MIp19_ regulation.qxd 22/1/09 15:32 Page 11
Regulation
19
Growing responsibilities
Bill Warren, managing director of Bill
Warren Compliance LLP, considers the
proposed changes to the Approved Person
regime
T
he FSA issued a Consultation Paper However, this is only one element of the pro- be borne in mind is that many other financial
08/25 just before Christmas that posals, another being the role and responsibility services firms have been required to appoint
could have a profound and lasting of Non-Executive Directors where they have Non-Executives and/or consultants to provide
impact on mortgage and general been appointed by firms. Generally, this will the very skills competence and objectivity being
insurance intermediaries, in addi- only affect larger firms, although there are many referred to here. For smaller mortgage and GI
tion to all other regulated firms within the forward thinking and responsible smaller firms firms in the current market this may be just what
financial services industry. which have also appointed Non-Executives to is needed to aid survival and at the very least
The significance of this consultation paper is help them identify risks to the business and pro- demonstrate good corporate governance to the
that it is: a) it is relevant to all FSA authorised vide more guidance and control to the firm using FSA and other authorised firms where business
firms, and b) it seeks to increase the focus, com- their knowledge, experience and objectivity to relationships are being sought.
petence and, therefore, the quality of manage- deliver value. This consultation paper as mentioned earlier
ment and controls on those persons owning, The FSA consultation paper seeks to ensure covers all sectors of the financial services indus-
managing and/or controlling firms in a position that the role of Non-Executive Directors is clear- try with a proposal, for example, that all 'propri-
of 'significance influence', i.e. those currently er and has very similar responsibilities to those etary traders' will have to become approved
holding approved person authorisation princi- executive directors they sit alongside. It is intend- persons as either CF29 (significant management)
pally as CF1 and CF2. ed to include within the Code of Practice for or CF30 (customer function). The paper also
Those who regularly read the FSA's communi- Approved Persons a statement listing what is extends the rules obliging firms to provide refer-
cations relating to enforcement actions either expected of a Non-Executive Director as a mini- ences relating to applicants for all controlled
through fines or bans for both firms and individ- mum. Additionally it is proposed that in future functions, whereas at present this only applies to
uals will know that the regulator has become the FSA will take enforcement action against applicants for the CF30 function. This has to be
increasingly concerned about the involvement, Non-Executives in exactly the same way as they in response to those individuals who have left
sometimes the lack of involvement, the compe- do against executive directors, senior managers one firm where problems have arisen and have
tence and in some cases the remoteness of either and business owners now. joined another authorised firm where unless fac-
the day-to-day managers of firms and/or their From the 1st October 2008, as many will tual references have been provided those prob-
parent companies and the executives involved in know, the FSA has been actively interviewing lems could be repeated.
those group companies/parents business activi- more people seeking to be approved within This paper could very well signal the FSA's
ties and their management and controls. significant influence functions especially intention to move closer to requiring all mort-
In the same way that many have commented within larger firms. This is likely to continue to gage advisers to be FSA-registered and approved
that all mortgage advisers should be directly be the case. However, the consultation paper similar to the system used by the former
authorised by the FSA, there are many firms makes it very clear that firms must continue to Mortgage Code Compliance Board.
where the ownership structure of authorised carry out their own due diligence robustly. The All firms need therefore to give serious
firms has enabled individuals with significant point is made strongly that firms must take thought to the implications within this consulta-
influence within these firms to avoid the FSA responsibility for managing risks properly and tion paper. As a matter of urgency firms should
rules as they are not directly employed by the have effective systems and controls to mitigate review a number of issues including their
firm or, for example, are perhaps not located in those risks. The days of appointing friends and recruitment processes, including their appoint-
the same country as the UK-based subsidiary. former colleagues to management and Board ment of Non-Executive directors, as well as other
This Consultation Paper seeks to address this directorships without there being clear evidence business fundamentals including risk manage-
'gap' by requiring individuals who have signifi- of the competence of that individual to take ment, training and competence schemes and
cant influence over FSA-authorised firms to responsibility and add value will have perhaps management and controls. As always, help is
become approved persons. The upshot of this is finally disappeared. available, and using the services of a compliance
that it makes these people personally accountable For the smaller and medium-sized mortgage and business expert could aid the firm in meet-
for their actions alongside the 'directors/man- and general insurance firm this may all seem ing their growing responsibilities as defined by
agers' running the firm on a day-to-day basis. remote and even not applicable. Yet, what should the FSA.
www.mortgageintroducer.com February 2009 Mortgage Introducer
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