

handbook-directions
Anotification ("notice of control") given to the FSA by a person who is acquiring control or increasing his control over a UK domestic firm, in a way described in SUP 11.4.2 R (1) to (4), or acquiring control in a way described in SUP 11.4.2A R, must:
(1) where the controller or a proposed controller is not an authorised person, contain the information required in:
(a) Controllers Form A (SUP 11 Annex 4); and
(b) one or more of Controllers Form B (SUP 11 Annex 5) in accordance with SUP 11.3.8 D; or
(1A) where the controller is a custodian or a nominee company notifying under SUP 11.3.6A G, comply with that direction;
(2) where the controller or proposed controller is any other authorised person, contain the information required in those sections of Controllers Form A (SUP 11 Annex 4) which deal with details of the proposed change in control and the persons involved in the notification; and
(3) if a notification is not submitted on the relevant form specified in (1) or (2), provide reasons why that form was not used.

SUP 11.3.8

handbook-directions
The information in Controllers Form B is required in relation to the following persons:
(1) if the controller is an individual, that individual;
(2) if the controller is a body corporate:
(a) the individual who is its chief executive; and
(b) one other individual who is a director of the body corporate;
(3) if the controller is a partnership or is a controller because he is a partner in a partnership:
(a) the individual who is a managing partner or equivalent in the partnership; and
(b) one other individual who is a partner in the partnership.
  • 21/06/2001

SUP 11.3.9

handbook-directions
If a Controllers Form B, or an Application to perform controlled functions under the approved persons regime (Form A in SUP 10 Annex 4) in respect of a governing function, has already been submitted to the FSA in relation to a relevant individual, then the information in that form need not be submitted to the FSA as long as details of any changes in the information previously submitted, or confirmation that there are none, is submitted.

SUP 11.3.10

handbook-directions
(1) A person who has submitted a notificationunder SUP 11.3.7 D must notify the FSA immediately if he becomes aware, or has information that reasonably suggests, that he has or may have provided the FSA with information which was or may have been false, misleading, incomplete or inaccurate, or has or may have changed, in a material particular. The notification must include:
(a) details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;
(b) an explanation why such information was or may have been provided; and
(c) the correct information.
(2) If the information in (1) (c) cannot be submitted with the notification(because it is not immediately available), it must instead be submitted as soon as possible afterwards.
(3) The requirement in (1) ceases if the change in control occurs or will not take place.

SUP 11.3.11

handbook-guidance
The FSA, for administrative reasons, expects notifications within SUP 11.3.7 D to be given on Controllers Form A or Controllers Form B, as appropriate. If notifications are not made on these forms the applicant must inform the FSA of the reasons for not using them.

SUP 11.3.12

handbook-guidance
If a controller or proposed controller considers that the requirements in SUP 11.3.7 D to SUP 11.3.9 D are not appropriate to his circumstances, :
(1) if the control is temporary; or
(2) if Form B is required (under SUP 11.3.8 D) in relation to:
(a) an individual who is an approved person; or
(b) a partnership of which one or more of the partners are bodies corporate.


he should consult the FSA. The FSA has power, under section 182(3) of the Act (Notification), to amend those requirements if it considers it appropriate to do so.

SUP 11.3.13

handbook-guidance
The Act provides that the FSA may request any additional information or documentation from the controller or proposed controller that it reasonably requires in order to determine what action it is to take in response to the notification. A controller or proposed controller which is an authorised person is required to submit less information under SUP 11.3.7 D than other persons and consequently the FSA may ask for confirmation of details already held or any additional information which it consi3ders appropriate.

SUP 11.3.14

handbook-guidance
The FSA is obliged to consult regulatory authorities in other EEA Statesbefore approving the change in control or giving a warning notice where the Financial and Services Markets Act 2000 (Consultation with Competent Authorities) Regulations 2001 (SI 2001/2509, as amended) apply. In summary, these regulations require the FSA to consult with the home state regulator of an ISD investment firm , a BCD credit institution, an EEA insurer, an EEAUCITS management company or the parent undertaking of any of these, where that firm has acquired or proposes to acquire control of certain UK domestic firms such that the acquiring firm would become the parent undertaking of the relevant UK domestic firm. These regulations also impose certain consultation obligations on the FSA in respect of financial conglomerates.

Form of notification when reducing control

SUP 11.3.15

handbook-guidance
A notification given to the FSA by a person who is reducing his control over a UK domestic firm, in a way described in SUP 11.4.2 R(1) to (4), or must, in accordance with section 190(4) of the Act (Notification):
(1) be in writing; and
(2) provide details of the extent of control (if any) which the controller will have following the change in control.
  • 01/12/2004

Notification when change in control occurs

SUP 11.3.16

handbook-guidance
A person who is under a duty to notify the FSA of a proposed change in control is also required to notify the FSA when the relevant change in control has occurred (sections 178(3) and 190(3) of the Act).
  • 01/12/2004

Joint and shared notifications

SUP 11.3.17

handbook-guidance
Notifications to the FSA by proposed controllers and controllers under Part XII of the Act may be made on a joint or shared basis outlined in SUP 11.5.8 G to SUP 11.5.10 G.

SUP 11.4

Requirements on firms

  • 01/12/2004

SUP 11.4.1

handbook-guidance
A summary of the notification requirements in this section is given in SUP 11 Annex 1.

Requirement to notify a change in control

SUP 11.4.2

handbook-rule
A UK domestic firm other than a UK insurance intermediary must notify the FSA of any of the following events concerning the firm:
(1) a person acquiring control or ceasing to have control
(2) an existing controlleracquiring an additional kind of control or ceasing to have a kind of control;
(3) an existing controllerincreasing or decreasing a kind of control which he already has so that the percentage of shares or voting power concerned becomes or ceases to be equal to or greater than 20, 33 or 50;
(4) an existing controllerbecoming or ceasing to be a parent undertaking.

SUP 11.4.2A

handbook-rule

A UK insurance intermediary must notify the FSA of any of the following events concerning the firm:

  1. (1) a person acquiring control;
  2. (2) in relation to an existing controller:
    1. (a) the percentage of shares held in the firm decreasing from 20% or more to less than 20%; or
    2. (b) the percentage of shares held in a parent undertaking of the firm decreasing from 20% or more to less than 20%; or
    3. (c) the percentage of voting power which it is entitled to exercise, or control the exercise of, in the firm decreasing from 20% or more to less than 20%; or
    4. (d) the percentage of voting power which it is entitled to exercise, or control the exercise of, in a parent undertaking of the firm decreasing from 20% or more to less than 20%;
  3. (3) an existing controller becoming or ceasing to be a parent undertaking.

SUP 11.4.3

handbook-guidance
SUP 11 Annex 2 gives examples of the circumstances in which a notification in accordance with SUP 11.4.2 R is required.
  • 21/06/2001

SUP 11.4.4

handbook-rule
An overseas firm must notify the FSA of any of the following events concerning the firm:
(1) a person acquiring control or ceasing to have control;
(2) an existing controller becoming or ceasing to be a parent undertaking.

SUP 11.4.5

handbook-guidance
If there is uncertainty whether a particular relationship constitutes control, it may be appropriate for the firm or controller or proposed controller to ask the FSA for individual guidance (see SUP 9) and to obtain its own legal advice. For example, if the control is to be held through a trust, then certain trustees, beneficiaries and other parties may qualify as controllers for the purposes of the Act and this chapter. Furthermore, a person may qualify as a controller if he is able to exercise 10%. (20% if the firm is a UK insurance intermediary) or more of the voting power at a firm's general meeting as a result of the ability to exercise proxy votes.
  • 21/06/2001

SUP 11.4.6

handbook-guidance
If a firm is required to obtain approval from the Society of Lloyd's for any changes in its controllers, it should apply for this approval as well as notifying the FSA.

Content and timing of the notification

SUP 11.4.7

handbook-rule
The notification by a firm under SUP 11.4.2 R, R or SUP 11.4.4 R must:
(1) be in writing;
(2) contain the information set out in:
(a) in the case of acquiring or increasing control, SUP 11.5.1 R (subject to SUP 11.5); or
(b) in the case of reducing control, SUP 11.5.7 R; and
(3) be made:
(a) as soon as the firm becomes aware that a personis proposing to take a step that would result in the event concerned; or
(b) if the eventtakes place without the knowledge of the firm, within 14 days of the firm becoming aware of the change in control concerned.

SUP 11.4.8

handbook-guidance
Principle 11 requires firms to be open and cooperative with the FSA . A firm should discuss with the FSA , at the earliest opportunity, any prospective changes of which it is aware, in controllers' or proposed controllers' shareholdings or voting power (if the change is material). These discussions may take place before the formal notification requirement in SUP 11.4.2 R, R or SUP 11.4.4 R arises. (See also SUP 11.3.2 G). As a minimum, the FSA considers that such discussions should take place before a person:
(1) enters into any formal agreement in respect of the purchase of shares or a proposed acquisition or merger which would result in a change in control (whether or not the agreement is conditional upon any matter, including the FSA's approval); or
(2) purchases any shareoptions, warrants or other financial instruments, the exercise of which would result in the person acquiring control or any other change in control.

SUP 11.4.9

handbook-guidance
The obligationin SUP 11.4.2 R and SUP 11.4.2AR (1) and R (2) applies whether or not the controller himself has given or intends to give a notification, in accordance with his obligations under the Act.

Identity of controllers

SUP 11.4.10

handbook-rule
A firm must take reasonable steps to keep itself informed about the identity of its controllers.

SUP 11.4.11

handbook-guidance
The steps that the FSA expects a firm to take to comply with SUP 11.4.10 R include, if applicable:
(1) monitoring its register of shareholders (or equivalent);
(2) monitoring notifications to the firm in accordance with Part VI of the Companies Act 1985;
(3) monitoring public announcements made under the relevant disclosure provisions of the Takeover Code or other rules made by the Takeover Panel (for example the SARs);
(4) monitoring the entitlement of delegates, or persons with voting rights in respect of group insurance contracts, to exercise or control voting power at general meetings.

SUP 11.5

Form of notification by firms

SUP 11.5.1

handbook-rule

Information to be submitted by the firm (see SUP 11.4.7 R (2)(a))

SUP 11.5.2

handbook-rule
The notification from a firm under SUP 11.4.7 R (2)(a) need only contain as much of the information set out in SUP 11.5.1 R as the firm is able to provide, having made reasonable enquiries from persons and other sources as appropriate.

SUP 11.5.3

handbook-guidance
In determining what the FSA would reasonably expect notice of in accordance with row (4) in SUP 11.5.1 R, a firm should have regard, in particular, to the following matters to the extent that the firm is aware of them:
(1) whether the controller intends to make any significant changes to the firm's or firms' regulated activities, business plan or strategy as a result of the change in control;
(2) whether the controller intends any restructuring either in terms of the legal form of the firm(s) or in its or their borrowings, capital restructuring or financing arrangements;
(3) whether the FSA is obliged to consult with regulatory authorities in other EEA States (see SUP 11.3.14 G);
(4) in the case of a share acquisition or similar, how it is to be financed;
(5) whether the controller has any interests which may conflict with its role as controller of the UK domestic firm.


Firms are also reminded of the circumstances set out in SUP 15.3.8 G (Communication with the FSA in accordance with Principle 11) which may arise on a change in control and which should also be notified.
  • 01/12/2004

SUP 11.5.4

handbook-guidance
Firms are reminded that a change in control may give rise to a change in the groupcompanies to which the FSA's consolidated financial supervision requirements apply. Also, the firm may for the first time become subject to the FSA's requirements on consolidated financial supervision (or equivalent requirements imposed by another EEA State). This may apply, for example, if the controller is itself an authorised undertaking. The FSA may therefore request such a firm, controller or proposed controller to provide evidence that, following the change in control, the firm will meet the requirements of these rules, if appropriate.

SUP 11.5.4A

handbook-guidance
Firms are also reminded that a change in control may give rise to a notification as a financial conglomerate or a change in the supplementary supervision of a financial conglomerate (see PRU 8.4(Cross sector groups) and PRU 8.5(Third country groups)).

SUP 11.5.5

handbook-guidance
If a controller proposes any significant changes to the firm, for instance to its regulated activities, business plan or strategy, the firm may be requested to provide a business plan (see SUP 2: Information gathering by the FSA on its own initiative). If an insurer comes under the control of a new parent undertaking, such a business plan would be a scheme of operations in accordance with SUP App 2.
  • 21/06/2001

SUP 11.5.6

handbook-guidance
The FSA may request the firm to provide additional information (see SUP 2 (Information gathering by the FSA on its own initiative)). In determining any additional information requirements, the FSA will have regard to the supervision being exercised over the firm by any overseas regulators.
  • 21/06/2001

Form of notification when a person reduces control

SUP 11.5.7

handbook-rule
A notification of a proposed reduction in control must:
(1) give the name of the controller; and
(2) provide details of the extent of control (if any) which the controller will have following the change in control.

Joint and shared notifications

SUP 11.5.8

handbook-guidance
A firm and its controller or proposed controller may discharge an obligation to notify the FSA by submitting a single joint notificationcontaining the information required from the firm and the controller or proposed controller. In this case, the Controllers Form A may be used to submit a notification on behalf of both the firm and the controller or proposed controller.

SUP 11.5.9

handbook-guidance
If a person is proposing a change in control over more than one firm within a group, then the controller or proposed controller may submit a singlenotification in respect of all those firms. The notificationshould contain all the required information as if separate notifications had been made, but information and documentation need not be duplicated.

SUP 11.5.10

handbook-guidance
When an event occurs (for example, a group restructuring or a merger) as a result of which:
(1) more than one firm in a group would undergo a change in control; or
(2) a single firm would experience more than one change in control;
then, to avoid duplication of documentation, all the firms and their controllers or proposed controllers may discharge their respective obligations to notify the FSA by submitting a single notification containing one set of information.

SUP 11.6

Subsequent notification requirements by firms

  • 01/12/2004

Changes in the information provided to the FSA

SUP 11.6.1

handbook-guidance
Firms are reminded that SUP 15.6.4 R requires them to notify the FSA if information notified under SUP 11.4.2 R, R or SUP 11.4.4 R was false, misleading, inaccurate, incomplete, or changes, in a material particular. This would include a firm becoming aware of information that it would have been required to provide under SUP 11.5.1 R if it had been aware of it.

SUP 11.6.2

handbook-rule
After submitting a notificationunder SUP 11.4.2 R or SUP 11.4.2AR (1) and R (2) and until the change in control occurs (or is no longer to take place), SUP 15.6.4 R and SUP 15.6.5 R apply to a UK domestic firm in relation to any information its controller or proposed controller provided to the FSA under SUP 11.5.1 R or SUP 11.3.7 D.

SUP 11.6.3

handbook-rule
During the period in SUP 11.6.2 R, a UK domestic firm must take reasonable steps to keep itself informed about the circumstances of the controller or the proposed controller to which the notification related.

Notification that the change in control has taken place

SUP 11.6.4

handbook-rule
A firm must notify the FSA :
(1) when a change in control which was previously notified under SUP 11.4.2 R, SUP 11.4.2A Ror SUP 11.4.4 R has taken place; or
(2) if the firm has grounds for reasonably believing that the event will not now take place.

SUP 11.6.5

handbook-rule
The notification under SUP 11.6.4 R must be given within 14 days of the change in control or of having the grounds (as applicable).

SUP 11.6.6

handbook-guidance
A notification under SUP 11.6.4 R may be given jointly with the notification of the controller under SUP 11.3.16 G.
  • 21/06/2001

SUP 11.7

Acquisition or increase of control: approval procedures

SUP 11.7.1

handbook-guidance
The approval procedures are summarised in SUP 11 Annex 3.

Approval with or without conditions

SUP 11.7.2

handbook-guidance
If the FSA decides to approve a proposed acquisition or increase of control unconditionally, it must give an 'approval notice' without delay (section 184(1) of the Act).

SUP 11.7.3

handbook-guidance
Alternatively, the FSA may decide to approve the proposed acquisition or increase of control subject to such conditions as it considers appropriate, having regard to the FSA's duty to ensure that the firm concerned will satisfy, and continue to satisfy, the threshold conditions (section 185 of the Act).
(1) If the FSA proposes to approve subject to conditions, it must give a warning notice.
(2) If the FSA decides to proceed to approve subject to conditions, it must give a decision notice.

SUP 11.7.4

handbook-guidance
A notice which approves a change of control (with or without conditions) is effective only for a limited period as set out in the notice (or, if no such period is specified, for one year) (section 184(3) of the Act). An approved change in control may not therefore take place after the end of this period.

Approval requirements and objection

SUP 11.7.5

handbook-guidance
The FSA may object to a proposed acquisition or increase of control unless it is satisfied that the approval requirements are met (section 186 of the Act). These are that:
(1) the acquirer is a fit and proper person to have the control over the firm that he has or would have if he acquired the control in question; and
(2) the interests of consumers would not be threatened by the acquirer's control or by his acquiring that control.
  • 21/06/2001

SUP 11.7.6

handbook-guidance
In deciding whether the approval requirements are met, the FSA must have regard, in relation to the control that the acquirer:
(1) has over the firm; or
(2) will have over the firm if the proposal to which the notification relates is carried out;
to the FSA's duty to ensure that the firm will satisfy, and continue to satisfy, the threshold conditions (section 186(3) of the Act).
  • 21/06/2001

SUP 11.7.7

handbook-guidance
(1) If the FSA proposes to object, it must issue a warning notice.
(2) If the FSA decides to proceed with its proposed objection, it must issue a decision notice.
(3) If the FSA considers that the approval requirements would be met if a particular step were taken or not taken, the decision notice must identify that step (section 186(4) of the Act).
  • 01/12/2004

SUP 11.7.8

handbook-guidance
The FSA may also object if it has not received sufficient information from either the controller or the firm to satisfy itself that the approval requirements are met.
  • 01/12/2004

Warning notices and decision notices

SUP 11.7.9

handbook-guidance
The procedure followed by the FSA in relation to the giving of warning notices and decision notices and the process for referrals to the Financial Services and Markets Tribunal are set out in DEC 2.

The FSA's timeframe for responding to a notification

SUP 11.7.10

handbook-guidance
If the FSA receives a valid notification from a controller or proposed controller, the FSA must respond within three months (section 183(1) of the Act). The response from the FSA will be either an approval notice or a warning notice.
  • 01/12/2004

SUP 11.7.11

handbook-guidance
(1) Where the FSA becomes aware of a possible breach by the controller or proposed controller of his obligations under section 178(1) or (2) of the Act (Obligation to notify the Authority), it may require the person concerned to provide additional information or documents (section 188(4) of the Act).
(2) If the FSA is satisfied that a breach has occurred, but is not satisfied that the approval requirements are met, the FSA may give a warning notice to the controller or proposed controller (section 187(1) and 188(1) of the Act).
(3) Alternatively, the FSA may retrospectively approve the change in control as if a notification had been received from the controller or proposed controller (section 187(2) of the Act).
  • 01/12/2004

SUP 11.7.12

handbook-guidance
If the FSA does not receive a notification from the controller or proposed controller and proposes to give a warning notice, it must do so within three months of the date on which it became aware that the controller or proposed controller had failed to comply with his duty to notify (section 188(3) of the Act).
  • 21/06/2001

SUP 11.7.13

handbook-guidance
Before giving an approval notice or warning notice , the FSA must comply with certainrequirements as to consultation with competent authorities outside the United Kingdom (sections 183(2) and 188(2) of the Act and the Financial Services and Markets Act 2000 (Consultation with Competent Authorities) Regulations 2001). The Financial Groups Directive Regulations make special provision in relation to (the change in control over a UK authorised person (within the meaning of section 178(4) of the Act) which is a member of a third-country group

The FSA's right to object to existing controllers

SUP 11.7.14

handbook-guidance
If a controller fails to give a notification under section 178 of the Act on acquiring or increasing control, and the FSA is not satisfied that the approval requirements are met, the FSA may propose to object to the controller by giving him a warning notice (sections 187(1) and 188(1) of the Act).
  • 01/12/2004

SUP 11.7.15

handbook-guidance
The FSA may propose to object to a controller by giving him a warning notice at any time if it becomes aware of matters as a result of which it is satisfied that:
(1) the approval requirements are not met with respect to the controller; or
(2) a condition attached to an approval required the controller to do (or refrain from doing) a particular thing and that condition has been breached by the controller (sections 187(3) and 188(1) of the Act).
  • 21/06/2001

SUP 11.7.16

handbook-guidance
If the FSA gives a warning notice as described in SUP 11.7.14 G or SUP 11.7.15 G, section 188 of the Act sets out various requirements as to timetable, consultation and provision of information.
  • 21/06/2001

SUP 11.7.17

handbook-guidance
Following a warning notice as described in SUP 11.7.14 G or SUP 11.7.15 G, the FSA may decide to object to the controller and give him a decision notice. If the FSA does so, or if a conditional approval has been contravened, it may impose restrictions on some or all of the controller's shares by notice in writing or apply to the court for an order that the controller dispose of them (section 189 of the Act).
  • 21/06/2001

SUP 11.7.18

handbook-guidance
If it appears to the FSA that the likely effect of an acquisition of control on a firm, or on any of its activities, is uncertain, the FSA may, in accordance with section 46 of the Act (Variation of permission on acquisition of control), vary the firm's Part IV permission by:
(1) imposing a requirement (see SUP 7: Individual requirements); or
(2) varying an existing requirement.
The warning notice and decision notice procedure does not apply to action taken under section 46 of the Act, but the FSA will operate a procedure that is fair in the circumstances.
  • 21/06/2001

SUP 11.8

Changes in the circumstances of existing controllers

  • 01/12/2004

SUP 11.8.1

handbook-rule
A firm must notify the FSA immediately it becomes aware of any of the following matters in respect of one or more of its controllers:
(1) if a controller, or any entity subject to his control, is or has been the subject of any legal action or investigation which might put into question the integrity of the controller;
(2) if there is a significant deterioration in the financial position of a controller;
(3) if a corporate controller undergoes a substantial change or series of changes in its governing body;
(4) if a controller, who is authorised in another EEA State as an ISD investment firm or BCD credit institution or under the Insurance Directives or the Insurance Mediation Directive, ceases to be so authorised (registered in the case on an IMD insurance intermediary).

SUP 11.8.2

handbook-guidance
In assessing whether a matter should be notified to the FSA under SUP 11.8.1 R (1), SUP 11.8.1 R (2) or SUP 11.8.1 R (3), a firm should have regard to the guidance on satisfying threshold condition 5 (Suitability) contained in COND 2.5.
  • 21/06/2001

SUP 11.8.3

handbook-guidance
In respect of SUP 11.8.1 R (3), the FSA considers that, in particular, the removal or replacement of a majority of the members of a governing body (in a single event or a series of connected events) is a substantial change and should be notified.

SUP 11.8.4

handbook-guidance
If a matter has already been notified to the FSA (for example, as part of the firm's application for a Part IV permission ), the firm need only inform the FSA of any significant developments.

SUP 11.8.5

handbook-guidance
The level of a firm's awareness of its controller's circumstances will depend on its relationship with that controller. The FSA does not expect firms to implement systems or procedures so as to be certain of any changes in its controllers' circumstances. However, the FSA does expect firms to notify it of such matters if the firm becomes aware of them, and it expects firms to make enquiries of its controllers if it becomes aware that one of the events in SUP 11.8.1 R may occur or has occurred.

SUP 11.8.6

handbook-guidance
The FSA may ask the firm for additional information following a notification under SUP 11.8.1 R in order to satisfy itself that the controller continues to be suitable (see SUP 2: Information gathering by the FSA on its own initiative).

SUP 11.9

Changes in close links

  • 01/12/2004

Requirement to notify changes in close links

SUP 11.9.1

handbook-rule
A firm must notify the FSA that it has become or ceased to be closely linked with any person. The notification must include the information set out in SUP 16.5.4 R(4).

SUP 11.9.2

handbook-guidance
Guidance on what constitutes a close link is provided in COND 2.3.
  • 21/06/2001

SUP 11.9.3

handbook-guidance
The FSA may ask the firm for additional information following a notification under SUP 11.9.1 R in order to satisfy itself that the firm continues to satisfy the threshold conditions (see SUP 2: Information gathering by the FSA on its own initiative).
  • 21/06/2001

Timing of notification requirement

SUP 11.9.4

handbook-rule
The firm must make a notification to the FSA under SUP 11.9.1 R:
(1) as soon as reasonably practicable and no later than one month after it becomes aware that it has become or ceased to be closely linked with any person; or
(2) where a firm has elected to report on a monthly basis, within fifteen business days of the end of each monthand:
(a) including the information set out in SUP 16.5.4R(4) for that month; and
(b) if there is no person required to be included in the notification for a particular month, confirming this fact in the notification.

Electing to notify changes in close links monthly

SUP 11.9.5

handbook-rule
(1) A firm elects to report changes in close links on a monthly basis by sending a written notice of election to the firm's usual supervisory contact at the FSA.
(2) An election to report changes in close links on a monthly basis will stand until such time as the firm gives its usual supervisory contact at the FSA at least one month's written notice of its intention to cease reporting changes in close links on a monthly basis.
  • 01/12/2004

SUP 11.9.6

handbook-guidance
The FSA considers that monthly reporting of changes in close links will ordinarily only be appropriate for firms forming part of large groups.
  • 01/12/2004

SUP 11 Annex 1

Summary of notification requirements

  • 01/12/2004

handbook-guidance

SUP 11 Annex 2

Guidance on events requiring approval

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 11 Annex 3

Summary of procedures on a notification of a change in control

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 11 Annex 4

Controllers Form A

  • 01/12/2004

handbook-directions

SUP 11 Annex 5

Controllers Form B

  • 01/12/2004

handbook-directions
  • 21/06/2001

Export chapter as

SUP 12

Appointed representatives

SUP 12.1

Application and purpose

  • 01/12/2004

Application

SUP 12.1.1

handbook-rule
(1) This chapter applies to a firm which is considering appointing, has decided to appoint or has appointed an appointed representative.
(2) This chapter does not apply to a UCITS qualifier.

Purpose

SUP 12.1.2

handbook-guidance
This chapter gives guidance to a firm, which is considering appointing an appointed representative, on how the provisions of section 39 of the Act (Exemption of appointed representatives) work. For example, it gives guidance on the conditions that must be satisfied for a person to be appointed as an appointed representative. It also gives guidance to a firm on the implications, for the firm itself, of appointing an appointed representative.
  • 21/06/2001

SUP 12.1.3

handbook-guidance
The chapter also sets out the FSA's rules, and guidance on these rules, that apply to a firm before it appoints, when it appoints and when it has appointed an appointed representative. The main purpose of these rules is to place responsibility on a firm for seeking to ensure that:
(1) its appointed representatives are fit and proper to deal with clients in its name; and
(2) clients dealing with its appointed representatives are afforded the same level of protection as if they had dealt with the firm itself.
  • 21/06/2001

SUP 12.1.4

handbook-guidance
The FSA has produced a leaflet entitled "Becoming an appointed representative" which provides a comprehensive summary of some of the main features of the appointed representative regime. You may download a copy of this leaflet from our website at http://www.fsa.gov.uk/pubs/other/factsheet_appointed.pdf .
  • 21/06/2001

SUP 12.2

Introduction

  • 01/12/2004

What is an appointed representative?

SUP 12.2.1

handbook-guidance
(1) Under section 19 of the Act (The general prohibition), no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person, or he is an exempt person in relation to that activity.
(2) A person will be an exempt person if he satisfies the conditions in section 39(1) of the Act, guidance on which is given in SUP 12.2.2 G. A person who is exempt as a result of satisfying these conditions is referred to in the Act as an appointed representative.

SUP 12.2.2

handbook-guidance
(1) A personmust satisfy the conditions in section 39(1) of the Act to become an appointed representative. These are that:
(a) the person must not be an authorised person, that is, he must not have permission under the Act to carry on any regulated activity in his own right (section 39(1) of the Act);
(b) the person must have entered into a contract with an authorised person, referred to in the Act as the 'principal', which:
(i) permits or requires him to carry on business of a description prescribed in the Appointed Representatives Regulations (section 39(1)(a)(i) of the Act) (see SUP 12.2.7 G); and
(ii) complies with any requirements that may be prescribed in the Appointed Representatives Regulations (section 39(1)(a)(ii) of the Act) (see SUP 12.5.2 G (1)); and
(c) the principal must have accepted responsibility, in writing, for the authorised activities of the person in carrying on the whole, or part, of the business specified in the contract.
(2) The appointed representative is an exempt person in relation to any regulated activity comprised in the carrying on of the business for which his principal has accepted responsibility.
  • 30/06/2004

Who can be an appointed representative?

SUP 12.2.3

handbook-guidance
As long as the conditions in section 39 of the Act are satisfied, any person, other than an authorised person, may become an appointed representative, including a body corporate, a partnership or an individual in business on his own account. However, an appointed representative cannot be an authorised person under the Act; that is, it cannot be exempt for some regulated activities and authorised for others.
  • 30/06/2004

Can an appointed representative have more than one principal?

SUP 12.2.4

handbook-guidance
The Act and the Appointed Representative Regulations do not prevent an appointed representative from acting for more than one principal. However, SUP 12.5.6A R (Prohibition of multiple principals for certain activities) prevents this for particular kinds of business.
  • 30/06/2004

What is a "network"?

SUP 12.2.6

handbook-guidance
A firm is referred to as a 'network' if it appoints five or more appointed representatives or if it appoints less than five appointed representatives which have, between them, twenty-six or more representatives. However, a network does not include:

(a) a product provider;

(b) a firm which markets the packaged products of a product provider in the same group as the firm and which does so other than by selecting products from the whole market;

(c) an insurer in relation to a non-investment insurance contract; or

(d) a mortgage lender.

Business for which an appointed representative is exempt

SUP 12.2.7

handbook-guidance
(1) The Appointed Representatives Regulations are made by the Treasury under section 39(1) of the Act. These regulations describe, among other things, the business for which an appointed representative may be exempt, which is business which comprises any of:
(a) dealing in investments as agent (article 21 of the Regulated Activities Order) where the transaction relates to a pure protection contract (but only where the contract is not a long-term care insurance contract) or general insurance contract;
(b) arranging (bringing about) deals in investments (article 25(1) of the Regulated Activities Order) (that is in summary, deals in a designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);
(c) making arrangements with a view to transactions in investments (article 25(2) of the Regulated Activities Order) (that is in summary, transactions in a designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);
(d) regulated mortgage contracts (article 25A(1) of the Regulated Activities Order);
(e) making arrangements with a view to regulated mortgage contracts (article 25A(2) of the Regulated Activities Order);
(f) assisting in the administration and performance of a contract of insurance (article 39A of the Regulated Activities Order);
(g) arranging safeguarding and administration of assets (part of article 40 of the Regulated Activities Order);
(h) providing basic advice on stakeholder products (article 52B of the Regulated Activities Order);
(i) advising on investments (article 53 of the Regulated Activities Order) (that is in summary, on any designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);
(j) advising on regulated mortgage contracts (article 53A of the Regulated Activities Order); and
(k) agreeing to carry on a regulated activity (article 64 of the Regulated Activities Order) where the regulated activity is one of those in (a) to (h).
(2) If the appointed representative is an investment firm (see (3)), the business in (1) does not include the reception and transmission of orders on behalf of investors in relation to instruments covered by the ISD unless that activity is solely on behalf of another investment firm.
(3) In (2), an "investment firm" is a person whose regular occupation or business is the provision of core investment services to third parties on a professional basis, other than a person to whom the ISD does not apply under article 2(2) of the ISD.

What is an introducer appointed representative?

SUP 12.2.8

handbook-guidance
(1) An introducer appointed representative is an appointed representative appointed by a firm whose scope of appointment must, under SUP 12.5.7 R, be limited to:
(a) effecting introductions to the firm or other members of the firm'sgroup; and
(b) distributing non-real time financial promotions which relate to products or services available from or through the firm or other members of the firm'sgroup.
(2) The permitted scope of appointment of an introducer appointed representative does not include in particular:
(a) dealing in investments as agent; or
(b) arranging (bringing about) deals in investments or arranging (bringing about) regulated mortgage contracts; or
(c) assisting in the administration and performance of a contract of insurance; or
(d) advising on investments, providing basic advice on stakeholder products, advising on regulated mortgage contracts or other activity that might reasonably lead a customer to believe that he had received basic advice or advice on investments or on regulated mortgage contracts or that the introducer appointed representative is permitted to provide basic advice or give advice on investments or on regulated mortgage contracts.
(3) An introducer appointed representative may have more than one principal, but will need a contract with each principal.
(4) The approved persons regime does not apply to an introducer appointed representative (see SUP 10.1.16 R ).

SUP 12.2.9

handbook-guidance
To become an introducer appointed representative, a person must meet the conditions in the Act to become an appointed representative (see SUP 12.2.2 G).
  • 30/06/2004

SUP 12.2.10

handbook-guidance
All rules in SUP 12 apply in relation to introducer appointed representatives except for:
(1) SUP 12.4.2 R, SUP 12.4.5B R and SUP 12.4.5C, on the appointment of appointed representatives, which are replaced by SUP 12.4.6 R;
(2) SUP 12.5.6A R on required contract terms, which is replaced by SUP 12.5.7 R; and
(3) SUP 12.9.1 R (4) (Record keeping).
  • 30/06/2004

SUP 12.2.11

handbook-guidance
If an introducer appointed representative is an individual in business on his own, then he will also be an introducer (see SUP 12.2.13 G). This has certain implications in COB (see COB 5 (Advising and selling)).

Introducers and representatives: what do these terms mean and what is the relationship with an appointed representative?

SUP 12.2.12

handbook-guidance
A firm or its appointed representative may appoint or employ individuals to act as introducers or representatives in respect of designated investment business.
  • 01/12/2004

SUP 12.2.13

handbook-guidance
(1) An introducer is an individual appointed by a firm or by an appointed representative of such a firm to carry out, in the course of designated investment business, either or both of the following activities:
(a) effecting introductions;
(b) distributing non-real time financial promotions.
(2) An introducer is not an exempt person under section 39 of the Act (unless he is also an introducer appointed representative) and hence cannot benefit from the exemption to carry on regulated activities in his own right. As a result, an introducer that is not an introducer appointed representative works in the name of his firm or the firm'sappointed representative but he does not fall within the scope of the approved persons regime as he does not, as such, perform a controlled function.
  • 01/12/2004

SUP 12.2.14

handbook-guidance
(1) A representative is an individual who is appointed by a firm or an appointed representative, to carry on any of the activities in (1)(a) to (c):
(a) advising on investments;
(b) arranging (bringing about) deals in investments;
(c) dealing in investments as agent.
(2) If a firm appoints an appointed representative who is an individual in (1), that appointed representative will also be a representative. The individual may need to be approved to perform the investment adviser function or the customer trading function or both,and possibly also the sole trader function (see SUP 12.6.8 G and SUP 12.6.9 G). In these circumstances, in addition to complying with the requirements of SUP 12 and other regulatory requirements, the firm should ensure that the rules for representatives in COB 5 (Advising and selling) are complied with.

SUP 12.3

What responsibility does a firm have for its appointed representatives ?

SUP 12.3.1

handbook-guidance
In determining whether a firm has complied with any provision in or under the Act such as any Principle or other rule, anything that an appointed representative has done or omitted to do as respects the business for which the firm has accepted responsibility will be treated as having been done or omitted to be done by the firm (section 39(4) of the Act).
  • 21/06/2001

SUP 12.3.2

handbook-guidance
The firm is responsible, to the same extent as if it had expressly permitted it, for anything the appointed representative does or omits to do, in carrying on the business for which the firm has accepted responsibility (section 39(3) of the Act).
  • 21/06/2001

SUP 12.3.3

handbook-guidance
In determining whether the firm has committed any offence, however, the knowledge or intentions of an appointed representative are not attributable to thefirm, unless in all the circumstances it is reasonable for them to be attributed to it (section 39(6) of the Act).
  • 21/06/2001

SUP 12.4

What must a firm do when it appoints an appointed representative or an EEA tied agent?

  • 01/12/2004

The permission that the firm needs

SUP 12.4.1A

handbook-guidance
The effect of sections 20 (Authorised persons acting without permission) and 39(4) (Exemption of appointed representatives) of the Act is that the regulated activities covered by an appointed representative's appointment need to:
(1) fall within the scope of the principal's permission; or
(2) be excluded from being regulated activities when carried on by the principal, for example because they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party).
  • 30/06/2004

Appointment of an appointed representative (other than an introducer appointed representative)

SUP 12.4.2

handbook-rule
Before a firm appoints a person as an appointed representative (other than an introducer appointed representative) and on a continuing basis, it must establish on reasonable grounds that:
(1) the appointment does not prevent the firm from satisfying and continuing to satisfy the threshold conditions;
(2) the person:
(a) is solvent;
(b) is otherwise suitable to act for the firm in that capacity;and
(c) has no close links which would be likely to prevent the effective supervision of the person by the firm;
(3) the firm has adequate:
(a) controls over the person's regulated activities for which the firm has responsibility (see SYSC 3.1); and
(b) resources to monitor and enforce compliance by the person with the relevant requirements applying to the regulated activities for which the firm is responsible and with which the person is required to comply under its contract with the firm (see SUP 12.5.3 G (2)); and
(4) the firm is ready and organised to comply with the other applicable requirements contained or referred to in this chapter.

SUP 12.4.3

handbook-guidance
In assessing, under SUP 12.4.2 R(2)(a) and (b), whether an appointed representative or prospective appointed representative is solvent and otherwise suitable, a firm should determine, among other matters, whether the person is likely to be adversely influenced by its financial position in the conduct of the business for which the firm is responsible. This might arise, for example, if the person has cashflow problems and is not able to service its debts. Guidance for firms on assessing the financial position of an appointed representative or prospective appointed representative is given in SUP 12 Annex 1.

SUP 12.4.4

handbook-guidance
In assessing, under SUP 12.4.2 R (2)(b), whether an appointed representative or prospective appointed representative is otherwise suitable to act for the firm in that capacity, a firm should consider:
(1) whether the person is fit and proper; guidance on the information that firms should take reasonable steps to obtain and verify is given in SUP 12 Annex 2; and
(2) the fitness and propriety (including good character and competence) and financial standing of the controllers, directors, partners, proprietors and managers of the person; firms seeking guidance on the information which they should take reasonable steps to obtain and verify should refer to FIT and the questions in Form A (Application to perform controlled functions under the approved person regime) in SUP 10 Annex 4.

SUP 12.4.5

handbook-guidance
In determining, under SUP 12.4.2 R (2)(c), whether an appointed representative or prospective appointed representative has any close links which would be likely to prevent the firm's effective supervision, a firm should consider the guidance to threshold condition 3 (Close links) in COND 2.3.
  • 21/06/2001

Appointment representative who may be appointed by other principals

SUP 12.4.5A

handbook-guidance
If a firm proposes to appoint an appointed representative, but not to prohibit its appointment by any other principals (see SUP 12.5.2 G (3)), the firm should, in particular:
(1) require, in the contract, that the appointed representative notifies the firm about other principals (see SUP 12.5.5 R (3)) and
(2) unless the appointed representative is an introducer appointed representative:
(a) take reasonable steps to check whether the appointed representative is already appointed by one or more other principals and, if it is, contact those other principals; such steps should include asking the appointed representative and checking the Register ;
(b) if there are any other principals, agree arrangements with the other principals (see SUP 12.4.5B R) ; and
(c) establish effective systems and controls for ensuring that the appointed representative complies with all contractual restrictions imposed, including those relating to multiple principals under the Appointed Representatives Regulations and under SUP 12.5.6A R (see SUP 12.6.11A R).
  • 30/06/2004

Multiple principals

SUP 12.4.5B

handbook-rule
(1) A firm must not appoint a person as its appointed representative until it has entered into a written agreement (a "multiple principal agreement") with every other principal the person may have; but this does not apply to the appointment of an introducer appointed representative nor does it require an agreement with another principal which has appointed a person as an introducer appointed representative.
(2) A firm must not unreasonably decline to enter into a multiple principal agreement with any principal of his appointed representative unless the firm is relying on a prohibition on the appointed representative from representing any other firms (or is seeking to impose such a prohibition) as permitted by article 3 of the Appointed Representative Regulations.
(3) A multiple principal agreement must contain all the provisions which are necessary or desirable to:
(a) set out the relationship between the principals of that appointed representative; and
(b) protect the interests of clients;
including the matters set out in SUP 12.4.5C.
  • 30/06/2004

SUP 12.4.5C

handbook-rule

Multiple principal agreement

  • 30/06/2004

SUP 12.4.5D

handbook-guidance
One effect of the multiple principal agreement is to introduce a 'lead-principal' concept in relation to complaints handling for the benefit of the client. For example, where the client has been given advice by an appointed representative who has two principals, and the advice could have led to a transaction being arranged with either principal, the client will know that he may pursue his complaint with (but not necessarily against) one of the principals. Whether he later decides to refer his complaint to the Financial Ombudsman Service, and if so, against which principal, will depend on the circumstances.
  • 30/06/2004

SUP 12.4.5E

handbook-guidance
  1. (1) Under the relevant Advising and Selling chapters of COB, ICOB and MCOB, the customer will receive details of how to complain to the appointed representative and, when a product is purchased, details of the complaints procedure for the product provider, insurer or mortgage lender.
  2. (2) Under DISP 1.2.9 R, a firm must among other things, supply a copy of its internal complaint handling procedures to the customer when it receives a complaint. In complying with DISP 1.2.9 R, a firm should ensure that the "lead-principal" is clearly identified in the procedures.
  3. (3) The complaints procedure should also explain that the customer has a choice of whether to contact the appointed representative, the "lead-principal" or the product provider, insurer or mortgage lender and that the "lead-principal" will be the appropriate point of contact where the customer does not wish to complain about a specific product or is unsure who to contact.
  4. (4) In other words, where the customer, has a doubt who to complain to the "lead-principal" is to be the point of contact for all complaints arising out of the activities of the appointed representative.

SUP 12.4.5F

handbook-guidance
When considering the provisions for complaints handling (see SUP 12.4.5C(2)) firms should consider the use of a mediation clause. If a complaint is made by a client, principals which are unable to resolve a dispute about liability to the client should consider all quick and effective ways of resolving the dispute, including referring the matter to the Financial Ombudsman Service and mediation.
  • 30/06/2004

SUP 12.4.5G

handbook-guidance
It is for the principals to consider in each case whether it would be appropriate to show the multiple principal agreement to their appointed representative, or in some circumstances make their appointed representative a party to it.
  • 30/06/2004

Appointment of an introducer appointed representative

SUP 12.4.6

handbook-rule
Before a firm appoints a person as an introducer appointed representative, and on a continuing basis, it must take reasonable care to ensure that:
(1) the person is suitable to act for the firm in that capacity (having regard, in particular, to other persons connected with the person who will be, or who are, directly responsible for its activities); and
(2) the firm is ready and organised to comply with the other applicable requirements contained or referred to in this chapter.
  • 30/06/2004

SUP 12.4.7

handbook-guidance
In assessing, under SUP 12.4.6 R(1), whether an introducer appointed representative or prospective introducer appointed representative is otherwise suitable to act for the firm in that capacity, the firm should determine whether the introducer appointed representative and those persons who will be, or who are, directly responsible for its activities are of sufficiently good reputation and otherwise fit and proper for that appointment. The firm should, as a minimum, verify the identity of a prospective introducer appointed representative and relevant persons but need not carry out the more extensive due diligence required for the appointment of an appointed representative under SUP 12.4.2 R.

