APER Statements of Principle and Code of Practice for Approved Persons

Part

APER Statements of Principle and Code of Practice for Approved Persons

Printed on: 14/10/2024

Rulebook at: 06/08/2009

Chapters

APER 1 Application and purpose
APER 2 The Statements of Principle for Approved Persons
APER 3 Code of Practice for Approved Persons: general
APER 4 Code of Practice for Approved Persons:
specific
Transitional Provisions and Schedules

APER 1

Application and purpose

APER 1.1

Application

01/12/2004

Who?

APER 1.1.1

APER applies to approved persons.

01/12/2001

APER 1.1.2

The Statements of Principle apply only to the extent that a person is performing a controlled function for which approval has been sought and granted.

01/11/2007

APER 1.1.3

Section 64(11) of the Act states that the power to issue Statements of Principle and codes of practice includes power to make different provisions in relation to persons, cases or circumstances of different descriptions. Statements of Principle 1, 2, 3 and 4 apply to all approved persons, and Statements of Principle 5, 6 and 7 apply to those approved to perform significant influence functions.

01/11/2007

APER 1.1.4

The relevance of MiFID to the Statements of Principle will depend on the extent to which the corresponding requirement imposed on firms under MiFID is reserved to a Home State regulator or has been disapplied under MiFID (see APER 2.1.1A P and FIT 1.2.4A G. See also COBS 1 Annex 1, Part 2, 1.1R (EEA territorial scope rule: compatibility with European law)).

01/11/2007

Where?

APER 1.1.5

The territorial scope of the approved persons regime and its application to incoming EEA firms is set out in SUP 10.1 (see SUP 10.1.13 R and 10.1.14 R).

01/11/2007

APER 1.2

Purpose

01/12/2004

APER 1.2.1

The Statements of Principle contained in APER 2 are issued under section 64(1) of the Act (Conduct: statements and codes).

01/12/2001

APER 1.2.2

Section 64(2) of the Act states that if the FSA issues Statements of Principle it must also issue a code of practice for the purpose of helping to determine whether or not a person's conduct complies with the Statements of Principle. The Code of Practice for Approved Persons in APER 3 and APER 4 fulfils this requirement.

01/12/2001

APER 1.2.3

The Code of Practice for Approved Persons sets out descriptions of conduct which, in the opinion of the FSA, do not comply with a Statement of Principle and, in the case of Statement of Principle 3, conduct which tends to show compliance within that statement. The Code of Practice for Approved Persons also sets out, in certain cases, factors which, in the opinion of the FSA, are to be taken into account in determining whether or not an approved person's conduct complies with a Statement of Principle. The guidance set out in APER 3 and APER 4 does not form part of the Code of Practice for Approved Persons.

01/12/2001

APER 1.2.5

As set out in SUP 10.3.1 R (Arrangements and regulated activities), 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.

01/12/2001

APER 1.2.6

The Statements of Principle apply only to the performance of a controlled function (that is, to the activities carried on under the arrangement described in the firm's application for approval).

01/12/2001

APER 1.2.7

The FSA recognises that an approved person may be performing functions which are unrelated to regulated activities or are otherwise outside the description of a controlled function. The fact that a person may be approved for one purpose does not have the effect of bringing all his functions within the controlled function, nor of making those functions subject to the Statements of Principle.

01/12/2001

APER 1.2.8

The territorial scope of the approved persons regime is set out in SUP 10.1 (Application).

01/12/2001

APER 1.2.9

The Statements of Principle apply only to the extent that a person is performing a controlled function for which approval has been sought and granted.

01/12/2001

APER 2

The Statements of Principle for Approved Persons

APER 2.1

The Statements of Principle

01/11/2007

APER 2.1.1

APER 2.1.2 P sets out the Statements of Principle issued by the FSA to which APER 1.2.1 G refers and to which the provisions of the Code of Practice for Approved Persons and guidance in APER 3 and APER 4 apply.

01/12/2001

APER 2.1.1A

An approved person will not be subject to a Statement of Principle to the extent that it would be contrary to the UK's obligations under a Single Market Directive.

