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.
The process of defining a regulated activity involves the following two steps:
- The activity has to involve certain defined financial services products. These are known as the ‘specified investments’.
- 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:
- A firm’s head office, and its ‘mind’ and management, must be in the UK if it is incorporated in the UK.
- A firm’s business must maintain appropriate financial and non-financial resources.
- The firm itself must be ‘fit and proper’ and be adequately staffed.
- The firm and its group must be capable of being effectively supervised.
- The firm’s business model must be suitable for the regulated activities it seeks to carry out.