SUP 12.4.8

handbook-guidance
If a firm has doubts that a prospective introducer appointed representative or other person is of sufficiently good reputation and otherwise fit and proper, the FSA will expect it to resolve those doubts before appointing the prospective introducer appointed representative. For example, if a firm is aware that a person's previous appointment as an introducer appointed representative or representative was terminated, it should take reasonable steps to find out the reasons for the termination and the extent to which those reasons reflect on the person concerned.
  • 21/06/2001

Appointed representative carrying on insurance mediation

SUP 12.4.8A

handbook-rule
Before a firm appoints a person as an appointed representative to carry on insurance mediation activity, it must in relation to insurance mediation activity ensure that the person will comply on appointment, and will continue to comply with, the provisions of PRU 9.1.8 R and PRU 9.1.10 R (Knowledge and ability, and good repute) as if the appointed representative were a firm.

SUP 12.4.8B

handbook-guidance
In assessing, under SUP 12.4.8A R, whether an appointed representative, or prospective appointed representative, has established the knowledge and ability requirements for persons within its management structure and for those directly involved in its insurance mediation activity, a firm should refer to TC.
  • 14/01/2005

SUP 12.4.9

handbook-guidance
(1) An appointed representative must not commence an insurance mediation activity until he is included on the Register as carrying on such activities (see SUP 12.5.2 G (3)).
(2) If an appointed representative's scope of appointment is to include an insurance mediation activity, the principal must notify the FSA of the appointment before the appointed representative commences that activity (see SUP 12.7.1 R (1)).
(3) As an exception, pre-notification is not required if the appointed representative is already included on the Register as carrying on insurance mediation activities in another capacity (for example, as the appointed representative of another principal).
  • 14/01/2005

SUP 12.4.10

handbook-guidance
(1) The FSA has the power to decide not to include on the Register (or to remove from the Register) an appointed representative whose scope of appointment includes an insurance mediation activity, if it appears to the FSA that he is not a fit and proper person to carry on those activities (article 95 of the Regulated Activities Order).
(2) If the FSA proposes to use the power in (1), it must give the appointed representative a warning notice. If the FSA decides to proceed with its proposal, it must give the appointed representative a decision notice. The procedures followed by the FSA in relation to the giving of warning notices and decision notices are set out in DEC 2.
(3) An appointed representative may apply to the FSA for a determination of the kind referred to in (1) to be revoked. If the FSA proposes to refuse the application, it must give the appointed representative a warning notice, and if the FSA decides to proceed with the refusal, it must give the appointed representative a decision notice.

SUP 12.5

Contracts: required terms

  • 01/12/2004

Required contract terms for all appointed representatives

SUP 12.5.1

handbook-guidance
The Appointed Representative Regulations include, among other things, the prescribed requirements applying to contracts between firms and appointed representatives for the purposes of section 39(1)(a)(ii) of the Act.
  • 21/06/2001

SUP 12.5.2

handbook-guidance
(1) Regulations 3(1) to (3B) of the Appointed Representatives Regulations makes it a requirement that the contract between the firm and the appointed representative (unless it prohibits the appointed representative from representing other counterparties) contains a provision enabling the firm to:
(a) impose such a prohibition; or
(b) impose restrictions as to the other counterparties which the appointed representative may represent, or as to the types of investment in relation to which the appointed representative may represent other counterparties.
(2) Under the Appointed Representative Regulations, an appointed representative is treated as representing other counterparties if, broadly, it:
(a) makes arrangements (within article 25 of the Regulated Activities Order) for persons to enter into investment transactions with other counterparties; or
(b) arranges the safeguarding and administration of assets by other counterparties; or
(c) gives advice (within article 53 of the Regulated Activities Order (Advising on investments)) on the merits of entering into investment transactions with other counterparties;
(d) assists in the administration and performance of a contract of insurance (article 39A of the Regulated Activities Order);

where an "investment transaction" means a transaction to buy, sell, subscribe for or underwrite a security or a relevant investment (that is, a designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan; or
(e) arranges:
(i) for persons to enter (or with a view to persons entering) as borrowers into regulated mortgage contracts with other counterparties; or
(ii) for a person to vary a regulated mortgage contract entered into by a person as borroweron or after 31 October 2004 with other counterparties; or
(f) gives advice (within article 53 of the Regulated Activities Order (Advising on investments)) on the merits of:
(i) persons entering as borrowers into regulated mortgage contracts with other counterparties; or
(ii) persons varying regulated mortgage contracts entered into by them as borrower on or after 31 October 2004 with other counterparties;
(g) provides basic advice on stakeholder products.
(3) If the scope of appointment covers, in relation to a contract of insurance, dealing in investments as agent, arranging, assisting in the administration and performance of a contract of insurance or advising on investments, regulation 3(4) of the Appointed Representatives Regulations makes it a requirement that the contract between the firm and the appointed representative contains a provision providing that the appointed representative is not permitted or required to carry on such business unless he is included in the Register as carrying on insurance mediation activities.

SUP 12.5.3

handbook-guidance
A firm should satisfy itself that the terms of the contract with its appointed representative (including an introducer appointed representative):
(1) are designed to enable the firm to comply properly with any limitations or requirements on its own permission;
(2) require the appointed representative to cooperate with the FSA as described in SUP 2.3.4 G (Information gathering by the FSA on its own initiative: cooperation by firms) and give access to its premises, as described in SUP 2.3.5 R (2); and
(3) require the appointed representative to give the firm's auditors the same rights as are provided by section 341 of the Act, as described in SUP 3.6.6 G.
  • 21/06/2001

SUP 12.5.4

handbook-guidance
A firm should have the ability to terminate the contract with its appointed representative in the circumstances in SUP 12.6.1 R (2). However, such a termination provision should not be automatic (see SUP 12.8.3 R (1)).
  • 30/06/2004

SUP 12.5.5

handbook-rule

A firm must ensure that its written contract with each of its appointed representatives:

  1. (1) complies with the requirements prescribed in regulation 3 of the Appointed Representatives Regulations (see SUP 12.5.2 G);
  2. (2) requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract of services or a contract for service comply, with the relevant requirements in or under the Act (including the rules) that apply to the activities which it carries on as appointed representative of the firm; and
  3. (3) (unless the written contract prohibits appointments by other principals) requires the appointed representative to notify the firm:
    1. (a) that it is seeking appointment as an appointed representative of another person, who the person is and the business for which the other person will accept responsibility;
    2. (b) (as soon as possible) of any change in the business notified under (a); and
    3. (c) (as soon as possible) of the termination of any such appointment.
  • 30/06/2004

SUP 12.5.6

handbook-guidance
  1. (1) If the appointed representative is appointed to give advice on investments to private customers concerning packaged products, the firm should also satisfy itself that:
    1. (a) the contract requires compliance with the rules in COB 5.1 (Advising of packaged products); and
    2. (b) if the firm is a provider firm, the contract prevents the appointed representative from giving advice on investments to a private customer concerning the purchase of a packaged product which is not issued by the firm or by another member of its marketing group or is not an adopted packaged product (see COB 5.1.8 R).
  2. (2) The contractual requirements in SUP 12.5.5 R should extend to:
    1. (a) the activities of the appointed representative, if the appointed representative is an individual; and
    2. (b) the activities of the employees of, representatives and introducers appointed by, the appointed representative.

Prohibition of multiple principals for certain activities

SUP 12.5.6A

handbook-rule
(1) A firm must ensure that, if appointing an appointed representative (other than an introducer appointed representative), to carry on any of the following regulated activities, its written contract prohibits the appointed representative from carrying on any of the specified activities as an appointed representative for another firm:
(a) any designated investment business for private customers : the prohibition must cover all designated investment business for private customers ;
(b) any regulated mortgage activities (other than in relation to lifetime mortgages): the prohibition must cover all regulated mortgage activities (other than lifetime mortgages);
(c) any regulated mortgage activities in relation to lifetime mortgages: the prohibition must cover all lifetime mortgages.
(2) As an exception to (1), if the firm is a long-term insurer or an operator of a UCITS scheme, it may permit an appointed representative to carry on designated investment business as the appointed representative of one or more other firms provided that:
(a) each of those other firms is a long-term insurer or an operator of a UCITS scheme;
(b) the first firm and each of those other firms is a member of the same group; "group" means for this purpose a group of bodies corporate all having the same holding company including the holding company; and
(c) the scope of each appointment does not overlap, as to both activities and investments.

SUP 12.5.6B

handbook-guidance
(1) The effect of SUP 12.5.6A R (1)(a) is that, in relation to designated investment business with private customers , appointed representatives are restricted to one principal.
(2) The effect of SUP 12.5.6A R (1)(b) and SUP 12.5.6A R (1)(c) is that, in relation to regulated mortgage activities with customer, appointed representatives are restricted to having two principals: one for regulated mortgage contractsand one for lifetime mortgages

SUP 12.5.6C

handbook-guidance
As SUP 12.5.6A R does not apply to non-investment insurance contracts, there are no restrictions on the number of principals an appointed representative may have in relation to those contracts.
  • 14/01/2005

Required contract terms for an introducer appointed representative

SUP 12.5.7

handbook-rule
A firm must ensure that its written contract with each of its introducer appointed representatives limits the scope of the appointment to:
(1) effecting introductions to the firm or other members of the firm's group; and
(2) distributing non-real time financial promotions which relate to products or services available from or through the firm or other members of the firm's group.
  • 30/06/2004

SUP 12.6

Continuing obligations of firms with appointed representatives

Suitability etc. of appointed representatives

SUP 12.6.1

handbook-rule
If at any time a firm has reasonable grounds to believe that the conditions in SUP 12.4.2 R, SUP 12.4.6 R or SUP 12.4.8A R (as applicable) are not satisfied, or are likely not to be satisfied, in relation to any of its appointed representatives, the firm must:
(1) take immediate steps to rectify the matter; or
(2) terminate its contract with the appointed representative.

SUP 12.6.2

handbook-guidance
The FSA would normally expect a firm to carry out a check on its appointed representative's financial position every year (more often, if necessary) and to review critically the information obtained. An appropriately experienced person (for example, a financial accountant) should carry out these checks.
  • 21/06/2001

SUP 12.6.3

handbook-guidance
Consideration should be given, among other things, to the impact on the appointed representative's financial position of any debts owed to, or by, the appointed representative. Indicators that an appointed representative is experiencing financial problems may include failure to adhere to repayment schedules for any debts, failure to meet any other financial commitments or requests for advances of commission.
  • 21/06/2001

SUP 12.6.4

handbook-guidance
A firm should look into any concerns that may arise at any time about an appointed representative's financial standing and take the necessary action. The necessary action may include, for example, increased monitoring or, if appropriate, suspension or termination of the appointment.
  • 21/06/2001

Appointed representatives not to hold client money

SUP 12.6.5

handbook-rule
(1) A firm must not permit an appointed representative to hold client money unless the firm is an insurance intermediary acting in accordance with CASS 5.5.18 R to CASS 5.5.23 R (which include provision for periodic segregation and reconciliation).
(2) The firm must take reasonable steps to ensure that if client money is received by the appointed representative, it is paid into a client bank account of the firm, or forwarded to the firm, in accordance with :
(a) CASS 4.3.15 R to CASS 4.3.17 R; or
(b) CASS 5.5.18 R to CASS 5.5.21 R unless acting in accordance with CASS 5.5.23 R (Periodic segregation and reconciliation).

Regulated activities and investment services outside the scope of appointment

SUP 12.6.6

handbook-rule
A firm must take reasonable steps to ensure that each of its appointed representatives:
(1) does not carry on regulated activities in breach of the general prohibition in section 19 of the Act; and
(2) carries on the regulated activities for which the firm has accepted responsibility in a way which is, and is held out as being, clearly distinct from any of the appointed representative's other business:
(a) which is performed as an appointed representative of another firm; or
(b) which:
(i) is, or is held out as being, primarily for the purposes of investment or obtaining credit, or obtaining insurance cover; and
(ii) is not a regulated activity.

Senior management responsibility for appointed representatives

SUP 12.6.7

handbook-guidance
The senior management of a firm should be aware that the activities of appointed representatives are an integral part of the business that they manage. The responsibility for the control and monitoring of the activities of appointed representatives rests with the senior management of the firm. Guidance is set out in SYSC 3 on delegation (for example, SYSC 3.2.3 G and SYSC 3.2.4 G) and in the Statements of Principle and Code of Practice for Approved Persons in APER (for example, APER 4.5 and APER 4.6).

Obligations of firms under the approved persons regime

SUP 12.6.8

handbook-guidance
  1. (1) Some of the controlled functions, as set out in SUP 10.4.1 R, apply to an appointed representative of a firm, other than an introducer appointed representative, just as they apply to a firm (see SUP 10.1.16 R ). These are the governing functions and the customer functions (other than the investment management function) such as, for example, CF 21, the investment adviser function. As explained in SUP 10.1.16A R , SUP 10.1.17G (3) and SUP 10.3.2 G respectively:
    1. (a) the effect of SUP 10.1.16 R is that the directors (or their equivalent) and senior managers (or their equivalent) of an appointed representative, other than an introducer appointed representative, must also be approved under section 59 of the Act for the performance of certain controlled functions;
    2. (b) although the customer functions (other than the investment manager function) apply to an appointed representative, the descriptions of the functions themselves do not extend to mortgage mediation activity or insurance mediation activity; and
    3. (c) sections 59(1) and 59(2) of the Act (Approval for particular arrangements) provide that approval is necessary in respect of a controlled function which is performed under an arrangement entered into by a firm, or its contractors (typically an appointed representative), in relation to a regulated activity.
  2. (2) The approved persons regime applies differently to an appointed representative whose scope of appointment includes insurance mediation activity in relation to non-investment insurance contractsbut no other regulated activity and whose principal purpose is to carry on activities other than regulated activities. These appointed representatives need only one person performing one of the governing functions. This means that only one director (or equivalent) of these appointed representatives must be approved under section 59 of the Act for the performance of the director function, the chief executive function, the partner function or the director of unincorporated association function, whichever is the most appropriate (see SUP 10.1.16A R and SUP 10.1.17G (3)).

SUP 12.6.9

handbook-guidance
Firms should be aware that, under the approved persons regime, the firm is responsible for submitting applications to the FSA for the approval as an approved person of:
(1) any individual who performs a controlled function and who is an appointed representative; and
(2) any person who performs a controlled function under an arrangement entered into by any of the firm'sappointed representatives.
Applications for approval should be submitted as early as possible since a person may not perform a controlled function if he has not been approved by the FSA (see SUP 10.12 ).
  • 21/06/2001

Obligations of firms under the training and competence rules

SUP 12.6.10

handbook-guidance
The rules and guidance in TCextend to any employee of the firm in respect of whom the relevant rules apply. For these purposes, an employee of a firm includes:
(1) an individual who is an appointed representative of a firm; and
(2) an individual who is employed or appointed by an appointed representative of a firm (whether under a contract of service or for services) in connection with the business of the appointed representative for which the firm has accepted responsibility.

SUP 12.6.11

handbook-guidance
A firm should take reasonable care to ensure that:
(1) it has satisfied TC 2 in respect of the relevant staff of the appointed representative; and
(2) its appointed representative has adequate arrangements in respect of training and competence, which meet the requirements in TC.

Compliance by an appointed representative with the contract

SUP 12.6.11A

handbook-rule
A firm must take reasonable steps to establish and maintain effective systems and controls for ensuring that each of its appointed representatives complies with those terms of its contract which are imposed under the requirements contained or referred to in SUP 12.5 (Contracts: required times).
  • 30/06/2004

SUP 12.6.12

handbook-rule
[Deleted]
  • 30/06/2004

SUP 12.7

Notification requirements

  • 01/12/2004

Notification of appointment of an appointed representative

SUP 12.7.1

handbook-rule
(1) A firm which appoints an appointed representative must complete and submit to the FSA the form in SUP 12 Annex 3 (Appointed representative appointment form) in accordance with the instructions on the form and not more than ten business days after the date the appointment takes effect.
(a) if the appointment covers insurance mediation activities and the appointed representative is not included on the Register as carrying on such activities in another capacity before (see SUP 12.4.9 G); or
(b) (otherwise) not more than ten business days after;
the appointed representative begins to carry on regulated activities under the contract.
(2) [deleted]

SUP 12.7.2

handbook-guidance
A firm's notice under SUP 12.7.1 R should give details of the appointed representative and the regulated activities which the firm is, or intends to, carry on through the appointed representative, including:
(1) the name of the firm's new appointed representative (if the appointed representative is a body corporate, this is its registered name);
(2) any trading name under which the firm's new appointed representative carries on a regulated activity in that capacity;
(3) a description of the regulated activities which the appointed representative is permitted or required to carry on and for which the firm has accepted responsibility;
(4) any restrictions imposed on the regulated activities for which the firm has accepted responsibility; and
(5) where the appointed representative is not an individual, the name of the individuals who are responsible for the management of the business carried on by the appointed representative so far as it relates to insurance mediation activity.

SUP 12.7.3

handbook-guidance
A firm need not notify the FSA of any restrictions imposed on the regulated activities for which the firm has accepted responsibility (under SUP 12.7.2 G (4)) if the firm accepts responsibility for the unrestricted scope of the regulated activities.
  • 21/06/2001

SUP 12.7.3A

handbook-guidance
Where a notification is linked to an application for approval under section 59 of the Act (Approval for particular arrangements), see SUP 10.12.4A G .
  • 01/12/2002

SUP 12.7.4

handbook-guidance
(1) [deleted]
(2) [deleted]
  • 21/06/2001

SUP 12.7.5

handbook-rule
To contact the Authorisation and Approvals Department (Authorisation teams):
(1) telephone on 020 7066 1000; fax on 020 7066 1099; or
(2) write to: Authorisation and Approvals Department (Authorisation teams), The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or
(3) email appreps@ fsa.gov.uk.

SUP 12.7.6

handbook-guidance
When the FSA receives the notification under SUP 12.7.1 R, it will update the firm's entry in the FSA Register to include public information about the firm's appointed representative.
  • 21/06/2001

Notification of changes in information given to the FSA

SUP 12.7.7

handbook-rule
(1) If:
(a)
(i) the scope of appointment of an appointed representative is extended to cover insurance mediation activities for the first time; and
(ii) the appointed representative is not included on the Register as carrying on insurance mediation activities in another capacity; or
(b) the scope of appointment of an appointed representative ceases to include insurance mediation activity;
the appointed representative's principal must give written notice to the FSA of that change before the appointed representative begins to carry on insurance mediation activities under the contract (see SUP 12.4) or as soon as the scope of appointment of the appointed representative ceases to include insurance mediation activity.
(2) Where there is a change in any of the information provided to the FSA under SUP 12.7.1 R, a firm must complete and submit to the FSA the form in SUP 12 Annex 4 (Appointed representative notification form) in accordance with the instructions on the form and within ten business days of that change being made or, if later, as soon as the firm becomes aware of the change. The Appointed representative notification form must state that the information has changed.
(3) A firm's notification under (1) and (2) must be given to a member of or addressed for the attention of the Monitoring and Notifications Department at the address given in SUP 12.5.7 R.

Notification of changes in conditions of appointment

SUP 12.7.8

handbook-rule
(1) As soon as a firm has reasonable grounds to believe that any of the conditions in SUP 12.4.2 R, SUP 12.4.6 R or SUP 12.4.8A R (as applicable) are not satisfied, or are likely not to be satisfied, in relation to any of its appointed representatives, it must complete and submit to the FSA the form in SUP 12 Annex 4 (Appointed representative notification form), in accordance with the instructions on the form.
(2) In its notification under SUP 12.7.8 R (1), the firm must state either:
(a) the steps it proposes to take to rectify the matter; or
(b) the date of termination of its contract with the appointed representative (see SUP 12.8).
(3) [deleted]

SUP 12.8

Termination of a relationship with an appointed representative

Notification of termination or prohibited amendment of the contract

SUP 12.8.1

handbook-rule
If either the firm or the appointed representative notifies the other that it proposes to terminate the contract of appointment or to amend it so that it no longer meets the requirements contained or referred to in SUP 12.5 (Contracts: required terms), the firm must:
(1) complete and submit to the FSA the form in SUP 12 Annex 5 (Appointed representative termination form) in accordance with the instructions on the form and no more than ten business days after the date of the decision to terminate or so amend the contract or, if later, as soon as it becomes aware that the contract is to be or has been terminated or amended.
(2) [deleted]
(3) [deleted]
(4) [deleted]

SUP 12.8.2

handbook-guidance
In assessing whether to terminate a relationship with an appointed representative, a firm should be aware that the notification rules in SUP 15 require notification to be made immediately to the FSA if certain events occur. Examples include a matter having a serious regulatory impact or involving an offence or a breach of any requirement imposed by the Act or by regulations or orders made under the Act by the Treasury.
  • 21/06/2001

Steps to be taken on termination or prohibited amendment of the contract

SUP 12.8.3

handbook-rule
If a contract with an appointed representative is terminated, or if it is amended in a way which gives rise to a requirement to notify under SUP 12.8.1 R, a firm must take all reasonable steps to ensure that:
(1) if the termination is by the firm, the appointed representative is notified in writing before, or if not possible, immediately on, the termination of the contract and informed that it will no longer be an exempt person for the purpose of the Act because of the contract with the firm;
(2) outstanding regulated activities and obligations to customers are properly completed and fulfilled either by itself or another of its appointed representatives;
(3) where appropriate, clients are informed of any relevant changes; and
(4) all the other principals of the appointed representative of which the firm is aware are notified.
  • 30/06/2004

Notification of approved persons on termination

SUP 12.8.4

handbook-guidance
The firm is responsible for notifying the FSA of any approved person who no longer performs a controlled function under an arrangement entered into by a firm or its appointed representative (see SUP 10.3).
  • 21/06/2001

Removal of an appointed representative from the Register

SUP 12.8.5

handbook-guidance
The FSA has the power to remove from the Register an appointed representative, whose scope of appointment covers insurance mediation activities (see SUP 12.4.9 G and SUP 12.4.10 G).
  • 14/01/2005

SUP 12.9

Record keeping

  • 01/12/2004

SUP 12.9.1

handbook-rule

A firm must make the following records on each of its appointed representatives:

  1. (1) the appointed representative's name;
  2. (2) a copy of the original contract with the appointed representative and any subsequent amendments to it (including details of any restrictions placed on the activities which the appointed representative may carry on);
  3. (3) the date and reason for terminating or amending its contract with the appointed representative, whenever such termination or amendment gives rise to a requirement to notify under SUP 12.8.1 R; and
  4. (4) any arrangements agreed with other principals under SUP 12.4.5B R (Multiple principals).
  • 30/06/2004

SUP 12.9.2

handbook-rule
A firm must retain these records for at least three years from the date of termination or the amendment of the contract with the appointed representative.

SUP 12.9.3

handbook-guidance

The firm should also satisfy itself that:

  1. (1) the appointed representative is making and retaining records in accordance with the relevant record keeping rules in the Handbook, if these records are not maintained by the firm;
  2. (2) the appointed representative (other than an introducer appointed representative) is making and retaining records sufficient to disclose with reasonable accuracy the financial position of the business it carries on in its capacity as the firm's appointed representative; and
  3. (3) the firm has full access to the appointed representative's records under (1) and (2) and any other records relevant to the regulated activities that the appointed representative carries on in that capacity.
  • 21/06/2001

SUP 12.9.4

handbook-guidance
Firms are reminded that they should make and retain records in relation to any person who falls within the scope of the rules in TC or who performs a controlled function under an arrangement entered into by a firm or by an appointed representative. See SUP 10 and TC for the applicable record keeping rules.
  • 21/06/2001

SUP 12 Annex 1

Guidance on steps a firm should take in assessing the financial position of an appointed representative (other than an introducer appointed representative). See SUP 12.4.3 G

  • 01/12/2004

handbook-guidance

SUP 12 Annex 2

Guidance on information firms should take reasonable steps to obtain to verify and to assess the fitness and propriety of an appointed representative (other than an introducer appointed representative). See SUP 12.4.4 G (1).

  • 01/12/2004

handbook-guidance
2.

SUP 12 Annex 3

Appointed representative appointment form

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Appointed representative appointment form - SUP 12 Annex 3

SUP 12 Annex 4

Appointed representative notification form

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Appointed representative notification form - SUP 12 Annex 4

SUP 12 Annex 5

Appointed representative termination form

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Appointed representative termination form - SUP 12 Annex 5

Export chapter as

SUP 13

Exercise of passport rights by UK firms

SUP 13.1

Application and purpose

  • 01/12/2004

Application

SUP 13.1.1

handbook-guidance
This chapter applies to a UK firm, that is, a person whose head office is in the United Kingdom and which is entitled to carry on an activity in another EEA State subject to the conditions of a Single Market Directive. Such an entitlement is referred to in the Act as an EEA right and its exercise is referred to in the Handbook as passporting.

SUP 13.1.2

handbook-guidance
This chapter also applies to a UK firm which wishes to establish a branch in, or provide cross border services into, Gibraltar. The Financial Services and Markets Act 2000 (Gibraltar) Order 2001 provides that a UK firm is to be treated as having an entitlement corresponding to its EEA right, to establish a branch in, or provide cross border services into, Gibraltar under any of the Single Market Directives. So, references in this chapter to an EEA State or an EEA right include references to Gibraltar and the entitlement under the Gibraltar Orderrespectively.

SUP 13.1.3

handbook-guidance
This chapter does not apply to:
(1) a firm established in an EEA State other than the United Kingdom; passporting by such a firm in or into the United Kingdom is a matter for its Home State regulator although guidance is given in AUTH 5 (Qualifying for authorisation under the Act);
(2) other overseas firms (that is, overseas firms established outside the EEA); such firms are not entitled to passport into another EEA State and, where relevant, may need to obtain authorisation in each EEA State in which they carry on business;
(3) any insurance activity by way of provision of services which is provided by an EEA firm participating in a community co-insurance operation otherwise than as leading insurer; article 26.2 of the Second Non-Life Directive provides that only the leading insurer in such an operation is required to complete any passporting formalities (see also article 11 of the Regulated Activities Order); or
(4) the marketing of a UCITS scheme by its operator in another EEA State under the UCITS Directive (see COLLG 2.1.8 G and CIS 2.3.4 G).

SUP 13.1.4

handbook-guidance

Purpose

SUP 13.1.5

handbook-guidance
This chapter gives guidance on Schedule 3 to the Act for a UK firm which wishes to exercise its EEA right and establish a branch in, or provide cross border services into, another EEA State. That is, when a UK firm wishes to establish its first branch in, or provide cross border services for the first time into, a particular EEA State.

SUP 13.1.6

handbook-guidance
The chapter also explains how a UK firm which has already established a branch in, or is providing cross border services into, another EEA State, may change the details of its branch or of the cross border services it is providing: for example, where a UK firm wishes to establish additional branches in an EEA State in which it has already established a branch where this would result in a change to the details provided previously. Such changes are governed by the EEA Passport Rights Regulations.

SUP 13.2

Introduction

  • 01/12/2004

SUP 13.2.1

handbook-guidance
This chapter gives guidance to UK firms. In most cases UK firms will be authorised persons under the Act. However, under the Banking Consolidation Directive , a subsidiary of a firm which is a credit institution which meets the criteria set out in that Directive also has an EEA right. Such an unauthorised subsidiary is known as a financial institution. References in this chapter to a UK firm include a financial institution.

SUP 13.2.2

handbook-guidance
A UK firm should be aware that the guidance is the FSA's interpretation of the Single Market Directives, the Act and the legislation made under the Act. The guidance is not exhaustive and is not a substitute for firms consulting the legislation or taking their own legal advice in the United Kingdom and in the relevant EEA States.

SUP 13.2.3

handbook-guidance

In some circumstances, a UK firm that is carrying on business which is outside the scope of the Single Market Directives has a right under the Treaty to carry on that business. For example, an insurer carrying on both direct insurance and reinsurance business is not covered by the Insurance Directives in respect of the reinsurance element. It may, however, have rights under the Treaty in respect of its reinsurance business. Such UK firms may wish to consult with the FSA on their particular circumstances (see SUP 13.12.2 G).

SUP 13.3

Establishing a branch in another EEA State

  • 01/12/2004

What constitutes a branch

SUP 13.3.1

handbook-guidance
Guidance on what constitutes a branch is given in SUP App 3 .

The conditions for establishing a branch

SUP 13.3.2

handbook-guidance

A UK firm cannot establish a branch in another EEA State for the first time under an EEA right unless the conditions in paragraphs 19(2), (4) and (5) of Part III of Schedule 3 to the Act are satisfied. It is an offence for a UK firm which is not an authorised person to contravene this prohibition (paragraph 21 of Part III of Schedule 3 to the Act). These conditions are that:

  1. (1) the UK firm has given the FSA, in accordance with the FSA rules (see SUP 13.5.1 R), notice of its intention to establish a branch (known as a notice of intention) which;
    1. (a) identifies the activities which it seeks to carry on through the branch; and
    2. (b) includes such other information as may be specified by the FSA (see SUP 13.5.1 R);
  2. (2) the FSA has given notice (known as a consent notice) to the Host State regulator; and
  3. (3)
    1. (a) if the UK firm's EEA right derives from the Insurance Mediation Directive one month has elapsed beginning on the date on which the UK firm received notice that the FSA had given a consent notice as described in SUP 13.3.6 G (1) (see SUP 13.3.2A G);
    2. (b) in any other case:
      1. (i) the Host State regulator has notified the UK firm (or, where the UK firm is passporting under the Insurance Directives, the FSA ) of the applicable provisions; or
      2. (ii) two months have elapsed beginning with the date on which the FSA gave the consent notice.

SUP 13.3.2A

handbook-guidance
If the UK firm is passporting under the Insurance Mediation Directive and the EEA State in which the UK firm is seeking to establish a branch has not notified the European Commission of its wish to be informed of the intention of persons to establish a branch in its territory in accordance with article 6(2) of that directive, SUP 13.3.2 G (2) and SUP 13.3.2 G (3) do not apply. Accordingly, the UK firm may establish the branch to which its notice of intention relates as soon as the conditions referred to in SUP 13.3.2 G (1) are satisfied.

SUP 13.3.2B

handbook-guidance
An appointed representative appointed by a firm to carry on insurance mediation activity on its behalf may establish a branch in another EEA State under the Insurance Mediation Directive. In this case, the notice of intention in SUP 13.3.2 G (1) should be given to the FSA by the firm on behalf of the appointed representative.

SUP 13.3.2C

handbook-guidance
An exempt professional firm which is included in the record of unauthorised persons carrying on insurance mediation activity maintained by the FSA under article 93 of the Regulated Activities Order may establish a branch in another EEA State under the Insurance Mediation Directive (see PROF 7.2).
  • 21/06/2001

SUP 13.3.3

handbook-guidance
Where the UK firm is passporting under the Insurance Directives and the Host State regulator has notified the FSA of the applicable provisions, then under paragraph 19(9) of Part III of Schedule 3 to the Act, the FSA is required to inform the firm of these provisions.

How long will the process take?

SUP 13.3.4

handbook-guidance
On receipt of a UK firm's notice of intention (prepared in accordance with SUP 13.3.2 G (1) and SUP 13.5.1 R) then:
(1) where the UK firm is passporting under the Insurance Mediation Directive:
(a) if the UK firm seeking to passport in an EEA State which wishes to be informed of the intention of persons establishing a branch in its territory (see SUP 13.3.2A G), the FSA has one month to notify the relevant Host State regulator;
(b) otherwise, the UK firm may establish a branch as soon as it satisfies the conditions referred to in SUP 13.3.2 G (1);
(2) in any other case, the FSA has three months to consider it and, if satisfied with the proposal, notify the relevant Host State regulator. The Host State regulator then has a further two months to notify the applicable provisions (if any) and prepare for the supervision, as appropriate, of the UK firm.
  • 21/06/2001

SUP 13.3.4A

handbook-guidance
The list of the EEA States that have notified the European Commission of their wish to be informed in accordance with article 6(2) of the Insurance Mediation Directive is published on the FSA's website at www.fsa.gov.uk.
  • 21/06/2001

Issue of a consent notice to the Host State regulator

SUP 13.3.5

handbook-guidance
  1. (1) If a UK firm has given the FSA a notice of intention in the required form, then:
    1. (a) if the UK firm's EEA right derives from the Banking Consolidation Directive, the Investment Services Directive, or the UCITS Directive, the FSA will give the Host State Regulator a Consent Notice within three months unless it has reason to doubt the adequacy of a UK firm's resources or its administrative structure;
    2. (b) if the UK firm's EEA right derives from the Insurance Directives, the FSA will give the Host State regulator a consent notice within three months unless it has reason to:
      1. (i) doubt the adequacy of the UK firm's resources or its administrative structure; or
      2. (ii) question the reputation, qualifications or experience of the directors or managers of the UK firm or its proposed authorised agent,
    3. (c) if the UK firm's EEA right derives from the Insurance Mediation Directive and SUP 13.3.2 G (2) applies, the FSA will give the Host State regulator a consent notice within one month of the date on which it received the UK firm's notice of intention.
  2. in relation to the business the UK firm intends to conduct through the proposed branch;
  3. (2) in assessing the matters in SUP 13.3.5 G (1)(b) the FSA may, in particular, seek further information from the firm or require a report from a skilled person (see SUP 5 (Skilled Persons)).
  4. (3) If the FSA has required a financial recovery plan of a UK firm of the kind mentioned in paragraph 1 of article 38 of the Life Directive (2002/83/EC) or paragraph 1 of article 20a of the First Non-Life Directive, the FSA will not give a consent notice for so long as it considers that policyholders' are threatened within the meaning of paragraph 1.

SUP 13.3.6

handbook-guidance
  1. (1) If the FSA gives a consent notice, it will inform the UK firm in writing that it has done so.
  2. (2) The consent notice will contain, among other matters, the requisite details (see SUP 13 Annex 1) or (if the firm is passporting under the Insurance Directives) the EEA relevant details (see SUP 13 Annex 2) provided by the UK firm in its notice of intention (see SUP 13.5 (Notices of intention)).

SUP 13.3.7

handbook-guidance
(1) If the FSA proposes to refuse to give a consent notice, then paragraph 19(8) of Part III of Schedule 3 to the Act requires the FSA to give the UK firm a warning notice.
(2) If the FSA decides to refuse to give a consent notice, then paragraph 19(12) of Part III of Schedule 3 to the Act requires the FSA to give the UK firm a decision notice within three months of the date on which it received the UK firm'snotice of intention(two months in the case of a UK firm which is a UCITS management company). The UK firm may refer the matter to the Tribunal.
(3) For details of the FSA's procedures for the giving of warning notices or decision noticesand references to the Tribunal see DEC 2 (Statutory notice procedure: Warning notice and decision notice procedure) and DEC 5 (References to the Tribunal, publication and service of notices).

SUP 13.4

Providing cross border services into another EEA State

  • 01/12/2004

Where is the service provided?

SUP 13.4.1

handbook-guidance
Guidance on where a cross border service is provided is given in SUP App 3 .

The conditions for providing cross border services into another EEA State

SUP 13.4.2

handbook-guidance

A UK firm cannot start providing cross border services into another EEA State under an EEA right unless it satisfies the conditions in paragraphs 20(1) of Part III of Schedule 3 to the Act and, if it derives its EEA right from the Insurance Directives, paragraph 20(4B) of Part III of Schedule 3 to the Act. It is an offence for a UK firm which is not an authorised person to breach this prohibition (paragraph 21 of Part III of Schedule 3 to the Act). The conditions are that:

  1. (1) the UK firm has given the FSA, in the way specified by FSA rules (see SUP 13.5.2 R), notice of its intention to provide cross border services (known as a notice of intention) which:
    1. (a) identifies the activities which it seeks to carry on by way of provision of cross border services; and
    2. (b) includes such other information as may be specified by the FSA (see SUP 13.5.2 R); and
  2. (2) if the UK firm is passporting under the Insurance Directives, the firm has received written notice from the FSA as described in SUP 13.4.6 G; or
  3. (3) if the UK firm is passporting under the Insurance Mediation Directive and the EEA State in which the UK firm is seeking to provide services has notified the European Commission of its wish to be informed of the intention of persons to provide cross border services in its territory in accordance with article 6(2) of that directive, one month has elapsed beginning with the date on which the UK firm received written notice from the FSA as described in SUP 13.4.5 G (paragraph 20 (3B)(c) of Schedule 3 to the Act).

SUP 13.4.2A

handbook-guidance
An appointed representative appointed by a firm to carry on insurance mediation activity on its behalf may provide cross border services in another EEA State under the Insurance Mediation Directive. In this case, the notice of intention in SUP 13.4.2 G (1) should be given to the FSA by the firm on behalf of the appointed representative.

SUP 13.4.2B

handbook-guidance
An exempt professional firm which is included in the record of unauthorised persons carrying on insurance mediation activity maintained by the FSA under article 93 of the Regulated Activities Order may provide cross border services in another EEA State under the Insurance Mediation Directive (see PROF 7.2).
  • 21/06/2001

How long will the process take?

SUP 13.4.3

handbook-guidance
On receipt of a UK firm's notice of intention (prepared in accordance with SUP 13.4.2 G (1) and SUP 13.5.2 R) then:
(1) if the EEA right is derived from the Investment Services Directive, the Banking Consolidation Directive, or the UCITS Directive, the FSA has one month to notify the relevant Host State regulator;
(2) however, a UK firm passporting under the Banking Consolidation Directive and the Investment Services Directive may start providing cross border services as soon as it satisfies the relevant conditions (see SUP 13.4.2 G);
(3) if the EEA right is derived from the Insurance Directives, the FSA has one month to consider it and, if satisfied with the proposal, notify the relevant Host State regulator;
(4) if the EEA right is derived from the Insurance Mediation Directive:
(a) where the EEA State in which the UK firm is seeking to provide services has notified the European Commission of its wish to be informed of the intention of persons to provide cross border services in its territory in accordance with article 6(2) of that directive, the FSA has one month to notify the relevant Host State regulator;
(b) otherwise, the UK firm may start providing cross border services as soon as it satisfies the relevant conditions (see SUP 13.4.2 G).
  • 13/02/2004

SUP 13.4.3A

handbook-guidance
The list of the EEA States that have notified the European Commission of their wish to be informed in accordance with article 6(2) of the Insurance Mediation Directive is published on the FSA's website at www.fsa.gov.uk.
  • 21/06/2001

Issuing a consent notice or notifying the Host State regulator

SUP 13.4.4

handbook-guidance

If a UK firm has given the FSA a notice of intention in the required form, then:

  1. (1) if the UK firm's EEA right derives from the Investment Services Directive, the Banking Consolidation Directive or the UCITS Directive, paragraph 20(3) of Part III of Schedule 3 to the Act requires the FSA to send a copy of the notice of intention to the Host State Regulator within one month of receipt; or
  2. (2)
    1. (a) if the UK firm's EEA right derives from the Insurance Directives, paragraph 20(3A) of Part III of Schedule 3 to the Act requires the FSA, within one month of receiving the notice of intention, to:
      1. (i) give notice in a specified form (known as a consent notice) to the Host State regulator; or
      2. (ii) give written notice to the UK firm of its refusal to give a consent notice and the reasons for that refusal.
    2. (b) The issue or refusal of a consent notice under paragraph 20(3A) of Part III of Schedule 3 to the Act is the consequence of a regulatory decision, and this consent notice (unlike the consent notice for establishment of a branch) is not a statutory notice as set out in section 395 of the Act. As such, the FSA will follow the decision making procedures set out in DEC 1 (Application, Purpose and Introduction). A UK firm that receives notice that the FSA refuses to give a consent notice may refer the matter to the Tribunal under paragraph 20(4A) of Part III of Schedule 3 to the Act. For procedures relating to references to the Tribunal see DEC 5 (References to the Tribunal, publication and service of notices); or
  3. (2A) if the UK firm's EEA right derives from the Insurance Mediation Directive, and the EEA State in which the UK firm is seeking to provide services has notified the European Commission of its wish to be informed of the intention of persons to provide cross border services in its territory in accordance with article 6(2) of that directive, paragraph 20(3B)(a) of Part III of Schedule 3 to the Act requires the FSA to send a copy of the notice of intention to the Host State regulator within one month of receipt.
  4. (3) If the FSA has required of a UK firm a financial recovery plan of the kind mentioned in paragraph 1 of article 38 of the Life Directive (2002/83/EC) or paragraph 1 of article 20a of the First Non-Life Directive, the FSA will not give a consent notice for so long as it considers that policyholders' rights are threatened within the meaning of paragraph 1.

SUP 13.4.5

handbook-guidance
When the FSA sends a copy of a notice of intention, or if it gives a consent notice to the Host State regulator, it must inform the UK firm in writing that it has done so (paragraphs 20 (3B)(b) and (4) of Schedule 3 to the Act).

Applicable provisions for cross border services

SUP 13.4.6

handbook-guidance
(1) If the UK firm is passporting under the Investment Services Directive or UCITS Directive, then when the Host State regulator receives the notice of intention, it should inform the UK firm of any applicable provisions.
(2) If the UK firm is passporting under the Insurance Directives, then the Host State regulator may notify the FSA if there are any applicable provisions If so, the FSA will inform the UK firm of the applicable provisions.
(3) If a UK firm is not notified of the applicable provisions, it should, for its own protection, take all reasonable steps to determine the applicable provisions for itself.

SUP 13.5

Notices of intention

  • 01/12/2004

Specified contents: notice of intention to establish a branch

SUP 13.5.1

handbook-rule
A UK firm wishing to establish a branch in a particular EEA State for the first time under an EEA right must include in its notice of intention given to the FSA:
(1)
(a) the information specified in SUP 13 Annex 1; and
(b) if the UK firm is passporting under the Insurance Directives, the information specified in SUP 13 Annex 2; or
(2) if the UK firm is passporting under the Insurance Mediation Directive, only a statement that it intends to carry on insurance mediation in the State by establishing a branch.

Specified contents: notice of intention to provide cross border services

SUP 13.5.2

handbook-rule

A UK firm wishing to provide cross border services into a particular EEA State for the first time under an EEA right must include, in its notice of intention given to the FSA:

  1. (1) if the UK firm is passporting under the Investment Services Directive or the Insurance Directives, the information specified in SUP 13 Annex 3;
  2. (2) if the UK firm is passporting under the Banking Consolidation Directive, the activities which it intends to carry on.
  3. (3) if the UK firm is passporting under the Insurance Mediation Directive, only a statement that it intends to carry on insurance mediation in that State by provision of cross border services.

SUP 13.5.3

handbook-rule
(1) The notice of intention under SUP 13.5.1 R and SUP 13.5.2 R must be:
(a) given to a member of, or addressed for the attention of, the Authorisation and Approvals Department (Authorisation teams), if submitted with an application for Part IV permission, or the Passport Notifications Unit in any other circumstances; and
(b) delivered to the FSA by one of the methods in (2).
(2) The notice of intention may be delivered by:
(a) post to the address in (3); or
(b) leaving the application at the address in (3) and obtaining a time-stamped receipt; or
(c) hand delivery to a member of the Authorisation and Approvals Department (Authorisation teams) (if submitted with an application for Part IV permission) or to the Passport Notification Unit;
(d) electronic mail to the address in (4) if not submitted with an application for Part IV Permission and obtaining an electronic confirmation of receipt;
(e) fax to the Passport Notifications Unit on 020 7066 xxxx (if not submitted with an application for Part IV Permission ) provided that the FSA receives a copy by one of the methods (a) to (d) above within five business days after the date of the faxed notification.
(3) The address for notices of intention is: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
(4) Email: passport.notifications@fsa.gov.uk

SUP 13.5.4

handbook-guidance
A standard form of notice of intention that a UK firm may wish to use is available from the Passport Notifications Unit (see SUP 13.12 (Sources of further information)).