01/11/2007

APER 2.1.2

Statements of Principle issued under section 64 of the Act

Statement of Principle 1
An approved person must act with integrity in carrying out his controlled function.

Statement of Principle 2
An approved person must act with due skill, care and diligence in carrying out his controlled function.

Statement of Principle 3
An approved person must observe proper standards of market conduct in carrying out his controlled function.

Statement of Principle 4
An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice.

Statement of Principle 5
An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively.

Statement of Principle 6
An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.

Statement of Principle 7
An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system.

01/12/2001

APER 3

Code of Practice for Approved Persons: general

APER 3.1

Introduction

01/12/2004

APER 3.1.1

This Code of Practice for Approved Persons is issued under section 64 of the Act (Conduct: statements and codes) for the purpose of helping to determine whether or not an approved person's conduct complies with a Statement of Principle. The code sets out descriptions of conduct which, in the FSA's opinion, do not comply with the relevant Statements of Principle. The code also sets out certain factors which, in the opinion of the FSA, are to be taken into account in determining whether an approved person's conduct complies with a particular Statement of Principle. The description of conduct, the factors and related provisions are identified in the text by the letter 'E' as explained in chapter 6 of the Reader's Guide.

01/04/2005

APER 3.1.2

The Code of Practice for Approved Persons in issue at the time when any particular conduct takes place may be relied on so far as it tends to establish whether or not that conduct complies with a Statement of Principle.

01/12/2001

APER 3.1.3

The significance of conduct identified in the Code of Practice for Approved Persons as tending to establish compliance with or a breach of a Statement of Principle will be assessed only after all the circumstances of a particular case have been considered. Account will be taken of the context in which a course of conduct was undertaken, including the precise circumstances of the individual case, the characteristics of the particular controlled function and the behaviour to be expected in that function.

01/12/2001

APER 3.1.4

(1) An approved person will only be in breach of a Statement of Principle where he is personally culpable. Personal culpability arises where an approved person's conduct was deliberate or where the approved person's standard of conduct was below that which would be reasonable in all the circumstances (see DEPP 6.2.4 G (Action against approved persons under section 66 of the Act)).
(2) For the avoidance of doubt, the Statements of Principle do not extend the duties of approved persons beyond those which the firm owes in its dealings with customers or others.

28/08/2007

APER 3.1.5

In particular, in determining whether or not an approved person's conduct complies with a Statement of Principle, the FSA will take into account the extent to which an approved person has acted in a way that is stated to be in breach of a Statement of Principle.

01/12/2001

APER 3.1.6

The Code of Practice for Approved Persons (and in particular the specific examples of behaviour which may be in breach of a generic description of conduct in the code) is not exhaustive of the kind of conduct that may contravene the Statements of Principle. The purpose of the code is to help determine whether or not a person's conduct complies with a Statement of Principle. The code may be supplemented from time to time. The FSA will amend the code if there is a risk that unacceptable practice may become prevalent, so as to make clear what conduct falls below the standards expected of approved persons by the Statements of Principle.

01/12/2001

APER 3.1.7

Statements of Principle 1 to 4 apply to all approved persons. In the Statements of Principle and in the Code of Practice for Approved Persons, a reference to "his controlled function" is a reference to the controlled function to which the approval relates. A person performing a significant influence function is also subject to the additional requirements set out in Statements of Principle 5 to 7 in performing that controlled function. Those responsible under SYSC 2.1.3 R or SYSC 4.4.5 R (Apportionment of responsibilities) for the firm's apportionment obligation will be specifically subject to Statement of Principle 5 (and see in particular APER 4.5.6 E). In addition, it will be the responsibility of any such approved person to oversee that the firm has appropriate systems and controls under Statement of Principle 7 (and see in particular APER 4.7.3 E).

