Managing my financial journey
Managing my financial journey

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Managing my financial journey

4.1.3 Approving the firm and its senior managers

In the next video, Chris Woolard, director of strategy and competition at the FCA, talks about the new Senior Managers Regime that is used to assess the competence, and understand the responsibilities, of key post-holders in financial firms.

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Can you tell us about the new approach to regulating financial firms since the financial crisis? The 'Arrow' regime is now being superseded - how are things different?
So we have a significant focus on two things really. So the first is we look very closely at a risk based model of regulation, so we are looking at where are the greatest detriments that might see in the market and we are targeting resources at those. The second thing that we're doing more of is really looking at the question of conduct and the responsibility of senior managers within firms for the conduct of those firms and I think that's quite a shift in emphasis.
You're introducing a new senior manager's regime for senior officers within financial firms and that's replacing the old approved person's regime. But is it really any different?
I think it certainly is. I mean the biggest single reform that I think we will take out of the new senior managers regime is much more clarity up front, who is responsible for what within firms. Under the old regime, although you might be an approved individual sometimes the lines of accountability are very blurry, quite often you know split between a number of individuals, the new regime makes it much easier to take a view from day one who's responsible for particular activities and what their responsibilities are.
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The process of defining a regulated activity involves the following two steps:

  1. The activity has to involve certain defined financial services products. These are known as the ‘specified investments’.
  2. The actual ‘activity’ being undertaken in respect of these ‘specified investments’ has to be defined (borrowing, lending, investing, insuring, etc.).

There are, however, some specific exemptions where firms undertaking regulated activities do not need authorisation as their activities are subject to supervision by other regulatory bodies.

Conducting business in regulated activities without authorisation or exemption, or without an exclusion applying, is a criminal offence under the Financial Services and Markets Act 2000. Offenders can receive unlimited fines and jail sentences of up to 2 years. Contracts previously agreed under these circumstances are unenforceable.

What do the regulators do ahead of granting permissions for firms to undertake regulated activities? First, there are five ‘threshold’ conditions that the applying firm must meet. These are designed to promote financial safety and soundness. They are:

  1. A firm’s head office, and its ‘mind’ and management, must be in the UK if it is incorporated in the UK.
  2. A firm’s business must maintain appropriate financial and non-financial resources.
  3. The firm itself must be ‘fit and proper’ and be adequately staffed.
  4. The firm and its group must be capable of being effectively supervised.
  5. The firm’s business model must be suitable for the regulated activities it seeks to carry out.
(Adapted from Bank of England and FSA, 2012, p. 8 and CISI, 2015, p. 12)

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