Unregulated activities

SUP 13.5.5

handbook-guidance
A notice of intention may include activities within the scope of the relevant Single Market Directive which are not regulated activities (paragraphs 19(3) and 20(2) of Part III of Schedule 3 to the Act). Regulation 19 of the EEA Passport Rights Regulations states that where a UK firm is able to carry on such an unregulated activity in the EEA State in question without contravening any law of the United Kingdom (or any part of the United Kingdom) the UK firm is treated, for the purposes of the exercise of its EEA right, as being authorised to carry on that activity.

Translations

SUP 13.5.6

handbook-guidance
(1) A UK firm passporting under the Banking Consolidation Directive or the Insurance Directivesmay have to submit the requisite details or relevant details in the language of the Host State as well as in English . For a UK firm passporting under the Insurance Directives this translated document will not include the relevant UK details. Further information is available from the Passport Notifications Unit.
(2) A UK firm may wish to discuss with the Passport Notifications Unitthe appropriate time for providing the translations in (1), given that further information or clarification of the details provided may be required by the FSA .
(3) A UK firm passporting under the Insurance Directives should keep the EEA and UK relevant details separate as, if the application is approved, only the former will be sent to the Host State regulator.

Notifications to more than one EEA State

SUP 13.5.7

handbook-guidance
If a UK firm wishes to establish branches in, or provide cross border services into, more than one EEA State, a single notification may be provided but the requisite details or relevant details for each EEA State should be clearly identifiable.

SUP 13.6

Changes to branches

  • 01/12/2004

SUP 13.6.1

handbook-guidance
Where a UK firm is exercising an EEA right, other than under the Insurance Mediation Directive (see SUP 13.6.9A G), and has established a branch in another EEA State, any changes to the details of the branch are governed by the EEA Passport Rights Regulations. References to regulations in this section are to the EEA Passport Rights Regulations. A UK firm which is not an authorised person should note that, under regulation 18, contravention of the prohibition imposed by regulation 11(1), 13(1) or 15(1) is an offence. It is a defence, however, for the UK firm to show that it took all reasonable precautions and exercised due diligence to avoid committing the offence.

SUP 13.6.2

handbook-guidance
UK firms should note that if a branch in another EEA State ceases to provide services, this may represent a change in requisite details or relevant details.

SUP 13.6.3

handbook-guidance
UK firms should also note that changes to the details of branches may lead to changes to the applicable provisions to which the UK firm is subject. These changes should be communicated to the UK firm either by the Host State regulator, or, if the firm is passporting under Insurance Directives, via the FSA authorisations team.

Firms passporting under the Investment Services Directive, the Banking Consolidation Directive and the UCITS Directive.

SUP 13.6.4

handbook-guidance
If a UK firm has exercised an EEA right, under the Investment Services Directive, the Banking Consolidation Directive or the UCITS Directive, and established a branch in another EEA State, regulation 11(1) states that the UK firm must not make a change in the requisite details of the branch (see SUP 13 Annex 1), unless it has satisfied the requirements of regulation 11(2), or, where the change arises from circumstances beyond the UK firm's control, regulation 11(3) (see SUP 13.6.10 G).

SUP 13.6.5

handbook-guidance
Where the change arises from circumstances within the control of the UK firm, the requirements in regulation 11(2) are that:
(1) the UK firm has given notice to the FSA and to the Host State regulator stating the details of the proposed change;
(2) the FSA has given the Host State regulator a notice informing it of the details of the change; and
(3) either the Host State regulator has informed the UK firm that it may make the change, or the period of one month beginning with the day on which the UK firm gave the Host State regulator the notice in (1) has elapsed.

Firms passporting under the Insurance Directives

SUP 13.6.6

handbook-guidance
If a UK firm has exercised an EEA right under the Insurance Directives and established a branch in another EEA State, regulation 13(1) states that the UK firm must not make a change in the relevant EEA details (see SUP 13 Annex 1), unless it has satisfied the requirements of regulation 13(2), or, where the change arises from circumstances beyond the UK firm's control, regulation 13(3) (see SUP 13.6.10 G).

SUP 13.6.7

handbook-guidance
Where the change arises from circumstances within the control of the UK firm, the requirements in regulation 13(2) are that:
(1) the UK firm has given notice to the FSA and to the Host State regulator stating the details of the proposed change;
(2) the FSA has given the Host State regulator a notice informing it of the details of the proposed change;
(3) the period of at least one month beginning on the day on which the UK firm gave the FSA the notice in (1) has elapsed; and
(4) either:
(a) a further period of one month has elapsed; or
(b) the FSA has informed the UK firm of any consequential changes in the applicable provisions of which the FSA has been notified by the Host State regulator.

SUP 13.6.8

handbook-guidance
If a UK firm has exercised an EEA right under the Insurance Directives and established a branch in another EEA State, regulation 15(1) states that the UK firm cannot make a change in any of the UK relevant details (see SUP 13 Annex 2) unless the UK firm has given a notice to the FSA stating the details of the proposed change at least one month before the change is effected.

SUP 13.6.9

handbook-guidance
Where a UK firm with Part IV permission to carry on both long-term and general insurance business, is passporting under the Insurance Directives and wishes to extend its general insurance business to include long term insurance business (or vice versa), it should complete a new notice of intention (see SUP 13.5(Notices of intention) and not a change in requisite details notification.

Firms passporting under the Insurance Mediation Directive

SUP 13.6.9A

handbook-guidance
A UK firm exercising its EEA right under the Insurance Mediation Directive to establish a branch in another EEA State is not required to supply requisite details or relevant details. Therefore there are no requisite details or relevant details for changes to a branch established in another EEA State under the Insurance Mediation Directive.

Changes arising from circumstances beyond the control of a UK firm

SUP 13.6.10

handbook-guidance
  1. (1) If the change arises from circumstances beyond the UK firm's control, the UK firm:
    1. (a) is required by regulation 11(3) or regulation 13(3) to give a notice to the FSA and to the Host State regulator stating the details of the change as soon as reasonably practicable;
    2. (b) may, if it is passporting under the Insurance Directives, make a change to its UK relevant details under regulation 15(1) if it has, as soon as practicable (whether before or after the change), given notice to the FSA stating the details of the change.
  2. (2) The FSA believes that for a change to arise from circumstances beyond the control of a UK firm, the circumstances should be outside the control of the firm as a whole and not just the branch in the EEA State.

The process

SUP 13.6.11

handbook-guidance
When the FSA receives a notice from a UK firm(see SUP 13.6.5 G (1) and SUP 13.6.7 G (1)) it is required by regulations 11(4) and 13(4) to either refuse, or consent to the change within a period of one month from the day on which it received the notice.

SUP 13.6.12

handbook-guidance
If the FSA consents to the change, then under regulations 11(5) and 13(5) it will:
(1) give a notice to the Host State regulator informing it of the details of the change; and
(2) inform the UK firm that it has given the notice, stating the date on which it did so.

SUP 13.6.13

handbook-guidance
If a UK firm is passporting under the Investment Services Directive or Banking Consolidation Directive, then regulation 11(7) states that the FSA may not refuse to consent to a change unless, having regard to the change and to the EEA activities the UK firm is seeking to carry on, it doubts the adequacy of the administrative structure or the financial situation of the UK firm. In reaching its determination, the FSA may have regard to the adequacy of management, systems and the presence of relevant skills needed for the EEA activities to be carried on.

SUP 13.6.14

handbook-guidance
If a UK firm is passporting under the Insurance Directives, then regulation 13(7) states that the FSA may not refuse to consent to a change unless, having regard to the change, the FSA has reason:
(1) to doubt the adequacy of the UK firm's administrative structure or financial situation; or
(2) to question the reputation, qualifications or experience of the directors or managers of the firm or the authorised agent;
in relation to the business conducted, or to be conducted, through the branch.

SUP 13.6.15

handbook-guidance
If the FSA refuses to consent to a change, then under regulations 11(6) and 13(6):
(1) the FSA will give notice of the refusal to the UK firm, stating its reasons and giving an indication of the UK firm's right to refer the matter to the Tribunal and the procedures on such a reference; and
(2) the UK firm may refer the matter to the Tribunal; for details of procedures for a reference to the Tribunal see DEC 5 (References to the Tribunal, publication and service of notices).

SUP 13.7

Changes to cross border services

  • 01/12/2004

SUP 13.7.1

handbook-guidance
Where a UK firm is exercising an EEA right under the Investment Services Directive or Insurance Directives and is providing cross border services into another EEA State, any changes to the details of the services are governed by the EEA Passport Rights Regulations. References to regulations in this section are to the EEA Passport Rights Regulations. A UK firm which is not an authorised person should note that contravention of the prohibition imposed by regulation 12(1) or 16(1) is an offence. It is a defence, however, for the UK firm to show that it took all reasonable precautions and exercised due diligence to avoid committing the offence.

SUP 13.7.2

handbook-guidance
UK firms should also note that changes to the details of cross border services may lead to changes to the applicable provisions to which the UK firm is subject.

Firms passporting under the Investment Services Directive and the UCITS Directive

SUP 13.7.3

handbook-guidance
If a UK firm is passporting under the Investment Services Directive or the UCITS Directive, regulation 12(1) states that the UK firm must not make a change in its programme of operations, or the activities to be carried on under its EEA right, unless the relevant requirements in regulation 12(2) have been complied with. These requirements are:
(1) the UK firm has given a notice to the FSA and to the Host State regulator stating the details of the proposed change; or
(2) if the change arises as a result of circumstances beyond the UK firm's control, the UK firm has as soon as practicable (whether before or after the change) given a notice to the FSA and to the Host State regulator, stating the details of the change.

Firms passporting under the Insurance Directives

SUP 13.7.4

handbook-guidance
If a UK firm has exercised an EEA right under the Insurance Directives and is providing cross border services into another EEA State, regulation 16(1) states that the UK firm must not make a change in the relevant details (see SUP 13 Annex 3) unless the relevant requirements in regulation 16(3) or, where the change arises from circumstances beyond the UK firm's control, regulation 16(4), have been complied with.

SUP 13.7.5

handbook-guidance
Regulation 16(3) provides that:
(1) the UK firm has given a notice to the FSA stating the details of the proposed change; and
(2) the FSA has given the Host State regulator a notice informing it of the details of the proposed change.

SUP 13.7.6

handbook-guidance
If the change arises from circumstances beyond the UK firm's control, the UK firm is required by regulation 16(4) to give a notice to the FSA stating the details of the change as soon as reasonably practicable (whether before or after the change). See also SUP 13.6.10 G(2), as relevant to cross border services.

SUP 13.7.7

handbook-guidance
When the FSA receives a notice from a UK firm (see SUP 13.7.3 G (1) and SUP 13.7.5 G), it is required by regulations 16(5) toeither refuse or consent to the change within one month of receipt.

SUP 13.7.8

handbook-guidance
If the FSA consents to the change it will:
(1) give a notice to the Host State regulator informing it of the details of the proposed change; and
(2) inform the UK firm that it has given the notice, stating the date on which it did so.

SUP 13.7.9

handbook-guidance
If the FSA refuses to consent to a change it will follow the decision making procedures set out in DEC 1 (Application, Purpose and Introduction). The FSAis required by regulation 16(7) to give notice of the refusal to the UK firm, stating its reasons and giving an indication of the UK firm's right to refer the matter to the Tribunal and the procedures that apply to such a reference. For details of procedures relating to references to the Tribunal see DEC 5 (References to the Tribunal, publication and service of notices).

SUP 13.7.10

handbook-guidance
Where a UK firm with Part IV permission to carry on both long-term and general insurance business is passporting under the Insurance Directives and wishes to extend its general insurance business to include long term insurance business (or vice versa), it should complete a new notice of intention (see SUP 13.5 (Notices of intention)) and not a change in requisite details notification.

Firms passporting under the Banking Consolidation Directive and Insurance Mediation Directive

SUP 13.7.11

handbook-guidance
A UK firm providing cross border services under the Banking Consolidation Directive or Insurance Mediation Directive is not required to supply requisite details or relevant details. Therefore, there are no requisite details or relevant details for changes to cross-border services provided under the Banking Consolidation Directive or Insurance Mediation Directive.

SUP 13.8

Changes of details: provision of notices to the FSA

SUP 13.8.1

handbook-rule
(1) A notice of a change to a branchunder SUP 13.6.5 G (1), SUP 13.6.7 G (1) and SUP 13.6.10 G (1) and a notice of a change to cross border servicesunder SUP 13.7.3 G (1) or SUP 13.7.5 G (1) must be:
(a) given to a member of, or addressed for the attention of, the Passport Notifications Unit; and
(b) delivered to the FSA by one of the methods in (2).
(2) The notice of intention may be delivered by:
(a) post to the address in (3); or
(b) leaving the application at the address in (3) and obtaining a time-stamped receipt; or
(c) hand delivery to a member of the Corporate Authorisation department (if submitted with an application for Part IV permission) or the Passport Notifications Unit;
(d) electronic mail to the address in (4) if not submitted with an application for Part IV permissionand obtaining an electronic confirmation of receipt;
(e) fax to the Passport Notifications Unit on 020 7066 xxxx (if not submitted with an application for Part IV permissionprovided that the FSA receives a copy by one of the methods (a) to (d) above within five business days after the date of the faxed notification.
(3) The address for notices of intention is: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
(4) Email: passport.notifications@fsa.gov.uk

SUP 13.8.2

handbook-guidance
UK firms passporting under the Banking Consolidation Directive or the Insurance Directives may be required to submit the changes to the requisite details or relevant details in the language of the Host State as well as in English. See SUP 13.5.6 G.

SUP 13.10

Applicable provisions

  • 01/12/2004

SUP 13.10.1

handbook-guidance
UK firms are reminded that conduct of business rules, and other rules made for the general good, may apply to business carried on in the Host State by a UK firm. These are known in the Act as the applicable provisions (paragraph 19(13) of Part III of Schedule 3 to the Act).

SUP 13.10.2

handbook-guidance
UK firms passporting under the Banking Consolidation Directive should note that, under the Directive, the Host State is responsible, together with the FSA , for monitoring the liquidity of a branch established by a UK firm in another EEA State.

SUP 13.10.3

handbook-guidance
These Host State provisions often have requirements about the soliciting of business, for example, advertising and cold-calling rules. A UK firm should ensure it is familiar with, and acts in compliance with, the relevant requirements of its Host State regulator.

SUP 13.11

Record keeping

  • 01/12/2004

SUP 13.11.1

handbook-rule
(1) A UK firm which is exercising an EEA right must make and retain a record of:
(a) the services or activities it carries on from a branch in, or provides cross-border into, another EEA State under that EEA right; and
(b) the requisite details or relevant details relating to those services or activities (if applicable).
(2) The record in (1) must be kept for three years from the earlier of the date on which:
(a) it was superseded by a more up-to-date record; or
(b) the UK firm ceased to have a branch in, or carry on cross border services into, any EEA State under an EEA right.

SUP 13.11.2

handbook-guidance
The record in SUP 13.11.1 R need not relate to the level of business carried on. A UK firm may comply with SUP 13.11.1 R by, for example, keeping copies of all notices of intention and notices of changes of requisite details or relevant details.

SUP 13.11.3

handbook-guidance
A UK firm should monitor the business carried on under an EEA right to ensure that any changes to requisite details or relevant details are notified as required by SUP 13.7 (Changes to cross border services).

SUP 13.12

Sources of further information

  • 01/12/2004

SUP 13.12.1

handbook-guidance
(1) Given the complexity of issues raised by passporting, UK firms are advised to consult legislation and also to obtain legal advice at earliest opportunity. Firms are encouraged to contact their usual supervisory contact at the FSA to discuss their proposals. However, a UK firm which is seeking guidance on procedural or notification issues relating to passporting should contact the Passport Notifications Unit.
(2) An applicant for Part IV permission which is submitting a notice of intention with its application for such permission (see AUTH 3.20 (Specific obligations: applicants seeking to establish a branch in, or provide services, into another EEA State)) should contact the Corporate Authorisation department in the first instance (see AUTH 1.9 (Next Steps)).

SUP 13.12.2

handbook-guidance
To contact the Passport Notifications Unit, from which a standard form of notice of intention can be obtained:
(1) telephone on 020 7066 1000; fax on 020 7066 xxxx; or
(2) write to: The Passport Notifications Unit, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or
(3) Email: passport.notifications@fsa.gov.uk

SUP 13 Annex 1

Requisite details: branches R

handbook-rule

SUP 13 Annex 2

Relevant UK details: branches of insurance undertakings R

handbook-rule

SUP 13 Annex 3

Specified information: Cross Border Services

handbook-rule

Export chapter as

SUP 14

Incoming EEA firms changing details, and cancelling qualification for authorisation

SUP 14.1

Application and purpose

  • 01/12/2004

Application

SUP 14.1.1

handbook-guidance
This chapter applies to an incoming EEA firm which has established a branch in, or is providing cross border services into, the United Kingdom under one of the Single Market Directives and, therefore, qualifies for authorisation under Schedule 3 to the Act.

SUP 14.1.2

handbook-guidance
SUP 14.6 (Cancelling qualification for authorisation), which sets out how to cancel qualification for authorisation under the Act, also applies to:
(1) an incoming Treaty firm that qualifies for authorisation under Schedule 4 to the Act; and
(2) a UCITS qualifier that is an authorised person under Schedule 5 to the Act; a UCITS qualifier should, however, refer to COLL 9.4.2 R and CIS for full details of applicable rules and guidance.

SUP 14.1.3

handbook-guidance
  1. (1) Under the Gibraltar Order made under section 409 of the Act, a Gibraltar firm is treated as an EEA firm under Schedule 3 to the Act if it is:
    1. (a) authorised in Gibraltar under the Insurance Directives; or
    2. (b) authorised in Gibraltar under the Banking Consolidation Directive.
  2. (2) A Gibraltar insurance companyis allowed to passport its services into the United Kingdom if it complieswith the relevant notification procedures. Similarly, a Gibraltar credit institution is allowed to passport into the United Kingdom to provide banking services provided those services fall within items 1 to 6 in Annex 1 to the Banking Consolidation Directive. So, any references in SUP 14 to EEA State or EEA right include references to Gibraltar and the entitlement under the Gibraltar Order

Purpose

SUP 14.1.4

handbook-guidance
This chapter gives guidance on the Act and the EEA Passport Rights Regulations made under the Act, for an incoming EEA firm which has established a branch in, or is providing cross border services into, the United Kingdom and wishes to change the details of the branch or cross border services. These are known as requisite details, or for firms passporting under the Insurance Directives relevant details.

SUP 14.1.5

handbook-guidance
This chapter also explains how an incoming EEA firm, an incoming Treaty firm or a UCITS qualifier may cancel its qualification for authorisation under the Act.

SUP 14.1.6

handbook-guidance
This chapter does not, however, give guidance on the procedures for the establishment of a branch in, or the providing of cross border services into, the United Kingdom for the first time. So, an incoming EEA firm that wishes to change or supplement the nature of its operations in the United Kingdom from the providing of cross border services to the establishment of a branch (or vice versa) should refer to AUTH 5 (Qualifying for authorisation under the Act).

SUP 14.1.7

handbook-guidance
In addition, the chapter does not give guidance on the procedures for making an application for top-up permission, to carry on regulated activities in the United Kingdom which are outside the scope of the Single Market Directives and for which the firm cannot exercise Treaty rights. Incoming EEA firms seeking a top-up permission should refer to AUTH 5.

SUP 14.2

Changes to branch details

  • 01/12/2004

SUP 14.2.1

handbook-guidance
Where an incoming EEA firm is exercising an EEA right, other than under the Insurance Mediation Directive, and has established a branch in the United Kingdom, the EEA Passport Rights Regulations govern any changes to the details of that branch. Where an incoming EEA firm has complied with the relevant requirements in the EEA Passport Rights Regulations, then the firm'spermission given under Schedule 3 to the Act is to be treated as varied accordingly. All references to regulations in SUP 14 are to the EEA Passport Rights Regulations.

Firms passporting under the Investment Services Directive and Banking Consolidation Directive and the UCITS Directive

SUP 14.2.2

handbook-guidance
(1) Where an incoming EEA firm, passporting under the Investment Services Directive, Banking Consolidation Directive or the UCITS Directive, has established a branch in the United Kingdom, regulation 4 states that it must not make a change in the requisite details of the branch (see AUTH 5 Annex 1) unless it has complied with the relevant requirements.
(2) The relevant requirements are set out in regulation 4(4) or, where the change arises from circumstances beyond the incoming EEA firm's control, in regulation 4(5) (see SUP 14.2.8 G).

SUP 14.2.3

handbook-guidance
Where the change arises from circumstances within the control of the incoming EEA firm, the requirements in regulation 4(4) are that:
(1) the incoming EEA firm has given notice to the FSA (see SUP 14.4.1 G) and to its Home State regulator stating the details of the proposed change;
(2) the FSA has received a notice stating those details; and
(3) either:
(a) the FSA has informed the firm that it may make the change; or
(b) the period of one month beginning with the date on which the incoming EEA firm gave the FSA the notice mentioned in (1) has elapsed.

SUP 14.2.4

handbook-guidance
Changes to the requisite details may lead to changes to the applicable provisions to which the incoming EEA firm is subject. The FSA will, as soon as practicable after receiving a notice in SUP 14.2.3 G or SUP 14.2.8 G, inform the incoming EEA firm of any consequential changes in the applicable provisions (regulation 4(6)).

Firms passporting under the Insurance Directives

SUP 14.2.5

handbook-guidance
(1) Where an incoming EEA firm, passporting under the Insurance Directives has established a branch in the United Kingdom, regulation 6 states that it must not make a change to the information referred to in regulation 2(5)(a) to (c) (see AUTH 5 Annex 1) unless it has complied with the relevant requirements.
(2) The relevant requirements are set out in regulation 6(4) or, where the change arises from circumstances beyond the incoming EEA firm's control, regulation 6(5) (see SUP 14.2.8 G).

SUP 14.2.6

handbook-guidance
Where the change arises from circumstances within the control of the incoming EEA firm, the relevant requirements in regulation 6(4) are that:
(1) the incoming EEA firm has given a notice to the FSA (see SUP 14.4.1 G) and to its Home State regulator stating the details of the proposed change;
(2) the FSA has received from the Home State regulator a notice stating that it has approved the proposed change;
(3) the period of at least one month beginning with the day on which the incoming EEA firm gave the FSA the notice in (1) has elapsed; and
(4) either:
(a) a further period of one month has elapsed; or
(b) the FSA has informed the Home State regulator of any consequential changes in the applicable provisions.

SUP 14.2.7

handbook-guidance
Under regulation 6(6) the FSA is required, as soon as practicable, to:
(1) acknowledge receipt of the documents sent under regulation 6(4) or 6(5); and
(2) in the case of a notice under regulation 6(5), inform the incoming EEA firm's Home State regulator of any consequential changes in the applicable provisions.

Changes arising from circumstances beyond the control of an incoming EEA firm

SUP 14.2.8

handbook-guidance
If the change arises from circumstances beyond the incoming EEA firm's control, the firm is required by regulation 4(5) (see SUP 14.2.2 G) or regulation 6(5) (see SUP 14.2.5 G (2)) to give a notice to the FSA (see SUP 14.4.1 G) and to its Home State regulator stating the details of the change as soon as reasonably practicable.

SUP 14.2.9

handbook-guidance
The FSA believes that for a change to arise from circumstances beyond the control of an incoming EEA firm, the circumstances should be outside the control of the firm as a whole and not just its UK branch. For example, the FSA considers that this provision would be unlikely to apply to circumstances in which lack of planning at the incoming EEA firm's head office resulted in a problem arising in a UKbranch which was outside its control. In practice, therefore, use of this provision is likely to be rare.

SUP 14.3

Changes to cross border services

  • 01/12/2004

SUP 14.3.1

handbook-guidance
Where an incoming EEA firm passporting under the Investment Services Directive , UCITS Directive or Insurance Directives is exercising an EEA right and is providing cross border services into the United Kingdom, the EEA Passport Rights Regulations govern any changes to the details of those services. Where an incoming EEA firm has complied with the relevant requirements in the EEA Passport Rights Regulations, then the firm'spermission given under Schedule 3 to the Act is to be treated as varied accordingly.

Firms passporting under the Investment Services Directive and UCITS Directive

SUP 14.3.2

handbook-guidance
Where an incoming EEA firm passporting under the Investment Services Directive or is providing cross border services into the United Kingdom, it must not make a change in the details referred to in regulation 5(1) (see AUTH 5 Annex 2) unless it has complied with the relevant requirements in regulation 5(3).

SUP 14.3.3

handbook-guidance
The relevant requirements in regulation 5(3) are that:
(1) the incoming EEA firm has given a notice to the FSA (see SUP 14.4.1 G) and to its Home State regulator stating the details of the proposed change;
(2) if the change arises from circumstances beyond the incoming EEA firm's control, that firm has, as soon as practicable, given to the FSA and to its Home State regulator the notice in (1).
  • 21/06/2001

SUP 14.3.4

handbook-guidance
Under regulation 5(4), the FSA is required, as soon as practicable after receiving the notice in SUP 14.3.3 G, to inform the incoming EEA firm of any consequential changes in the applicable provisions.

Firms passporting under the Insurance Directives

SUP 14.3.5

handbook-guidance
If an incoming EEA firm passporting under the Insurance Directives is providing cross border servicesunto the United Kingdom, it must not make a change to the details referred to in regulation 7(1) (see AUTH 5 Annex 2) unless it has complied with the relevant provisions.

SUP 14.3.6

handbook-guidance
The relevant provisions are those set out in regulation 7(4), namely that:
(1) the incoming EEA firm has given a notice to its Home State regulator stating the details of the proposed change; and
(2) the Home State regulator has passed on to the FSA the information contained in that notice.

SUP 14.3.7

handbook-guidance
If the change arises from circumstances beyond the incoming EEA firm's control, the incoming EEA firm is required to comply with the relevant provisions referred to in SUP 14.3.6 G as soon as reasonably practicable (whether before or after the change). See also SUP 14.2.9 G, as relevant to cross border services.

SUP 14.4

Notices of proposed changes: form and delivery

  • 01/12/2004

SUP 14.4.1

handbook-guidance
(1) Regulation 7 to 9 of the Financial Services and Markets Act 2000 (Services of Notices) Regulations 2001 (SI2001/1420) govern the manner in which notices may be submitted to the FSA under the EEA Passport Rights Regulations. In summary, they should be delivered or posted to the FSA's address (See (2) below) and will be treated as given when received by the FSA. They should not be sent by fax or electronic mail.
(2) The address for notices is: The Passport Notifications Unit, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS

SUP 14.5

Variation of a top-up permission to carry on regulated activities outside the scope of the Single Market Directives

SUP 14.5.1

handbook-guidance
Where an incoming EEA firm has been granted top-up permission by the FSA and wishes to vary that permission, the Act requires it to apply to the FSA for a variation of the top-up permission.

SUP 14.5.2

handbook-guidance
Guidance on the procedures for applying for a variation of a permission granted under Part IV of the Act, including a top-up permission, is given in SUP 6 (Applications to vary and cancel Part IVPermission).

SUP 14.6

Cancelling qualification for authorisation

  • 01/12/2004

Incoming EEA firms

SUP 14.6.1

handbook-guidance
Section 34 of the Act states that an incoming EEA firm no longer qualifies for authorisation under Schedule 3 to the Act if it ceases to be an incoming EEA firm as a result of:
(1) having its EEA authorisation withdrawn by its Home State regulator; or
(2) ceasing to have an EEA right in circumstances in which EEA authorisation is not required; this is relevant to a financial institution that is a subsidiary of a credit institution (of the kind mentioned in Article 19of the Banking Consolidation Directive ) which fulfils the conditions in articles 18 and 19of that Directive.

SUP 14.6.2

handbook-guidance
In addition, under section 34(2) an incoming EEA firm may ask the FSA to give a direction cancelling its authorisation under Schedule 3 to the Act.

SUP 14.6.3

handbook-guidance
Regulation 8 states that where an incoming EEA firm which qualifies for authorisation under Schedule 3:
(1) has ceased, or is to cease, to carry on regulated activities in the United Kingdom; and
(2) gives notice of that fact to the FSA ;
the notice is treated under regulation 8 as a request for cancellation of the incoming EEA firm's qualification for authorisation under Schedule 3 to the Act and so as a request under section 34(2) of the Act.

SUP 14.6.4

handbook-guidance
Where a financial institution (that is, a subsidiary of a credit institution) is passporting under the Banking Consolidation Directive (see SUP 14.6.1 G (2)), regulation 9(1) states that the incoming EEA firm may request the FSA to direct that its qualification for authorisation under Schedule 3 to the Act is cancelled from such date as may be specified in the direction.

SUP 14.6.5

handbook-guidance
The FSA may not, however, give a direction referred to in SUP 14.6.4 G unless:
(1) the incoming EEA firm has given notice to its Home State regulator; and
(2) the FSA has agreed with the Home State regulator that the direction should be given.

SUP 14.6.6

handbook-guidance
Regulation 9(3) requires that the date specified by the FSA in a direction referred to in SUP 14.6.4 G:
(1) must not be earlier than the date requested in the application; but
(2) subject to (1), is as agreed between the FSA and the incoming EEA firm's Home State regulator.

SUP 14.6.7

handbook-guidance
The FSA is required to send, as soon as practicable, a copy of the direction to the incoming EEA firm and to its Home State regulator (regulation 9(4)).

SUP 14.6.8

handbook-guidance
Where the FSA gives a direction referred to in SUP 14.6.4 G, the incoming EEA firm may apply for Part IV permission (see AUTH 3 (Applications for Part IV Permission)) to take effect not earlier than the date that its qualification for authorisation is cancelled (as specified in the direction).

Incoming Treaty firms

SUP 14.6.9

handbook-guidance
Section 35 of the Act states that an incoming Treaty firm no longer qualifies for authorisation under Schedule 4 to the Act if its Home State authorisation is withdrawn.

SUP 14.6.10

handbook-guidance
In addition, under section 35(2) an incoming Treaty firm may ask the FSA to give a direction cancelling its authorisation under Schedule 4 to the Act.

UCITS qualifiers

SUP 14.6.11

handbook-guidance
Section 36 of the Act states that a UCITS qualifier may ask the FSA to give a direction cancelling its authorisation under paragraph 1(1) of Schedule 5 to the Act. UCITS qualifiers should also refer to COLLG 3.1.11 Gand CIS 17.4.8 G (Revocation of recognition: Schemes recognised under section 264 of the Act).

SUP 14.7

Cancellation of a top-up permission to carry on regulated activities outside the scope of the Single Market Directives

SUP 14.7.1

handbook-guidance
Where an incoming EEA firm, an incoming Treaty firm or a UCITS qualifier wishes to cancel its top-up permission, either with or without cancellation of its qualification for authorisation under Schedule 3, 4, or 5 to the Act, it should make an application following the procedures set out in SUP 6 (Applications to vary and cancel Part IVPermission).

SUP 14.8

Further guidance

  • 01/12/2004

SUP 14.8.1

handbook-guidance
For further guidance on passporting procedures, an incoming EEA firmshould contact the FSA's Passport Notifications Unit or their usual supervisory contact at the FSA . Incoming Treaty firms and UCITS qualifiersshould speak to their usual supervisory contact at the FSA in the first instance

Export chapter as

SUP 15

Notifications to the FSA

SUP 15.1

Application

  • 01/12/2004

Who?

SUP 15.1.1

handbook-guidance
This chapter applies to every firm except an ICVC or a UCITS qualifier.

SUP 15.1.2

handbook-rule
The application of this chapter to an incoming EEA firm or an incoming Treaty firm is set out in SUP 15 Annex 1.

SUP 15.1.3

handbook-guidance
In some cases, the application of provisions set out in SUP 15 Annex 1 depends on whether responsibility is reserved to a Home State regulator. SYSC App 1 contains guidance on this.

What?

SUP 15.1.4

handbook-rule
This chapter:
(1) applies with respect to the carrying on of both regulated activities and unregulated activities; and
(2) takes into account any activity of other members of a group of which the firm is a member.

Where?

SUP 15.1.5

handbook-guidance
Firms are reminded that:
(1) unless expressly stated otherwise, where a rule or guidance includes a reference to a firm this includes all UK and overseas branches and representative offices of that firm, whether or not those branches or offices carry on any regulated activities; and
(2) ECO 1.1.6 R has the effect that this chapter does not apply to an incoming ECA provider acting as such.

SUP 15.2

Purpose

  • 01/12/2004

SUP 15.2.1

handbook-guidance
A firm is required to provide the FSA with a wide range of information to enable the FSA to meet its responsibilities for monitoring the firm's compliance with requirements imposed by or under the Act. Some of this information is provided through regular reports, including those set out in SUP 16 (Reporting requirements) and SUP 17 (Transaction reporting). In addition, other chapters in the Handbook set out specific notification and reporting requirements. Principle 11 includes a requirement for a firm to disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

SUP 15.2.2

handbook-guidance

This chapter sets out:

  1. (1) guidance on the type of event or change in condition which a firm should consider notifying in accordance with Principle 11; the purpose of this guidance is to set out examples and not to give comprehensive advice to firms on what they should notify in order to be in compliance with Principle 11;
  2. (2) rules on events and changes in condition that a firm must notify; these are the types of event that the FSA must be informed about, usually as soon as possible, if it is to be able to carry out its monitoring function effectively and react in good time to developments that may require a regulatory response;
  3. (3) rules on the core information that a firm must provide to the FSA, for example its name and address and the names of its other regulators, so that the FSA is able to maintain a relationship with the firm and with those regulators; and
  4. (4) rules requiring a firm to ensure that information provided to the FSA is accurate and complete; section 398 of the Act makes it an offence knowingly or recklessly to provide the FSA with information which is false or misleading in a material particular, in purported compliance with any requirement imposed by or under the Act; the purpose of the rules in SUP 15.6 is to ensure that firms take due care to ensure the accuracy of information and to require them to ensure that information is not only accurate but also complete.

SUP 15.2.3

handbook-guidance
Rules and guidance have also been included to set out how firms should make a notification and to determine when it may be appropriate to discuss matters with their usual supervisory contact by telephone (SUP 15.7).

SUP 15.2.4

handbook-guidance
Schedule 2 contains a consolidated summary of all the notification rules applicable to firms set out in the Handbook.

SUP 15.3

General notification requirements

  • 01/12/2004

Matters having a serious regulatory impact

SUP 15.3.1

handbook-rule
A firm must notify the FSA immediately it becomes aware, or has information which reasonably suggests, that any of the following has occurred, may have occurred or may occur in the foreseeable future:
(1) the firm failing to satisfy one or more of the threshold conditions; or
(2) any matter which could have a significant adverse impact on the firm's reputation; or
(3) any matter which could affect the firm's ability to continue to provide adequate services to its customers and which could result in serious detriment to a customer of the firm; or
(4) any matter in respect of the firm which could result in serious financial consequences to the financial system or to other firms.

SUP 15.3.2

handbook-guidance
The circumstances which may give rise to any of the events in SUP 15.3.1 R are wide-ranging and the probability of any matter resulting in such an outcome, and the severity of the outcome, may be difficult to determine. However, the FSA expects firms to consider properly all potential consequences of events.

SUP 15.3.3

handbook-guidance
In determining whether an event that may occur in the foreseeable future should be notified to the FSA, a firm should consider both the probability of the event happening and the severity of the outcome should it happen.

SUP 15.3.4

handbook-guidance
Guidance on satisfaction of the threshold conditions is given in COND.
  • 21/06/2001

SUP 15.3.5

handbook-guidance
A firm making a notification in accordance with SUP 15.3.1 R should consider the guidance in SUP 15.7.2 G and notify the FSA by telephone if appropriate.

SUP 15.3.6

handbook-guidance
An insurer or friendly society making a notification under SUP 15.3.1 R (1) relating to satisfaction of threshold condition 4 (Adequate resources) should be aware of the requirements in SUP App 2 (Scheme of operations).

Communication with the FSA in accordance with Principle 11

SUP 15.3.7

handbook-guidance
Principle 11 requires a firm to deal with its regulators in an open and cooperative way and to disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. Principle 11 applies to unregulated activities as well as regulated activities and takes into account the activities of other members of a group.

SUP 15.3.8

handbook-guidance
Compliance with Principle 11 includes, but is not limited to, giving the FSA notice of:
(1) any proposed restructuring, reorganisation or business expansion which could have a significant impact on the firm's risk profile or resources, including, but not limited to:
(a) setting up a new undertaking within a firm'sgroup, or a new branch (whether in the United Kingdom or overseas); or
(b) commencing the provision of cross border services into a new territory; or
(c) commencing the provision of a new type of product or service (whether in the United Kingdom or overseas); or
(d) ceasing to undertake a regulated activity or ancillary activity, or significantly reducing the scope of such activities; or
(e) entering into, or significantly changing, a material outsourcing arrangement (a bankshould also see IPRU(BANK) OS 4.2, a building societyshould also see IPRU(BSOC) 11 OS 4.2, and an insurer should also see SYSC 3A.9 for further details); or SYSC 13.9 for further details); or
(f) a substantial change or a series of changes in the governing body of an overseas firm (other than an incoming firm); or
(g) any change to the firm's prudential category or sub-category, as used in the Interim Prudential sourcebooks and SUP and on which guidance is given in SUP App 1;
(2) any significant failure in the firm's systems or controls, including those reported to the firm by the firm's auditor;
(3) any action which a firm proposes to take which would result in a material change in its capital adequacy or solvency, including, but not limited to:
(a) any action which would result in a material change in the firm's financial resources or financial resources requirement; or
(b) a material change resulting from the payment of a special or unusual dividend or the repayment of share capital or a subordinated loan; or
(c) for firms which are subject to the rules on consolidated financial supervision, any proposal under which another group company may be considering such an action; or
(d) significant trading or non-trading losses (whether recognised or unrecognised).

SUP 15.3.9

handbook-guidance
The period of notice given to the FSA will depend on the event, although the FSA expects a firm to discuss relevant matters with it at an early stage, before making any internal or external commitments.

SUP 15.3.10

handbook-guidance
A notification under Principle 11 may be given orally or in writing (as set out in SUP 15.7.1 R and SUP 15.7.2 G), although the FSA may request written confirmation of a matter. However, it is the responsibility of a firm to ensure that matters are properly and clearly communicated to the FSA. A firm should provide a written notification if a matter either is complex or may be such as to make it necessary for the FSA to take action. A firm should also have regard to Principle 11 and the guidance in SUP 15.7.2 G in respect of providing important information promptly.

Breaches of rules and other requirements in or under the Act

SUP 15.3.11

handbook-rule
  1. (1) A firm must notify the FSA of:
    1. (a) a significant breach of a rule (which includes a Principle) or Statement of Principle; or
    2. (b) a breach of any requirement imposed by the Act or by regulations or an order made under the Act by the Treasury (except if the breach is an offence, in which case (c) applies); or
    3. (c) the bringing of a prosecution for, or a conviction of, any offence under the Act;
  2. by (or as regards (c) against) the firm or any of its directors, officers, employees, approved persons, or appointed representatives or, where applicable, tied agents.
  3. (2) A firm must make the notification in (1) immediately it becomes aware, or has information which reasonably suggests, that any of the matters in (1) has occurred, may have occurred or may occur in the foreseeable future.

SUP 15.3.12

handbook-guidance
In SUP 15.3.11 R(1)(a), significance should be determined having regard to potential financial losses to customers or to the firm, frequency of the breach, implications for the firm's systems and controls and if there were delays in identifying or rectifying the breach.

SUP 15.3.13

handbook-guidance
In assessing whether an event that may occur in the foreseeable future should be notified to the FSA, a firm should consider the guidance in SUP 15.3.3 G.

SUP 15.3.14

handbook-guidance
A notification under SUP 15.3.11 R should include:
(1) information about any circumstances relevant to the breach or offence;
(2) identification of the rule or requirement or offence; and
(3) information about any steps which a firm or other person has taken or intends to take to rectify or remedy the breach or prevent any future potential occurrence.

Civil, criminal or disciplinary proceedings against a firm

SUP 15.3.15

handbook-rule
A firm must notify the FSA immediately if:
(1) civil proceedings are brought against the firm and the amount of the claim is significant in relation to the firm's financial resources or its reputation; or
(2) any action is brought against the firm under section 71 of the Act (Actions for damages) or section 150 (Actions for damages); or
(3) disciplinary measures or sanctions have been imposed on the firm by any statutory or regulatory authority, professional organisation or trade body (other than the FSA) or the firm becomes aware that one of those bodies has started an investigation into its affairs; or
(4) the firm is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion; or
(5) it is an OPS firm, which is a trustee, and is removed as trustee by a court order.

SUP 15.3.16

handbook-guidance
A notification under SUP 15.3.15 R should include details of the matter and an estimate of the likely financial consequences, if any.

Fraud, errors and other irregularities

SUP 15.3.17

handbook-rule
A firm must notify the FSA immediately if one of the following events arises and the event is significant:
(1) it becomes aware that an employee may have committed a fraud against one of its customers; or
(2) it becomes aware that a person, whether or not employed by it, may have committed a fraud against it; or
(3) it considers that any person, whether or not employed by it, is acting with intent to commit a fraud against it; or
(4) it identifies irregularities in its accounting or other records, whether or not there is evidence of fraud; or
(5) it suspects that one of its employees may be guilty of serious misconduct concerning his honesty or integrity and which is connected with the firm's regulated activities or ancillary activities.

SUP 15.3.18

handbook-guidance
In determining whether a matter is significant, a firm should have regard to:
(1) the size of any monetary loss or potential monetary loss to itself or its customers (either in terms of a single incident or group of similar or related incidents);
(2) the risk of reputational loss to the firm; and
(3) whether the incident or a pattern of incidents reflects weaknesses in the firm's internal controls.

SUP 15.3.19

handbook-guidance
The notifications under SUP 15.3.17 R are required as the FSA needs to be aware of the types of fraudulent and irregular activity which are being attempted or undertaken, and to act, if necessary, to prevent effects on consumers or other firms. A notification under SUP 15.7.3 G should provide all relevant and significant details of the incident or suspected incident of which the firm is aware.

SUP 15.3.20

handbook-guidance
In addition, the firm may have suffered significant financial losses as a result of the incident, or may suffer reputational loss, and the FSA will wish to consider this and whether the incident suggests weaknesses in the firm'sinternal controls.

Insolvency, bankruptcy and winding up

SUP 15.3.21

handbook-rule
A firm must notify the FSA immediately of any of the following events:
(1) the calling of a meeting to consider a resolution for winding up the firm; or
(2) an application to dissolve the firm or to strike it off the Register of Companies; or
(3) the presentation of a petition for the winding up of the firm; or
(4) the making of, or any proposals for the making of, a composition or arrangement with any one or more of its creditors; or
(5) an application for the appointment of an administrator or trustee in bankruptcy to the firm; or
(6) the appointment of a receiver to the firm (whether an administrative receiver or a receiver appointed over particular property); or
(7) an application for an interim order against the firm under section 252 of the Insolvency Act 1986 (or, in Northern Ireland, section 227 of the Insolvency (Northern Ireland) Order 1989); or
(8) if the firm is a sole trader:
(a) an application for a sequestration order on the firm; or
(b) the presentation of a petition for bankruptcy; or
(9) anything equivalent to (1) to (8) above occurring in respect of the firm in a jurisdiction outside the United Kingdom.