01/04/2009

APER 3.1.8

In applying Statements of Principle 5 to 7, the nature, scale and complexity of the business under management and the role and responsibility of the individual performing a significant influence function within the firm will be relevant in assessing whether an approved person's conduct was reasonable. For example, the smaller and less complex the business, the less detailed and extensive the systems of control need to be. The FSA will be of the opinion that an individual performing a significant influence function may have breached Statements of Principle 5 to 7 only if his conduct was below the standard which would be reasonable in all the circumstances. (See also APER 3.3.1 E (3) to (5))

01/12/2001

APER 3.1.9

UK domestic firms listed on the London Stock Exchange are subject to the Combined Code developed by the Committee on Corporate Governance, whose internal control provisions are amplified in the Guidance for Directors issued by the Institute of Chartered Accountants in England and Wales. FSA-regulated firms in this category will thus be subject to that code as well as to the requirements and standards of the regulatory system. In forming an opinion whether approved persons have complied with its requirements, the FSA will give due credit for their following corresponding provisions in the Combined Code and related guidance.

01/12/2001

APER 3.2

Factors relating to all Statements of Principle

01/12/2004

APER 3.2.1

In determining whether or not the particular conduct of an approved person within his controlled function complies with the Statements of Principle, the following are factors which, in the opinion of the FSA, are to be taken into account:

(1) whether that conduct relates to activities that are subject to other provisions of the Handbook;
(2) whether that conduct is consistent with the requirements and standards of the regulatory system relevant to his firm.

01/12/2001

APER 3.3

Factors relating to Statements of Principle 5 to 7

01/12/2004

APER 3.3.1

In determining whether or not the conduct of an approved person performing a significant influence function complies with Statements of Principle 5 to 7, the following are factors which, in the opinion of the FSA, are to be taken into account:

(1) whether he exercised reasonable care when considering the information available to him;
(2) whether he reached a reasonable conclusion which he acted on;
(3) the nature, scale and complexity of the firm's business;
(4) his role and responsibility as an approved person performing a significant influence function;
(5) the knowledge he had, or should have had, of regulatory concerns, if any, arising in the business under his control.

01/12/2001

APER 4

Code of Practice for Approved Persons:
specific

APER 4.1

Statement of Principle 1

01/12/2004

APER 4.1.1

The Statement of Principle 1 (see APER 2.1.2 P) is in the following terms: "An approved person must act with integrity in carrying out his controlled function."

01/12/2001

APER 4.1.2

In the opinion of the FSA, conduct of the type described in APER 4.1.3 E, APER 4.1.5 E, APER 4.1.6 E, APER 4.1.8 E, APER 4.1.10 E, APER 4.1.12 E or APER 4.1.13 E does not comply with Statement of Principle 1 (APER 2.1.2 P).

01/12/2001

APER 4.1.3

Deliberately misleading (or attempting to mislead) by act or omission:

(1) a client; or
(2) his firm (or its auditors or an actuary appointed by his firm under SUP 4 (Actuaries)); or
(3) the FSA;

falls within APER 4.1.2 E.

01/10/2005

APER 4.1.4

Behaviour of the type referred to in APER 4.1.3 E includes, but is not limited to, deliberately:

(1) falsifying documents;
(2) misleading a client about the risks of an investment;
(3) misleading a client about the charges or surrender penalties of investment products;
(4) misleading a client about the likely performance of investment products by providing inappropriate projections of future investment returns;
(5) misleading a client by informing him that products require only a single payment when that is not the case;
(6) mismarking the value of investments or trading positions;
(7) procuring the unjustified alteration of prices on illiquid or off-exchange contracts, or both;
(8) misleading others within the firm about the credit worthiness of a borrower;
(9) providing false or inaccurate documentation or information, including details of training, qualifications, past employment record or experience;
(10) providing false or inaccurate information to the firm (or to the firm's auditors or an actuary appointed by the firm under SUP 4 (Actuaries));
(11) providing false or inaccurate information to the FSA;
(12) destroying, or causing the destruction of, documents (including false documentation), or tapes or their contents, relevant to misleading (or attempting to mislead) a client, his firm, or the FSA;
(13) failing to disclose dealings where disclosure is required by the firm's personal account dealing rules;
(14) misleading others in the firm about the nature of risks being accepted.

01/10/2005

APER 4.1.5

Deliberately recommending an investment to a customer, or carrying out a discretionary transaction for a customer where the approved person knows that he is unable to justify its suitability for that customer, falls within APER 4.1.2 E.

01/12/2001

APER 4.1.6

Deliberately failing to inform, without reasonable cause:

(1) a customer; or
(2) his firm (or its auditors or an actuary appointed by his firm under SUP 4 (Actuaries)); or
(3) the FSA;

of the fact that their understanding of a material issue is incorrect, despite being aware of their misunderstanding, falls within APER 4.1.2 E.

01/10/2005

APER 4.1.7

Behaviour of the type referred to in APER 4.1.6 E includes, but is not limited to, deliberately:

(1) failing to disclose the existence of falsified documents;
(2) failing to rectify mismarked positions immediately.

01/12/2001

APER 4.1.8

Deliberately preparing inaccurate or inappropriate records or returns in connection with a controlled function, falls within APER 4.1.2 E.

01/12/2001

APER 4.1.9

Behaviour of the type referred to in APER 4.1.8 E includes, but is not limited to, deliberately:

(1) preparing performance reports for transmission to customers which are inaccurate or inappropriate (for example, by relying on past performance without appropriate warnings);
(2) preparing inaccurate training records or inaccurate details of qualifications, past employment record or experience;
(3) preparing inaccurate trading confirmations, contract notes or other records of transactions or holdings of securities for a customer, whether or not the customer is aware of these inaccuracies or has requested such records.

01/12/2001

APER 4.1.10

Deliberately misusing the assets or confidential information of a client or of his firm falls within APER 4.1.2 E.

01/12/2001

APER 4.1.11

Behaviour of the type referred to in APER 4.1.10 E includes, but is not limited to, deliberately:

(1) front running client orders;
(2) carrying out unjustified trading on client accounts to generate a benefit (whether direct or indirect) to the approved person (that is, churning);
(3) misappropriating a client's assets, including wrongly transferring to personal accounts cash or securities belonging to clients;
(4) wrongly using one client's funds to settle margin calls or to cover trading losses on another client's account or on firm accounts;
(5) using a client's funds for purposes other than those for which they were provided;
(6) retaining a client's funds wrongly;
(7) pledging the assets of a client as security or margin in circumstances where the firm is not permitted to do so.

01/12/2001

APER 4.1.12

Deliberately designing transactions so as to disguise breaches of requirements and standards of the regulatory system falls within APER 4.1.2 E.

01/12/2001

APER 4.1.13

Deliberately failing to disclose the existence of a conflict of interest in connection with dealings with a client falls within APER 4.1.2 E.

01/12/2001

APER 4.2

Statement of Principle 2

01/12/2004

APER 4.2.1

The Statement of Principle 2 (see APER 2.1.2 P) is in the following terms: "An approved person must act with due skill, care and diligence in carrying out his controlled function."

01/12/2001

APER 4.2.2

In the opinion of the FSA, conduct of the type described in APER 4.2.3 E, APER 4.2.5 E, APER 4.2.6 E, APER 4.2.8 E, APER 4.2.10 E, APER 4.2.11 E or APER 4.2.13 E does not comply with Statement of Principle 2 (APER 2.1.2 P).

01/12/2001

APER 4.2.3

Failing to inform:

(1) a customer; or
(2) his firm (or its auditors or an actuary appointed by his firm under SUP 4 Actuaries));

of material information in circumstances where he was aware, or ought to have been aware, of such information, and of the fact that he should provide it, falls within APER 4.2.2 E.

01/10/2005

APER 4.2.4

Behaviour of the type referred to in APER 4.2.3 E includes, but is not limited to:

(1) failing to explain the risks of an investment to a customer;
(2) failing to disclose to a customer details of the charges or surrender penalties of investment products;
(3) mismarking trading positions;
(4) providing inaccurate or inadequate information to a firm, its auditors or an actuary appointed by his firm under SUP 4 (Actuaries);
(5) failing to disclose dealings where disclosure is required by the firm's personal account dealing rules.