SUP 15.4

Notified persons

  • 01/12/2004

SUP 15.4.1

handbook-rule
(1) An overseas firm, which is not an incoming firm, must notify the FSA within 30 business days of any person taking up or ceasing to hold the following positions:
(a) the firm's worldwide chief executive (that is, the person who, alone or jointly with one or more others, is responsible under the immediate authority of the directors for the whole of its business) if the person is based outside the United Kingdom;
(b) the person within the overseas firm with a purely strategic responsibility for UK operations (see SUP 10.7.4 G);
(c) for a bank or an ELMI: the two or more persons who effectively direct its business in accordance with IPRU(BANK) GN 3.3.1R and ELM 5.3.1 , respectively;
(d) for an insurer: the authorised UK representative.
(2) The notification in (1) must be submitted using Form F (SUP 15 Ann 2). However, if the person is an approved person, notification giving details of his name, the approved person's FSA individual reference number and the position to which the notification relates, is sufficient.

SUP 15.4.2

handbook-guidance
SUP 15.4.1 R is not made under the powers conferred on the FSA by Part V of the Act (Performance of Regulated Activities). A person notified to the FSA under SUP 15.4.1 R is not subject to the Statements of Principle or Code of Practice for Approved Persons, unless he is also an approved person.

SUP 15.4.3

handbook-guidance
Copies of Form F may be obtained from the FSA website at www.fsa.gov.uk or from the Individual Vetting and Approval department. See SUP 10.11.6 G for contact details.

SUP 15.4.4

handbook-guidance
If adverse information is revealed about a person notified to the FSA under SUP 15.4.1 R, the FSA may exercise its own-initiative power against the firm (see SUP 7 (Individual requirements)).

SUP 15.5

Core information requirements

  • 01/12/2004

Change in name

SUP 15.5.1

handbook-rule
A firm must give the FSA reasonable advance notice of a change in:
(1) the firm's name (which is the registered name if the firm is a body corporate);
(2) any business name under which the firm carries on a regulated activity or ancillary activity either from an establishment in the United Kingdom or with or for clients in the United Kingdom.

SUP 15.5.2

handbook-guidance
A notification under SUP 15.5.1 R should include the details of the proposed new name and the date on which the firm intends to implement the change of name.

SUP 15.5.3

handbook-guidance
Firms are reminded that certain name changes (for example, to include 'Limited') may also require a notification under SUP 15.5.5 R.

Change in address

SUP 15.5.4

handbook-rule
A firm must give the FSA reasonable advance notice of a change in any of the following addresses, and give details of the new address and the date of the change:
(1) the firm's principal place of business in the United Kingdom;
(2) in the case of an overseas firm, its registered office (or head office) address.

Change in legal status

SUP 15.5.5

handbook-rule
A firm must give the FSA reasonable advance notice of a proposed change in its legal status which limits the liability of any of its members or partners.

SUP 15.5.6

handbook-guidance
For the purpose of SUP 15.5.5 R, limiting liability includes:
(1) re-registration as a limited liability company of a company incorporated with unlimited liability; and
(2) a general partner in a firm becoming a limited partner.

Other regulators

SUP 15.5.7

handbook-rule
A firm must notify the FSA immediately if it becomes subject to or ceases to be subject to the supervision of any overseas regulator (including a Home State regulator).

SUP 15.5.8

handbook-guidance
The FSA's approach to the supervision of a firm is influenced by the regulatory regime and any legislative or foreign provisions to which that firm, including its branches, is subject.

SUP 15.6

Inaccurate, false or misleading information

  • 01/12/2004

SUP 15.6.1

handbook-rule
A firm must take reasonable steps to ensure that all information it gives to the FSA in accordance with a rule in any part of the Handbook (including Principle 11) is:
(1) factually accurate or, in the case of estimates and judgments, fairly and properly based after appropriate enquiries have been made by the firm; and
(2) complete, in that it should include anything of which the FSA would reasonably expect notice.

SUP 15.6.2

handbook-guidance
SUP 15.6.1 R applies also in relation to rules outside this chapter, and even if they are not notification rules. Examples of rules and chapters to which SUP 15.6.1 R is relevant, are:
(1) Principle 11, and the guidance on Principle 11 in SUP 2 (Information gathering by the FSA on its own initiative);
(2) SUP 15 (Notifications to the FSA):
(3) SUP 16 (Reporting requirements);
(4) SUP 17 (Transaction reporting);
(5) any notification rule (see Schedule 2 which contains a consolidated summary of such rules); and,
(6) DISP 1.5 (Record keeping and reporting).

SUP 15.6.3

handbook-guidance
If a firm is unable to obtain the information required in SUP 15.6.1 R(2), then it should inform the FSA that the scope of the information provided is, or may be, limited.

SUP 15.6.4

handbook-rule
If a firm becomes aware, or has information that reasonably suggests that it has or may have provided the FSA with information which was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material particular, it must notify the FSA immediately. Subject to SUP 15.6.5 R, the notification must include:
(1) details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;
(2) an explanation why such information was or may have been provided; and
(3) the correct information.

SUP 15.6.5

handbook-rule
If the information in SUP 15.6.4 R (3) cannot be submitted with the notification (because it is not immediately available), it must instead be submitted as soon as possible afterwards.

SUP 15.6.6

handbook-guidance
The FSA may request the firm to provide revised documentation containing the correct information, if appropriate.

SUP 15.6.7

handbook-guidance
Firms are reminded that section 398 of the Act (Misleading the Authority: residual cases) makes it an offence for a firm knowingly or recklessly to provide the FSA with information which is false or misleading in a material particular in purported compliance with the FSA's rules or any other requirement imposed by or under the Act. An offence by a body corporate, partnership or unincorporated association may be attributed to an officer or certain other persons (section 400 of the Act (Offences by bodies corporate etc)).

SUP 15.7

Form and method of notification

  • 01/12/2004

Form of notification: oral or written

SUP 15.7.1

handbook-rule
A notification required from a firm under any notification rule must be given in writing, and in English, and must be submitted on the form specified for that notification rule, or if no form is specified, on the form in SUP 15 Ann 3R (Notification form), and must give the firm's FSA Firm Reference Number unless:
(1) the notification rulestates otherwise; or
(2) the notification is provided solely in compliance with Principle 11 (see SUP 15.3.7 G).

SUP 15.7.2

handbook-guidance
A firm should have regard to the urgency and significance of a matter and, if appropriate, should also notify its usual supervisory contact at the FSA by telephone or by other prompt means of communication, before submitting a written notification. Oral notifications should be given directly to the firm's usual supervisory contact An oral notification left with another person or left on a voicemail or other automatic messaging service is unlikely to have been given appropriately.

SUP 15.7.3

handbook-guidance
The FSA is entitled to rely on any information it receives from a firm and to consider any notification received as being made by a person authorised by the firm to do so. A firm should therefore consider whether it needs to put procedures in place to ensure that only appropriate employees make notifications to the FSA on its behalf.

Method of notification

SUP 15.7.4

handbook-rule
Unless stated in the notification rule, or on the relevant form (if specified), a written notification required from a firm under any notification rule must be:
(1) given to or addressed for the attention of the firm's usual supervisory contact at the FSA; and
(2) delivered to the FSA by one of the methods in :

SUP 15.7.5

handbook-rule

Methods of notification

  • 01/11/2004

SUP 15.7.6

handbook-guidance
The current published address of the FSA for postal submission or hand delivery of notifications is:
(1)

if the firm's usual supervisory contact at the FSA is based in London, or
(2)

if the firm's usual supervisory contact at the FSA is based in Edinburgh.
  • 21/06/2001

SUP 15.7.7

handbook-guidance
If the firm or its group is subject to lead supervision arrangements by the FSA, the firm or group may give or address a notice under SUP 15.7.4 R(1) to the supervisory contact at the FSA, designated as lead supervisor, if the firm has chosen to make use of the lead supervisor as a central point of contact (see SUP 1.5).

SUP 15.7.8

handbook-guidance
If a firm is a member of a group which includes more than one firm, any one undertaking in the group may notify the FSA on behalf of all firms in the group to which the notification applies. In this way, that undertaking may satisfy the obligation of all relevant firms in the group to notify the FSA. Nevertheless, the obligation to make the notification remains the responsibility of the individual firm itself. See also SUP 15.7.3 G.

SUP 15.7.9

handbook-guidance
Firms wishing to communicate with the FSA by electronic mail or fax should obtain the appropriate address or number from the FSA

Timely notification

SUP 15.7.10

handbook-rule
If a notification rule requires notification within a specified period:
(1) the firm must give the notification so as to be received by the FSA no later than the end of that period; and
(2) if the end of that period falls on a day which is not a business day, the notification must be given so as to be received by the FSA no later than the first business day after the end of that period.

SUP 15.7.11

handbook-guidance
If a notification rule does not require notification within a specified period, the firm should act reasonably in deciding when to notify.

Underwriting agents: notification to the Society of Lloyd's

SUP 15.7.12

handbook-rule
(1) Paragraph (2) applies in relation to notifications required under this chapter within the scope of any arrangements made by the FSA with the Society of Lloyd's under paragraph 6(2) of Schedule 1 to the Act.
(2) An underwriting agent must submit the notifications in (1) to the Society of Lloyd's rather than to the FSA.
  • 21/06/2001

SUP 15.7.13

handbook-guidance
Paragraph 6(2) of Schedule 1 to the Act enables the FSA to make arrangements which provide for monitoring functions to be performed by any body or person who, in its opinion, is competent to perform them. Arrangements made under this provision are published by the FSA.
  • 21/06/2001

SUP 15.7.14

handbook-guidance
The FSA has made arrangements with the Society of Lloyd's with respect to the monitoring of underwriting agents. Underwriting agents should check whether these arrangements provide for any notifications required under this chapter to be sent to the Society instead of to the FSA. [For further details see the FSA website.]

Consequences of breach of form and method rules

SUP 15.7.15

handbook-guidance
If a firm fails to comply with the rules in this section then the notification is invalid and there may be a breach of the rule that required the notification to be given.

Service of Notices Regulations

SUP 15.7.16

handbook-guidance
The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents on the FSA. They do not apply to notifications required under notification rules because of the specific rules in this section.

SUP 15.8

Notification in respect of particular products and services

  • 01/12/2004

Management of occupational pension scheme assets

SUP 15.8.1

handbook-rule
A firm which manages the assets of an occupational pension scheme must notify the FSA as soon as reasonably practicable if it receives any request or instruction from a trustee which it:
(1) knows; or
(2) on substantial grounds:
(a) suspects; or
(b) has cause reasonably to suspect;
is at material variance with the trustee's duties.
  • 21/06/2001

Individual Pension Accounts

SUP 15.8.2

handbook-rule
If a firm begins or ceases to administer individual pension accounts, it must notify the FSA as soon as reasonably practicable that it has done so.
  • 01/09/2003

Insurers' commission clawback

SUP 15.8.3

handbook-rule
(1) An insurer must notify the FSA in respect of any firm (the "intermediary") as soon as reasonably practicable if:
(a) any amount of commission due from the intermediary to the insurer in accordance with an indemnity commission clawback arrangement remains outstanding for four months after the date when the insurer gave notice to the intermediary that the relevant premium had not been paid; or
(b) any amount of commission due from the intermediary to the insurer as a result of either the cancellation of an investment agreement or overpayment of commission remains outstanding for four months after the date on which the insurer gave notice to the intermediary that cancellation or overpayment had occurred.
(2) A notification in (1):
(a) need not be given unless the total amounts outstanding under (1)(a) and (b) in respect of the intermediary exceed £1,000; and
(b) must give the identity of the intermediary and the amount of commission which remains outstanding.
(3) In (1) an "indemnity commission clawback arrangement" is an arrangement under which:
(a) an insurer pays commission to an intermediary before the date on which the premium is due under the relevant investment agreement; and
(b) the insurer requires repayment of the commission, if the investment agreement is terminated by reason of a failure to pay a premium.
  • 21/06/2001

Bureau de Change

SUP 15.8.4

handbook-guidance
(1) In accordance with article 25of the Money Laundering Regulations, with effect from 1 April 2004, a firm is required to notify the FSA:
(a) before it begins; and
(b) as soon as reasonably practicable after it ceases;
to operate a bureau de change (within (a) of money service business)
(2) The notification referred to in (1) should be made in accordance with the requirements in SUP 15.7 (Form and method of notification)

SUP 15.8.5

handbook-guidance
A firm which is already operating a bureau de changeas at 1 April 2004 and intends to continue doing so is required by the Money Laundering Regulations to notify the FSA of that fact and should do so in the manner specified in SUP 15.8.4 G(2).

Delegation by UCITS management companies

SUP 15.8.6

handbook-rule
A UCITS management company must notify the FSA as soon as reasonably practicable if it delegates any of its functions to a third party.

SUP 15.8.7

handbook-guidance
A UCITS management company which delegates any of its functions to a third party must, as well as complying with SUP 15.8.4 G, comply with the requirements in COLL 6.6.15 (2) , CIS 7.6.1 R (2) or CIS 7.10.4 R (1) as appropriate.

CTF providers

SUP 15.8.8

handbook-rule
(1) If a firm begins or ceases to hold itself out as acting as a CTF provider, it must notify the FSA as soon as reasonably practicable that it has done so.
(2) A firm that acts as a CTF provider must provide the FSA, as soon as reasonably practicable, with details of:
(a) any third party administrator that it engages;
(b) details of whether it intends to offer Revenue allocated CTFs ; and
(c) whether it intends to provide its own stakeholder CTF account.

SUP 15.9

Notifications by members of financial conglomerates

  • 01/01/2005

SUP 15.9.1

handbook-rule
A firm that is a regulated entity must notify the FSA immediately it becomes aware that any consolidation group of which it is a member:
(1) is a financial conglomerate; or
(2) has ceased to be a financial conglomerate.

SUP 15.9.2

handbook-rule
(1) A firm that is a regulated entity must establish whether or not any consolidation group of which it is a member:
(a) is a financial conglomerate; or
(b) has ceased to be a financial conglomerate;


if:
(c) the firm believes; or
(d) a reasonable firm that is complying with the requirements of the regulatory system would believe;


that it is likely that (a) or (b) is true.
(2) A firm does not need to determine whether (1)(a) is the case if the consolidation group is already being regulated as a financial conglomerate.
(3) A firm does not need to determine whether (1)(b) is the case if notification has already been given as contemplated by SUP 15.9.4 R.

SUP 15.9.3

handbook-guidance
A firm should consider the requirements in SUP 15.9.2 R on a continuing basis, and in particular, when the group prepares its financial statements and on the occurrence of an event affecting the consolidated group. Such events include, but are not limited to, an acquisition, merger or sale.

SUP 15.9.4

handbook-rule
A firm does not have to give notice to the FSA under SUP 15.9.1 R if it or another member of the consolidation group has already given notice of the relevant fact to:
(1) the FSA; or
(2) (if another competent authority is co-ordinator of the financial conglomerate ) that competent authority; or
(3) (in the case of a financial conglomerate that does not yet have a co-ordinator ) the competent authority who would be co-ordinator under Article 10(2) of the Financial Groups Directive (Competent authority responsible for exercising supplementary supervision (the co-ordinator)).

SUP 15 Annex 1

Application of SUP 15 to incoming EEA firms and incoming Treaty firms

  • 01/12/2004

handbook-rule

SUP 15 Ann 2

Form F

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Supervision forms - SUP 15 Annex 2

SUP 15 Ann 3

Standing data form

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Standing Data - SUP 15 Annex 3

SUP 15 Ann 4

Notification form

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Notifications Form - SUP 15 Annex 4

Export chapter as

SUP 16

Reporting requirements

SUP 16.1

Application

  • 01/12/2004

SUP 16.1.1

handbook-rule
This chapter applies to every firmwithin a category listed in column (2) of the table in SUP 16.1.3 R and in accordance with column (3) of that table.

SUP 16.1.2

handbook-guidance

The only categories of firm to which no section of this chapter applies are:

  1. (1) an ICVC;
  2. (2) an incoming EEA firm or incoming Treaty firm, unless it is:
    1. (a) a firm of a type listed in SUP 16.1.3 R as a type of firm to which SUP 16.6, SUP 16.7 or SUP 16.9 applies; or
    2. (b) an insurer with permission to effect or carry out life policies;
    3. (c) a firm with permission to establish, operate or wind up a stakeholder pension scheme;
  3. (3) a UCITS qualifier.

SUP 16.1.3

handbook-rule

Application of different sections of SUP 16

SUP 16.1.4

handbook-guidance
(1) This chapter contains requirements to report to the FSA on a regular basis. These requirements include reports relating to a firm's financial condition, and to its compliance with other rules and requirements which apply to the firm. Where the relevant requirements are set out in another section of the Handbook, this chapter contains cross references. An example of this is financial reporting for insurers and friendly societies.
(2) Where such requirements already apply to a firm under legislation other than the Act, they are not referred to in this chapter. An example of this is reporting to the FSA by building societies under those parts of the Building Societies Act 1986 which have not been repealed.
(3) Requirements for individual firms reflect:
(a) the category of firm;
(b) the nature of business carried on;
(c) whether a firm has its registered office (or if it does not have a registered office, its head office) in the United Kingdom; and
(d) whether a firm is an incoming EEA firm or incoming Treaty firm.

SUP 16.1.5

handbook-guidance
The reporting of complaints is covered in DISP 1.5.4 RDISP 1.5.8 G.
  • 21/06/2001

SUP 16.1.6

handbook-guidance
Reporting on pension transfers and pension opt-outs arranged by the firm against its advice is covered in COB 5.3.26 R.
  • 21/06/2001

SUP 16.2

Purpose

  • 01/12/2004

SUP 16.2.1

handbook-guidance
(1) In order to discharge its functions under the Act, the FSA needs timely and accurate information about firms. The provision of this information on a regular basis enables the FSA to build up over time a picture of firms' circumstances and behaviour.
(2) Principle 11 requires a firm to deal with its regulators in an open and cooperative way, and to tell the FSA appropriately anythingof which the FSA would reasonably expect notice. The reporting requirements are part of the FSA's approach to amplifying Principle 11 by setting out in more detail the information that the FSA requires. They supplement the provisions of SUP 2 (Information gathering by the FSAon its own initiative) and SUP 15 (Notifications to the FSA). The reports required under these rules help the FSA to monitor firms' compliance with Principles governing relationships between firms and their customers, with Principle 4, which requires firms to maintain adequate financial resources, and with other requirements and standards under the regulatory system.

SUP 16.3

General provisions on reporting

  • 01/12/2004

Application

SUP 16.3.1

handbook-guidance

The effect of SUP 16.1.1 R is that this section applies to every firm except:

  1. (1) an ICVC;
  2. (2) an incoming EEA firm or incoming Treaty firm, which is not:
    1. (a) a firm of a type listed in SUP 16.1.3 R as a firm to which section SUP 16.6 or SUP 16.7 applies;
    2. (b) an insurer with permission to effect or carry out life policies;
  3. (3) a UCITS qualifier.

Structure of the chapter

SUP 16.3.2

handbook-guidance
This chapter has been split into eightsections, covering:
(1) annual controllers reports (SUP 16.4);
(2) annual close links reports (SUP 16.5);
(3) compliance reports (SUP 16.6);
(4) financial reports (SUP 16.7);
(5) persistency reports (SUP 16.8);
(6) annual appointed representatives reports (SUP 16.9);
(7) Verification of standing data (SUP 16.10); and
(8) product sales data reporting (SUP 16.11).

SUP 16.3.3

handbook-guidance
The annual controllers, annual close links, persistency and annual appointed representatives reports sections are the same for all categories of firm to which they apply.

SUP 16.3.4

handbook-guidance
The compliance and financial reports sections are bothset out by category of firm, with detailed requirements set out in tables giving:
(1) a brief description of each report;
(2) the frequency with which the report is required; and
(3) the due date for submission of the report.

SUP 16.3.5

handbook-guidance
Further requirements about the reports, such as form and content, are set out in the sections for each category of firm, where this is appropriate. In many cases, however, it is more appropriate to provide this information by means of a separate annex; in these cases the relevant section refers to the annex.

How to submit reports

SUP 16.3.6

handbook-rule
A periodic report required to be submitted under this chapter, or under any other rule, must be submitted in writing in accordance with SUP 16.3.7 R to SUP 16.3.10 G, unless:
(1) a contrary intention appears; or
(2) the report is required under the listing rules.

SUP 16.3.7

handbook-rule
A written report must:
(1) give the firm's FSA firm reference number; and
(2) if submitted in paper form, be submitted with the cover sheet contained in SUP 16 Annex 13 .

SUP 16.3.8

handbook-rule
A written report must be:
(1) given to or addressed for the attention of the firm's usual supervisory contact at the FSA; and
(2) delivered to the FSA by one of the methods listed in SUP 16.3.9 R.

SUP 16.3.9

handbook-rule

Method of submission of reports (see SUP 16.3.8 R)

SUP 16.3.10

handbook-guidance
(1) The current published address of the FSA for postal submission of reports is:
(2) The current published address of the FSA for hand delivery of reports is:
(a)

if the firm's usual supervisory contact at the FSA is based in London, or:
(b) Sutherland House108-114 Dundas Street Edinburgh EH3 5DQ

if the firm's usual supervisory contact at the FSA is based in Edinburgh.

Complete reporting

SUP 16.3.11

handbook-rule
A firm must submit reports required under this chapter to the FSA containing all the information required.

SUP 16.3.12

handbook-guidance
SUP 15.6 refers to and contains requirements regarding the steps that firms must take to ensure that information provided to the FSA is accurate and complete. Those requirements apply to reports required to be submitted under this chapter.

Timely reporting

SUP 16.3.13

handbook-rule
(1) A firm must submit a report required by this chapter in the frequency, and so as to be received by the FSA no later than the due date, specified for that report.
(2) If the due date for submission of a report required by this chapter falls on a day which is not a business day, the report must be submitted so as to be received by the FSA no later than the first business day after the due date.
(3) If the due date for submission of a report required by this chapter is a set period of time after the quarter end, the quarter ends will be the following dates, unless another rule or the reporting form states otherwise:
(a) the firm's accounting reference date;
(b) 3 months after the firm's accounting reference date;
(c) 6 months after the firm's accounting reference date; and
(d) 9 months after the firm's accounting reference date.
(4) If the due date for submission of a report required by this chapter is a set period of time after the end of a half-year, a quarter, or a month, the dates will be determined by (a) or (b) below except where otherwise indicated:
(a) the firm's accounting reference date;
(b) monthly, 3 monthly or 6 months after the firm's accounting reference date, as the case may be.

Failure to submit reports

SUP 16.3.14

handbook-rule
If a firm does not submit a complete report by the date on which it is due in accordance with the rules in this chapter and any prescribed submission procedures, the firm must pay an administrative fee of £250.

SUP 16.3.14A

handbook-guidance
Failure to submit a report in accordance with the rules in this chapter may also lead to the imposition of a financial penalty and other disciplinary sanctions (see ENF 13.5 ). If it appears to the FSA that, in the exceptional circumstances of a particular case, the payment of any fee would be inequitable, the FSA may reduce or remit all or part of the fee in question which would otherwise be payable (see GEN 3.3.3 R

SUP 16.3.15

handbook-guidance
The FSA may from time to time send reminders to firms when reports are overdue. Firms should not, however, assume that the FSA has received a report merely because they have not received a reminder.

SUP 16.3.16

handbook-guidance
The firm is responsible for ensuring delivery of the required report at the FSA's offices by the due date. If a report is received by the FSA after the due date and the firm believes its delivery arrangements were adequate, it may be required to provide proof of those arrangements. Examples of such proof would be:
(1) "proof of posting" receipts from a UK post office or overseas equivalent which demonstrates that the report was posted early enough to allow delivery by the due date in accordance with the delivery service standards prescribed by the relevant postal authority; or
(2) recorded postal delivery receipts showing delivery on the required day; or
(3) records of a courier service provider showing delivery on the required day.

Change of accounting reference date

SUP 16.3.17

handbook-rule
(1) A firm must notify the FSA if it changes its accounting reference date.
(2) When a firm extends its accounting period, it must make the notification in (1) before the previous accounting reference date.
(3) When a firm shortens its accounting period, it must make the notification in (1) before the new accounting reference date.

SUP 16.3.18

handbook-guidance
SUP 16.2.1 G emphasises the importance to the FSA of timely and accurate information. The extension of a firm's accounting period to more than 15 months may hinder the timely provision of relevant and important information to the FSA . This is because many due dates for reporting to the FSA are linked to firms'accounting reference dates. Indeed, for some categories of firm, the only reports required by the FSA have due dates for submission which are linked to the firm'saccounting reference date.If the extension of a firm's accounting period appears likely to impair the effectiveness of the FSA's supervisory work, the FSA may take action to ensure that it continues to receive the information it requires on a timely basis. This may include the use of any of the tools of supervision set out in SUP 1.4.5 G.

SUP 16.3.19

handbook-guidance
If more than one firm in a group intends to change its accounting reference date at the same time, a single notification may be given to the FSA , as described in SUP 15.7.8 G.

Underwriting agents: submission to the Society of Lloyd's

SUP 16.3.20

handbook-rule
(1) Paragraph (2) applies in relation to reports required under this chapter within the scope of any arrangements made by the FSA with the Society of Lloyd's under paragraph 6(2) of Schedule 1 to the Act.
(2) An underwriting agent must submit the reports in (1) to the Society of Lloyd's rather than to the FSA.
  • 21/06/2001

SUP 16.3.21

handbook-guidance
See SUP 15.7.13 G and SUP 15.7.14 G for guidance on arrangements in SUP 16.3.20 R.
  • 21/06/2001

Service of Notices Regulations

SUP 16.3.22

handbook-guidance
The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents on the FSA . They do not apply to reports required under SUP 16, because of the specific rules in this section.

Confidentiality and sharing of information

SUP 16.3.23

handbook-guidance
When the FSA receives a report which contains confidential information and whose submission is required under this chapter, it is obliged under Part XXIIIof the Act (Public Record, Disclosure of Information and Co-operation) to treat that information as confidential. (See SUP 2.2.4 G)

SUP 16.3.24

handbook-guidance
SUP 2.3.12 G states that the FSA may pass to other regulators information which it has in its possession. Such information includes information contained in reports submitted under this chapter. The FSA's disclosure of information to other regulators is subject to SUP 2.2.4 G(Confidentiality of information).

Reports from groups

SUP 16.3.25

handbook-guidance
If this chapter requires the submission of a report covering a group, a single report may be submitted, and so satisfy the requirements of all firms in the group. Such a report should contain the information required from all of them, meet all relevant due dates and indicate all the firms on whose behalf it is submitted; if necessary a separate covering sheet should list the firms on whose behalf a report is submitted. Nevertheless, the requirement to provide a report, and the responsibility for the report, remains with each firm in the group. However, reporting requirements that apply to a firm, by reason of the firm being a member of a financial conglomerate, are imposed on only one member of the financial conglomerate (see, for example, SUP 16.7.82 R ).

SUP 16.3.26

handbook-guidance
Examples of reports covering a group are:
(1) the compliance reports required from banks under SUP 16.6.4 R;
(2) annual controllers reports required under SUP 16.5.4 R ;
(3) annual close links reports required under SUP 16.5.4 R
(4) consolidated financial reports required from banks under SUP 16.7.7 R;
(5) consolidated reporting statements required from securities and futures firms under SUP 16.7.24 R.

SUP 16.4

Annual controllers report

  • 01/12/2004

Application

SUP 16.4.1

handbook-guidance
This section applies to every firm except those firms excluded from its operation by SUP 16.1.1 R and SUP 16.1.3 R.

SUP 16.4.2

handbook-guidance
This section may be of relevance to a directive friendly society:
(1) if it has 10 members or less;
(2) if it has a delegate voting system and has 10 delegates or less; or
(3) if it has 20 members or less and effects or carries out group insurance contracts where one person may exercise one vote on behalf of the members of a group and one vote in their private capacity; or
where a member or delegate, whether alone or with any associate, is entitled to exercise, or control the exercise of, 10% or more of the total voting power.

SUP 16.4.3

handbook-guidance
Requirements for notifications of a change in control can be found in SUP 11 (Controllers and close links).

Purpose

SUP 16.4.4

handbook-guidance
A firm and its controllers are required to notify certain changes in control (See SUP 11 (Controllers and close links)). The purpose of the rules and guidance in this section is:
(1) to ensure that, in addition to such notifications, the FSA receives regular and comprehensive information about the identities of all of the controllers of a firm, which is relevant to a firm's continuing to satisfy the threshold conditions (see COND 2.3) and to the protection of consumers;
(2) to implement certain requirements relating to annual reporting of controllers which must be imposed on firms under the Investment Services Directive, the Banking Consolidation Directive, the Third Life Directive and the Third Non-Life Directive; and
(3) to support the FSA's functions under Part XIIof the Act (Control over authorised persons) (see SUP 11 (Controllers and close links)).

Reporting requirement

SUP 16.4.5

handbook-rule
(1) A firm must submit a report to the FSA annually, containing the information in (3) or (4) (as applicable).
(2) A firm must submit the report in (1) to the FSA within four months of the firm'saccounting reference date.
(3) If a firm is not aware:
(a) that it has any controllers; or
(b) of any changes in the identity of its controllers since the submission of its previous report under (1); or
(c) of any changes in the percentage of shares or voting power in the firm held by any controllers (alone or with any associate) since the submission of its previous report;
then the report in (1) must confirm this.
(4) Unless (3) applies, the report in (1) must contain a list of all the controllers as at the firm'saccounting reference date of which it is aware and, for each such controller, state:
(a) its name;
(b) the percentage of voting power in the firm, or in the firm'sparent undertaking, which it is entitled to exercise or control the exercise of, whether alone or with any associate;
(c) the percentage of shares in the firm, or in the firm'sparent undertaking, which it holds, whether alone or with any associate;
(d) if the controller is a body corporate, its country of incorporation, address and registered number; and
(e) if the controller is an individual, his date and place of birth.
(4A) A firm that is a regulated entity must include in its report to the FSA under (1) whether any consolidation group of which it is a member is a third-country banking and investment group.
(4B) A firm does not have to give notice to the FSA under (4A) if it, or another member of the third-country banking and investment group, has already given notice to the FSA of the relevant fact.
(5) In this section, 'associate' and 'shares' have the meanings given in the definition of controller.

SUP 16.4.6

handbook-guidance
The information required by SUP 16.4.5 R(4) may be provided in the form of a group organisation chart.

SUP 16.4.7

handbook-guidance
If a group includes more than one firm, a single annual controllers report may be submitted, and so satisfy the requirements of all firms in the group. Such a report should contain the information required from all of them, meet all relevant due dates, indicate all the firms on whose behalf it is submitted and give their FSA firm reference numbers. Nevertheless, the requirement to provide a report, and the responsibility for the report, remain with each firm in the group.

SUP 16.4.8

handbook-guidance
A firm may submit a single report satisfying the requirements of its annual controllers report (SUP 16.4.5 R) and its annual close links report (SUP 16.5.4 R). Such a report should contain the information required on both controllers and close links.

SUP 16.4.9

handbook-guidance
Firms are reminded of the requirement in SUP 11.4.10 R to take reasonable steps to keep themselves informed about the identity of their controllers.

Exceptions: friendly societies and building societies

SUP 16.4.10

handbook-rule
If a firm is a friendly society or a building society, then it is required to submit a report under SUP 16.4.5 R only if it is aware that it has a controller.

SUP 16.4.11

handbook-rule
In SUP 16.4.5 R and SUP 16.4.10 R, a building society may regard a person as not being a controller if that person is exempt from the obligation to notify a change in control under The Financial Services and Markets Act 2000 (Controllers) (Exemption) (No.2) Order 2001 (SI 2001/3338) (see SUP 11.3.2A G (2)).

Exception: insurers

SUP 16.4.12

handbook-rule
An insurer need not submit a report under SUP 16.4.5 R to the extent that the information has already been provided to the FSA under IPRU(INS) 9.30R (Additional information on controllers).

SUP 16.5

Annual Close Links Reports

  • 01/12/2004

Application

SUP 16.5.1

handbook-guidance
This section applies to every firm except those firms excluded from its operation by SUP 16.1.1 R and SUP 16.1.3 R.

Purpose

SUP 16.5.2

handbook-guidance
A firm is required to notify the FSA of changes to its close links (see SUP 11.9). Threshold condition 3 (Close links) provides that, if a firm has close links with another person, the FSA must be satisfied that:
(1) those close links are not likely to prevent the FSA's effective supervision of the firm; and
(2) where it appears to the FSA that the person is subject to the laws, regulations or administrative provisions of a territory which is not an EEA State, neither the foreign provisions, nor any deficiency in their enforcement, would prevent the FSA's effective supervision of the firm.

SUP 16.5.3

handbook-guidance
The purposes of the rules and guidance in this section are:
(1) to ensure that, in addition to such notifications, the FSA receives regular and comprehensive information about the identities of all persons with whom a firm has close links, which is relevant to a firm's continuing to satisfy the threshold condition 3 (Close links) (see SUP 2.3) and to the protection of consumers; and
(2) to implement certain requirements relating to the provision of information on close links which must be imposed on firms under the 'Post-BCCI Directive'.

Report

SUP 16.5.4

handbook-rule
(1) A firm must submit a report to the FSA annually the information in (3) or (4) (as applicable).
(2) A firm must submit the report in (1) to the FSA within four months of the firm's accounting reference date.
(3) If a firm is not aware:
(a) that it has any close links; or
(b) of any material changes to the details in (4) (a) to (c) in respect of its close links since the submission of its previous report under (1);
then the report in (1) must confirm this.
(4) Unless (3) applies, the report in (1) must contain a list of all persons with whom the firm has close links as at the firm'saccounting reference date of which it is aware, and for each such person state:
(a) its name;
(b) the nature of the close links;
(c) if the close link is with a body corporate, its country of incorporation, address and registered number; and
(d) if the close link is with an individual, his date and place of birth.

SUP 16.5.5

handbook-guidance
The information required by SUP 16.5.4R(4) may be provided in the form of a group organisation chart.
  • 21/06/2001

SUP 16.5.6

handbook-guidance
If a group includes more than one firm, a single annual close links report may be submitted and so satisfy the requirements of all firms in the group. Such a report should contain the information required from all of them, meet all relevant due dates, indicate all the firms on whose behalf it is submitted and give their FSAfirm reference numbers. Nevertheless, the requirement to provide a report, and the responsibility for the report, remain with each firm in the group.

SUP 16.5.7

handbook-guidance
A firm may submit a single report satisfying the requirements of its annual controllers report (SUP 16.4.5 R) and its annual close links report (SUP 16.5.4 R). Such a report should contain the information required on both controllers and close links.

SUP 16.5.8

handbook-rule
If a firm is an unincorporated friendly society, then it is only required to submit a report under SUP 16.5.4 R if it is aware that it has close links.

SUP 16.6

Compliance reports

  • 01/12/2004

Application

SUP 16.6.1

handbook-guidance
The effect of SUP 16.1.1 R is that this section applies to every firm within a category listed in the left hand column of the table in SUP 16.6.2 G.

SUP 16.6.2

handbook-guidance

Applicable provisions of this section (see SUP 16.6.1 G)

Purpose

SUP 16.6.3

handbook-guidance
The FSA performs part of its supervision work by reviewing and analysing information about firms' records of compliance with the requirements and standards under the regulatory system. The type of report the FSA requires will vary, depending on the type of business a firm undertakes. The requirements in SUP 16.6 represent an interim approach to compliance reporting, based mainly on the reporting requirements, which previous regulators applied to firms. This information helps the FSA to determine whether a firm is complying with the requirements applicable to its business, and what procedures it is operating to ensure its compliance.
  • 21/06/2001

Banks

SUP 16.6.4

handbook-rule
A bank and an ELMI must submit compliance reports to the FSA in accordance with SUP 16.6.5 R.

SUP 16.6.5

handbook-rule

Compliance reports from a bank and an ELMI (see SUP 16.6.4 R)

Trustees of authorised unit trust schemes, depositaries of ICVCs, and OPS firms

SUP 16.6.6

handbook-rule
A firm within a category listed in the left-hand column of SUP 16.6.7 R must submit compliance reports in accordance with SUP 16.6.7 R.
  • 21/06/2001

SUP 16.6.7

handbook-rule

Compliance reports from trustees of AUTs, depositaries of ICVCs, and OPS firms (see SUP 16.6.6 R)

  • 21/06/2001

SUP 16.6.8

handbook-rule
(1) The report from a trustee of an AUT to the FSA must state, in relation to the manager of each AUT for which it is a trustee, the number of times during the quarter in which facts came to the firm's knowledge from which it appeared, or might have appeared, that the manager had failed (materially or otherwise) to:
(a) give correct instructions to the trustee to create or cancel units in the AUT when the manager should have done so, and the error:
(i) resulted in the creation of too few units or in the cancellation of too many units; and
(ii) was not corrected in accordance with the FSA's guidance as set out in COLL 6.2.12 or CIS App as the case may be;
(b) price units in the AUT in accordance with COLL 6.2 or CIS 4 as the case may be for single-priced AUTs and CIS 15 for dual-priced AUTs, where the pricing error was:
(i) greater than 0.5% of the price of a unit; or
(ii) less than 0.5% of the price of a unit, and the trustee did not consider the manager's controls to be adequate;
unless the failure was an isolated incident.
(2) The report from a depositary of an ICVC to the FSA must state, in relation to the authorised corporate director of each ICVC for which the firm is a depositary, the number of times during the quarter in which facts came to the firm's knowledge from which it appeared or might have appeared that the authorised corporate director had failed (materially or otherwise) to:
(a) arrange for the issue or cancellation of shares in the ICVC when the authorised corporate director should have done so, and the error:
(i) resulted in the creation of too few shares or in the cancellation of too many shares; and
(ii) was not corrected in accordance with the FSA's guidance as set out in COLL 6.2.12 or CIS App as the case may be;
(b) price shares in the ICVC in accordance with the provisions of COLL 6.3 or CIS 4 for ICVCs as the case may be, where the pricing error was:
(i) greater than 0.5% of the price of a share; or
(ii) less than 0.5% of the price of a share, and the depositary did not consider the authorised corporate director's controls to be adequate;
unless the failure was an isolated incident.
(3) An OPS firm must notify the FSA of any change in the date of commencement of the scheme year of an OPS or OPS collective investment scheme, in respect of which the firm is acting, not less than 15 business days before the date on which such a change is to become effective.

SUP 16.6.9

handbook-guidance
SUP 16 Annex 12 provides guidance on the completion of the report from a trustee of an AUT on a manager's failures as set out in SUP 16.6.8 R(1), and the report from a depositary of an ICVC on failures by the authorised corporate director as set out in SUP 16.6.8 R(2). This guidance includes suggested formats for the submission of the reports.
  • 21/06/2001

SUP 16.7

Financial reports

  • 01/12/2004

Application

SUP 16.7.1

handbook-guidance
The effect of SUP 16.1.1 R is that this section applies to every firm within a category listed in the left hand column of SUP 16.7.5 G.

SUP 16.7.2

handbook-guidance
(1) Reporting requirements for insurers, excluding friendly societies are set out in IPRU(INS).
(2) Reporting requirements for friendly societies are set out in IPRU(FSOC).

Purpose

SUP 16.7.3

handbook-guidance
Principle 4 requires firms to maintain adequate financial resources, and the Interim Prudential sourcebooks (or, in the case of firms with permission to carry on insurance mediation activity, mortgage mediation activity, or both, PRU ) set out the FSA's detailed capital adequacy requirements. By submitting regular financial reports, firms enable the FSA to monitor their compliance with Principle 4 and with the detailed requirements of the Interim Prudential sourcebooks or PRU , as the case may be. These reports also help the FSA to analyse firms' financial condition and performance and to understand their business. By means of further collation and review of the data which these reports provide, the FSA also uses the reports to identify developments across the financial services industry and its constituent sectors.

SUP 16.7.4

handbook-guidance
The requirements in this section differ according to firm categories, as different financial information is required to reflect different types of business. The requirements in SUP 16.7 represent an interim approach to financial reporting, based mainly on the reporting requirements which previous regulators applied to firms. Standard formats are used for reporting by each category of firm, to assist comparability between firms of the same category. Timely submission is important to ensure the FSA has up-to-date information.
  • 21/06/2001

SUP 16.7.5

handbook-guidance

Applicable rules and guidance on reports (see SUP 16.7.1 G)

SUP 16.7.6

handbook-guidance
For each firm category there is a table listing the reporting requirements. The tables state the name of each report, the frequency with which a firm must submit it, and the due date for submission. Detailed reporting forms and rules and guidance on their completion are contained in annexes to this chapter.
  • 21/06/2001

Compulsory electronic submission of certain reports to the FSA

SUP 16.7.6A

handbook-rule
A firm which is required by this section to submit an RMAR or an MLAR must provide the relevant data specified in SUP 16 Annex 18AR or SUP 16 Ann 19AR respectively by electronic means made available by the FSA.
  • 01/04/2005

SUP 16.7.6B

handbook-guidance
The RMAR is relevant to the reporting requirements of personal investment firms and firms carrying on insurance mediation activity, mortgage mediation activity or retail investment activity. The MLAR is relevant to firms carrying on mortgage lending or mortgage administration.

SUP 16.7.6C

handbook-rule
Where reference is made in SUP 16.7 to adequate information relating to:
(1) a personal investment firm; or
(2) the following activities:
(a) insurance mediation activity: or
(b) mortgage mediation activity; or
(c) retail investment activity;
this includes all sections of the RMAR in addition to those relating to financial reports, except where otherwise indicated.

SUP 16.7.6D

handbook-guidance
The RMAR comprises sections relating both to financial reporting and other sections (e.g. Training and Competence and COB data).

SUP 16.7.6E

handbook-guidance
Where SUP 16.7 requires a report containing adequate information on one or more of the following activities:
(1) insurance mediation activity;
(2) mortgage mediation activity;
(3) mortgage lending;
(4) mortgage administration;
(5) retail investment activity;
a firm should submit a report only if it carries on at least one of those activities.

Banks

SUP 16.7.7

handbook-rule
A UK bank must submit reports in accordance with SUP 16.7.8 R.

SUP 16.7.8

handbook-rule

Financial reports from a UK bank (see SUP 16.7.7 R)

SUP 16.7.9

handbook-rule
An EEA Bank, other than one with permission for cross border services only, must submit reports in accordance with SUP 16.7.10 R.

SUP 16.7.10

handbook-rule

Financial reports from an EEA Bank (see SUP 16.7.9 R)

SUP 16.7.11

handbook-rule
A bank established outside the EEA must submit reports in accordance with SUP 16.7.12 R.