01/10/2005

APER 4.2.5

Recommending an investment to a customer, or carrying out a discretionary transaction for a customer, where he does not have reasonable grounds to believe that it is suitable for that customer, falls within APER 4.2.2 E.

01/12/2001

APER 4.2.6

Undertaking, recommending or providing advice on transactions without a reasonable understanding of the risk exposure of the transaction to a customer falls within APER 4.2.2 E.

01/12/2001

APER 4.2.7

Behaviour of the type referred to in APER 4.2.6 E includes, but is not limited to, recommending transactions in investments to a customer without a reasonable understanding of the liability (either potential or actual) of that transaction.

01/12/2001

APER 4.2.8

Undertaking transactions without a reasonable understanding of the risk exposure of the transaction to the firm falls within APER 4.2.2 E.

01/12/2001

APER 4.2.9

Behaviour of the type referred to in APER 4.2.8 E includes, but is not limited to, trading on the firm's own account without a reasonable understanding of the liability (either potential or actual) of the transaction.

01/12/2001

APER 4.2.10

Failing without good reason to disclose the existence of a conflict of interest in connection with dealings with a client falls within APER 4.2.2 E.

01/12/2001

APER 4.2.11

Failing to provide adequate control over a client's assets falls within APER 4.2.2 E.

01/12/2001

APER 4.2.12

Behaviour of the type referred to in APER 4.2.11 E includes, but is not limited to:

(1) failing to segregate a client's assets;
(2) failing to process a client's payments in a timely manner.

01/12/2001

APER 4.2.13

Continuing to perform a controlled function despite having failed to meet the standards of knowledge and skill set out in the Training and Competence sourcebook (TC) for that controlled function falls within APER 4.2.2 E.

01/12/2001

APER 4.3

Statement of Principle 3

01/12/2004

APER 4.3.1

The Statement of Principle 3 (see APER 2.1.2 P) is in the following terms: "An approved person must observe proper standards of market conduct in carrying out his controlled function."

01/12/2001

APER 4.3.3

A factor to be taken into account in determining whether or not an approved person's conduct complies with this Statement of Principle APER 2.1.2 P) is whether he, or his firm, has complied with the Code of Market Conduct MAR 1) or relevant market codes and exchange rules.

01/11/2007

APER 4.3.4

Compliance with the code or rules described in APER 4.3.3 E will tend to show compliance with this Statement of Principle (APER 2.1.2 P).

01/12/2001

APER 4.4

Statement of Principle 4

01/12/2004

APER 4.4.1

The Statement of Principle 4 (see APER 2.1.2 P) is in the following terms: "An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice."

01/12/2001

APER 4.4.2

For the purpose of this Statement of Principle (APER 2.1.2 P), regulators in addition to the FSA are those which have recognised jurisdiction in relation to regulated activities and a power to call for information from the approved person in connection with his controlled function or (in the case of an individual performing a significant influence function) in connection with the business for which he is responsible. This may include an exchange or an overseas regulator.

01/12/2001

APER 4.4.3

In the opinion of the FSA, conduct of the type described in APER 4.4.4 E, APER 4.4.7 E, or APER 4.4.9 E does not comply with Statement of Principle 4 (APER 2.1.2 P).

01/12/2001

APER 4.4.4

Failing to report promptly in accordance with his firm's internal procedures (or if none exist direct to the FSA), information which it would be reasonable to assume would be of material significance to the FSA, whether in response to questions or otherwise, falls within APER 4.4.3 E.

01/12/2001

APER 4.4.5

There is no duty on an approved person to report such information directly to the FSA unless he is one of the approved persons responsible within the firm for reporting matters to the FSA. However, if an approved person takes steps to influence the decision so as not to report to the FSA or acts in a way that is intended to obstruct the reporting of the information to the FSA, then the FSA will, in respect of that information, view him as being one of those within the firm who has taken on responsibility for deciding whether to report that matter to the FSA.

01/12/2001

APER 4.4.6

In determining whether or not an approved person's conduct under APER 4.4.4 E complies with Statement of Principle 4, the following are factors which, in the opinion of the FSA, are to be taken into account:

(1) the likely significance to the FSA of the information which it was reasonable for the individual to assume;
(2) whether the information related to the individual himself or to his firm;
(3) whether any decision not to report the matter internally was taken after reasonable enquiry and analysis of the situation.

01/12/2001

APER 4.4.7

Where the approved person is, or is one of the approved persons who is, responsible within the firm for reporting matters to the FSA, failing promptly to inform the FSA of information of which he is aware and which it would be reasonable to assume would be of material significance to the FSA, whether in response to questions or otherwise, falls within APER 4.4.3 E.

01/12/2001

APER 4.4.8

In determining whether or not an approved person's conduct under APER 4.4.7 E complies with Statement of Principle 4 (APER 2.1.2 P), the following are factors which, in the opinion of the FSA, are to be taken into account:

(1) the likely significance of the information to the FSA which it was reasonable for the approved person to assume;
(2) whether any decision not to inform the FSA was taken after reasonable enquiry and analysis of the situation.

01/12/2001

APER 4.4.9

Failing without good reason to:

(1) inform a regulator of information of which the approved person was aware in response to questions from that regulator;
(2) attend an interview or answer questions put by a regulator, despite a request or demand having been made;
(3) supply a regulator with appropriate documents or information when requested or required to do so and within the time limits attaching to that request or requirement;

falls within APER 4.4.3 E.

01/12/2001

APER 4.5

Statement of Principle 5

01/12/2004

APER 4.5.1

The Statement of Principle 5 (see APER 2.1.2 P) is in the following terms: "An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively."

01/12/2001

APER 4.5.2

In the opinion of the FSA, conduct of the type described in APER 4.5.3 E, APER 4.5.4 E, APER 4.5.6 E or APER 4.5.8 E does not comply with Statement of Principle 5 (APER 2.1.2 P).

01/12/2001

APER 4.5.3

Failing to take reasonable steps to apportion responsibilities for all areas of the business under the approved person's control falls within APER 4.5.2 E (see APER 4.5.11 G).

01/12/2001

APER 4.5.4

Failing to take reasonable steps to apportion responsibilities clearly amongst those to whom responsibilities have been delegated falls within APER 4.5.2 E (see APER 4.5.11 G).

01/12/2001

APER 4.5.5

Behaviour of the type referred to in APER 4.5.4 E includes, but is not limited to:

(1) implementing confusing or uncertain reporting lines (see APER 4.5.12 G);
(2) implementing confusing or uncertain authorisation levels (see APER 4.5.13 G);
(3) implementing confusing or uncertain job descriptions and responsibilities (see APER 4.5.13 G).

01/12/2001

APER 4.5.6

In the case of an approved person who is responsible under SYSC 2.1.3 R (1) or SYSC 4.4.5 R (1) for dealing with the apportionment of responsibilities under SYSC 2.1.1 R or SYSC 4.4.3 R, failing to take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among the firm's directors and senior managers falls within APER 4.5.2 E.

01/04/2009

APER 4.5.7

Behaviour of the type referred to in APER 4.5.6 E includes, but is not limited to:

(1) failing to review regularly the significant responsibilities which the firm is required to apportion under APER 2.1.1 G;
(2) failing to act where that review shows that those significant responsibilities have not been clearly apportioned.

01/12/2001

APER 4.5.8

Failing to take reasonable steps to ensure that suitable individuals are responsible for those aspects of the business under the control of the individual performing a significant influence function falls within APER 4.5.2 E (see APER 4.5.14 G).