SUP 16.7.12

handbook-rule

Financial reports from a bank established outside the EEA (see SUP 16.7.11 R)

Method of submission

SUP 16.7.13

handbook-rule
A bank, other than an EEA bank with permission for cross-border services only, must submit the reports described in SUP 16.7.8 R, SUP 16.7.10 R and SUP 16.7.12 R to the following:
(1) BSD3, LE3, LR, SLR1, B7 and M1 to: The Financial Statistics Division Domestic Banking Group (HO-4) Bank of England Threadneedle Street London EC2R 8AH;
(2) all other reports to the bank's usual supervisory contact at the address in SUP 16.3.10 G.
The Bank of England acts only as the agent of the FSA with regard to reports in (1).

SUP 16.7.14

handbook-guidance
Guidance notes for the completion of the reports are contained in SUP 16 Annex 2.

SUP 16.7.15

handbook-rule
A bank must submit the reports referred to in SUP 16.7.13 R(1) either:
(1) on paper by post, or by hand delivery to the Bank of England on any business day between 9am and 5pm; or
(2) in electronic format using the specifications for the Bank of England Reporting System and sent either:
(a) by the AT&T Global Network to one of the addresses specified in the above specification;
(b) by e-mail to mfsd_beers@bofe.co.uk; or
(c) on computer diskette but to paper reporting deadlines by post, or by hand delivery to the Bank of England on any business day between 9am and 5pm.

Building societies

SUP 16.7.16

handbook-rule
A building society must submit reports to the FSA in accordance with SUP 16.7.17 R.

SUP 16.7.17

handbook-rule

Financial reports from a building society (see SUP 16.7.16 R)

SUP 16.7.18

handbook-guidance
Guidance notes for the completion of the reports are contained in SUP 16 Annex 4.

Method of submission

SUP 16.7.19

handbook-rule
A building society must submit the reports in SUP 16.7.17 R (other than the "Analysis of interest rate risk gap") either:
(1) by means of the Remote Data Entry system supplied by the FSA (and previously by the Building Societies Commission); or, should this be inoperable,
(2) by post or fax to the address in SUP 16.3.10 G using:
(a) the corresponding forms available from the FSA's website; or
(b) its own version of the FSA's specified forms, provided that version is equivalent in terms of content and layout.
Notwithstanding a paper submission in accordance with (2),once the Remote Data Entry system is operable again, the reports must be submitted by its means.

Service companies

SUP 16.7.20

handbook-rule
A service company must submit reports to the FSA in accordance with SUP 16.7.21 R.
  • 21/06/2001

SUP 16.7.21

handbook-rule

Financial reports required from service companies (see SUP 16.7.20 R)

Securities and futures firms

SUP 16.7.22

handbook-rule
(1) SUP 16.7.23 R to SUP 16.7.30 R do not apply to a lead regulated firm.
(2) A lead regulated firm must submit a copy of its audited annual financial statements to the FSA within six months of the date at which they were prepared.
  • 21/06/2001

SUP 16.7.23

handbook-rule
For the purposes of SUP 16.7.24 R to SUP 16.7.34 G, the definitions of the following firm types provided in the glossaries in IPRU(INV) 3 and 10 apply:
(1) adviser;
(2) arranger;
(3) broad scope firm;
(4) category A;
(5) category B;
(6) category C;
(7) category D;
(8) local; and
(9) venture capital firm.
  • 21/06/2001

SUP 16.7.24

handbook-rule
A securities and futures firm which is a category A or B firm or a broad scope firm must submit reports to the FSA in accordance with SUP 16.7.25 R.

SUP 16.7.25

handbook-rule

Financial reports required from a securities and futures firm which is a category A or B firm or a broad scope firm (see SUP 16.7.24 R)

SUP 16.7.26

handbook-rule
A securities and futures firm which is a category C or D firm or an arranger or venture capital firm must submit reports to the FSA in accordance with SUP 16.7.27 R

SUP 16.7.27

handbook-rule

Financial reports from a securities and futures firm which is a category C or D firm or an arranger or venture capital firm (see SUP 16.7.26 R)

SUP 16.7.28

handbook-rule
A securities and futures firm which is an adviser or local, or a traded options market maker (as referred to in IPRU(INV) 3-60R (4)) must submit reports to the FSA in accordance with SUP 16.7.29 R.
  • 21/06/2001

SUP 16.7.29

handbook-rule

Financial reports from a securities and futures firm which is an adviser, local or a traded options market maker (see SUP 16.7.28 R)

SUP 16.7.30

handbook-rule
(1) A securities and futures firm which is an ISD investment firm, and which is a sole trader, or a partnership formed under the laws of England and Wales, must submit a solvency statement for the sole trader or each partner to the FSA every year.
(2) The due date for the submission of the solvency statement is three months after the firm'saccounting reference date.
  • 21/06/2001

SUP 16.7.31

handbook-rule
A securities and futures firm must submit the reports in SUP 16.7.25 R and SUP 16.7.27 Rin accordance with, and in the same format as:
(1) the forms contained in SUP 16 Ann 10 R, and as required by section 6 of that annex; and
(2) the form contained in SUP 16 Annex 20, and having regard to SUP 16 Annex 21.

SUP 16.7.32

handbook-guidance
Guidance notes for the completion of the reports are contained in SUP 16 Annex 11.

SUP 16.7.33

handbook-rule
(1) Any report in SUP 16.7.23 R to SUP 16.7.30 R submitted to the FSA by a securities and futures firm must be signed by two authorised signatories satisfying the requirements of SUP 16.7.33 R(2), except for:
(a) the audited accounts of a subsidiary of the firm and the firm's audited annual financial statements;
(b) other reports where the firm is a sole trader, when only one authorised signatory is required; and
(c) reports submitted in accordance with (3).
(2) An authorised signatory must be:
(a) for a body corporate, a director;
(b) for a partnership, a partner who is an approved person of the firm;
(c) for a sole trader, the proprietor.
(3) A firm must use the FiRSt 5.0 software package made available to firms by the FSA (and previously by the SFA) to submit the following reports:
(a) annual reporting statement;
(b) monthly reporting statement;
(c) quarterly reporting statement; and
(d) consolidated reporting statement.
(4) Reports in (3) must be submitted to the FSA in accordance with the methods permitted by FiRSt 5 software. All other reports in SUP 16.7.24 R to SUP 16.7.30 R must be sent to the address given in SUP 16.3.10 G.

SUP 16.7.34

handbook-guidance
The FSA expects the audited annual financial statements to be submitted together with the auditor's report required by SUP 3.9.4 R.

Investment management firms

SUP 16.7.35

handbook-rule
An investment management firm which is not one of the types of firm specified in SUP 16.7.37 R must submit reports to the FSA in accordance with SUP 16.7.36 R.

SUP 16.7.36

handbook-rule

Financial reports from an investment management firm (see SUP 16.7.35 R)

SUP 16.7.37

handbook-rule
SUP 16.7.36 R does not apply to an investment management firm which is:
(1) a lead regulated firm or an OPS firm (but if a firm falls into either of these categories, then it must submit a copy of its annual accounts in accordance with SUP 16.7.36 R);
(2) a local authority.
  • 21/06/2001

SUP 16.7.38

handbook-rule
An investment management firm must submit the reports in SUP 16.7.36 R in accordance with, and in the same format as:
(1) the forms contained in SUP 16 Annex 5 R, and as required by section 4 of that annex; and
(2) the forms contained in SUP 16 Annex 20, and having regard to SUP 16 Annex 21.

SUP 16.7.39

handbook-guidance
(1) The FSA expects the annual accounts to be submitted together with the auditor's report required by SUP 3.9.4 R.
(2) Notes giving guidance on the completion of the consolidated financial resources return are contained in SUP 16 Ann 17. The guidance in SUP 16.3.25 G (Reports from groups) is also relevant.

Reporting periods

SUP 16.7.40

handbook-rule
The period covered by:
(1) monthly financial returns may not exceed one month;
(2) quarterly financial returns may not exceed three months; and
(3) annual financial returns may not exceed twelve months.
  • 21/06/2001

Timely reporting

SUP 16.7.41

handbook-rule
An investment management firm must notify the FSA in writing as soon as it has reason to believe it will be unable to submit an annual, quarterly or monthly financial return by the dates specified in SUP 16.7.36 R. Such notice must specify why it cannot submit the report to the FSA on time and give the date by which it will submit the report to the FSA.
  • 21/06/2001

Authorised professional firms

SUP 16.7.54

handbook-rule
(1) An authorised professional firm must submit an annual questionnaire, contained in SUP 16 Annex 9, unless:
(a) its only regulated activities are one or more of:
(i) insurance mediation;
(ii) mortgage mediation;
(iii) retail investment;
(iv) mortgage lending;
(v) mortgage administration; or
(b) its "main business" as determined by IPRU(INV) 2.1.2 R (3) is advising on, or arranging deals in, packaged products, or managing investments for private customers;
in which case the authorised professional firm must complete the appropriate report specified in SUP 16.7.54A R.
(2) The due date for submission of the annual questionnaire is four months after the firm's accounting reference date.
(3) An authorised professional firm must also, where applicable, submit a report to the FSA in accordance with SUP 16.7.54A R.

SUP 16.7.54A

handbook-rule

Reports from an authorised professional firm (see SUP 16.7.54 R)

Society of Lloyd's and members' advisers

SUP 16.7.55

handbook-rule
The Society of Lloyd's must submit reports to the FSA in accordance with SUP 16.7.56 R.
  • 21/06/2001

SUP 16.7.56

handbook-rule

Financial reports from the Society of Lloyd's (see SUP 16.7.55 R)

  • 01/10/2003

SUP 16.7.57

handbook-rule
A members' adviser must submit reports to the FSA in accordance with SUP 16.7.58 R.
  • 21/06/2001

SUP 16.7.58

handbook-rule

Financial reports from a members' adviser (see SUP 16.7.57 R)

SUP 16.7.59

handbook-rule
(1) The Society of Lloyd's must prepare its reports in the format specified in LLD 15 , unless (2) applies.
(2) The Society must ensure that the annual syndicate returns are prepared in accordance with, and in the format set out in, Lloyd's Syndicate Accounting Byelaw (No. 18 of 1994) as amended and in force at commencement.
(3) A members' adviser must prepare its reports in accordance with, and in the format set out in, SUP 16 Annex 10 and as required by section 6 of that annex.

SUP 16.7.60

handbook-guidance
Guidance notes for the completion of the reports required from a members' adviser are contained in SUP 16 Annex 11.
  • 21/06/2001

SUP 16.7.61

handbook-guidance
The nature of the advisory business of a members' adviser whose permission is restricted to advising on syndicate participation at Lloyd's is akin to giving corporate finance advice, and the requirements are those applicable to firms giving corporate finance advice.
  • 21/06/2001

Credit Unions

SUP 16.7.62

handbook-rule
A credit union must submit reports to the FSA in accordance with, and in the same format as, the forms contained in SUP 16 Annex 14, as set out in SUP 16.7.63 R.

SUP 16.7.63

handbook-rule

Financial reports required from a credit union (see SUP 16.7.62 R)

SUP 16.7.63A

handbook-guidance
Guidance notes for the completion of the reports are contained in SUP 16 Annex 15.

SUP 16.7.63B

handbook-rule
The annual report required from a credit union by SUP 16.7.62 R and SUP 16.7.63 R must be made up for the same period as the audited accounts published by the credit union in accordance with section 3A of the Friendly and Industrial and Provident Societies Act 1968 (See CRED 14 Annex 1).

SUP 16.7.63C

handbook-guidance
CRED 14.10.10 R (2)(a) states that the audited accounts referred to in SUP 16.7.63B R are to be made up for the period beginning with the date of the credit union's registration or with the date to which the credit union's last annual accounts were made up, whichever is the later, and ending on the credit union's most recent financial year end.

Electronic money institutions

SUP 16.7.64

handbook-rule
(1) SUP 16.7.65 R and SUP 16.7.66 R do not apply to a lead regulated firm.
(2) A lead regulated firm must submit a copy of its audited annual financial statements to the FSA within six months of the date at which they were prepared.
  • 21/06/2001

SUP 16.7.65

handbook-rule
An ELMI must submit reports in accordance with SUP 16.7.66 R
  • 21/06/2001

SUP 16.7.66

handbook-rule

Financial reports from an ELMI (see SUP 16.7.65 R)

UCITS Management Companies

SUP 16.7.67

handbook-rule
A UCITS management company must submit reports to the FSA in accordance with SUP 16.7.68 R.

SUP 16.7.68

handbook-rule

Financial reports from a UCITS management company (see SUP 16.7.67 R)

SUP 16.7.69

handbook-rule
A UCITS management company must submit the reports in SUP 16.7.68 R in accordance with, and in the same format as:
(1) the forms contained in SUP 16 Annex 16, and as required by section 3 of that annex; and
(2) the form contained in SUP 16 Annex 20, and having regard to SUP 16 Annex 21.

SUP 16.7.70

handbook-guidance
The FSA expects the annual accounts to be submitted together with the auditor's report required by SUP 3.9.4 R.
  • 13/02/2004

Reporting periods

SUP 16.7.71

handbook-rule
The period covered by:
(1) quarterly financial returns may not exceed three months; and
(2) annual financial returns may not exceed twelve months.
  • 13/02/2004

Timely reporting

SUP 16.7.72

handbook-rule
A UCITS management company must notify the FSA in writing as soon as it has reason to believe it will be unable to submit an annual or quarterly financial return by the dates specified in SUP 16.7.68 R. Such notice must specify why it cannot submit the report to the FSA on time and give the date by which it will submit the report to the FSA.

A firm not subject to other reporting requirements in SUP 16.7

SUP 16.7.76

handbook-rule
A firm not subject to other reporting requirements in SUP 16.7.1 G - SUP 16.7.75 R (nor to reporting requirements in IPRU(INS) or IPRU(FSOC)):
(1) with permission to carry on one or more of:
(a) insurance mediation activity; or
(b) mortgage mediation activity; or
(c) mortgage lending; or
(d) mortgage administration; or
(2) which is a personal investment firm ;
must submit reports to the FSA in accordance with SUP 16.7.77 R.

SUP 16.7.77

handbook-rule

Reports from a firm not subject to other reporting requirements in SUP 16.7.1 G - SUP 16.7.75 R

SUP 16.7.78

handbook-rule
Where a mortgage lender or mortgage intermediary establishes a special purpose vehicle, it must ensure that any report which the mortgage lender or mortgage intermediary makes in accordance with SUP 16.7.76 R takes account of the activities of the special purpose vehicle as if those activities were the activities of the mortgage lender itself.

SUP 16.7.79

handbook-rule
An incoming EEA firm which in the United Kingdom carries on only cross border services and is not subject to other reporting requirements in SUP 16.7 with permission to carry on:
(1) insurance mediation activity; or
(2) mortgage mediation activity; or
(3) mortgage lending; or
(4) mortgage administration; or
(5) retail investment activity;
is subject to the requirements of SUP 16.10 only, and no requirements in respect of the RMAR or MLAR.

SUP 16.7.80

handbook-rule
An incoming EEA firm with a branch in the United Kingdom, not subject to other reporting requirements in SUP 16.7, with permission to carry on:
(1) insurance mediation activity; or
(2) retail investment activity;
is required to provide such information relating to those activities as is specified in SUP 16 Annex 18BG and SUP 16 Annex 19BG.
  • 01/04/2005

SUP 16.7.81

handbook-guidance
SUP 16.7.80 R is relevant, for example, to an insurance broker registered in another EEA State pursuant to the IMD , which exercises its EEA right to establish a branch in the United Kingdom and is not subject to other reporting requirements in SUP 16.7.

Financial conglomerates

SUP 16.7.82

handbook-rule
(1) A firm that is a member of a financial conglomerate must submit financial reports to the FSA in accordance with the table in SUP 16.7.83 R if:
(a) it is at the head of an FSA regulated EEA financial conglomerate; or
(b) its Part IV permission contains a relevant requirement.
(2) In (1)(b), a relevant requirement is one which:
(a) applies SUP 16.7.83 R to the firm; or
(b) applies SUP 16.7.83 R to the firm unless the mixed financial holding company of the financial conglomerate to which the firm belongs submits the report required under this rule (as if the rule applied to it).

SUP 16.7.83

handbook-rule

Financial reports from a member of a financial conglomerate (see SUP 16.7.82 R)

SUP 16.8

Persistency reports from insurers and data reports on stakeholder pensions

  • 01/12/2004

Application

SUP 16.8.1

handbook-guidance
The effect of SUP 16.1.1 R is that this section applies to:
(1) every insurer with permission to effect or carry out life policies, unless it is a non-directive friendly society; and
(2) every firm with permission to establish, operate or wind up a stakeholder pension scheme.
  • 21/06/2001

Purpose

SUP 16.8.2

handbook-guidance
The purpose of this section is to enable information on the persistency of life policies and data on stakeholder pensions to be prepared and provided to the FSA in a standard format. This information is used in the monitoring of firms both individually and collectively.
  • 21/06/2001

Requirement to submit persistency and data reports

SUP 16.8.3

handbook-rule
(1) An insurer with permission to effect or carry out life policies must submit to the FSA a persistency report in respect of life policies by 30 April each year in accordance with this section.
(2) A firm with permission to establish, operate or wind up a stakeholder pension scheme must submit to the FSA :
(a) a data report on stakeholder pensions by 30 April each year prepared in accordance with this section; and
(b) two extra data reports on stakeholder pensions prepared in accordance with this section as follows:
(i) by 31 October 2002, of the number effected in the period to 30 June 2001 and the number of those still in force 12 months after the contract was effected;
(ii) by 31 January 2003, of the number effected in the period 1 July 2001 to 30 September 2001 and the number of those still in force 12 months after the contract was effected.
  • 21/06/2001

Interpretation of this section

SUP 16.8.4

handbook-rule
In this section, and Forms 1R(2) to (4) in SUP 16 Annex 6R:
(1) '12 month report' means the part of a persistency report or data report reporting on life policies or stakeholder pensions effected in Y-2, '24 month report' means the part of a persistency report or data report reporting on life policies or stakeholder pensions effected in Y-3, and so on;
(2) 'CC' means the number of life policies or stakeholder pensions which:
(a) were effected during the period to which the calculation relates; and
(b) are reported on in the persistency report or data report (see SUP 16.8.8 R to SUP 16.8.15 R);
(3) 'CF' means the number of life policies or stakeholder pensions within 'CC' which are treated as in force at the end of Y-1 or, for a report under SUP 16.8.3 R (2) (b), the relevant 12 month period (see SUP 16.8.16 R to SUP 16.8.18 R);
(4) 'contract anniversary' means the anniversary of the date on which the life policy or stakeholder pension was effected falling within Y-1;
(5) 'data report' means a report in respect of stakeholder pensions complying with SUP 16.8.19 R to SUP 16.8.21 R;
(6) Forms 1R(1), 1R(2), 1R(3) and 1R(4) mean the forms in SUP 16 Annex 6;
(7) 'group personal pension policy' means a life policy which is not a separate pension scheme, effected under a collecting arrangement made for the employees of a particular employer to participate in a personal pension arrangement on a group basis;
(8) [deleted]
(9) 'mortgage endowment' means an endowment assurance effected or believed to be effected for the purposes of paying off a loan on land;
(10) 'new', in relation to a stakeholder pension, has the meaning given in SUP 16.8.11 R (2);
(11) 'ordinary assurance policy' means a life policy which is not an industrial assurance policy;
(12) 'other life assurance' means a life policy other than a pension policy, endowment assurance or whole life assurance;
(13) 'other pension policy' means a pension policy other than a personal pension policy;
(14) 'persistency rate' means a rate calculated using this formula:CF x 100/CC(see the example in SUP 16.8.5 G);
(15) 'persistency report' means a report in respect of life policies complying with SUP 16.8.19 R to SUP 16.8.21 R;
(16) 'regular premium life policy' means a life policy where there is (or could be, or has been) a commitment by the policyholder to make a regular stream of contributions (for example by means of a direct debit mandate);
(17) 'regular premium stakeholder pension' means a stakeholder pension where there is (or could be, or has been) a commitment by the policyholder to make a regular stream of contributions;
(18) 'single premium life policy' means a life policy that is not a regular premium life policy, except that a recurrent single premium life policy must be treated as a regular premium life policy;
(19) 'single premium stakeholder pension' means a stakeholder pension which is not a regular premium stakeholder pension, except that a recurrent single premium stakeholder pension must be treated as a regular premium stakeholder pension;
(20) 'stakeholder pension' means an individual's rights under a stakeholder pension scheme;
(21) 'substitute', in relation to stakeholder pension, has the meaning given in SUP 16.8.11 R (2);
(22) 'Y' means the year in which the report must be submitted, 'Y-1' means the preceding year, 'Y-2' means the next earlier year and so on;
(23) 'year' means calendar year, unless SUP 16.8.7 R applies.

SUP 16.8.5

handbook-guidance

Example of calculation of persistency rate for life policies that commenced during 1996 (see SUP 16.8.3 R)

  • 21/06/2001

SUP 16.8.6

handbook-guidance
Firms are reminded that annuity contracts other than deferred annuity contracts are not within the definition of 'life policy'.
  • 21/06/2001

SUP 16.8.7

handbook-rule
In relation to a persistency report, a firm may treat a 12-month period ending between 1 October and 31 March as a 'year' for the purposes of this section and Forms 1R(1) to (3):
(1) if the firm's financial year does not end on 31 December; or
(2) for industrial assurance policy business;
provided that the use of an alternative period is disclosed in the persistency report.
  • 21/06/2001

Life policies and stakeholder pension to be reported on in the persistency or data reports

SUP 16.8.8

handbook-rule
A persistency report or data report must report on a life policy or stakeholder pension if:
(1) it is not of a type listed in SUP 16.8.13 R or SUP 16.8.14 R;
(2) it was effected by:
(a) the firm submitting the report; or
(b) an unauthorised member of the group of the firm submitting the report and in circumstances in which that firm was responsible for the promotion of that life policy or stakeholder pension; or
(c) another firm, but is being carried out by the firm submitting the report; and
(3) the person who sold it or who was responsible for its promotion was, in so doing, subject to rules in COB or (before commencement) conduct of business rules made by a previous regulator.

SUP 16.8.9

handbook-guidance
Life policies and stakeholder pensions falling within SUP 16.8.8 R (2) (c) are those which have been transferred from another firm, for example under an insurance business transfer scheme under Part VIIof the Act (Control of Business Transfers).
  • 21/06/2001

SUP 16.8.10

handbook-rule
Life policies falling within SUP 16.8.8 R, which were sold subject to the conduct of business rules of a previous regulator, need to be reported only if they were required to be reported on by the rules of the previous regulator of the firm submitting the report.
  • 21/06/2001

SUP 16.8.11

handbook-rule
(1) A life policy or stakeholder pension which was issued in substitution for a similar contract may be treated as being effected on the inception date of the previous life policy or stakeholder pension, provided that the firm is satisfied that no loss to the policyholder is attributable to the substitution;
(2) A stakeholder pension which is treated as in (1) is a "substitute" stakeholder pension. A "new" stakeholder pension is any other stakeholder pension.
  • 21/06/2001

SUP 16.8.12

handbook-guidance
Examples of loss to the policyholder under SUP 16.8.11 R are losses resulting from higher charges and more restrictive benefits and options.
  • 01/10/2003

SUP 16.8.13

handbook-rule
A persistency or data report must not report on any of the following:
(1) a life policy or stakeholder pension that was cancelled from inception whether or not this was as a result of service of a notice under COB 6.7 (Cancellation and withdrawal);
(2) an appropriate personal pension scheme to which contributions are made only by the Department of Social Security;
(3) a life policy (excluding income withdrawal) or stakeholder pension which has terminated as a result of death, critical illness, retirement, maturity or other completion of the contract term;
(4) income withdrawals that have ceased as a result of the death of the policyholder;
(5) in the case of a persistency report only, a life policy which is a stakeholder pension;
(6) a life policy purchased by the trustees of an occupational pension scheme which is a defined benefits pension scheme;
(7) a life policy purchased by the trustees of an executive money purchase occupational pension scheme.

SUP 16.8.14

handbook-rule
A persistency report required by SUP 16.8.3 R (1) need not report on a life policy if the number of life policies on substantially the same terms effected by the relevant firm (or member of the firm'sgroup) in the relevant year did not exceed the higher of fifty and 1% of the total reportable life policies effected by the person in that year.
  • 21/06/2001

SUP 16.8.15

handbook-rule
If the term of an endowment assurance is less than five years, the life policy must only be included in a persistency report in respect of years up to and including the anniversary prior to maturity.
  • 21/06/2001

Life policies and stakeholder pensions to be treated as in force

SUP 16.8.16

handbook-rule
Subject to SUP 16.8.17 R and SUP 16.8.18 R, a life policy or stakeholder pension must be treated as in force at the end of Y-1 (that is, included in CF) if and only if:
(1) in the case of a regular premium life policy:
(a) in the case of an industrial assurance policy on which the premiums are paid at intervals of four weeks, the premium has been paid in respect of the four-week period in which the policy anniversary falls; or
(b) in any other case, the premium has been paid in respect of the month in which the policy anniversary falls;
(2) in the case of a single premium life policy, the policy has not been surrendered as at the policy anniversary;
(3) in the case of a regular premium stakeholder pension:
(a) for a report required by SUP 16.8.3 R (2) (a), the premium has been paid in respect of the month in which the contract anniversary falls;
(b) for a report required by SUP 16.8.3 R (2) (b), the premium has been paid in respect of the month 12 months after the contract was effected;
(4) in the case of a single premium stakeholder pension:
(a) for a report required by SUP 16.8.3 R (2)(a), the contract has not been surrendered as at the contract anniversary; or
(b) for a report required by SUP 16.8.3 R (2)(b), the contract has not been surrendered as at the end of the 12 month period.
  • 21/06/2001

SUP 16.8.17

handbook-rule
A cluster life policy must be reported as a single life policy and must be treated as in force (that is included in CF) even if some of the constituent life policies have been terminated.
  • 21/06/2001

SUP 16.8.18

handbook-rule
An income withdrawal that has terminated other than by death of the policyholder must be treated as not in force at the end of Y-1 (that is, not included in CF).
  • 21/06/2001

Contents of the persistency or data report

SUP 16.8.19

handbook-rule
(1) A persistency report on life policies must be a report in the format of Forms 1R(1), (2) and (3).
(2) A data report on stakeholder pensions must be a report in the format of Form 1R(4).
(3) A persistency and a data report must include:
(a) for a report required by SUP 16.8.3 R (1) or (2) (a), a separate copy of each Form reporting on life policies or stakeholder pensions effected during each of Y-2, Y-3, Y-4, Y-5;
(b) for a persistency report, a separate copy of Forms IR(1) and IR(2) reporting on:
(i) regular premium life policies and single premium life policies; and
(ii) life policies classified as ordinary assurance policies and industrial assurance policies .
  • 21/06/2001

SUP 16.8.20

handbook-rule
If, in relation to any Form, a firm has no life policies or stakeholder pensions to report on in a copy of that Form, the firm need not submit that copy provided that it confirms in writing to the FSA , as part of the persistency or data report, that it is not doing so and the reason for not doing so.
  • 21/06/2001

SUP 16.8.21

handbook-rule
The firm must, if a persistency report reports on;
(1) an endowment assurance with a term of five years or less:
(a) report on such a policy in Form 1R(2); and
(b) not report on such a policy in Form 1R(1);
(2) a group personal pension policy, include the policy as a personal pension policy in Forms 1R(1) and 1R(3);
(3) a mortgage endowment, also include the policy as an endowment assurance in Forms 1R(1) and 1R(3);
(4) an income withdrawal, not include the policy under any other relevant category in Forms 1R(1) and 1R(3).

SUP 16.8.22

handbook-guidance
(1) Under SUP 16.8.16 R, a life policy must be treated as not in force if premiums have not been paid at the relevant date. Form 1R(3) seeks additional information on the number of policies treated as not in force which are subject to genuine contribution holidays.
(2) A firm should treat a life policy as 'subject to a contribution holiday' if:
(a) the terms of the policy allow the policyholder to take a contribution holiday;
(b) the policyholder has opted to take a contribution holiday in accordance with those terms;
(c) the policyholder has clearly stated his intention to resume payments; and
(d) at the end of Y-1, not more than 12 months have elapsed from the date that premiums ceased to be paid.
(3) In addition to the stakeholder data reports showing all contracts, firms are requested, where separate data is available, to submit additional reports showing just those contracts where decision trees were used in accordance with COB 6.4.21.

Records

SUP 16.8.23

handbook-rule
A firm must make and retain such records as will enable it to:
(1) monitor regularly the persistency of life policies and stakeholder pensions effected through each of its representatives; and
(2) make persistency reports or data reports to the FSA in accordance with SUP 16.8.3R.
  • 21/06/2001

SUP 16.8.24

handbook-guidance
In order to comply with SUP 16.8.23 R, a firm will as a minimum need to make and retain separate records for:
(1) life policies and stakeholder pensions originally promoted:
(a) by representatives; or
(b) by independent intermediaries; or
(c) through the firm's own direct offer financial promotions; or
(d) as adopted packaged products;
(2) life policies and stakeholder pensions not within (1), including those effected as execution-only transactions,for inclusion in the relevant form under 'Otherwise';
(3) life policies and stakeholder pensions written assuming the payment of:
(a) regular premiums;
(b) a single premium;
(4) life policies written as:
(a) ordinary assurance policies;
(b) industrial assurance policies;
(5) the categories of life policies and stakeholder pensions referred to in Forms 1R(1) to (4).
  • 30/09/2003

SUP 16.9

Appointed representatives annual report

  • 01/12/2004

Application

SUP 16.9.1

handbook-guidance
  • 30/09/2003

Purpose

SUP 16.9.2

handbook-guidance
The purpose of the rules and guidance in this section is to ensure that, in addition to the notifications made under SUP 12.7 (Appointed representatives; notification requirements), the FSA receives regular and comprehensive information about the appointed representatives engaged by a firm, so that the FSA is in a better position to pursue the regulatory objective of the protection of consumers.
  • 01/11/2004

SUP 16.9.3

handbook-rule
(1) A firm must:
(a) submit a report to the FSA annually, in the form of an amended copy of the relevant extract from the FSA Register, containing the information in (2);
(b) submit the report in (1) to the FSA within four months of the firm's accounting reference date.
(2) The report in (1) must contain a list of all the current appointed representatives of the firm as at the firm's accounting reference date .
(3) The report in (1) is not required if:
(a) the firm has no appointed representatives as at the firm's accounting reference date; and
(b) this is reflected in the relevant extract from the FSA Register.
  • 30/09/2003

SUP 16.9.4

handbook-guidance
The FSA Register is maintained under section 347 of the Act (The record of authorised persons, etc.) and may be viewed at the FSA's website at www.fsa.gov.uk/register/.
  • 01/11/2004

SUP 16.9.6

handbook-guidance
If a group includes more than one firm, a single annual appointed representatives report may be submitted on behalf of all firms in the group. Such a report should contain the information required from all the firms, meet all relevant due dates, indicate all the firms on whose behalf it is submitted and give their FSA firm reference numbers. The requirement to provide a report, and the responsibility for the report remains with each firm in the group.
  • 21/06/2001

SUP 16.10

Verification of standing data

  • 01/04/2005

Application

SUP 16.10.1

handbook-guidance
The effect of SUP 16.1.1 R is that this section applies to every firm except:
(1) an ICVC; or
(2) a UCITS qualifier; or
(3) a credit union.

Purpose

SUP 16.10.2

handbook-guidance
Standing data is used by the FSA :
(1) to ensure that a firm is presented with the correct regulatory return when it seeks to report electronically;
(2) in order to communicate with a firm;
(3) as the basis for some sections of the FSA Register; and
(4) in order to carry out thematic analysis across sectors and groups of firms.

SUP 16.10.3

handbook-guidance
In view of the importance attached to standing data, and the consequences which may result if it is wrong, this section provides the framework for a firm to check and correct it.

Requirement to check the accuracy of standing data and to report changes to the FSA

SUP 16.10.4

handbook-rule
(1) Within 30 business days of its accounting reference date, a firm must check the accuracy of its standing data through the relevant section of the FSA website.
(2)
(3) If any standing data is incorrect, the firm must give the corrected standing data to the FSA, using the appropriate form submitted in accordance with instructions on that form.

SUP 16.10.5

handbook-guidance
The standing data is made available to the firm when the firm logs into the appropriate section of the FSA website. The firm should check the standing data and send any corrections to the FSA . The FSA's preferred method of receiving corrections to standing data is by the online forms available at the FSA's website.

SUP 16.10.6

handbook-guidance
A firm may check, and submit corrections to, its standing data more frequently than annually.

SUP 16.10.7

handbook-guidance
For the purpose of SUP 16.10.4R (3), the appropriate form will be determined by the standing data to be corrected. Appropriate forms will include (but are not limited to) the form in SUP 15 Ann 2 (standing data form) and the form in SUP 15 Ann 3 (notification form).

SUP 16.11

Product Sales Data Reporting

  • 01/04/2005

Application

SUP 16.11.1

handbook-rule
This section applies to a firm which is a mortgage lender; or in respect of sales to a private customer or a retail customer :
(1) an insurer; or
(2) the operator ofa regulated collective investment scheme,or an investment trust savings scheme; or
(3) a person who issues or manages the relevant assets of the issuer of a structured capital-at-risk product,
unless the firm is a managing agent.

Purpose

SUP 16.11.2

handbook-guidance
(1) The purpose of this section is to set out the requirements for firms in the retail mortgage, investment, and pure protection contract markets specified in SUP 16.11.1 R to report individual product sales data to the FSA . This requirement applies whether the regulated activity has been carried out by the firm, or through an intermediary which has dealt directly with the firm.
(2) The purpose of collecting this data is to assist the FSA in the ongoing supervision of firms engaged in retail activities and to enable the FSA to gain a wider understanding of market trends in the interests of protecting consumers.

Reporting requirement

SUP 16.11.3

handbook-rule
(1) A firm must submit a report (the 'data report') containing the information required by SUP 16.11.5 R quarterly, within 20 business days of the end of the quarter, unless (3) applies.
(2) The reporting periods are the four calendar quarters of each year beginning on 1 January.
(3) A firm need not submit a data report if no relevant sales have occurred in the quarter.

SUP 16.11.4

handbook-guidance
(1) A firm may submit a data report more frequently than quarterlyif it wishes.
(2) If it is easier and more practical for a firm to submit additional data relating to products other than those specified in SUP 16.11.5 R, it may submit that additional data to the FSA in a data report.
  • 01/04/2005

Content of the report

SUP 16.11.5

handbook-rule
The data report must contain sales data in respect of the following products:
(1) retail investments;
(2) pure protection contracts; and
(3) regulated mortgage contracts (but not further advances).

SUP 16.11.6

handbook-guidance
Guidance on the type of products covered by SUP 16.11.5 R is contained in SUP 16 Annex 20G.
  • 01/04/2005

SUP 16.11.7

handbook-rule
The data report must comply with the provisions of SUP 16 Annex 21R.
  • 01/04/2005

SUP 16.11.8

handbook-rule
The data report must relate both to transactions undertaken by the firm and to transactions undertaken by an intermediary which has dealt directly with the customer on the firm 's behalf.
  • 01/04/2005

SUP 16.11.8A

handbook-guidance
Where the operator of a collective investment scheme receives business from a firm which operates a nominee account, the data report in respect of those transactions submitted by the operator should treat those transactions as transactions undertaken by the operator with the firm.
  • 01/04/2005

SUP 16.11.9

handbook-rule
A firm must provide thedata report to the FSA electronically in a standard format provided by the FSA .
  • 01/04/2005

SUP 16.11.10

handbook-guidance
A data report will have been provided to the FSA in accordance with SUP 16.11.9 R only if all mandatory data reporting fields (as set out in SUP 16 Annex 21R) have been completed correctly and the report has been accepted by the relevant FSA reporting system.
  • 01/04/2005

Use of reporting agents

SUP 16.11.11

handbook-rule
(1) A firm may appoint another person to provide the data report on the firm's behalf if the firm has informed the FSA of that appointment in writing.
(2) Where (1) applies, the firm must ensure that the data report complies with the requirements of SUP 16.11 and identifies the originator of the transaction.
  • 01/04/2005

SUP 16 Annex 1

Banks' reporting forms

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Banks' reporting forms - Forms/sup/sup_chapter16_annex1r.pdf
  • 01/07/2004

SUP 16 Annex 2

Guidance notes on form 1R

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Guidance notes on completion of banks' reporting forms (including validations) - Forms/sup/sup_chapter16_annex2g.pdf

SUP 16 Annex 3

Building societies' reporting forms

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Standing Data - Forms/sup/standing_data.pdf

SUP 16 Annex 4

Guidance notes on form 3R

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Building Society: Monthly Statement - Forms/sup/sup_chapter16_annex4g.pdf

SUP 16 Annex 5

Investment Management firms' reporting forms and requirements applying to their completion

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Investment management firms' reporting forms and requirements applying to their completion - Forms/sup/sup_chapter16_annex5r.pdf

SUP 16 Annex 6R

Persistency report

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:

Persistency Report - Forms/sup/sup_chapter16_annex6r.pdf

SUP 16 Annex 9R

Annual questionnaire for authorised professional firms

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:

Annual Questionnaire for Authorised Professional Firms - Forms/sup/sup_chapter16_annex9r.pdf

SUP 16 Annex 10

Securities and Futures firms' reporting forms and requirements applying to their completion

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Securities and Futures Firms' Reporting Forms and Requirements Applying to their Completion - Forms/sup/sup_chapter16_annex10r.pdf

SUP 16 Annex 11

Guidance Notes on Completion of Securities and Futures Firms Reporting Forms

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Guidance notes on completion of securities and futures firms' reporting forms - Forms/sup/sup_chapter16_annex11g.pdf

SUP 16 Annex 12

Reports from trustees of AUTs and depositaries of ICVCs

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:

Reports from trustees of AUTs and depositaries - Forms/sup/sup_chapter16_annex12g.pdf
  • 18/04/2002

SUP 16 Annex 13

Return cover sheet

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Return Cover Sheet - Forms/sup/sup_chapter16_annex13r.pdf

SUP 16 Annex 14

Quarterly and annual returns for Credit Unions

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms.



Quarterly return - Forms/sup/sup_chapter16_annex14r.pdf

SUP 16 Annex 15

Notes on completing the quarterly and annual returns for Credit Unions

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms.



Notes on completing the Quarterly Return (CQ) for credit unions - Forms/sup/sup_chapter16_annex15g.pdf

SUP 16 Annex 16

UCITS management companies reporting forms and requirements applying to their completion

  • 01/12/2004

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



UCITS management companies reporting forms and requirements applying to their completion - Forms/sup/sup_chapter16_annex16r.pdf

SUP 16 Annex 16A

Standing data (See SUP 16.10.4 R)

  • 01/04/2005

SUP 16 Annex 16A.1

handbook-rule
A: Communications with a firm



1. Name of the firm

2. Trading name(s) of the firm

3.

4. Registered office

5. Principal place of business

6. Website address

7. Telephone number

8. The name and email address of the principal compliance contact



B: Information about a firm on the FSA Register

9. Regulated activities for which a firm has permission

10. Whether the firm holds client money

11.



C: Other information about a firm

12.

13.

14. Name and address of firm's auditor

15. Legal status

16. Accounting reference date

SUP 16 Annex 17

Consolidated financial resources return for investment management firms

  • 01/04/2005

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Consolidated Financial Resources Return for Investment Management Firms - Forms/sup/sup_chapter16_annex17g.pdf
  • 01/04/2005

SUP 16 Annex 18

Annex 18

  • 01/12/2004

SUP 16 Annex 18A

Retail Mediation Activities Return ('RMAR')

  • 01/04/2005

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Retail Mediation Activities Return ('RMAR') - SUP Chapter 16 Annex 18A R

SUP 16 Annex 18B

Notes for Completion of the Retail Mediation Activities Return ('RMAR')

  • 01/04/2005

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Notes for Completion of the Retail Mediation Activities Return ('RMAR') - Forms/sup/sup_chapter16_annex18bg.pdf

SUP 16 Annex 19A

Mortgage Lending and Administration Return ('MLAR')

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Mortgage Lending and Administration Return ('MLAR') - Sup Chapter16 Annex19A R

SUP 16 Annex 19B

Notes for Completion of the Mortgage Lending and Administration Return ('MLAR')

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Notes for Completion of the Mortgage Lending and Administration Return ('MLAR') - Sup Chapter 16 Annex 19B G

SUP 16 Annex 20

Products covered by the reporting requirement in SUP 16.11

  • 01/04/2005

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Products covered by the reporting requirement in SUP 16.11 - Sup Chapter 16 Annex 20 G

SUP 16 Annex 21

Reporting Fields

  • 01/04/2005

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Reporting Fields - Sup Chapter 16 Annex 21 R

SUP 16 Annex 22

Consolidated supervision return for investment firms

  • 01/01/2005

handbook-rule
This annex consists only of one or more forms. Forms are to be found through the following address:



Consolidated supervision return for investment firms - Forms/sup/sup_chapter16_annex22r.pdf

SUP 16 Annex 23

Consolidated supervision return for investment firms (Notes)

  • 01/01/2005

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Consolidated supervision return for investment firms (Notes) - Forms/sup/sup_chapter16_annex23g.pdf

Export chapter as

SUP 17

Transaction reporting

SUP 17.1

Application

  • 01/12/2004

Who?

SUP 17.1.1

handbook-rule
(1) This chapter applies to every firm which is:
(a) a securities and futures firm; or
(b) a personal investment firm; or
(c) an investment firm (including a credit institution which is an investment firm) not within (a) or (b) excluding a firm to whom the ISD does not apply under Article 2(2) of the ISD.
(2) This chapter does not apply to:
(a) an incoming EEA firm in relation to its passported activities; or
(b) an oil market participant in relation to its oil market activities.

What?

SUP 17.1.2

handbook-rule
This chapter applies to a firm in SUP 17.1.1 that enters into reportable transactions (whether on its own account or on behalf of others).

Where?

SUP 17.1.3

handbook-rule
This chapter applies with respect to:
(1) activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom; or
(2) passported activities of an ISD investment firm (including a credit institution which is an ISD investment firm) carried on from a branch in another EEA State.

SUP 17.1.4

handbook-guidance
ECO 1.1.6 R has the effect that this chapter does not apply to an incoming ECA provider acting as such.

SUP 17.2

Purpose

SUP 17.2.1

handbook-guidance
This chapter sets out the requirements for firms to report transactions to the FSA. One purpose of the chapter is to implement article 20 of the Investment Services Directive which has the two aims of protecting investors and ensuring the smooth operation and transparency of the markets in transferable securities. Transaction reports also form a useful part of the FSA's arrangements for monitoring (under paragraph 6(1) of Schedule 1 to the Act) and can assist the FSA in assessing the type and conduct of business carried out by a firm.

SUP 17.3

Introduction

SUP 17.3.1

handbook-guidance
The requirements set out in this chapter represent an interim approach to transaction reporting, based on the reporting requirements which previous regulators applied to firms. A number of provisions reflect the interim nature of the requirements - notably the guidance in SUP 17.4.4. Also there are still significant differences in the requirements applicable to different categories of firm. To help firms the FSA intends to publish additional guidance from time to time covering developments and issues in transaction reporting (including sources of relevant information).

SUP 17.3.2

handbook-guidance
The reporting obligations vary according to the nature of a firm's business and the number of transactions which a firm ordinarily enters into. Firms are generally expected to report transactions through the electronic systems listed in the chapter, but firms which enter into relatively few transactions may report those transactions manually, by fax or e-mail (see SUP 17.7).

SUP 17.4

Obligation to make transaction reports

SUP 17.4.1

handbook-rule
When a firm (whether on its own account or on behalf of another) enters into a reportable transaction (as defined in SUP 17.5), it must make a transaction report (as set out in SUP 17.6) to the FSA.

Exceptions: general

SUP 17.4.2

handbook-rule
A firm need not make a transaction report to the FSA if:
(1) the firm complies with a requirement on it to report the reportable transaction to its Home State regulator; or
(2) the reportable transaction is transacted on one of the exchanges listed in SUP 17 Annex 1 and the firm reports the reportable transaction to that exchange.

Exceptions: investment management firms and personal investment firms

SUP 17.4.3

handbook-rule
An investment management firm or a personal investment firm need not make a transaction report to the FSA if:
(1) the reportable transaction is transacted on a regulated market and the firm:
(a) reports the reportable transaction to that regulated market; or
(b) satisfies itself that it will be so reported; or
(2) the firm is the seller, or is acting on behalf of the seller, and the counterparty for that transaction is another firm; or
(3) the firm has reasonable grounds to believe that:
(a) another firm is obliged to make a transaction report to the FSA for that transaction; and
(b) that other firm is not entitled to rely on this exception.

SUP 17.4.4

handbook-guidance
For the purposes of SUP 17.4.3 (3) 'reasonable grounds' would include a firm relying on a broker if:
(1) the firm used the same broker for transactions before commencement;
(2) that broker was previously regulated by SFA and was subject to its transaction reporting requirements; and
(3) the firm is not aware of any material changes to the broker's permission.

SUP 17.4.5

handbook-guidance
The guidance in SUP 17.4.4 is likely to become less relevant over time.
  • 21/06/2001

SUP 17.4.6

handbook-guidance
'Reasonable grounds' require more than just a check as to whether the other firm is authorised. For example a firm should not rely on SUP 17.4.3 (3) alone if the only other party to a reportable transaction is an investment management firm or a personal investment firm.
  • 21/06/2001

Use of reporting agents

SUP 17.4.7

handbook-rule
A firm may appoint another person to make transaction reports on its behalf if:
(1) the firm has informed the FSA of that appointment in writing; and
(2) the transaction reports made on its behalf comply with SUP 17 and distinguish each individual transaction, using the firm's identifying code.
  • 21/06/2001

SUP 17.4.8

handbook-guidance
SUP 17.4.7 sets out the conditions which must be satisfied if a firm wishes to appoint someone else to make transaction reports on its behalf. The firm will remain responsible for its compliance with SUP 17.
  • 21/06/2001

Other reporting requirements

SUP 17.4.9

handbook-guidance
A firm's obligations under this chapter do not affect any obligation to report transactions under the rules of any reporting system or of any exchange, whether or not that exchange is a regulated market.
  • 21/06/2001

SUP 17.5

Reportable transactions

  • 01/12/2004

SUP 17.5.1

handbook-rule
A 'reportable transaction' is a transaction of a type identified in SUP 17.5.4, except:
(1) stock or bond lending and borrowing, repurchase or reverse repurchase agreements;
(2) asset trading transactions, including novation, assignment and sub-participation; and
(3) issues, market allotments and syndications which are not dealt in on a regulated market.
  • 21/06/2001

SUP 17.5.2

handbook-guidance
  • 21/06/2001

SUP 17.5.3

handbook-guidance
In general, transactions, other than those in derivative products, between the issuer of an instrument and the first taker as principal are not reportable transactions. However, if an instrument is already dealt in on a regulated market, all secondary issue transactions are reportable if the new issue ranks equally with those already in issue and the issue is already traded or listed on a regulated market. All secondary market transactions carried out on or off exchange, before or after the instrument is issued, are reportable. In addition, for a firm which is not a personal investment firm or an investment management firm (essentially BCD credit institutions and securities and futures firms), reportable transactions include transactions in some instruments which are not traded on a regulated market at all - for example the instrument concerned might only be traded over the counter or through a trading facility such as Ofex.

SUP 17.5.4

handbook-rule

Reportable transactions (see SUP 17.5.1)

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SUP 17.6

Transaction reports

  • 01/12/2004

Timing of reports

SUP 17.6.1

handbook-rule
A transaction report must be made as soon as practicable and in any event, subject to SUP 17.7.10 (Failure of reporting systems), before the end of the next business day after the day on which the firm entered into the transaction.
  • 21/06/2001

Content

SUP 17.6.2

handbook-rule
A transaction report must:
(1) in the case of an investment management firm, include the details set out in SUP 17.6.4, except that it need not provide the details in the column headed 'Counterparty' if the counterparty is not an ISD investment firm; or
(2) in the case of a personal investment firm, include the details set out in SUP 17.6.4; or
(3) in the case of any other firm, include all the fields identified in SUP 17 Annex 2 for the relevant reporting system.
  • 21/06/2001

SUP 17.6.3

handbook-guidance
SUP 15.6 applies to transaction reports and requires a firm to take reasonable steps to ensure that information provided to the FSA is accurate.
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SUP 17.6.4

handbook-rule

Details to be reported (investment management firms and personal investment firms) (see SUP 17.6.2)

  • 21/06/2001

SUP 17.6.5

handbook-evidential-provisions
(1) A firm subject to SUP 17.6.2 (3) should ensure that a transaction report is accepted by the relevant reporting system.
(2) Contravention of (1) may be relied on as tending to establish contravention of SUP 17.4.1.
  • 21/06/2001

SUP 17.6.6

handbook-rule
The price reported in a transaction report must be the transaction price, excluding any charges or commission which is shown separately on the contract note or on any similar notification.
  • 21/06/2001

Basket trades

SUP 17.6.7

handbook-rule
If a firm (other than an investment management firm or a personal investment firm) effects a series of transactions within a 24 hour period which is an exact replica of any of the following indices (known as a 'basket trade'), it may report them as a single transaction under a single approved security code:
(1) CAC 40; or
(2) DAX 30; or
(3) LSE/Nikkei 50; or
(4) Nikkei 225; or
(5) Standard and Poors 500; or
(6) TOPIX.
  • 21/06/2001

SUP 17.6.8

handbook-guidance
The 'single approved security code' referred to in SUP 17.6.7 and SUP 17.6.9 is the code issued by the relevant exchange or numbering agency.
  • 21/06/2001

SUP 17.6.9

handbook-rule
If a firm (other than an investment management firm or a personal investment firm) effects a series of transactions within a 24 hour period which does not exactly replicate one of the indices listed in SUP 17.6.7, it may make a transaction report for them showing:
(1) a single basket trade transaction under a single approved security code; and
(2) the missing constituents of the relevant index, as reverse trades, with the price and quantity set according to their weighting in the index.
  • 21/06/2001

SUP 17.6.10

handbook-guidance
A firm which effects a series of transactions to which SUP 17.6.9 applies may report them as individual transactions, rather than under that rule.
  • 21/06/2001

SUP 17.7

Method of making transaction reports

  • 01/12/2004

Use of reporting systems

SUP 17.7.1

handbook-rule
A transaction report must be made through one of the reporting systems listed in SUP 17.7.8 unless SUP 17.7.4 applies.
  • 21/06/2001

SUP 17.7.2

handbook-rule
Before a firm uses any of the systems listed in SUP 17.7.8, it must notify the FSA in writing that it intends to do so.
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SUP 17.7.3

handbook-rule
A firm must send a notification under SUP 17.7.2 to a member of its supervision team and to the FSA's Transaction Monitoring Unit.
  • 21/06/2001

Reporting by fax or e-mail

SUP 17.7.4

handbook-rule
Firms within the categories in the table in SUP 17.7.5 may report transactions by a fax or e-mail transmission which complies with the relevant requirements in the table.
  • 21/06/2001

SUP 17.7.5

handbook-rule

Reporting by fax or e-mail (see SUP 17.7.4)

  • 21/06/2001

SUP 17.7.6

handbook-guidance
The manual reporting form in SUP 17 Annex 3 is not compulsory for investment management firms or personal investment firms, but those firms may use it to record the required information.
  • 21/06/2001

SUP 17.7.7

handbook-rule
Transaction reports made under SUP 17.7.4 must be sent to the FSA's Data Integrity Unit:
(1) by fax on 020 7066 3675; or
(2) by e-mail to tmu@fsa.gov.uk.
  • 21/06/2001

Permitted reporting systems

SUP 17.7.8

handbook-rule
The reporting systems referred to in SUP 17.7.1 R are:
(1) CEDCOM system operated by Clearstream Banking AG, Frankfurt;
(2) CGO Central Gilts Office;
(3) CRESTCo Limited;
(4) EUCLID operated by Euroclear SA (input directly into EUCLID or through SWIFT);
(5) the FSA's Direct Reporting System;
(6) SEQUAL 2000 system of Thomson Financial Services;
(7) Tradepoint Financial Networks Plc;
(8) Trade Registration System of The London International Financial Futures and Options Exchange (LIFFE);
(9) TRAX system of the International Securities Market Association; and
(10) Jiway Limited.

SUP 17.7.9

handbook-guidance
Guidance on the use of particular reporting systems listed in SUP 17.7.8 is available from the FSA's Transaction Monitoring Unit.
  • 21/06/2001

Failure of reporting systems

SUP 17.7.10

handbook-rule
If a reporting system fails (whether a relevant reporting system, the firm's own system or the system of a person reporting on its behalf), a firm must:
(1) make the transaction report through another reporting system, if the firm considers it reasonably practicable to do so; or
(2) make the transaction report by the end of the business day after the day when the failure is remedied, if the firm does not consider it reasonably practicable to comply with (1).
  • 21/06/2001

SUP 17.7.11

handbook-rule
A firm must notify the FSA in writing, before the end of the business day after the day when the failure occurs, which of SUP 17.7.10 (1) or SUP 17.7.10 (2) it will adopt.
  • 21/06/2001

SUP 17.7.12

handbook-rule
A firm must notify the FSA, in writing and without delay, of any failure of its own system, or that of a person reporting on its behalf, which prevents a transaction report being made within the period specified in SUP 17.6.1.
  • 21/06/2001

SUP 17 Annex 1

Exchanges relevant for SUP 17.4.2R (2)

handbook-rule
  • 21/06/2001

SUP 17 Annex 2

Mandatory fields for reporting systems

  • 01/12/2004

handbook-rule
  • 01/03/2003

SUP 17 Annex 3

Manual transaction reporting form

  • 01/12/2004

handbook-rule
  • 01/03/2003

SUP 17 Annex 4

Market identifier codes (Listed alphabetically by exchange)

  • 01/12/2004

handbook-guidance
  • 21/06/2001

SUP 17 Annex 5

Regulated markets

  • 01/12/2004

handbook-guidance
  • 01/10/2002

Export chapter as

SUP 18

Transfers of business

SUP 18.1

Application

  • 01/12/2004

SUP 18.1.1

handbook-guidance
This chapter provides guidance in relation to business transfers.
(1) SUP 18.2 applies to any firm or to any member of Lloyd's proposing to transfer the whole or part of its business by an insurance business transfer scheme or to accept such a transfer. SUP 18.2.31 G to SUP 18.2.41 G also applyto the independent expert making the scheme report.
(2) SUP 18.3 applies to any firm proposing to accept certain transfers of insurance business taking place outside the United Kingdom.
(3) SUP 18.4 applies to any friendly societies proposing to amalgamate under section 85 of the Friendly Societies Act 1992, to any friendly society proposing to transfer engagements under section 86 of that Act to another body and to any body (whether or not it is a friendly society) proposing to accept such a transfer. SUP 18.4 also provides guidance to those wishing to make representations to the FSA about an application for confirmation of an amalgamation or transfer.

SUP 18.1.2

handbook-guidance
Guidance on building society transfers and mergers is given in IPRU(BSOC) .

Introduction

SUP 18.1.3

handbook-guidance
Insurance business transfers are subject to Part VII of the Act and must be approved by the court under section 111. The Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations 2001 (SI 2001/3625) also apply. These regulations set out minimum requirements for publicising schemes, notifying certain interested parties directly (subject to the discretion of the court), and giving information to anyone who requests it.

SUP 18.1.4

handbook-guidance
An insurance business transfer scheme is defined in section 105 of the Act and the definition has been extended to transfers from members of Lloyd's to reflect the effect of the Financial Services and Markets Act 2000 (Control of Transfers of Business Done at Lloyd's) Order 2001(SI 2001/3626). With certain exclusions (relating to some schemes approved under foreign legislation, some novations of reinsurance or some captive insurers), it includes, in broad terms, any scheme to transfer insurance business from one firm (other than a friendly society) or members of Lloyd's to another body (which may be a friendly society), if:
(1)
(a) the transferor is an "UK authorised person" and the business is being carried on in one or more EEA States; or
(b) the business is reinsurance carried on in the United Kingdom; or
(c) the business is carried on in the United Kingdom and the transferor is not an EEA firm; and
(2) in each case, the transferred business will be carried on from an establishment in the EEA.
The business transferred may include liabilities and potential liabilities on expired policies, liabilities on current policies and liabilities on contracts to be written in the period until the transfer takes effect. The parties to schemes approved under foreign legislation or involving novations of reinsurance or a captive insurer can apply to the court for an order sanctioning the scheme.

SUP 18.1.5

handbook-guidance
In the opinion of the FSA, a novation or a number of novations would constitutean insurance business transfer only if their number or value were such that the novation was to be regarded as a transfer of part of the business. A novation is an agreement between the policyholder and two insurers whereby a contract with one insurer is replaced by a contract with the other. In the opinion of the FSA, where an insurer agrees to meet the liabilities (this may include undertaking the administration of the policies) of another insurer by means of a reinsurance contract, including Lloyd's reinsurance to close, this would not constitute an insurance business transfer because the contractual liability remains with the original insurer; nor would an arrangement whereby an insurer offers to renew the policies of another insurer on their expiry date.

SUP 18.1.6

handbook-guidance
Under section 112 of the Act, the court has wide discretion to transfer property and liabilities to the transferee and to make orders in relation to incidental, consequential and supplementary matters. In the opinion of the FSA, the court has the power in such cases and on such terms as may be appropriate, to transfer the benefit of reinsurance contracts protecting the transferred business and to make such amendments to the terms of those contracts as may be necessary to give effect to that transfer of benefit.

SUP 18.1.7

handbook-guidance
Amalgamations of friendly societies and transfers of engagements from friendly societies to other bodies (whether or not friendly societies) are governed by part VIII of the Friendly Societies Act 1992 and Schedule 15 to that Act applies.

SUP 18.2

Insurance business transfers

  • 01/12/2004

Purpose

SUP 18.2.1

handbook-guidance
Transfers enable firms to manage their affairs more effectively, both for their own benefit and for that of their customers. However they represent an interference in the contracts between a firm and its customers, unless the customers individually consent,, and may also affect the rights of third parties. An important protection is the requirement for the consent of the court. Under section 110 of the Act, the FSA is entitled to be heard by the court. In deciding whether it should appear, the FSA will consider the potential risk to its regulatory objectives of the scheme compared to not implementing the scheme.

SUP 18.2.2

handbook-guidance
The FSA's regulatory objectives include market confidence and the protection of consumers. Either or both of these might be impaired if a transfer were approved that led to loss, or perceived loss, to consumers or other market participants. On the other hand a transfer that led to improved security or benefits for consumers would promote the FSA's regulatory objectives. When considering a transfer, the FSA needs to take into account the interests of existing consumers of the transferee and of consumers remaining with the transferor as well as of those whose contracts are being transferred. The guidance in this section is intended to protect consumers. By so doing it promotes the market confidence objective.

SUP 18.2.3

handbook-guidance
Under section 5(2) of the Act, in considering what degree of protection may be appropriate for consumers, the FSA must have regard to their need for accurate information. Under Principle 7, a firm must pay due regard to the information needs of clients (the scope of the Principle is not precisely consumers). The extent and nature of the information provided to consumers about a proposed scheme will therefore be a factor for the FSA in determining its attitude to the scheme. For the court process to be an effective protection, consumers and others affected need to learn of the proposed transfer and receive sufficient information on the transfer and its effects in such a form as to enable them to decide if they are likely to be adversely affected, and whether they wish to be heard by the court. The information needed depends on the circumstances and cannot be precisely specified in advance but this chapter contains guidance aimed at ensuring that consumers, the FSA and the court receive adequate information.
  • 21/06/2001

SUP 18.2.4

handbook-guidance
Under Principle 11, a firm must deal with the FSA in an open and cooperative way and disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. This chapter contains guidance on the information that the FSA expects to receive from firms and members of Lloyd's in the context of insurance business transfer schemes.
  • 21/06/2001

SUP 18.2.5

handbook-guidance
Under Principle 6, a firm must treat customers fairly (the scope of the Principle is not precisely consumers) and, under Principle 8, manage conflicts of interest fairly. A criterion for the FSA in considering a proposed scheme would be whether it appears that either Principle is not being followed. Transfers may have both positive and negative effects on individual consumers. In such circumstances it is for consumers to balance these effects and assess whether the proposed scheme as a whole is in their interests and whether to make representations to the court about the scheme. The FSA's main concern then becomes to ensure that consumers have appropriate information and not to set its judgment over theirs.

SUP 18.2.6

handbook-guidance
A scheme may have a material effect on the transferor or the transferee. The FSA will take any scheme into account in its future regulation of the firms, where it continues to regulate them. This could include, for instance, the exercise of own-initiative powers under section 45 of the Act to vary a firm's Part IV permission, for instance, by requiring a scheme of operations (SUP 7 contains guidance on criteria for varying a firm's Part IV permission).
  • 21/06/2001

SUP 18.2.7

handbook-guidance
For many transfers it is necessary to cooperate with overseas regulators. This section contains guidance on such cooperation.
  • 21/06/2001

SUP 18.2.8

handbook-guidance
Section 86(8) of the Friendly Societies Act 1992 requires, where a transferee is a friendly society, that consent to accept the engagements is passed by special resolution in accordance with paragraph 7 of Schedule 12 to that Act. This section includes guidance about the information needed in these circumstances.
  • 21/06/2001

SUP 18.2.9

handbook-guidance
Under section 109 of the Act, an insurance business transfer scheme must be accompanied by a scheme report in a form approved by the FSA. This section contains guidance on the form of a scheme report.
  • 21/06/2001

SUP 18.2.10

handbook-guidance
Also under section 109 of the Act, the scheme report must be made by a person nominated or approved by the FSA. This section contains guidance on the procedures and general criteria that the FSA proposes to adopt for this purpose.
  • 21/06/2001

SUP 18.2.11

handbook-guidance
The FSA has a duty under section 2(3) of the Act "to have regard to the need to use its resources in the most efficient and economic way". The extent to which (if at all) it examines and considers the details of a scheme and the resources it devotes to such consideration will depend on the potential risk to its regulatory objectives.
  • 21/06/2001

Procedure: initial steps

SUP 18.2.12

handbook-guidance
When an insurance business transfer scheme is being considered, the scheme promoters (including the transferor and, except possibly if it is a new company, the transferee) should discuss the scheme with the FSA as soon as reasonably practical, to enable the FSA to consider what issues are likely to arise, and to enable a practical timetable for the scheme to be agreed. The FSA will wish to consider material issues relating to policyholder rights (such as the reasonable expectations of with-profits policyholders) or policyholder security at the earliest opportunity. In any case the FSA will need time to:
(1) consider the application, if an application by the transferee for a Part IV permission or a variation of permission is necessary ( AUTH and SUP 6 provide guidance on this);
(2) seek information or approvals from other supervisors (where this applies);
(3) consider what skills are needed to make a proper report on the scheme and what criteria should therefore be applied to the choice of independent expert;
(4) consider whether the promoters' nominee for independent expert is suitable for approval or, if the FSA proposes to nominate someone, who the FSA should nominate; and
(5) consider whether to object to the scheme in the light of the report and other circumstances.

SUP 18.2.13

handbook-guidance
The initial information on the schemeprovided to the FSA under SUP 18.2.12 G should include its broad outline and its purpose.The FSA will indicate to the promoters how closely it wishes to monitor the progress of the scheme, including the extent to which it wishes to see draft documentation.

Independent expert: qualifications

SUP 18.2.14

handbook-guidance
Under section 109(2) of the Act a scheme report may only be made by a person:
(1) appearing to the FSA to have the skills necessary to enable him to make a proper report; and
(2) nominated or approved for the purpose by the FSA .

SUP 18.2.15

handbook-guidance
The general principles set out in SUP 5.4.8 G, for suitability of a skilled person, apply also to the independent expert. The FSA expects the independent expert making the scheme report to be a natural person, who:
(1) is independent, that is any direct or indirect interest or connection he has or has had in either the transferor or transferee should not be such as to prejudice his status in the eyes of the court; and
(2) has relevant knowledge, both practical and theoretical, and experience of the types of insurance business transacted by the transferor and transferee.

SUP 18.2.16

handbook-guidance
For a transfer of long-term insurance business the independent expert should be an actuary familiar with the role and responsibilities of an appointed actuary.

SUP 18.2.17

handbook-guidance
For a transfer of general insurance business the independent expert should normally be competent at assessing technical provisions and the uncertainties of the liabilities they represent (such as an actuary). Exceptionally, where issues other than the ability of the transferee to meet the liabilities to be transferred are much more significant in assessing the likely effects of the scheme, this criterion might not be applied. In such a case the independent expert would be expected to take advice from an appropriately qualified practitioner about the adequacy of the financial resources of the transferee.

SUP 18.2.18

handbook-guidance
The independent expert would not normally be expected to be knowledgeable:
(1) about general insurance business if the business being transferred is long-term insurance business only; nor
(2) about long-term insurance business if the business being transferred is general insurance business only;
but, where either the transferor or transferee is a composite, he should understand the relevance of the general insurance business to the security of the long-term insurance business policyholders and vice versa and may need to seek independent specialist advice.

Independent expert: appointment

SUP 18.2.19

handbook-guidance
The suitability of a person to act as an independent expert depends on the nature of the scheme and the firms concerned. On the basis of the preliminary information supplied by the scheme promoters (and any other knowledge it has of the circumstances and the firms), the FSA will consider what skills are needed to make a proper report on the scheme and what criteria should therefore be applied to the choice of independent expert. The FSA will inform the promoters of any such criteria it is minded to apply.

SUP 18.2.20

handbook-guidance
Under section 107(2) of the Act, the application to the court may be made by the transferor or the transferee or both. As soon as reasonably practical, the intended applicant should choose their nominee for independent expert in the light of any criteria advised by the FSA and advise the FSA of their choice, unless the FSA wishes them to defer nomination or to make its own nomination. The notification should be accompanied by reasons why the party considers the nominee to be a suitable person to act as independent expert, together with relevant details of his experience and qualifications.

SUP 18.2.21

handbook-guidance
The FSA may wish to have preliminary discussions with the nominee about the transfer to help the FSA determine whether he is suitably qualified to address issues arising from the transfer. The FSA will consider the suitability of the nominee and inform the firm that nominated him whether it approves him. Since the nature of the scheme is a factor in determining the suitability of the nominee, the FSA cannot approve a nominee before the broad outlines of the scheme have been determined. If the FSA rejects a nominee, it will normally inform him and, with the agreement of the nominee, the applicant of the reasons for the rejection.

SUP 18.2.22

handbook-guidance
The FSA may itself nominate the independent expert, either where it indicates that a nomination is not required by the parties, or where it does not approve the parties' own nomination. In either case it will inform the promoters of its nominee.

SUP 18.2.23

handbook-guidance
Firms should co-operate fully with the independent expert and provide him with access to all relevant information and appropriate staff.

SUP 18.2.24

handbook-guidance
The guidance set out in SUP 18.2.25 G to SUP 18.2.30 G derives from the requirements of the Insurance Directives and the associated agreements between EEA regulators. Schedule 12 of the Act implements some of these requirements.

SUP 18.2.25

handbook-guidance
(1) If the transferee is (or will be) an EEA firm (authorised in its Home State to carry on insurance business under the Insurance Directives ) or a Swiss general insurance company, then the FSA has to consult the transferee's Home State regulator, who has 3 months to respond. It will be necessary for the FSA to obtain from the transferee's Home State regulator a certificate confirming that the transferee will meet the Home State's solvency margin requirements (if any) after the transfer.
(2) If the transferee is authorised in the United Kingdom, the FSA will need to certify that the transferee will meet its solvency margin requirements after the transfer. If the FSA has required of a UK firm a financial recovery plan of the kind mentioned in paragraph 1 of article 38 of the Life Directive(2002/83/EC) or paragraph 1 of article 20a of the First Non-Life Directive, the FSA will not issue a certificate for so long as it considers that policyholders' rights are threatened within the meaning of paragraph 1.

SUP 18.2.26

handbook-guidance
The transferor will need to provide the FSA with the information that the Home State regulator requires from FSA . This information includes:
(1) the transfer agreement or a draft, with:
(a) the names and addresses of the transferor and transferee; and
(b) the classes of insurance business and details of the nature of the risks or commitments to be transferred;
(2) for the business to be transferred (both before and after reinsurance):
(a) the amount of technical provisions;
(b) the amount of premiums (in the most recent financial period); and
(c) for general insurance business, the claims incurred (in the most recent financial period);
(3) details of assets to be transferred;
(4) details of any guarantees (including reinsurance), whether provided by the transferor or a third party, to protect the provisions for the business transferred against deterioration; and
(5) the states of the risks or the states of the commitmentsbeing transferred.

SUP 18.2.27

handbook-guidance
If the transferee is not (and will not be) authorised and will be neither an EEA firm nor a Swiss general insurance company, then the FSA will need to consult itsinsurance supervisor in the place where the business is to be transferred. The FSA will need confirmation from this supervisor that the transferee will meet his solvency margin requirements there (if any) after the transfer.

SUP 18.2.28

handbook-guidance
If the transferor is an UK insurerand the business to be transferred includes business carried on from a branch in another EEA State, then the FSA has to consult the Host State regulator, who has 3 months to respond. The FSA will need to be given the information that the Host State regulator requires from it. This information should identify the parties to the transfer and include the transfer agreement or draft transfer agreement or a summary containing relevant information, and describe arrangements for settling claims if the branch is to be closed.

SUP 18.2.29

handbook-guidance
If the transferor is an UK insurer and the business to be transferred includes a long-term insurance contract (other than reinsurance) for which the state of the commitment is an EEA state other than the United Kingdom, then the FSA has to consult the Host State regulator. If the transferor is an UK insurer and the business to be transferred includes a general insurance contract (other than reinsurance) for which the state of the risk is an EEA state other than the United Kingdom, then the FSA must consult the Host State regulator. The FSA will need to be given the information that the Host State regulator requires from it. This information should identify the parties to the transfer and include the transfer agreement or draft transfer agreement or a summary containing relevant information. It would be helpful (especially for long-term insurance business) if a draft of the scheme report was also available. The consent of the Host State regulator to the transfer is required, unless he does not respond within 3 months.

SUP 18.2.30

handbook-guidance
Where the transferor is an UK-deposit insurer and, following the transfer, it will no longer be carrying on insurance business in the United Kingdom, the FSA will need to collaborate with regulatory bodies in the other EEA States in which it is carrying on business to ensure that effective supervision of the business carried on in the EEA continues. The transferor should cooperate with the FSA and the other regulatory bodies in this process and demonstrate that it will meet the requirements of its regulators following the transfer.

Form of scheme report

SUP 18.2.31

handbook-guidance
Under section 109 of the Act, a scheme report must accompany an application to the court to approve an insurance business transfer scheme. This report must be made in a form approved by the FSA. The FSA would not expect to approve the form of a scheme report unless it complies with SUP 18.2.33 G and would expect to approve the form of a scheme report that complies. SUP 18.2.32 G and SUP 18.2.34 G to SUP 18.2.41 G provide additional guidance for the independent expert.

SUP 18.2.32

handbook-guidance
There may be matters relating to the scheme or the parties to the transfer that the FSA wishes to draw to the attention of the independent expert. The FSA may also wish the report to address particular issues. The independent expert should therefore contact the FSA at an early stage to establish whether there are such matters or issues. The independent expert should form his own opinion on such issues, which may differ from the opinion of the FSA .

SUP 18.2.33

handbook-guidance
The scheme report should comply with the applicable rules on expert evidence and contain the following information:
(1) who appointed the independent expert and who is bearing the costs of that appointment;
(2) confirmation that the independent expert has been approved or nominated by the FSA ;
(3) a statement of independent expert's professional qualifications and (where appropriate) descriptions of the experience that fits him for the role;
(4) whether the independent expert has, or has had, direct or indirect interest in any of the parties which might be thought to influence his independence, and details of any such interest;
(5) the scope of the report;
(6) the purpose of the scheme;
(7) a summary of the terms of the scheme in so far as they are relevant to the report;
(8) what documents, reports and other material information the independent expert has considered in preparing his report and whether any information that he requested has not been provided;
(9) the extent to which the independent expert has relied on:
(a) information provided by others; and
(b) the judgment of others;
(10) the people on whom the independent expert has relied and why, in his opinion, such reliance is reasonable;
(11) his opinion of the likely effects of the scheme on policyholders (this term is defined to include persons with certain rights and contingent rights under the policies), distinguishing between:
(a) transferring policyholders;
(b) policyholders of the transferor whose contracts will not be transferred; and
(c) policyholders of the transferee;
(12) what matters (if any) that the independent expert has not taken into account or evaluated in the report that might, in his opinion, be relevant to policyholders' consideration of the scheme; and
(13) for each opinion that the independent expert expresses in the report, an outline of his reasons.

SUP 18.2.34

handbook-guidance
The purpose of the scheme report is to inform the court and the independent expert therefore has a duty to the court. However reliance will also be placed on it by policyholders, by others affected by the scheme and by the FSA . The amount of detail that it is appropriate to include will depend on the complexity of the scheme, the materiality of the details themselves and the circumstances. For instance where it is clear that no-one will be adversely affected by the transfer, a simple explanation for this conclusion plus the details required by SUP 18.2.33 G might be an adequate report.

SUP 18.2.35

handbook-guidance
The summary of the terms of the scheme should include:
(1) a description of any reinsurance arrangements that it is proposed should pass to the transferee under the scheme; and
(2) a description of any guarantees or additional reinsurance that will cover the transferred business or the business of the transferor that will not be transferred.

SUP 18.2.36

handbook-guidance
The independent expert's opinion of the likely effects of the scheme on policyholders should:
(1) include a comparison of the likely effects if it is or is not implemented;
(2) state whether he considered alternative arrangements and, if so, what;
(3) where different groups of policyholders are likely to be affected differently by the scheme, include comment on those differences he considers may be material to the policyholders; and
(4) include his views on:
(a) the effect of the scheme on the security of policyholders' contractual rights, including the likelihood and potential effects of the insolvency of the insurer;
(b) the likely effects of the scheme on matters such as investment management, new business strategy, administration, expense levels and valuation bases in so far as they may affect:
(i) the security of policyholders' contractual rights;
(ii) levels of service provided to policyholders; or
(iii) for long-term insurance business, the reasonable expectations of policyholders; and
(c) the cost and tax effects of the scheme, in so far as they may affect the security of policyholders' contractual rights, or for long-term insurance business, their reasonable expectations.

SUP 18.2.37

handbook-guidance
The independent expert is not expected to comment on the likely effects on new policyholders, that is, those whose contracts are entered into after the effective date of the transfer.

SUP 18.2.38

handbook-guidance
For any mutual company involved in the scheme, the report should:
(1) describe the effect of the scheme on the proprietary rights of members of the company, including the significance of any loss or dilution of the rights of those members to secure or prevent further changes which could affect their entitlements as policyholders;
(2) state whether, and to what extent, members will receive compensation under the scheme for any diminution of proprietary rights; and
(3) comment on the appropriateness of any compensation, paying particular attention to any differences in treatment between members with voting rights and those without.

SUP 18.2.39

handbook-guidance
For a scheme involving long-term insurance business, the report should:
(1) describe the effect of the scheme on the nature and value of any rights of policyholders to participate in profits;
(2) if any such rights will be diluted by the scheme, how any compensation offered to policyholders as a group (such as the injection of funds, allocation of shares, or cash payments) compares with the value of that dilution, and whether the extent and method of its proposed division is equitable as between different classes and generations of policyholders;
(3) describe the likely effect of the scheme on the approach used to determine:
(a) the amounts of any non-guaranteed benefits such as bonuses and surrender values; and
(b) the levels of any discretionary charges;
(4) describe what safeguards are provided by the scheme against a subsequent change of approach to these matters that could act to the detriment of existing policyholders of either firm;
(5) include the independent expert's overall assessment of the likely effects of the scheme on the reasonable expectations of long-term insurance businesspolicyholders;
(6) state whether the independent expert is satisfied that for each firm the scheme is equitable to all classes and generations of its policyholders; and
(7) state whether, in the independent expert's opinion, for each relevant firm the scheme has sufficient safeguards (such as principles of financial management or certification by the appointed actuary) to ensure that the scheme operates as presented.

SUP 18.2.40

handbook-guidance
Where the transfer forms part of a wider chain of events or corporate restructuring, it may not be appropriate to consider the transfer in isolation and the independent expert should seek sufficient explanations on corporate plans to enable him to understand the wider picture. Likewise he will need information on the operational plans of the transferee and, if only part of the business of the transferor is transferred, of the transferor. These will need to have sufficient detail to allow him to understand in broad terms how the business will be run. He would not normally be expected to assess the adequacy of systems and controls in detail.

SUP 18.2.41

handbook-guidance
A transfer may provide for benefits to be reduced for some or all of the policies being transferred. This might happen if the transferor is in financial difficulties. If there is such a proposal, the independent expert should report on what reductions he considers ought to be made, unless either:
(1) the information required is not available and will not become available in time for his report, for instance it might depend on future events; or
(2) otherwise, he is unable to report on this aspect in the time available.
Under such circumstances, the transfer might be urgent and it might be appropriate for the reduction in benefits to take place after the event, by means of an order under section 112 of the Act. The FSA would wish to consider the fairness ofany such reduction and section 113 allows the court to appoint an independent actuary to report to the FSAon any such post-transfer reduction in benefits.

Notice provisions

SUP 18.2.42

handbook-guidance
Under the Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations 2001 (SI 2001/3625), unless the court directs otherwise, notice of the application must be sent to all policyholders of the parties. It may also be appropriate to give notice to others affected, in particular to:
(1) reinsurers of the transferor where it is proposed that benefits or liabilities under their contracts should pass to the transferee; and
(2) anyone with an interest in the policies being transferred who has notified the transferor of their interest.

SUP 18.2.43

handbook-guidance
The regulations referred to in SUP 18.2.42 G require that notice of the application must be published in:
(1) the London, Edinburgh and Belfast Gazettes; and
(2) unless the court directs otherwise, in:
(a) two national newspapers in the United Kingdom; and
(b) in two national newspapers in any other EEA State that is the state of the risk or the state of the commitment.
Wider publication may be appropriate in some circumstances (especially if not all policyholders are sent notices).

SUP 18.2.44

handbook-guidance
The regulations referred to in SUP 18.2.44 G require that the FSA approves in advance the notices sent to policyholders and published in the press.

SUP 18.2.45

handbook-guidance
Where a transfer involves members of Lloyd's as transferor or transferee, any notice requirements of the Society will also apply.

SUP 18.2.46

handbook-guidance
The FSA is entitled to be heard by the court on any application for a transfer. A consideration for the FSA in determining whether to oppose a transfer would be itsview on whether adequate steps had been taken to tell policyholdersabout the transfer and whether they had adequate information and time to consider it. The FSA would not normally consider adequate a period of less than six weeks between sending notices to policyholders and the date of the court hearing. Therefore it would be sensible, before requesting the court fora waiver of the publication requirements or the requirement to send statements direct to policyholders, to consult the FSA on itsviews about what waivers might be appropriate and what substitute arrangements might be made. The FSA will take into account the practicality and costs of sending notices to policyholders (especially for firms in financial difficulty), the likely benefits for policyholders of receiving notices and the efficacy of other arrangements proposed for informing policyholders (including additional advertising or, where appropriate, electronic communication). For instance, the FSA would be unlikely to object to a transfer on the grounds that policyholders had not been sent notices, if cover for the policies concerned had expired and the probability of them making a claim was so small as to make the sending disproportionately expensive (particularly if there had been additional advertising). A firm may not be able to send notices to some or all of its policyholders, because it does not have their address, or may not even know their identity. This situation is not uncommon for business written through brokers or other agents. In such a case, alternative ways of informing policyholders need to be considered.

SUP 18.2.47

handbook-guidance
As the consent (or presumed consent) of the Host State is required for a transfer covering contracts for which another EEA State is the state of the risk (for general insurance business) or the state of the commitment (for long-term insurance business), it is advisable to obtain the consent of regulatory body in the Host State to any waiver of publication in that state. The approval of the court will still be required.

Statement to policyholders

SUP 18.2.48

handbook-guidance
It would normally be appropriate to include with the notice referred to in SUP 18.2.42 G a statement setting out the terms of the scheme and containing a summary of the scheme report. Ideally every recipient should understand in broad terms from the summary how the scheme is likely to affect him. This objective will be most nearly achieved if the summary is clear and concise while containing sufficient detail for the purpose. A lengthy summary or one that was hard to understand would not be appropriate. Regulations require the scheme report, the notice and the statement to be made available to anyone requesting them. The internet can be used for this purpose if it is suitable for the person making the request.

SUP 18.2.49

handbook-guidance
Where the transferee is a friendly society, the notice should include information about the meeting at which a special resolution in accordance with paragraph 7 of Schedule 12 to the Friendly Societies Act 1992 is to be voted on, including the date of the meeting, how notice of the meeting is to be given to members and the terms of the special resolution. After the meeting the friendly society should inform the FSA whether the special resolution has been passed. The court will also need to be informed, so an appropriateway of informing the FSA may be to include it in the affidavit to the court.

SUP 18.2.50

handbook-guidance
The FSA should be given the opportunity to comment on the statement referred to in SUP 18.2.48 G before it is sent, unless the FSA has informed the promoters in writing that it does not wish to do so.

FSA assessment of scheme

SUP 18.2.51

handbook-guidance
The assessment is a continuing process, starting when the scheme promoters first approach the FSA about a proposed scheme. Among the considerations that may be relevant to both the depth of consideration given to, and the FSA's opinion on, a scheme are:
(1) the potential risk posed by the transfer to the regulatory objectives;
(2) the purpose of the scheme;
(3) how the security of policyholders' (who include persons with certain rights and contingent rights under the policies) contractual rights appears to be affected;
(4) how the scheme compares with possible alternatives, particularly those that do not require approval (whether by the court or the FSA );
(5) how policyholders' rights and reasonable expectations appear to be affected;
(6) the compensation offered to policyholders for any loss of rights or expectations;
(7) how for other persons (besides policyholders) who have an interest in policies, their rights and the security of those rights appear to be affected;
(8) the opportunity given to policyholdersto consider the scheme, that is whether they have been properly notified, whether they have had adequate information and whether they have had adequate time to consider that information;
(9) the opinion of the independent expert;
(10) for a transfer that involves members of Lloyd's as transferor or transferee, the effect on the Society;
(11) the views of other regulatory bodies consulted in connection with the proposed transfer; and
(12) any views expressed by policyholders.

SUP 18.2.52

handbook-guidance
The scheme report will be an important factor in the view the FSA forms on a scheme. The FSA will place considerable reliance on the opinions of the independent expert and the reasons for them. However it will form its own view taking into account other information and having regard to its regulatory objectives.

SUP 18.2.53

handbook-guidance
The FSA is likely to object to a scheme if it concludesthat it is unfair to a class of policyholders, unless the policyholders of that class have approved the scheme on the basis of information the FSA considers clear and accurate. Policyholders are not required to vote on a scheme but would, for instance, normally vote on a demutualisation or on a scheme of arrangement under the Companies Act 1985. The FSA is also likely to object to a scheme if it concludes that it has a material adverse effect on policyholders' security. The FSA may wish to satisfy itself that questions of systems and controls are properly addressed. There may also be conduct of business issues, particularly if the market has not fully absorbed the impact of the scheme by its effective date. The FSA would seek to resolve such issues through discussion with the scheme promoters in advance of the application to the court for approval, giving them the opportunity to amend the scheme or documentation, or otherwise to allay the FSA's concerns. Scheme promoters should keep the FSA informed to allow this discussion.

SUP 18.2.54

handbook-guidance
The FSA may exercise its other powers under the Act, if it considers this a more effective method of achieving its regulatory objectives.

SUP 18.2.55

handbook-guidance
The FSA is not required under its regulatory objectives to object to a scheme merely because some other scheme might have been in the better interests of policyholders, if the scheme itself is not adverse to their interests. However there may be circumstances where treating customers fairly wouldrequire a firm to consider or to implement an alternative scheme.

SUP 18.2.56

handbook-guidance
Where a transfer involves members of Lloyd's as transferor or transferee, the FSA will consult the Society. Where the business of a syndicate is being transferred, the transfer involves all members participating in the relevant syndicate years.

SUP 18.2.57

handbook-guidance
Regulations require that copies of the application to the court, the scheme report and the statement for policyholders referred to in SUP 18.2.48 G are also given to the FSA. This enables the FSA to consider these and determine whether it wishes to be heard by the court. It might assist the FSA if these items were given to the FSA in draft, in the first instance. This would enable:
(1) the FSA to seek clarification before the documents were finalised; and
(2) if the promoters so choose, allow them to amend the scheme to meet any concerns of the FSA.

SUP 18.2.58

handbook-guidance
For long-term insurance business, the affidavit evidence to the court would normally include copies of reports on the transfer by the appointed actuaries of both firms, which should be provided to the FSA at an early stage. SUP 4.3.17 R (4) requires a firm to consult its appointed actuary about the likely effect of material changes in its business plans on rights and reasonable expectations of the relevant classes of its with-profits policyholders. A transfer would be material unless the liabilities transferred were not material relative to the total liabilities of the firm. The advice on a transfer would normally be in the form of a formal report by the appointed actuary.

SUP 18.2.59

handbook-guidance
The scheme promoters should advise the FSA about any material representations made to them in response to the transfer scheme. Where it is proposed that reinsurance arrangements should pass to the transferee under the scheme, the FSA should also be informed about the steps being taken to consult with, or seek the consent of, the reinsurers and the reactions received.
  • 21/06/2001

SUP 18.2.60

handbook-guidance
The court is likely to wish to know the FSA's opinion on the scheme and, if the FSA does not intend to be heard, the affidavit may include a summary of the views expressed by the FSA. The applicants to the court should provide the FSA with a copy of all the affidavit evidence that they intend to submit to the court.
  • 21/06/2001

SUP 18.3

Insurance business transfers outside the United Kingdom

  • 01/12/2004

Purpose

SUP 18.3.1

handbook-guidance
Under section 115 of the Act, the FSA has the power to give a certificate confirming that a firm possesses any required minimum margin, to facilitate an insurance business transfer to the firm under overseas legislation from a firm authorised in another EEA State or from a Swiss general insurance company. This section provides guidance on how the FSA would exercise this power and on related matters.

SUP 18.3.2

handbook-guidance
Under cooperation agreements between EEA regulators, if it has serious concerns about the proposed transferee, the FSA should inform the regulatory body of the transferor within 3 months of the original request from that regulatory body. The FSA is not obliged to reply, but if it does not, its opinion is taken to be favorable. Although the protocol does not apply to Switzerland, the FSA is required to cooperate with the Swiss regulatory body and would apply similar principles to a proposed transfer from a Swiss general insurance company.

SUP 18.3.3

handbook-guidance
The information that the regulatory body of the transferor is required to supply will normally be sufficient for the FSA to determine whether the transfer is likely to have a material effect on the transferee.

SUP 18.3.4

handbook-guidance
If the effect of the transfer is not likely to be material and the FSA does not already have serious concerns about the transferee, the FSA can reply favorably.

SUP 18.3.5

handbook-guidance
If the effect of the transfer may be material, the FSA will need to consider whether to request a scheme of operations or other information from the proposed transferee to assist in determining whether the likely effect of the transfer is such that the FSA should have serious concerns.

SUP 18.3.6

handbook-guidance
If the effect of the transfer may have a material adverse effect on the transferee or the security of policyholders, the FSA will consider whether it is appropriate to exercise its powers under the Act to achieve its regulatory objectives .

SUP 18.4

Friendly Society transfers and amalgamations

  • 01/12/2004

Purpose

SUP 18.4.1

handbook-guidance
It is for the committee of management of a friendly society to decide whether to recommend an amalgamation or a transfer of engagements to the society's members. This section provides some guidance on the procedures to be followed and the information to be provided to a friendly society's members so that they are appropriately informed before they exercise their right to vote on the proposals.

SUP 18.4.2

handbook-guidance
Friendly societies are encouraged to discuss a proposed transfer or amalgamation with the FSA , at an early stage to help ensure that a workable timetable is developed. This is particularly important where there are notification requirements for supervisory authorities in EEA States other than the United Kingdom, or for an amalgamation where additional procedures are required.

SUP 18.4.3

handbook-guidance
The FSA will want to satisfy itselfthat after an amalgamation or a transfer the business will be prudently managed and continue to comply with the Principles. It may therefore require prudential information to be provided. It may request prudential information at an early stage to provide itself with adequate time to assess the information.

SUP 18.4.4

handbook-guidance
For a transfer to another friendly society, if the conditions of 87(1) and 87(2) of the Friendly Societies Act 1992 are met a report is required from the appropriate actuary of the transferee to confirm that it will meet the required minimum margin . Where the conditions of 87(1) and 87(3) are met the FSA may require a report from the appropriate actuary of the transferee to confirm that it will have an excess of assets over liabilities.

SUP 18.4.5

handbook-guidance
For a transfer of long-term insurance business, the FSA may, under section 88 of the Friendly Societies Act 1992, require a report from an independent actuary on the terms of the proposed transfer and on his opinion of the likely effects of the transfer on long-term policyholder members of either the transferor or (if it is a friendly society) the transferee. A summary is included in the statement sent to members (see SUP 18.4.13 G) and the full report is required to be made available to anyone on payment of a reasonable fee. The general principles in SUP 18.2.32 G to SUP 18.2.40 G apply to the independent actuary's report.

SUP 18.4.6

handbook-guidance
Under the Friendly Societies Act 1992 the FSA may not confirm a transfer of engagements unless it is satisfied that the transfer is in the interests of the members of each friendly society participating in the transfer (see SUP 18.4.25 G (2)(b)). Itwill therefore ask that the participating societies' actuaries confirm that the transfer is in the interests of the members.

SUP 18.4.7

handbook-guidance
Under the Friendly Societies Act 1992, members will normally have the opportunity to vote on a proposed transfer or amalgamation (SUP 18.4.11 G and SUP 18.4.12 G describe exceptions). A friendly society has to ensure that, before casting their votes, its members are clearly and fully informed of the terms on which the amalgamation or transfer of engagements is to take place and that they have all the information needed to understand how their interests will be affected. If the society's rules permit, delegates can vote except on an "affected members' resolution" under section 86. The FSA may not confirm an amalgamation or a transfer if it considers that information material to the members' decision was not made available to all the members eligible to vote.

SUP 18.4.8

handbook-guidance
Amendments to a friendly society's registered rules may be necessary to permit a transfer to it. The FSA will need to be consulted in the usual way about registration of the appropriate rules. Similarly for an amalgamation, each of the amalgamating societies has to approve the memorandum and rules of the new society and the requirements of schedule 3 to the Friendly Societies Act 1992 have to be met. It will be necessary to allow adequate time for these processes.

SUP 18.4.9

handbook-guidance
For an amalgamation the successor society, and for a transfer the transferee, may need to apply for permission, or to vary its permission, under Part IVof the Act. The FSA will need time before confirming a transferto consider whether any necessary permission or variation should be given. If the transferee is an EEA firm or a Swiss general insurance company, then confirmation will be needed from its Home State regulator that it meets the Home State's solvency margin requirements (see SUP 18.4.25 G (3)).

SUP 18.4.10

handbook-guidance
It is likely that the information sent to members will include a statement explaining the reasons for the amalgamation or transfer and the choice of partner. Although this is not a statutory statement and not subject to FSA approval, the FSA will take the statement into account whenconsidering whether to confirm the amalgamation or transfer. A friendly society will therefore find it helpful to consult the FSA about the content of such a statement.

FSA discretion

SUP 18.4.11

handbook-guidance
The FSA has discretion under section 86(3)(b) of the Friendly Societies Act 1992 to allow a transferee society to resolve to undertake to fulfil the engagements of a transferor society by resolution of the committee of management, rather than by special resolution. Among the issues on which the FSA will wish to satisfy itself before exercising this discretion, are that the transfer will be in the interests of the members of both societies and that the transfer will not mean a change of policy by the transferee society. The FSA is unlikely to exercise this discretion unless the transferee is significantly larger than the business to be transferred.

SUP 18.4.12

handbook-guidance
The FSA has discretion under section 89 of the Friendly Societies Act 1992 to modify some of the requirements for a transfer of engagements from a friendly society, on the application of a specified number of its members, if it is satisfied that it is expedient to do so in the interests of its members or potential members.

Schedule 15 statement to members

SUP 18.4.13

handbook-guidance
Schedule 15 to the Friendly Societies Act 1992 requires a statement to be sent to every member of a friendly society entitled to vote on a transfer or amalgamation. Among other matters this statement has to cover the financial position of the friendly society and every other participant in the transfer or amalgamation. The members should be provided with sufficient financial information about the respective financial positions of the participants to gain an understanding of the relative financial strengths and key features of the participants. The statement has to include a summary of any actuary's report under section 88, though the FSA may direct that the summary is to be provided separately if inclusion appears impractical.

SUP 18.4.14

handbook-guidance
The financial information provided under SUP 18.4.13 G would normally contain comparative statements of balance sheets at the same date, and include main investments, reserves and funds or technical provisions, with details of the number of members of each participant as at the balance sheet date and the premium income of the relevant fund of each participant during the financial year to which the balance sheet relates. SUP 18.4.15 G to SUP 18.4.18 G give further guidance on the financial information to be included.

SUP 18.4.15

handbook-guidance
If the information relates to a position some time in the past, the information should state that there has been no significant change or include a clear description of the changes. Differences in accounting policies and reporting requirements could lead to the loss of some comparability between participants. Such differences and their estimated financial effects (if any) should be explained.

SUP 18.4.16

handbook-guidance
The information should state whether any of the participants has any significant future capital commitments. The FSA will require it to state that the transfer of engagements or amalgamation will not conflict with any contractual commitment by a society, any subsidiary or any body jointly controlled by it and others.

SUP 18.4.17

handbook-guidance
Brief details should be given of the date of the last actuarial valuation and the position revealed (surplus/deficit, required minimum margin and free assets) for each participant.

SUP 18.4.18

handbook-guidance
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 18.4.19

handbook-guidance
The statement is required to include particulars of:
(1) any interest of the members of the committee of management in the amalgamation or transfer; and
(2) any compensation or other consideration proposed to be paid to committee members or other officers of the society and to the officers of every other society or person participating in the amalgamation or transfer.
Under section 92 of the Friendly Societies Act 1992, any compensation must be approved by a special resolution, separate from any resolution approving other terms of the amalgamation or transfer. This enables members to vote on this as a separate issue.

SUP 18.4.20

handbook-guidance
Under schedule 15 to the Friendly Societies Act 1992, the FSA may require the statement to include any other matter. The FSA would normally require inclusion of the terms on which the amalgamation or the transfer of engagements is to be made.

SUP 18.4.21

handbook-guidance
The statement should be clearly separate from other information sent to members. It has to be approved by the FSA and if it is not in a self-contained document, the approved element should appear in a separate section.

SUP 18.4.22

handbook-guidance
SUP 18 Annex 1 provides an example of the information for members required by Schedule 15.

Confirmation procedures and criteria

SUP 18.4.23

handbook-guidance
Under the Friendly Societies Act 1992:
(1) when the members of a transferor society have approved the transfer of its engagements by passing a special resolution and the transferee has approved the transfer (by passing a resolution where the transferee is a friendly society); or
(2) when two or more societies have approved a proposed amalgamation by passing a special resolution;
it, or they jointly, must then obtain confirmation by the FSA of the transfer. Notice of the application will need to be published in one or more of the London, Edinburgh or Belfast Gazettes and other newspapers as directed by the FSA . If the FSA confirms a transfer, then itwill register the society's instrument of transfer after receiving an application on the appropriate form by the transferor society and the transferee. If the FSA confirms an amalgamation, it will register the successor society. All the property, rights and liabilities pass on the transfer date specified by the FSA .

SUP 18.4.24

handbook-guidance
For a directive friendly society, if the transfer or amalgamation includes policies where the state of the risk or the state of the commitment is an EEA State other than the United Kingdom, consultation with the Host State regulator is required and SUP 18.2.25 G to SUP 18.2.29 G apply (for an amalgamation they apply as if the business of the amalgamating societies is to be transferred to the successor society). Paragraph 6(1) of Schedule 15 to the Friendly Societies Act 1992 requires publication of the application to the FSA for confirmation of an amalgamation or transfer and the FSA may require the notice of the application to be published in two national newspapers in the Host State.

SUP 18.4.25

handbook-guidance
The criteria that the FSA must use in determining whether to confirm a proposed amalgamation or transfer are set out in schedule 15 to the Friendly Societies Act 1992. These criteria include that:
(1) confirmation must not be given if the FSA considers that:
(a) there is a substantial risk that the successor society or transferee will be unable lawfully to carry out the engagements to be transferred to it;
(b) information material to the members' decision about the amalgamation or transfer was not made available to all the members eligible to vote;
(c) the vote on any resolution approving the amalgamation or transfer does not represent the views of the members eligible to vote; or
(d) some relevant requirement of the Friendly Societies Act 1992 or the rules of any of the participating societies was not fulfilled (but it can modify some requirements and direct that certain failures may be disregarded, see SUP 18.4.12 G and SUP 18.4.27 G);
(2) the FSA must be satisfied that:
(a) the transferee or successor society will have any permissions necessary under Part IVof the Act;
(b) for a transfer, it is in the interests of the members of each friendly society participating in it (see SUP 18.4.6 G); and
(c) for a directive friendly society where a transfer includes policies where the state of the risk or the state of the commitment is an EEA State other than the United Kingdom, the Host State regulator has been notified of the transfer and has consented or has not refused consent to the transfer; and
(3) for a transfer, the transferee possesses the required minimum margin after taking the proposed transfer into account or, where it is not required to maintain a required minimum margin , possesses an excess of assets over liabilities (for a transferee that is a Swiss general insurance company or an EEA firm, this is evidenced by a certificate from its home state regulator).

SUP 18.4.26

handbook-guidance
If authorisation or a Part IV permission is needed, the FSA will need to consider the application for authorisation or permission in the usual way. If the authorisation or permission is refused, confirmation cannot be given even if all the other criteria are met. As part of the regulatory objective to protect consumers, the FSA may consider whether an amalgamation is in the interests of members.

SUP 18.4.27

handbook-guidance
The FSA may (as an alternative to refusing confirmation) direct the society or societies to remedy certain procedural defects in a proposed transfer or amalgamation, and after they have been remedied confirm the application. If it appears to the FSA that failure to meet a "relevant requirement" of the Friendly Societies Act 1992 or the rules of the friendly society could not be material to the members' decision, then it may direct that this failure is to be disregarded.

Confirmation procedures: representations

SUP 18.4.28

handbook-guidance
Any interested party has the right to make representations to the FSA about an application for confirmation of a transfer or amalgamation. This includes any person (whether a member of the friendly society or not) who claims that he would be adversely affected by the amalgamation or transfer. The person making the representations should state clearly why he or she claims to be an interested party and the ground or grounds to which the representations are directed.

SUP 18.4.29

handbook-guidance
Written representations, or written notice of a person's intention to make oral representations, or both, are required to reach the FSA by the date published in the relevant Gazettes and other newspapers. Those giving notice of intent to make oral representations are advised to state the nature and general grounds of the oral representations they intend to make. Persons who make written representations but subsequently decide also to make oral representations are required, nevertheless, to give notice of that intention, in writing, to the FSA by the same date.

SUP 18.4.30

handbook-guidance
The FSA will send copies of all written representations to the society(ies), and will afford them an opportunity to comment on the representations. It may consider the written representations and a society's response to them, before the date set for hearing oral representations. A synopsis of the written representations (probably in the form of a summary of each of the points made and the numbers of persons making each point) and a society's responses will be made available to those participating in the hearing. This is intended to inform those making oral representations of the points already being considered by the FSA .

SUP 18.4.31

handbook-guidance
The FSA expects that any documents referred to in a society's comments will be made available by the society for inspection at its registered office and, if reasonably possible, at the venue of the hearing on the date of the hearing. However if a society applies to put documents which it considers to be sensitive to the FSA in confidence, the FSA will balance any disadvantage this might cause interested parties in making representations against the commercial damage that publication of the documents might cause, and may permit the documents or sensitive parts of them not to be available for inspection.

Confirmation hearing

SUP 18.4.32

handbook-guidance
Interested parties may be represented and may make collective representations. Such arrangements should be notified to the FSA in advance to enable it to make appropriate arrangements.

SUP 18.4.33

handbook-guidance
The hearing referred to in SUP 18.4.30 G will be at a time and place that will be notified to the participants and will be conducted by FSA representatives. The hearing may last longer than one day and may be adjourned. The FSA will try to tell participants when they may expect to make their representations and when the society may be expected to respond.

SUP 18.4.34

handbook-guidance
The FSA expects that oral hearings will be held in public though this is not required. At the start members of the general public and the press will be asked to wait outside while participants are asked if any of them has good reason to object to the admission of the general public or the press. Unless an objection by a participant is upheld by the FSA representatives, the press and the general public will then be admitted, within the limits of the space available. However, the FSA representatives may decide that parts of the hearing will be in private if that appears to them to be desirable.

SUP 18.4.35

handbook-guidance
The procedure will be informal. All participants will be expected to speak concisely and avoid repetition. The FSA will, as far as practicable, help those who are not professionally represented. Those taking the hearing may question the participants. The sequence of events will normally be broadly:
(1) any preliminary matters (such as the admission of the public or other procedural questions) will be dealt with;
(2) the chair of the hearing will introduce the proceedings;
(3) the society representatives will be invited to speak on the application, including a description of the events at the meeting at which the resolution to amalgamate or transfer was put to the members, a statement of the voting on the resolution, and any other matters which they wish to introduce at that stage;
(4) the other participants will be invited to speak to their representations. The FSA expects to call them in order of a list arranged, so far as possible, by subject matter;
(5) the society representatives will be invited to reply to, or comment on, the points made by the other participants; and
(6) the other participants will be invited to comment on the society replies.

SUP 18.4.36

handbook-guidance
The above procedure may be varied according to the circumstances at the hearing, and is intended only as a guide. The hearing may be adjourned if the FSA representatives consider that necessary to enable facts to be checked or additional information to be obtained.

SUP 18.4.37

handbook-guidance
The FSA will not decide whether to confirm the transfer or amalgamation at the hearing. A copy of its written decision, including its findings on the points made in representations, will be sent to the society(ies) and to those making representations. It will also be available to any other person on request and may be published.

SUP 18 Annex 1

Friendly Society transfer or amalgamation (Information requirements related to Schedule 15 Friendly Societies Act 1992) (This belongs to SUP 18.4.22G)

  • 01/12/2004

handbook-guidance

Export chapter as

SUP 20

Fees Rules

SUP 20.1

Introduction

Application

SUP 20.1.1

handbook-rule
This chapter (other than SUP 20.6 (Periodic fees for certificates granted under article 54 of the Regulated Activities Order )) applies to every firm except:
(1) an ICVC;
(2) a UCITS qualifier.
  • 21/06/2001

SUP 20.1.2

handbook-rule
SUP 20.6 (Periodic fees for certificates granted under article 54 of the Regulated Activities Order) applies to every person who holds a certificate issued by the FSA under article 54 of the Regulated Activities Order (Advice given in newspapers etc.).
  • 21/06/2001

Purpose

SUP 20.1.3

handbook-guidance
The purpose of this chapter is to set out the requirements on firms and others to pay periodic fees which provide the funding for the FSA's functions. It also sets out the requirement to pay transaction reporting fees in certain circumstances.
  • 21/06/2001

Background

SUP 20.1.4

handbook-guidance
GEN 3(FSA Fees: General Provisions) applies to the fees required under this chapter, and gives further detail about how the FSA sets periodic fees.
  • 21/06/2001

SUP 20.1.5

handbook-guidance
Most of the detail of what periodic fees are payable by firms is set out in SUP 20 Annex 2. The provisions of the annex will vary from one financial year to another. Accordingly a fresh SUP 20 Annex 2 will come into force, following consultation, for each financial year.
  • 01/04/2004

SUP 20.1.6

handbook-guidance
These fees, which will normally be payable on an annual basis, will provide the majority of the funding required to enable the FSA to undertake its statutory functions. The amount payable by each firm will depend upon the category (or categories) of regulated activities it is engaged in (fee-blocks), and on the amount of business it conducts in each category (tariff base).
  • 21/06/2001

SUP 20.1.7

handbook-guidance
By basing fee blocks on categories of regulated activities, the FSA aims to minimise cross-sectoral subsidies. The fee-blocks and tariffs are identified in SUP 20 Annex 1, which also sets out the fees calculation for the relevant financial year.
  • 21/06/2001

SUP 20.1.8

handbook-guidance
The Society of Lloyd's, which has permission under section 315(2) of the Act (The Society: authorisation and permission), has its own fee block.
  • 21/06/2001

SUP 20.1.9

handbook-guidance
Incoming EEA firms and incoming Treaty firms receive a discount to reflect the reduced scope of the FSA's responsibilities in respect of them. The level of the discount varies from fee-block to fee-block, according to the division of responsibilities between the FSA and Home state regulators for firms in each fee-block - see SUP 20.4(Modifications).
  • 21/06/2001

SUP 20.1.10

handbook-guidance
Paragraph 17(2) of Schedule 1 to the Act prohibits the FSA from taking account of penalties received when setting its periodic and other fees. Accordingly each SUP 20 Annex 2 will set the periodic fee without reference to the penalties received. The FSA will allocate the penalties by way of a permitted deduction specified in SUP 20 Annex 2 for the relevant year. The FSA normally expects to allocate those deductions so that they apply to the fee blocks within which the firms paying penalties fall.
  • 01/04/2004

SUP 20.1.11

handbook-guidance
Fees are calculated individually for each firm, but they may be paid on a group basis, if the group so wishes.
  • 21/06/2001

SUP 20.2

Obligation to Pay Periodic Fees

Amount payable

SUP 20.2.1

handbook-rule
A firm must pay to the FSA an amount equal to:
(1) each periodic fee applicable to it; less
(2) any deductions from the periodic fee specified in part 2 of SUP 20 Annex 2.
  • 01/04/2004

SUP 20.2.2

handbook-rule
A firm must not make any other deduction from the amount required under SUP 20.2.1 R.
  • 21/06/2001

SUP 20.2.3

handbook-guidance
A firm will be required to pay a periodic fee for every year during which it has a permission subject to any reductions or exemptions applicable under this chapter. The FSA will issue invoices to firms and expects to do so at least 30 days before the dates on which payments will fall due under SUP 20.2.7 R.
  • 01/04/2004

Calculation of periodic fee

SUP 20.2.4

handbook-rule
The periodic fee referred to in SUP 20.2.1 R is (except in relation to the Society) calculated as follows:
(1) identify each of the tariffs set out in part 1 of SUP 20 Annex 2 which apply to the business of the firm for the period specified in that annex;
(2) for each of those tariffs, calculate the sum payable in relation to the business of the firm for that period;
(3) add together the amounts calculated under (2);
(4) apply any applicable payment charge or discount specified in SUP 20.2.7A R, provided that:
(a) for payment by direct debit, successful collection of the amount due is made at the first attempt by the FSA; or
(b) for payment by credit transfer, the amount due is received by the FSA on or before the due date.
  • 01/06/2004

SUP 20.2.5

handbook-guidance
For a firm which becomes authorised or extends its permission during the course of a financial year this periodic fee is modified (seeSUP 20.4 (Modifications)). The periodic fee is also modified for incoming EEA firms and for incoming Treaty firms seeSUP 20.4.7 G).
  • 21/06/2001

Amount payable by the Society of Lloyd's

SUP 20.2.6

handbook-rule
The periodic fee referred to in SUP 20.2.1 R in relation to the Society is specified against its name in SUP 20 Annex 2.
  • 01/04/2004

Time and method for payment

SUP 20.2.7

handbook-rule
(1) The firm must pay the total amount due under SUP 20.2.1 R, using one of the payment methods specified in SUP 20.2.7A R.
(2) If the firm's periodic fee for the previous financial year was at least £50,000, the firm must pay:
(a) an amount equal to 50% of the periodic fee payable for the previous year, by 30 April in the financial year to which the sum due under SUP 20.2.1 R relates; and
(b) the balance of the periodic fee due for the current financial year by 1 September in the financial year to which that sum relates.
(3) If the firm's periodic fee for the previous financial year was less than ?50,000, the firm must pay the periodic fee due in full by 1 July in the financial year to which that sum relates.
(4) If a firm has applied to cancel its Part IV permission in the way set out in 6.4.5 (Cancellation of permission), then (2) and (3) do not apply but it must pay the total amount due when the application is made.
(5) If the FSA has exercised its own-initiative powers to cancel a firm'sPart IV permission in the way set out in ENF 5 (Cancellation of Part IV permission on the FSA's own initiative), then (2) and (3) do not apply but the firm must pay the total amount due immediately before the cancellation becomes effective.
  • 01/06/2004

SUP 20.2.7A

handbook-rule

Table: specified payment methods

This table belongs to SUP 20.2.4 R and SUP 20.2.7 R

  • 01/04/2004

Groups of firms

SUP 20.2.8

handbook-rule
A firm which is a member of a group may pay all of the amounts due from other firms in the same group under SUP 20.2.1 R, if:
(1) it notifies the FSA in writing the name of each other firm within the group for which it will pay; and
(2) it pays the fees, in accordance with this chapter, as a single amount as if that were the amount required under SUP 20.2.1 R from the firm.
  • 21/06/2001

SUP 20.2.9

handbook-guidance
A notification under SUP 20.2.8 R (1) should be made in accordance with SUP 15.7 (Form and method of notification).
  • 21/06/2001

SUP 20.2.10

handbook-guidance
If the payment made does not satisfy in full the periodic fees payable by all of the members of the group notified to the FSA under SUP 20.2.8 R, the FSA will apply the sum received among the firms which have been identified in the notification given under SUP 20.2.8 R (1) in proportion to the amounts due from them. Each firm will remain responsible for the payment of the outstanding balance attributable to it.
  • 21/06/2001

SUP 20.2.11

handbook-guidance
If a firm pays its fees through an agent outside the scope of SUP 20.2.8 R, it should ensure that the FSA is informed that the sum being paid is for that firm's periodic fees.
  • 21/06/2001

SUP 20.3

Information on which Fees are calculated

SUP 20.3.1

handbook-rule
A firm (other than the Society) must notify to the FSA the value (as at the valuation date specified in Part 3 of SUP 20 Annex 1) of each element of business on which the periodic fee payable by the firm is to be calculated.
  • 01/04/2004

SUP 20.3.2

handbook-rule
A firm (other than the Society) must send to the FSA in writing the information required under SUP 20.3.1 R as soon as reasonably practicable, and in any event within two months, after the date specified as the valuation date in Part 3 of SUP 20 Annex 1.
  • 01/04/2004

SUP 20.3.3

handbook-rule
To the extent that a firm has provided the information required by this section to the FSA as part of its compliance with another provision of the Handbook, it is deemed to have complied with the provisions of this section.
  • 21/06/2001

SUP 20.3.4

handbook-guidance
In most cases a firm will provide the information required by this section as part of its compliance with other provisions of SUP. To the extent that the FSA does not obtain sufficient, or sufficiently detailed, information it may seek this by using its general information gathering powers (see SUP 2 (Information gathering by the FSA on its own initiative).
  • 21/06/2001

SUP 20.3.5

handbook-guidance
These information requirements are modified for incoming EEA firms and for incoming Treaty firms (see SUP 20.4.8 R).
  • 21/06/2001

SUP 20.4

Modifications

Modification for firms with new or extended permissions

SUP 20.4.1

handbook-guidance
A firm which becomes authorised during the course of a financial year will be required to pay a proportion of the periodic fee which reflects the proportion of the year for which it will have a permission.
  • 21/06/2001

SUP 20.4.2

handbook-guidance
Similarly a firm which extends its permission so that its business then falls within additional fee blocks will be required to pay a further periodic fee under this section for those additional fee blocks, but discounted to reflect the proportion of the year for which the firm has the extended permission.
  • 21/06/2001

SUP 20.4.3

handbook-guidance
These provisions apply (with some changes) to incoming EEA firms and incoming Treaty firms - see SUP 20.4.10 R.
  • 21/06/2001

SUP 20.4.4

handbook-rule
A firm which becomes authorised, or whose permission is extended, during the course of the financial year must pay a fee which is calculated by:
(1) identifying each of the tariffs set out in Part 1 of SUP 20 Annex 2 for the relevant financial year that apply to the firm only after the permission is received or extended, but ignoring:
(a) the A.13 activity group if, before the variation, the A.12 activity group applied to the firm's business; or
(b) the A.12 activity group if, before the variation, the A.13 activity group applied to the firm's business;
(2) calculating the amount for each of those tariffs which is the higher of:
(a) the minimum fee specified for the tariff; and
(b) the result of applying the tariff to the projected valuation, for its first year (as provided to the FSA in the course of the firm's application), of the business to which the tariff relates (or, where relevant, the number of approved persons immediately after the permission is given);
(3) adding together the amounts calculated under (2); and
(4) modifying the result as indicated by SUP 20.4.6 R.
  • 01/06/2004

SUP 20.4.5

handbook-rule
A firm must pay any sum required under within 30 days of the receipt or extension of the permission, or if later the due date specified under SUP 20.2.7 R.
  • 21/06/2001

SUP 20.4.6

handbook-rule

Table: Modification for additional fee

This table belongs to SUP 20.4.4 R

  • 21/06/2001

Modifications for incoming EEA firms and incoming Treaty firms

SUP 20.4.7

handbook-guidance
The FSA recognises that its responsibilities in respect of an incoming EEA firm or of an incoming Treaty firm are reduced compared with a firm which is incorporated in the United Kingdom. Accordingly the periodic fees which would otherwise be applicable to incoming EEA firms and incoming Treaty firms are reduced.
  • 21/06/2001

SUP 20.4.8

handbook-rule
For an incoming EEA firm or an incoming Treaty firm, the calculation required by SUP 20.2.4 R is modified as follows:
(1) the tariffs set out in Part 1 of SUP 20 Annex 2 are applied only to the regulated activities of the firm which are carried on in the United Kingdom; and
(2) those tariffs are modified in accordance with Part 3 of SUP 20 Annex 2.
  • 01/04/2004

SUP 20.4.9

handbook-rule
For an incoming EEA firm or an incoming Treaty firm, the information required under SUP 20.3 (Information on which fees calculated) is limited to the regulated activities of the firm which are carried on in the United Kingdom.
  • 21/06/2001

SUP 20.4.10

handbook-rule
In relation to an incoming EEA firm or an incoming Treaty firm the modification provisions of SUP 20.4.1 G to SUP 20.4.6 R inclusive apply only in relation to the relevant regulated activity of the firm which are passported activities or Treaty activities and which are carried on in the United Kingdom.
  • 21/06/2001

Firms cancelling or reducing the scope of their permission

SUP 20.4.11

handbook-guidance
The FSA will not refund periodic fees if, after the start of the period to which they relate, a firm cancels its permission, or reduces its permission so that it then falls out of fee-block previously applied to it (but see GEN 3 (Relieving Provisions)).
  • 01/04/2003

SUP 20.4.12

handbook-rule
(1) If:
(a) a firm makes an application to vary its permission (by reducing its scope), or cancel it, in the way set out in SUP 20.4.4 R (3) (Variation of permission) and 6.4.5 (Cancellation of permission); and
(b) the firm makes the application referred to in (a) before the start of the period to which the fee relates;
SUP 20.2.1 R applies to the firm as if the relevant variation or cancellation of the firm'spermission took effect immediately before the start of the period to which the fee relates.
(2) But (1) does not apply if, due to the continuing nature of the business, the variation or cancellation is not to take effect within three months of the start of the period to which the fee relates.
  • 01/04/2003

SUP 20.4.12A

handbook-guidance
Where a firm has applied to cancel its Part IV permission, or the FSA has exercised its own-initiative powers to cancel a firm'sPart IV permission, the due dates for payment of periodic fees are modified by SUP 20.2.7 R (4) and SUP 20.2.7 R (5) respectively.
  • 01/06/2004

Firms acquiring businesses from other firms

SUP 20.4.13

handbook-rule
(1) This rule applies if a firm (A) acquires all or a part of the business of another firm (B), whether by merger, acquisition of goodwill or otherwise, in relation to which a periodic fee would have been payable by B.
(2) If, before the date on which A acquires the business, B had paid any periodic fee payable for the period in which the acquisition occurred, SUP 20.4.1 G to SUP 20.4.6 R do not apply to A in relation to the business acquired from B.
(3) If the acquisition occurs after the valuation date applicable to the business which A acquired from B, for the period following that in which the acquisition occurred, SUP 20.2.1 R applies to A, in relation to that following period, as if the acquisition had occurred immediately before the relevant valuation date.
  • 01/04/2003

Minimum fee discount

SUP 20.4.14

handbook-rule
(1) A firm (other than a firm in (2) or a credit union) in more than one fee block must pay at least 50% of the total minimum fee payable in any fee block in which it is a minimum fee payer.
(2) A firm (other than a credit union) liable to pay only minimum fees in each fee block it is in must pay 100% of the highest total minimum fee payable within any one fee block and must pay at least 50% of the total minimum fee payable in any other fee blocks in which it is a minimum fee payer.
(3) A credit union in more than one fee block must pay at least 50% of the total minimum fee payable in any fee block, other than fee block A1, in which they are a minimum fee payer.
  • 01/06/2005

SUP 20.5

Transaction reporting fees

SUP 20.5.1

handbook-guidance
Firms which are required to report transactions under SUP 17 (Transaction reporting) may, in certain circumstances, use the FSA's Direct Reporting System (see SUP 17).

SUP 20.5.2

handbook-guidance
The provision of this facility by the FSA incurs costs to it. Those costs depend upon the amount which the facility is used. Accordingly the income which the FSA receives from these transaction reporting fees will be set and accounted for separately from the fee block tariffs set out in SUP 20 Annex 3 R.
  • 01/04/2004

SUP 20.5.3

handbook-rule
A firm which reports its reportable transactions to the FSA using the FSA's Direct Reporting System (see SUP 17) must pay the fees specified in Part 1 of SUP 20 Annex 3 R.

SUP 20.6

Periodic fees for certificates under article 54 of the Regulated Activities Order

SUP 20.6.1

handbook-rule
A person who holds a certificate under article 54 of the Regulated Activities Order must pay to the FSA each periodic fee specified in Part 2 of SUP 20 Annex 3 R applicable to him.
  • 01/04/2004

SUP 20.6.2

handbook-rule
A person must not make any deductions from the amount required under SUP 20.6.1 R.
  • 21/06/2001

SUP 20.6.3

handbook-rule
The periodic fee is payable in respect of each period of one year (or any part of such period) during which the person holds the certificate.
  • 21/06/2001

Modifications for new holders

SUP 20.6.4

handbook-rule
If a certificate is issued to a person under article 54 of the Regulated Activities Order during the course of a year, the periodic fee payable under SUP 20.6.3 R for that year is the amount specified in Part 2 of SUP 20 Annex 3 R modified in accordance with Table SUP 20.6.5 R.
  • 01/04/2004

SUP 20.6.5

handbook-rule

Table: Modification of periodic fees for certificates This table belongs to SUP 20.6.4 R.

  • 21/06/2001

Time and method for payment

SUP 20.6.6

handbook-rule
Each periodic fee must be paid to the FSA on or before:
(1) 30 April in that year; or
(2) If the certificate is issued during that year, the earlier of 30 days after the certificate is granted and the following 30 April.
  • 21/06/2001

SUP 20.6.7

handbook-rule
The amount due must be paid using one of the payment methods specified in SUP 20.2.7A R.
  • 01/04/2004

SUP 20.6.8

handbook-guidance
The FSA will issue invoices to the holders of certificates and expects to do so at least 30 days before the dates on which payments fall due.
  • 21/06/2001

SUP 20.7

Waiver application guidance fees regarding the Basel Capital Accord

SUP 20.7.1

handbook-rule
(1) A firm submitting a first application for guidance on the availability of a waiver or concession in connection with future rules implementing the revised Basel Capital Accord (including any amendments), must pay to the FSA a fee applicable to it as specified in SUP 20 Annex 4 R.
(2) A firm submitting a second application for guidance described in (1) within 12 months of the first application made in accordance with (1) must pay 50% of the fee applicable to it under SUP 20 Annex 4 R, but only in respect of that second application.
(3) Any payment under (1) or (2) must be made on or before the date on which the application is made, in full and without any deduction.
  • 01/06/2005

SUP 20.7.2

handbook-guidance
The FSA's power to charge in respect of guidance is derived from section 157(4)(c) of the Act. An application for guidance will not be considered by the FSA until the fee has been paid and the fee is non-refundable.
  • 01/06/2005

SUP 20.7.3

handbook-guidance
A firm submitting third and subsequent applications for guidance described in SUP 20.7.1 R will be required to pay at the full rates specified in SUP 20 Annex 4 R in respect of those applications.
  • 01/06/2005

handbook-rule
Activity groups, tariff bases and valuation dates applicable

SUP 20 Annex 2

Fee tariff rates, permitted deductions and EEA/Treaty firm modifications for the period from 1 April 2005 to 31 March 2006

handbook-rule
  • 01/06/2005

SUP 20 Annex 3

Transaction reporting fees and Article 54 RAO certificate fees for the period from 1 April 2005 to 31 March 2006

handbook-rule

SUP 20 Annex 4

Application fees for guidance on the Capital Requirements Directive for the period from 1 April 2005 to 31 March 2006

handbook-rule
  • 01/06/2005

Export chapter as

SUP 21

Waiver

SUP 21.1

Form of waiver for energy market participants

  • 01/12/2004

SUP 21.1.1

handbook-guidance
SUP 21 Annex 1 sets out a form of waiver that the FSA will be minded to give to energy market participants in the exercise of its statutory discretion under section 148 of the Act to grant a waiver of certain rules.

SUP 21.1.2

handbook-guidance
Energy market participants should bear in mind that section 148 of the Act requires that in order to give a waiver of particular rules, the FSA must be satisfied that:
(1) compliance with the rules, or with the rules as unmodified, would be unduly burdensome or would not achieve the purpose for which the rules were made; and
(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.
  • 01/02/2004

SUP 21.1.3

handbook-guidance
Accordingly, the FSA must be satisfied that the statutory criteria will be met in each case where an energy market participant applies for a waiver in the form in SUP 21 Annex 1.
  • 01/02/2004

SUP 21.1.4

handbook-guidance
In particular, clause 4 of the form of waiver in SUP 21 Annex 1 will not ordinarily be inserted in waivers for energy market participants that will not, at the time the waiver will take effect, clearly satisfy the conditions set out in that clause. For these purposes the FSA will take into account the relative proportions of the energy market participant's assets and revenues that are referable to the various parts of its business, as well as to any other factor that the FSA considers is relevant to an assessment of the prudential risk presented by the energy market participant.
  • 01/02/2004

SUP 21 Annex 1

  • 01/12/2004

handbook-guidance
This annex consists only of one or more forms. Forms are to be found through the following address:



Form of Waiver: Energy Market Participant - sup_chapter21_annex1g.pdf
  • 01/02/2004

Export chapter as

SUP App 1

Prudential categories and sub-categories

SUP App 1.1

Application

  • 01/12/2004

SUP App 1.1.1

handbook-guidance
This appendix applies to every firm.
  • 21/06/2001

SUP App 1.2

Purpose

  • 01/12/2004

SUP App 1.2.1

handbook-guidance
The purpose of this appendix is to give guidance on the prudential categories and sub-categories of firm used in the Interim Prudential sourcebooks and the Supervision manual. The prudential categories are defined in the Glossary, and some of the sub-categories are defined there and some in the glossaries of the Interim Prudential sourcebooks.
  • 21/06/2001

SUP App 1.2.2

handbook-guidance
The FSA is developing its approach to prudential standards and some provisions in the Supervision manual in a two-stage approach. Initially the FSA is including in the Handbook interim material as set out in the five Interim Prudential sourcebooks and the Supervision manual, for example SUP 16 (Reporting requirements). The FSA is developing material which will provide an integrated approach to the setting of prudential standards. Each of the Interim Prudential sourcebooks is based on the prudential regime that existed before commencement, changed, mainly where the Act, and other statutory and international developments, have made a change desirable or essential. The Lloyd's sourcebook shows less continuity with the prudential regime previously applied to the Society of Lloyd's, as it introduces requirements similar to those already applied to insurers. Most grandfathered firms have a prudential category and sub-category equivalent to that which they had before commencement.

SUP App 1.2.3

handbook-guidance
If there is any doubt about prudential categorisation, a firm should seek individual guidance from its usual supervisory contact at the FSA and an applicant for authorisation should seek guidance from the Corporate Authorisation department.
  • 21/06/2001

SUP App 1.3

Prudential categories and sub-categories

  • 01/12/2004

SUP App 1.3.1

handbook-guidance

Prudential categories and sub-categories used in the InterimPrudential sourcebooks and the Supervision manual

SUP App 1.4

Relevance of prudential categories

  • 01/12/2004

SUP App 1.4.1

handbook-guidance
Many, but not all, of the categories are used only in the Interim Prudential sourcebooks and the Supervision manual. The prudential category of a firm will normally determine:
(1) which Interim Prudential sourcebook is applicable to the firm;
(2) if the firm is subject to the IPRU(INV), which chapter of that sourcebook is applicable to the firm;
(3) whether particular chapters of the Supervision manual are applicable to the firm; and
(4) if the firm is subject to SUP 3 (Auditors), SUP 16 (Reporting) or SUP 17 (Transaction reporting), which parts of those chapters apply to the firm.

SUP App 1.4.2

handbook-guidance
In some cases, a firm may also fall within a prudential sub-category. This will determine which provisions within a particular sourcebook or chapter apply to the firm.
  • 21/06/2001

SUP App 1.4.3

handbook-guidance
If a firm is part of a group, each authorised member of the group will have its own prudential category. Firms should refer to the provisions of the relevant Interim Prudential sourcebooks to determine whether and, if so, how consolidated supervision applies.

SUP App 1.5

Determining the prudential categories of a firm

  • 01/12/2004

SUP App 1.5.1

handbook-guidance
This appendix includes flow diagrams (Figures 1 and 2) to assist in determining the prudential category of a firm.
  • 21/06/2001

SUP App 1.5.2

handbook-guidance
For a firm which became an authorised person after commencement, the FSA will have confirmed the applicable prudential category of the firm as part of the authorisation process.
  • 21/06/2001

SUP App 1.5.3

handbook-guidance
For a firm with automatic authorisation by passporting under the Single Market Directives, exercising rights under the Treaty or as a UCITS qualifier, the FSA will have notified the firm of its prudential category at the same time as the FSA notified it of the applicable provisions to which it is subject (see AUTH 5 for further details on inward passporting). If it has a top-up permission, then SUP App 1.5.2 G may also apply.

SUP App 1.6

Changing prudential category after authorisation

  • 01/12/2004

SUP App 1.6.1

handbook-guidance
A firm's prudential category may change in the following circumstances:
(1) A variation in the firm'spermission may, in some cases, lead to an automatic change in the firm's prudential category or sub-category because of the way those categories are defined. For example, if an investment management firm is granted permission to accept deposits, it may become a bank and cease to be an investment management firm. Figures 1 and 2 may be used, even if a firm'spermission is varied after commencement. They should enable a firm to determine whether any variation in its permission will lead to a change in prudential category.
(2) The FSA may vary the firm'spermission and thereby require a firm to comply with the rules applicable to a different prudential category, either through using its own-initiative power or on the application of the firm.
  • 21/06/2001

SUP App 1.6.2

handbook-guidance
A firm should notify the FSA immediately if it believes that its prudential category or sub-category has changed (see SUP 15.3.8 G (1)(g)), or if there has been an expansion or reduction in its business that could be relevant to its prudential categorisation or sub-categorisation (see SUP 15.3.8 G).
  • 21/06/2001

SUP App 1.7

Prudential categories and sub-categories

  • 01/12/2004

SUP Fig App 1.7.1

handbook-guidance
Figure 1: Determination of a firm's prudential category - general

SUP Fig App 1.7.2

handbook-guidance
Figure 2: Determination of a firm's prudential category (cont'd)
  • 21/06/2001

SUP App 1.8

Notes to Figures 1 and 2

  • 01/12/2004

SUP App 1.8.1

handbook-guidance

Note 1

SUP App 1.8.2

handbook-guidance

Note 2

SUP App 1.8.3

handbook-guidance

Note 3

  • 21/06/2001

SUP App 1.8.4

handbook-guidance

Note 4

  • 21/06/2001

SUP App 1.8.5

handbook-guidance
Note 5

Only a small number of firms are expected to be authorised under section 25 of the Financial Services Act 1986 immediately prior to commencement and not be a member of one of the SROs. These firms are directly regulated by the FSA under the Financial Services Act 1986.
  • 21/06/2001

Export chapter as

SUP App 2

Insurers: Regulatory intervention points

SUP App 2.1

Application

  • 31/12/2004

SUP App 2.1.1

handbook-rule
This appendix applies to an insurer unless it is:
(1) a Swiss general insurer; or
(2) an EEA-deposit insurer; or
(3) an incoming EEA firm; or
(4) an incoming Treaty firm.

SUP App 2.1.2

handbook-guidance
This appendix applies to every friendly societyas a friendly society is an insurer.

SUP App 2.2

Interpretation

  • 31/12/2004

SUP App 2.2.1

handbook-rule

For the purpose of SUP App 2 :

  1. (1) "capital resources":
    1. (a) in relation to a non-directive friendly society, has the meaning given to "margin of solvency" in rule 4.1(4) of IPRU(FSOC);
    2. (b) in relation to a participating insurance undertaking, means P+T, where P and T have the meanings given by PRU 8.3.45R(3)(a) and (e) respectively, as calculated in accordance with PRU 8.3.43R; and
    3. (c) in relation to any other firm, means the firm's capital resources as calculated in accordance with PRU 2.2.12R;
  2. (2) "guarantee fund":
    1. (a) in relation to a non-directive friendly society, has the meaning given to that term in IPRU(FSOC);
    2. (b) in relation to a participating insurance undertaking, means the amount of capital resources which that firm must hold to comply with PRU 8.3.45R(2);
    3. (c) in relation to a firm which is not covered by (a) or (b), carrying on general insurance business, means the amount of capital resources which that firm must hold to comply with PRU 2.2.18R; and
    4. (d) in relation to a firm which is not covered by (a) or (b), carrying on long-term insurance business, means the amount of capital resources which that firm must hold to comply with PRU 2.2.17R;
  3. (3) "material transaction" means a transaction (when aggregated with any similar transactions) in which:
    1. (a) the price actually paid or received for the transfer of assets or liabilities or the performance of services; or
    2. (b) the price which would have been paid or received had that transaction been negotiated at arm's length between unconnected parties;
    3. exceeds:
    4. (c) in the case of a firm which carries on long-term insurance business, but not general insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding property-linked liabilities and net of reinsurance ceded; or
    5. (d) in the case of a firm which carries on general insurance business, but not long-term insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded; or
    6. (e) in the case of a firm which carries on both long-term insurance business and general insurance business:
      1. (i) where the transaction is in connection with the firm's long-term insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding property-linked liabilities and net of reinsurance ceded; and
      2. (ii) in all other cases, the sum of €20,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded; and
  4. (4) "required margin of solvency":
    1. (a) in relation to a non-directive friendly society, has the meaning given to that term in IPRU(FSOC);
    2. (b) in relation to a participating insurance undertaking, means R-S-U, where R, S and U have the meanings given by PRU 8.3.45R(3)(c), (d) and (f) respectively;
    3. (c) in relation to a firm which is not covered by (a) or (b), carrying on general insurance business, means the general insurance capital requirement applicable to that firm; and
    4. (d) in relation to a firm which is not covered by (a) or (b), carrying on long-term insurance business, means the long-term insurance capital requirement applicable to that firm.

SUP App 2.2.2

handbook-guidance


The calculation of each of the base capital resources requirement, the long-term insurance capital requirement and the general insurance capital requirement is set out in PRU 2.1. The calculation of each of the "guarantee fund" and "required margin of solvency" for non-directive friendly societies is set out in chapter 4 of IPRU(FSOC).

SUP App 2.3

Purpose

  • 31/12/2004

SUP App 2.3.1

handbook-guidance
To fulfil its obligations under the Insurance Directives, and as part of the FSA's risk-based approach to supervision, there are certain times when the FSA needs to monitor a firm more closely than it normally would. This is so the FSA can fulfil its function of supervising firms properly and meet the regulatory objective of securing an appropriate degree of protection for consumers .

SUP App 2.3.2

handbook-guidance
The rules in this appendixrequire a firm to submit reports and information to the FSA when:
(1) a firm is failing to satisfy threshold condition 4 (Adequate resources) (see COND 2.2), and its capital resources have fallen below its required margin of solvency, or its guarantee fund; or
(2) the capital resources of a firm have fallen below its capital resources requirement; or
(3) a firm has decided to cease to effect new contracts of insurance; or
(4) a firm is going through periods of potential uncertainty, for example, when it has come under the control of a new parent undertaking or following the grant or variation of permission.

SUP App 2.3.3

handbook-guidance
The FSA may also ask a firm to submit reports and information to it when the firm's capital resources fall below the level advised in individual capital guidancegiven to the firm.

SUP App 2.3.4

handbook-guidance
In accordance with the Insurance Directives, a firm whose capital resources have fallen below its required margin of solvency, or its guarantee fund, is required, by the rule set out in this appendix, to submit a scheme of operations, together with an explanation of how its capital resources will be adequately restored. In order to secure an appropriate degree of protection for consumers , the FSA applies the rule in this appendix to firms to which the provisions of the Insurance Directives would not otherwise apply.

SUP App 2.3.5

handbook-guidance
A firm which is entering into run-off is required to submit a scheme of operations, including an explanation of how its liabilities to policyholders will be met in full. Where the capital resources of such a firm subsequently fall below its required margin of solvency, the firm is required to submit a plan for restoration.

SUP App 2.3.6

handbook-guidance
Following a change in control, or the grant or variation of permission, the reports submitted help the FSA to identify when a firm departs from the scheme of operations submitted as part of the notification of a change in control, or an application for the grant or variation of permission, and on which basis such notification or application was approved.

SUP App 2.3.7

handbook-guidance
Principle 4 of the FSA's Principles for Businesses provides that firm's should hold adequate financial resources, while PRU 1.2.22 R requires a firm to maintain overall financial resources which are adequate to ensure that there is no significant risk that it cannot meet its liabilities as they fall due. In considering these requirements, a firm may decide to maintain capital resources above the level advised in individual capital guidance given by the FSA , or, if no individual capital guidance has been given, above its capital resources requirement. The amount of any such additional capital resources held is at the discretion of the firm. However, the extent to which a firm matches these additional capital resources to the volatility of its capital base, in conjunction with the strength of its systems and controls environment, is likely to affect the frequency with which it is subject to intervention under this appendix.

SUP App 2.3.8

handbook-guidance
In relation to a firm carrying on with-profits insurance business, action which it takes either to restore its capital resources to the levels set by the intervention points in this appendix, or to prevent its capital resources falling below those points, should be consistent with Principle 6 of the FSA's Principles for Businesses. Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly.

SUP App 2.3.9

handbook-guidance
These rules are in addition to the other rules and guidance in SUP, in particular SUP 2 (Information gathering by the FSA on its own initiative), SUP 15 (Notifications to the FSA ), SUP 16(Reporting requirements) and the Principles for Businesses (PRIN).

SUP App 2.4

Capital resources below guarantee fund

  • 31/12/2004

SUP App 2.4.1

handbook-rule
If a firm's capital resources fall below its guarantee fund, it must, within 14 days of the firm becoming aware of this event, submit to the FSA a short-term financial plan, including:
(1) a scheme of operations (see SUP App 2.12); and
(2) an explanation of how, if at all, and by when, it expects its capital resources to be adequately restored to the guarantee fund.

SUP App 2.4.2

handbook-guidance
See SUP App 2.11.2 G for guidance on the period that the scheme of operations should cover.

SUP App 2.5

Capital resources below required margin of solvency

  • 31/12/2004

SUP App 2.5.1

handbook-rule
Unless SUP App 2.5.3 R applies:
(1) if a firm's capital resources are such that they no longer equal or exceed its required margin of solvency; or
(2) if a firm no longer complies with PRU 2.2.16R and PRU 2.2.24R, or PRU 8.3.45R(1)(a) and PRU 8.3.45R(1)(b), as applicable;


it must, within 28 days of becoming aware of this event, submit to the FSA a plan for the restoration of a sound financial position, including:
(3) a scheme of operations; and
(4) an explanation of how, if at all, and by when:
(a) it expects its capital resources to be restored to the required margin of solvency; or
(b) as the case may be, it expects to comply with PRU 2.2.16R and PRU 2.2.24R, or PRU 8.3.45R(1)(a) and PRU 8.3.45R(1)(b), as applicable.

SUP App 2.5.2

handbook-guidance
See SUP App 2.11.2 G for guidance on the period that the scheme of operations should cover.

SUP App 2.5.3

handbook-rule
If a firm:
(1) falls into SUP App 2.5.1 R (1) or SUP App 2.5.1 R (2); and
(2) it has previously submitted either a run-off plan in accordance with SUP App 2.8.1 R or a scheme of operations in accordance with SUP App 2.5.1 R;


it must, within 28 days of becoming aware that it falls into SUP App 2.5.1 R (1) or SUP App 2.5.1 R (2):
(3) notify the FSA ; and
(4) submit a plan for restoration which:
(a) explains why the firm's capital resources have fallen below its required margin of solvency or, as the case may be, it no longer complies with PRU 2.2.16R or PRU 2.2.24R, or PRU 8.3.45R(1)(a) and PRU 8.3.45R(1)(b), as applicable; and
(b) demonstrates how, if at all, and by when, the firm will restore it or, as the case may be, resume compliance with PRU 2.2.16R and PRU 2.2.24R, or PRU 8.3.45R(1)(a) and PRU 8.3.45R(1)(b), as applicable.

SUP App 2.6

Capital resources below capital resources requirement

  • 31/12/2004

SUP App 2.6.1

handbook-rule
Unless any of SUP App 2.4.1 R, SUP App 2.5.1 R or SUP App 2.5.3 R applies, if a firm's capital resources fall below its capital resources requirement, it must, within 28 days of becoming aware of this event:
(1) notify the FSA ; and
(2) submit a plan for restoration, which:
(a) explains why the firm's capital resources have fallen below its capital resources requirement; and
(b) demonstrates how, if at all, and by when, the firm will restore it.

SUP App 2.7

Capital resources below the level of individual capital guidance

  • 31/12/2004

SUP App 2.7.1

handbook-guidance
Unless any of SUP App 2.4.1 R, SUP App 2.5.1 R, SUP App 2.5.3 R or SUP App 2.6.1 R applies, if a firm's circumstances change, such that its capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance given to the firm by the FSA , then, consistent with PRIN 2.1.1 RPrinciple 11 (Relations with regulators), a firm should inform the FSA of this fact as soon as practicable, explaining why capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance, and:
(1) what action the firm intends to take to increase its capital resources; or
(2) what modification the firm considers should be made to the individual capital guidance which it has been given.

SUP App 2.7.2

handbook-guidance
In the circumstance set out in SUP App 2.7.1 G, the FSA may ask a firm for alternative or more detailed proposals and plans or further assessments and analyses of capital adequacy and risks faced by the firm. The FSA will seek to agree with the firm appropriate timescales and scope for any such additional work, in light of the circumstances which have arisen.

SUP App 2.7.3

handbook-guidance
In relation to a firm carrying on with-profits insurance business, if it intends either (a) to remedy a fall in the level of capital resources advised in its individual capital guidance, or (b) to prevent a fall in the level advised in that guidance, for example, in either case, by taking management action to de-risk a with-profits fund or by reducing non-contractual benefits for policyholders, it should explain to the FSA how such proposed actions are consistent with the firm's obligations under PRIN 2.1 Principle 6 (Customers' interests).

SUP App 2.7.4

handbook-guidance
If a firm's capital resources fall below the level advised in individual capital guidance given to the firm and, at the same time, any one or more of SUP App 2.4.1 R, SUP App 2.5.1 R, SUP App 2.5.3 R or SUP App 2.6.1 R applies, the firm should first comply with those rules. Those rules are concerned with circumstances where capital resources are likely to have fallen to levels much lower than the level advised in individual capital guidance and are, in some cases, requirements imposed by the Insurance Directives.

SUP App 2.7.5

handbook-guidance
If a firm has not accepted individual capital guidance given by the FSA it should, nevertheless, inform the FSA as soon as practicable if its capital resources have fallen below the level suggested by that individual capital guidance. In such circumstances, the FSA may ask the firm for further explanation as to why it does not consider the individual capital guidance to be appropriate. The FSA may also consider using its powers under section 45 of the Act to, on its own initiative, vary a firm's Part IV permission, so as torequire it to hold such capital as the FSA considers is necessary for the firm to comply with PRU 1.2.22R.

SUP App 2.8

Ceasing to effect contracts of insurance

  • 31/12/2004

SUP App 2.8.1

handbook-rule
If a firm decides to cease to effect new contracts of insurance, it must, within 28 days of that decision, submit a run-off plan to the FSA including:
(1) a scheme of operations; and
(2) an explanation of how, or to what extent, all liabilities to policyholders (including, where relevant, liabilities which arise from the regulatory duty to treat customers fairly in setting discretionary benefits) will be met in full as they fall due.

SUP App 2.8.2

handbook-guidance
SUP App 2.8.1 R only applies if a firm ceases to effecting new contracts of insurance in respect of the whole of its insurance business.

SUP App 2.8.3

handbook-guidance
For the purposes of SUP App 2.8.1 R, a new contracts of insurance excludes contracts effected under a term in a subsisting contract of insurance.

SUP App 2.8.4

handbook-guidance
Under Principle 11, the FSA normally expects to be notified by a firm when it decides to cease effecting new contracts of insurance in respect of one or more classes of contract of insurance (see SUP 15.3.8 G). At the same time, the FSA would normally expect the firm to discuss with it the need for the firm to apply to vary its permission (see SUP 6.2.6 G and SUP 6.2.7 G) and, if appropriate, to submit a scheme of operations in accordance with SUP App 2.8.1 R.

SUP App 2.8.5

handbook-guidance
See SUP App 2.11.2 G for guidance on the period that the scheme of operations should cover.

SUP App 2.9

Under control of a new parent undertaking

  • 31/12/2004

SUP App 2.9.1

handbook-guidance
A firm that has notified the FSA of a new parent undertaking may be requested to submit a scheme of operations (see SUP 11.5.5 G). A scheme of operations would be requested if the significance and circumstances of the change were considered to be sufficient to merit that level of scrutiny. This is normally only likely to be necessary when there has been an ultimate change in control, or when, as a result of the change in control, significant changes are proposed to the firm's regulated activities, business plan or strategy. A firm which has submitted a scheme of operations under SUP 11.5.5 G, is not required to submit a further scheme of operations under this appendix unless SUP App 2.4, SUP App 2.5 or SUP App 2.8 applies. SUP App 2.13 does, however, apply to such a firm.
  • 31/12/2004

SUP App 2.10

Grant or variation of permission

  • 31/12/2004

SUP App 2.10.1

handbook-guidance
The FSA may ask a firm seeking a grant or variation of permission to provide a scheme of operations as part of the application process (see AUTH 3.9.9 G (1) and SUP 6.3.25 G). Such a firm is not required to submit a further scheme of operations under this appendix unless SUP App 2.4, SUP App 2.5 or SUP App 2.8 applies. SUP App 2.13 and SUP 6 Annex 4 do, however, apply to such a firm.

SUP App 2.11

Submission of a scheme of operations or a plan for restoration

SUP App 2.11.1

handbook-guidance
A firm should discuss its plan in draft with the FSA before submitting it. If a plan is submitted which does not satisfy the FSA that the firm can restore its capital resources (as appropriate), or meet its liabilities as they fall due, the FSA may use its own-initiative power to vary or cancel the firm's permission. If a firm submitting a plan is part of a group of companies, the FSA may ask that firm to provide additional information in relation to other companies in the group, if this is necessary to establish how the firm will restore its own sound financial position. The firm should agree in discussion with the FSA the nature of such additional information.

SUP App 2.11.2

handbook-guidance
The schemes of operations required when a firm's capital resources have fallen below its required margin of solvency or its guarantee fund (see SUP App 2.5.1 R and SUP App 2.4.1 R, respectively) should cover a period which is sufficient to demonstrate that the firm's capital resources will be adequately restored. Typically this would be a period of at least three years. However, if a scheme of operations has expired, but SUP App 2.4.1 R or SUP App 2.5.1 R continues to apply, the firm should submit a new scheme of operations. The scheme of operations required by SUP App 2.8.1 R, when a firm ceases to effect new contracts of insurance, should cover the run-off period until all liabilities to policyholders are met.

SUP App 2.11.3

handbook-guidance
The period to be covered by, and the details to be included in, the plan for restoration required by SUP App 2.5.3 R will depend on the circumstances of the firm, why its capital resources have fallen below its required margin of solvency and the degree of risk that that fall will be repeated, even if the firm restores its capital resources in accordance with its plan.

SUP App 2.11.4

handbook-guidance
In relation to a firm which carries on with-profits insurance business and which submits a plan, the FSA would expect an explanation of how any actions it plans to take to restore capital resources to the level of the guarantee fund, required margin of solvency or capital resources requirement are consistent with the firm's obligations under Principle 6 (Customers' interests).

SUP App 2.12

Content of a scheme of operations

SUP App 2.12.1

handbook-rule
A scheme of operations must:
(1) describe the firm's business strategy;
(2) include financial projections (including appropriate scenarios and stress-tests) as follows:
(a) a forecast summary profit and loss account in accordance with SUP App 2.12.7 R;
(b) a forecast summary balance sheet in accordance with SUP App 2.12.8 R; and
(c) a forecast statement of capital resources in accordance with SUP App 2.12.9 R; and
(3) as at the end of each financial year which falls (in whole or part) within the period to which the scheme of operations relates:
(a) describe the assumptions which underlie those forecasts and the reasons for adopting those assumptions; and
(b) identify any material transactions proposed to be effected or carried out with, or in respect of, any associate.

SUP App 2.12.2

handbook-guidance
The business strategy referred to at SUP App 2.12.1R (1) should include a description of the nature of the risks which the firm is underwriting, or intends to underwrite. It should also give an explanation of the firm's strategy for managing the risks associated with carrying on insurance business (including, in particular, reinsurance).

SUP App 2.12.3

handbook-guidance
The amount of detail to be given on the firm's business strategy required by SUP App 2.12.1R (1) should be appropriate to the scale and complexity of the firm's operations and the degree of risk involved.

SUP App 2.12.4

handbook-rule
The information required by SUP App 2.12.1R (1) must reflect the nature and content of the rules relating to capital resources applicable to a firm.

SUP App 2.12.5

handbook-guidance
In relation to firms covered by this appendix, IPRU(FSOC) 4.1 sets out the rules relating to capital resources for non-directive friendly societies andPRU 2.1, 2.2 and 8.3 set out the rules relating to capital resources for every other firm. The capital resources which a firm is required to maintain vary according to whether the firm has its head office in the United Kingdom or overseas, and depending on the nature of the insurance business it carries on. The information which a firm is required to submit under SUP App 2.12.1 R should reflect the nature and content of the rules relating to capital resources identified above. For example, in order to satisfy SUP App 2.12.1 R, a firm with its head office outside the United Kingdom which is carrying on direct insurance business in the United Kingdom should submit separate information concerning its world-wide activities and its UK activities.

SUP App 2.12.6

handbook-guidance
To reflect its obligations under PRU 2.1.10R or IPRU(FSOC) 4.1(2) (as applicable), in order to comply with SUP App 2.12.1 R, a firm which carries on both long-term insurance business and general insurance business should submit separate information for each type of insurance business.

SUP App 2.12.7

handbook-rule
Summary profit and loss account (see SUP App 2.12.1R (2)(a))

SUP App 2.12.8

handbook-rule
Summary balance sheet (see SUP App 2.12.1R (2)(b))

SUP App 2.12.9

handbook-rule
A forecast statement of capital resources (under SUP App 2.12.1R (2)(c)) must include the forecast capital resources and the forecast required margin of solvency at the end of each financial year or part financial year.

SUP App 2.13

Obligations on firms which have previously submitted a scheme of operations

  • 01/12/2004

SUP App 2.13.1

handbook-rule
A firm which has submitted a scheme of operations to the FSA, whether required by SUP App 2.4, SUP App 2.5 or SUP App 2.8, or as part of an application under SUP 6.3 (see SUP 6.3.25 G), SUP 6.4 (see SUP 6 Annex 4), AUTH 3.9 (see AUTH 3.9.9 G (1)) or SUP 11.5 (see SUP 11.5.5 G), or an amended scheme of operations, must during the period covered by that scheme of operations:
(1) notify the FSA at least 28 days before entering into or carrying out any material transaction with, or in respect of, an associate, unless that transaction is in accordance with a scheme of operations which has been submitted to the FSA;
(2) submit a quarterly financial return to the FSA which must include for, or as at the end of, each quarter:
(a) a summary profit and loss account prepared in accordance with SUP App 2.12.7 R;
(b) a summary balance sheet prepared in accordance with SUP App 2.12.8 R; and
(c) a statement of capital resources prepared in accordance with SUP App 2.12.9 R;


and which must identify and explain differences between the actual results and the forecasts submitted in the scheme of operations; and
(3) notify the FSA promptly of any matter which has either happened or is likely to happen and which represents a significant departure from the scheme of operations; the firm must either:
(a) explain the nature of the departure and the reasons for it and provide revised forecast financial information in the scheme of operations for its remaining term; or
(b) include an amended scheme of operations and explain the amendments and the reasons for them.

SUP App 2.13.2

handbook-rule
A report under SUP App 2.13.1R (2) must be submitted in accordance with the rules in SUP 16.3.6R to SUP 16.3.13R.

SUP App 2.13.3

handbook-guidance
For the purpose of SUP App 2.13.1R (1), the FSA considers that transactions with, or in respect of, associates include:
(1) contracting (as either party), advancing, repaying, writing off or agreeing to change the terms of any loan;
(2) entering into (in any capacity), releasing, calling upon or agreeing to change the terms of any guarantee, pledge, security, charge or any off-balance-sheet transaction;
(3) entering into agreements to acquire or dispose of property or which otherwise affect the nature or value of the firm's assets;
(4) making an investment (directly or indirectly) in an associate;
(5) entering into (as either party), commuting or agreeing to change the terms of, any contract of reinsurance; and
(6) entering into, or changing the terms of, any agreement to give or provide services or to share costs.

SUP App 2.13.4

handbook-guidance
The FSA considers that a significant departure referred to in SUP App 2.13.1R (3) includes:
(1) entry or withdrawal from a line of insurance business;
(2) significant revision of the firm's strategy for managing risks, in particular the basis upon which risks are reinsured;
(3) forecast premiums being exceeded, by more than 10%, for a single financial year (or part year if the period covered by the scheme of operations is or includes part of a financial year);
(4) claims experience being significantly worse than forecast for a single financial year (or part year if the period covered by the scheme of operations is or includes part of a financial year);
(5) the actual level of capital resources being significantly worse than forecast;
(6) paid or proposed dividends being greater than those forecast; and
(7) any other transaction or circumstance which is likely to have a material effect upon available assets (as defined in IPRU(INS) 11.1).

SUP App 2.14

Financial Recovery Plan

  • 01/12/2004

SUP App 2.14.1

handbook-guidance
When:
(1) the FSA has required a financial recovery plan within the meaning of article 20a of the First Non-Life Directive;
(2) the FSA is of the view that policyholders' rights are threatened because the financial position of the firm is deteriorating; and
(3) the FSA decides to require the firm to hold more capital than would otherwise be required under the Handbook to ensure that the firm will be able to fulfil the required margin of solvency in the near future;


any such higher capital requirement will be based on the financial recovery plan.

Export chapter as

SUP App 3

Guidance on passporting issues

SUP App 3.1

Application

  • 01/12/2004

SUP App 3.1.1

handbook-guidance
This appendix applies to all firms when passporting.

SUP App 3.2

Purpose

  • 01/12/2004

SUP App 3.2.1

handbook-guidance
The purpose of this appendix is to give guidance:
(1) to UK firms on some of the issues that arise when carrying on passported activities(see SUP App 3.5and SUP App 3.6);
(2) to all firms on the relationship between regulated activities and activities passported under the Single Market Directives (see SUP App 3.9and SUP App 3.10).

SUP App 3.3

Background

  • 01/12/2004

The Treaty establishing the European Community

SUP App 3.3.1

handbook-guidance
(1) The European Community Treaty (the 'Treaty'), as amended by later Treaties, established in EC law the rights of freedom of establishment and freedom to provide services in the European Community.
(2) The Treaty lays down central principles governing the legal framework for freedom of establishment and the free movement of services in the European Community. There are, however, a number of areas where the legal position is not clear. This includes, for example, identifying whether a service is provided through an establishment, where the issues involved are complex. Therefore, this Appendix is intended to provide guidance but cannot be regarded as comprehensive. Ultimately, the construction of the Treaty and relevant Directive provisions is a matter for the European Court of Justice.

SUP App 3.3.2

handbook-guidance
The Treaty provides the framework for the provision of banking, insurance business, investment business, UCITS management services and insurance mediation, while the Single Market Directives clarify the rights and freedoms within that framework.

EC and EEA

SUP App 3.3.3

handbook-guidance
The agreement on the European Economic Area, signed at Oporto on 2 May 1992, extends EC legislation to any EEA State that is not part of the European Community.Any references to an EC Member State in this appendix should, therefore, be read as referring to an EEA State.

Interpretative communications

SUP App 3.3.4

handbook-guidance
In 1997, the European Commission published an interpretative communication (Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)) (the text of this directive and the First Banking Directive is now consolidated in the Banking Consolidation Directive). The European Commission's objective in publishing this communication was to explain and clarify the Community rules. The European Commission deemed it desirable "to restate in a Communication the principles laid down by the Court of Justice and to set out its position regarding the application of these Principles to the specific problems raised by the Second Banking Directive".

SUP App 3.3.5

handbook-guidance
In 2000, the European Commission published a further interpretative communication (Freedom to provide services and the general good in the insurance sector (2000/C43/03)). This allowed the European Commission to publicise its own interpretation of the rules on the freedom to provide services.

SUP App 3.3.6

handbook-guidance
  1. (1) The European Commission has not produced an interpretative communication on the Investment Services Directive. It is arguable, however, that the principles in the communication on the Second Banking Directive can be applied to investment services. This is becausearticle 11 of the Investment Services Directive (containing provisions relating to conduct of business rules) also applies to the investment services of firms operating under the Banking Consolidation Directive.
  2. (2) The European Commission has not produced an interpretative communication on either the Insurance Mediation Directive or on the UCITS Directive.

SUP App 3.3.7

handbook-guidance
In giving its views, communications made by the European Commission have the status of guidance and are not binding on the national courts of EEA States. This is because it is the European Court of Justice that has ultimate responsibility for interpreting the Treaty and secondary legislation. Accordingly, the communications "do not prejudge the interpretation that the Court of Justice of the European Communities, which is responsible in the final instance for interpreting the Treaty and secondary legislation, might place on the matter at issue." (European Commission interpretative communication: Freedom to provide services and the general good in the insurance sector (C(99) 5046). However, the Courts may take account of European Commission communications when interpreting the Treaty and secondary legislation.

SUP App 3.3.8

handbook-guidance
Firms should also note that European Commission communications do not necessarily represent the views taken by all EEA States.

E-Commerce

SUP App 3.3.9

handbook-guidance
The E-Commerce Directive covers services provided at a distance by means of electronic equipment for the processing (including digital compression) and storage of data. The services would normally be provided in return for remuneration and must be provided at the individual request of a recipient (see recital 17 of the E-Commerce Directive). The Directive implements the country of origin approach to regulation. This approach makes firms subject to the conduct of business requirements of the EEA State from which the service is provided. This is subject to certain derogations (see SUP App 3.3.11 G).

SUP App 3.3.10

handbook-guidance
The E-Commerce Directive does not affect the responsibilities of Home State under the Single Market Directives. This includes the obligation of a Home State regulator to notify the Host State regulator of a firm's intention to establish a branch in, or provide cross border services into, the other EEA State.

SUP App 3.3.11

handbook-guidance
There are, however, general derogations from the internal market provisions under article 3(3) of the E-Commerce Directive. The derogations include consumer contracts, the permissibility of unsolicited e-mail and certain insurance services (both life and non-life). Where these derogations apply, the EEA States in which the recipients of the service are based may continue to be able to impose their own requirements.

SUP App 3.3.12

handbook-guidance
Further details concerning the impact of the E-Commerce Directive on UK firms are available in ECO.
  • 01/07/2003

Notification of establishing a branch or of providing cross border services

SUP App 3.3.13

handbook-guidance
The Single Market Directives require credit institutions, insurance undertakings, investment firms , UCITS management companies and insurance intermediaries to make a notification to the Home State before establishing a branch or providing cross border services.

SUP 13.5 (Notices of intention) sets out the notification requirements for a firm seeking to establish a branch or provide cross border services. As firms will note, the decision whether a passport notification needs to be made will be a matter of interpretation. The onus is on firms to comply with the requirements of the Act and, where relevant, the laws of other EEA States. So, in cases of doubt, firms should obtain their own legal advice on the specific issues involved.

SUP App 3.3.14

handbook-guidance
Blanket notification is the practice of the Home State regulator notifying all Host State regulators in respect of all activities regardless of any genuine intention to carry on the activity. This practice is discouraged by the FSA . However, a firm may be carrying on activities in the United Kingdom or elsewhere in a way that necessarily gives rise to a real possibility of the provision of services in other EEA States. In such cases, the firm should consider with its advisers whether it should notify the relevant authorities and include that possibility in its business plan.

SUP App 3.6

Freedom to provide services

  • 01/12/2004

SUP App 3.6.1

handbook-guidance
Article 49 (Services) (formerly article 59) of the Treaty grants to EC nationals established in one EEA State the freedom to provide cross border services to the nationals of other EEA States.

How services may be provided

SUP App 3.6.2

handbook-guidance
Under the Treaty, the freedom to provide services within the EC may be exercised in three broad ways:
(1) where the provider of a service moves temporarily to another EEA State in order to provide the service;
(2) where the service is provided without either the provider or the recipient moving (in this situation the provision, and receipt, of the service may take place by post, telephone or fax, through computer terminals or by other means of remote control);
(3) where the recipient of a service moves temporarily to another EEA State in order to receive (or, perhaps, commission the receipt of) the service within that State.

SUP App 3.6.3

handbook-guidance
Under the Single Market Directives, however, EEA rights for the provision of services are concerned only with services provided in one of the ways referred to in SUP App 3.6.2 G (1) and (2) (How services may be provided).

Place of supply

SUP App 3.6.5

handbook-guidance
In the opinion of the European Commission (and in the wording of the Single Market Directives) "only activities carried on within the territory of another Member State should be the subject of prior notification" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In determining, for the purposes of notification, whether a service is to be provided 'within' another EEA State, it is necessary to determine the place of supply of the service.

SUP App 3.6.6

handbook-guidance
An insurance undertaking that effects contracts of insurance covering risks or commitments situated in another EEA State should comply with the notification procedures for the provision of services within that EEA State. The location of risks and commitments is found by reference to the rules set out in paragraph 6 of schedule 12 to the Act, which derive from article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive. It may be appropriate for insurers to take legal advice as to how these rules are interpreted and applied in other EEA States. The need to passport may arise because of only one of the risks covered by an insurance policy. This includes, for example, where a policy covers a number of property risks and one of those properties is in another Member State.

SUP App 3.6.7

handbook-guidance
In respect of banking services, the European Commission believes that "...to determine where the activity was carried on, the place of provision of what may be termed the 'characteristic performance' of the service i.e. the essential supply for which payment is due, must be determined" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In the FSA's view, this requires consideration of where the service is carried out in practice.

SUP App 3.6.8

handbook-guidance
The FSA is of the opinion that UK firms that are credit institutions and ISD investment firms should apply the 'characteristic performance' test (as referred to in SUP App 3.6.7 G ) when considering whether prior notification is required for services business. Firms should note that other EEA States may take a different view. Some EEA States may apply a solicitation test. This is a test as to whether it is the consumer or the provider that initiates the business relationship.

SUP App 3.6.9

handbook-guidance
In the case of a UK firm conducting portfolio management, for example, this would mean looking at where the investment decisions and management are actually carried on in order to determine where the service is undertaken. Similarly, a UK stockbroker that receives orders by telephone from a customer in France for execution on a UK exchange may be deemed to be dealing or receiving and transmitting orders within the territory of the United Kingdom. In such a case, whether the firm solicited the overseas investor would be irrelevant.

SUP App 3.6.10

handbook-guidance
Where, however, a credit institution or ISD investment firm:
(1) intends to send a member of staff or a temporarily authorised intermediary to the territory of another EEA State on a temporary basis to provide financial services; or
(2) provides advice, of the type that requires notification under either the Investment Services Directive or the Banking Coordination Directive, to customers in another EEA State;
the firm should make a prior notification under the freedom to provide services.

Temporary activities

SUP App 3.6.11

handbook-guidance
The key distinction in relation to temporary activities is whether a firm should make its notification under the freedom of establishment in a Host State, or whether it should notify under the freedom to provide services into a Host State. It would be inappropriate to discuss such a complex issue in guidance of this nature. It is recommended that, where a firm is unclear on the distinction, it should seek appropriate advice. In either case, where a firm is carrying on activities in another Member State under a Single Market Directive, it should make a notification.

Monitoring procedures

SUP App 3.6.15

handbook-guidance
The FSA considers that, in order to comply with Principle 3:Management and control (see PRIN 2.1.1 R), a firm should have appropriate procedures to monitor the nature of the services provided to its customers. Where a UK firm has non-resident customers but has not notified the EEA State in which the customers are resident that it wishes to exercise its freedom to provide services, the FSA would expect the firm's systems to include appropriate controls. Such controls would include procedures to prevent the supply of services covered by the Single Market Directives in the EEA State in which the customers are resident if a notification has not been made and it is proposed to provide services otherwise than by remote communication. In respect of insurance business, the insurer's records should identify the location of the risk at the time the policy is taken out or last renewed. That will, in most cases, remain the location of the risk thereafter, even if, for example, the policyholder changes his habitual residence after that time.

Membership of regulated markets

SUP App 3.6.25

handbook-guidance
The FSA is of the opinion that where a UK firm becomes a member of a regulated market that has its registered office or, if it has no registered office, its head office, in another EEA State, the same principles as in the 'characteristic performance' test should apply. Under this test, the fact that a UK firm has a screen displaying the exchange's prices in its UK office does not mean that it is dealing within the territory of the Home State of the regulated market.

SUP App 3.6.26

handbook-guidance
Firms are reminded of their rights, under article 15(1)of the Investment Services Directive, to become members of, or have access to, the regulated markets in other Member States.

SUP App 3.6.27

handbook-guidance
Firms should note that, in circumstances where the FSA takes the view that a notification would not be required, other EEA States may take a different view.

SUP App 3.9

Mapping of the Investment Services Directive , Banking Consolidation Directive, UCITS Directive and Insurance Mediation Directive to the Regulated Activities Order

SUP App 3.9.1

handbook-guidance
The following Tables 1, 2, 2A and 2B provide an outline of the regulated activities and specified investments that may be of relevance to firms considering undertaking passported activities under the Banking Consolidation Directive, the Investment Services Directive, the UCITS Directive and the Insurance Mediation Directive. The tables may be of assistance to UK firms that are thinking of offering financial services in another EEA State and to EEA firms that may offer those services in the United Kingdom.

SUP App 3.9.2

handbook-guidance
The tables provide a general indication of the investments and activities specified in the Regulated Activities Order that may correspond to categories provided for in the Banking Consolidation Directive, the Investment Services Directive, the UCITS Directive or the Insurance Mediation Directive. The tables do not provide definitive guidance as to whether a firm is carrying on an activity that is capable of being passported, nor do the tables take account of exceptions that remove the effect of articles. Whether a firm is carrying on a passported activity will depend on the particular circumstances of the firm. If a firm's activities give rise to potential passporting issues, it should obtain specialist advice on the relevant issues.

SUP App 3.9.3

handbook-guidance
In considering the issues raised in the tables, firms should note that:
(1) article 64 of the Regulated Activities Order (Agreeing to carry on specific kinds of activity) applies in respect of agreeing to undertake the specified activity; and
(2) article 89 of the Regulated Activities Order (Rights to or interests in investments) applies in respect of rights to and interests in the types of investments to which the category applies.

SUP App 3.9.4

handbook-guidance

Activities set out in Annex I of the BCD

SUP App 3.9.5

handbook-guidance

Services set out in Annex to the ISD

SUP App 3.9.6

handbook-guidance

Activities set out in Article 5(2) and (3) of the UCITS Directive

SUP App 3.9.7

handbook-guidance

Activities set out in Article 2(3) of the IMD

SUP App 3.10

Mapping of Insurance Directives to the Regulated Activities Order

  • 01/12/2004

Introduction

SUP App 3.10.1

handbook-guidance
The guidance in AUTH 3.10 and Table 3 describes in broad outline the relationship between:
(1) the insurance-related regulated activities specified in the Regulated Activities Order; and
(2) the activities within the scope of the Insurance Directives

SUP App 3.10.2

handbook-guidance

This is a guide only and should not be used as a substitute for legal advice

in individual cases.

Meaning of contract of insurance

SUP App 3.10.3

handbook-guidance
The meaning of contract of insurance is set out in article 3(1) of the Regulated Activities Order (Interpretation). It does not include benefit-in-kind funeral plans, which are specified in article 60 of the Regulated Activities Order (plans covered by insurance or trust arrangements). Such funeral plans (to the extent that they are insurance) are also excluded from the Insurance Directives. It covers some contracts which might not otherwise be viewed as insurance in the United Kingdom (for example, contracts of guarantee). These contracts are also governed by the Insurance Directives. For the purpose of the Regulated Activities Order, a contract of insurance includes a contract of reinsurance as well as a contract of direct insurance.

The Insurance Directives

SUP App 3.10.4

handbook-guidance
Article 1 of the First Non-Life Directive and article 2 of the Consolidated Life Directive provides that the Directives "concern the taking up and pursuit of the self-employed activity of direct insurance". By contrast, article 10 of the Regulated Activities Order (Effecting and carrying out contracts of insurance) also covers reinsurance.

SUP App 3.10.5

handbook-guidance
Articles 2, 3 and 4 of the First Non-Life Directive and article 3 of the Consolidated Life Directive set out certain exclusions by reference to:
(1) types of insurance;
(2) types of insurer;
(3) particular conditions under which insurance activities are carried out.
(4) annual income; and
(5) particular identified institutions.

SUP App 3.10.6

handbook-guidance
Some of the exclusions referred to mirror exclusions in the Regulated Activities Order. So, the exclusion for breakdown insurance in article 2(3) of the First Non-Life Directive is matched by a slightly narrower exclusion in article 12 of the Regulated Activities Order (Breakdown insurance). The separate treatment of benefit-in-kind funeral plans under the Regulated Activities Order (see SUP App 3.10.4 G) is matched by their exclusion on a slightly wider basis in article 3(5) of the Consolidated Life Directive. Other requirements from these Directives are also excluded from regulation by the Exemption Order.

SUP App 3.10.7

handbook-guidance
Most of the exclusions under the Directives, however, are not excluded from being regulated activities. For example, article 3 of the Consolidated Life Directive and article 3 of the Non-Life Directive exclude certain mutual associations whose annual contribution income falls below a defined threshold. In the United Kingdom, these include certain smaller friendly societies commonly referred to as "non-directive friendly societies". The activities of such societies are regulated under the Act, on a "lighter basis" than the activities of other insurers.

Territorial scope of the Regulated Activities Order and the Directives

SUP App 3.10.8

handbook-guidance
Under the Act and the Regulated Activities Order, the activities of effecting and carrying out contracts of insurance are treated as being carried on in the United Kingdom on the basis of legal tests under which the location of the risk is only one factor. If the risk is located in the United Kingdom, then (other relevant factors being taken into account) the activity will, in the vast majority of cases, also be viewed as carried on in the United Kingdom. There are exceptions, however, and overseas insurers may insure risks in the United Kingdom without carrying on business here and so without requiring to be regulated (although the financial promotion regime may apply). By contrast, under the Directives, the responsibility, as between EEA States, for regulating the conduct of passported insurance services is determined by reference to the location of the risk or commitment, as defined in article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive.

SUP App 3.10.9

handbook-guidance
So, the effect of App 3.12.1 is that an insurer may be carrying on insurance business in the United Kingdom which is to be treated as a regulated activity under article 10 to the Regulated Activities Order (Effecting and carrying out contracts of insurance) in circumstances where the risks covered are treated as located in another EEA State. In that event, the insurer is required by Schedule 3 to the Act to passport into the State concerned and may be subject to conduct of business requirements in that State (see SUP 13.10 (Applicable provisions)).

SUP App 3.10.10

handbook-guidance
An insurer authorised in another EEA State who is insuring UK risks and so passports on a services basis under the Insurance Directives into the United Kingdom(see ),may not be carrying on a regulated activity in the United Kingdom. But, if it passports into the United Kingdom, it will qualify for authorisation under paragraph 12 of Schedule 3 to the Act (Firms qualifying for authorisation). Where this is the case, the insurer will be subject to conduct of business requirements in the United Kingdom (see AUTH 5.6 (Which rules will an incoming EEA firm be subject to?)).

Activities carried on by incoming EEA firms in connection with insurance business.

SUP App 3.10.11

handbook-guidance
Although the Insurance Directives are concerned with the regulated activities of effecting and carrying out contracts of insurance, an incoming EEA firm passported under the Insurance Directives will be entitled to carry on certain other regulated activities without the need for top-up permission. This is where the regulated activities are carried on for the purposes of or in connection with the incoming EEA Firm's insurance business. These regulated activities may include:
(1) dealing in investments as principal;
(2) dealing in investments as agent;
(3) arranging (bringing about) deals in investments;
(4) making arrangements with a view to transactions in investments;
(5) managing investments;
(6) safeguarding and administering investments;
(7) advising on investments;
(8) agreeing to carry on a regulated activity of the above kind.

Financial promotion

SUP App 3.10.12

handbook-guidance
The financial promotion regime under section 21 of the Act (Restrictions on financial promotion) may also apply to EEA insurance undertakings regardless of whether they carry on a regulated activity in the United Kingdom or passport into the United Kingdom.

Position of EEA reinsurers

SUP App 3.10.13

handbook-guidance
The Insurance Directives do not apply to reinsurance. But, the Insurance Directives do not prevent insurance undertakings authorised under those Directives from carrying out reinsurance as well as direct insurance business. Article 13(2) of the First Non-Life Directive and article 10(2) of the Consolidated Life Directive state that financial supervision of insurance undertakings "shall include verification, with respect to the insurance undertaking's entire business, of its state of solvency, of the establishment of technical provisions and of the assets covering them". On that basis, an insurance undertaking authorised in another EEA State which carries on a mixed direct insurance and reinsurance business, and is, therefore, subject to the requirements of the Directives, will generally be treated as being subject to 'equivalent protection' . This is for the purpose of paragraph 3 of Schedule 4 to the Act (Exercise of treaty rights). The insurance undertaking will, therefore, generally be able to qualify for 'permission'as a Treaty Firm for its reinsurance business if it follows the procedure provided for by Schedule 4 (see AUTH 5.3.4 G to AUTH 5.3.13 G (Treaty Firms) and also AUTH 3.21 (Treaty firms applying for Part IV Permission)). This will be in addition to the insurance undertaking being an EEA firm under Schedule 3 of the Act for its direct insurance business.

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Transitional Provisions and Schedules

SUP TP 1

Transitional provisions

SUP TP 1.1

Transitional provisions applying to the Supervision manual only

SUP TP 1.2
SUP TP 1.3

Transitional provisions relating to written concessions

SUP TP 1.4

SUP Sch 1

Record keeping requirements

  • 31/12/2004

SUP Sch 1.1

handbook-guidance

SUP Sch 1.2

handbook-guidance

SUP Sch 2

Notification requirements

  • 01/12/2004

SUP Sch 2.1

handbook-guidance

SUP Sch 2.2

handbook-guidance

SUP Sch 4

Powers exercised

  • 01/12/2004

SUP Sch 4.1

handbook-guidance

SUP Sch 4.2

handbook-guidance

SUP Sch 4.3

handbook-guidance

SUP Sch 5

Rights of actions for damages

  • 01/12/2004

SUP Sch 5.1

handbook-guidance
  • 01/12/2004

SUP Sch 5.2

handbook-guidance
  • 01/12/2004

SUP Sch 6

Rules that can be waived

  • 01/12/2004

SUP Sch 6.1

handbook-guidance

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