01/12/2001

APER 4.5.9

Behaviour of the type referred to in APER 4.5.8 E includes, but is not limited to:

(1) failing to review the competence, knowledge, skills and performance of staff to assess their suitability to fulfil their duties, despite evidence that their performance is unacceptable (see APER 4.5.14 G);
(2) giving undue weight to financial performance when considering the suitability or continuing suitability of an individual for a particular role (see APER 4.5.14 G);
(3) allowing managerial vacancies which put at risk compliance with the requirements and standards of the regulatory system to remain, without arranging suitable cover for the responsibilities (see APER 4.5.15 G).

01/12/2001

APER 4.5.10

Strategy and plans will often dictate the risk which the business is prepared to take on and high level controls will dictate how the business is to be run. If the strategy of the business is to enter high-risk areas, then the degree of control and strength of monitoring reasonably required within the business will be high. In organising the business for which he is responsible, the approved person performing a significant influence function should bear this in mind.

01/12/2001

Apportionment of responsibilities

APER 4.5.11

In order to comply with the obligations of Statement of Principle 5 (having regard to APER 4.5.3 E and APER 4.5.4 E), the approved person performing a significant influence function may find it helpful to review whether each area of the business for which he is responsible has been clearly assigned to a particular individual or individuals.

01/12/2001

Reporting lines

APER 4.5.12

The organisation of the business and the responsibilities of those within it should be clearly defined (see APER 4.5.5 E (1)). Reporting lines should be clear to staff. Where staff have dual reporting lines there is a greater need to ensure that the responsibility and accountability of each individual line manager is clearly set out and understood.

01/12/2001

Authorisation levels and job descriptions

APER 4.5.13

Where members of staff have particular levels of authorisation (see APER 4.5.5 E (2) and APER 4.5.5 E (3)), these should be clearly set out and communicated to staff. It may be appropriate for each member of staff to have a job description of which he is aware.

01/12/2001

Suitability of individuals

APER 4.5.14

If an individual's performance is unsatisfactory, then the appropriate approved person (if any) performing a significant influence function should review carefully whether to allow that individual to continue in position. In particular, if he is aware of concerns relating to the compliance with requirements and standards of the regulatory system (or internal controls) of the individual concerned, or of staff reporting to that individual, the approved person performing a significant influence function should take care not to give undue weight to the financial performance of the individual or group concerned when considering whether any action should be taken. An adequate investigation of the concerns should be undertaken (including, where appropriate, adherence to internal controls). The approved person performing a significant influence function should satisfy himself, on reasonable grounds, that the investigation is appropriate, the results are accurate and that the concerns do not pose an unacceptable risk to compliance with the requirements and standards of the regulatory system (see in particular Statement of Principle 6 and APER 4.5.8 E and APER 4.5.9 E (1) and APER 4.5.9 E (2)).

01/12/2001

Temporary vacancies

APER 4.5.15

In organising the business, the approved person performing a significant influence function should pay attention to any temporary vacancies which exist (see APER 4.5.9 E (3)). He should take reasonable steps to ensure that suitable cover for responsibilities is arranged. This could include taking on temporary staff or external consultants. The approved person performing a significant influence function should assess the risk that is posed to compliance with the requirements and standards of the regulatory system as a result of the vacancy, and the higher the risk the greater the steps he should take to fill the vacancy. It may be appropriate to limit or suspend the activity if appropriate cover for responsibilities cannot be arranged. To the extent that those vacancies are in respect of one of the customer functions, they may only be filled by persons approved for that function.

01/12/2001

APER 4.6

Statement of Principle 6

01/12/2004

APER 4.6.1

The Statement of Principle 6 (see APER 2.1.2 P) is in the following terms: "An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function."

01/12/2001

APER 4.6.2

In the opinion of the FSA, conduct of the type described in APER 4.6.3 E, APER 4.6.5 E, APER 4.6.6 E or APER 4.6.8 E does not comply with Statement of Principle 6 (APER 2.1.2 P).

01/12/2001

APER 4.6.3

Failing to take reasonable steps to adequately inform himself about the affairs of the business for which he is responsible falls within APER 4.6.2 E.

01/12/2001

APER 4.6.4

Behaviour of the type referred to in APER 4.6.3 E includes, but is not limited to:

(1) permitting transactions without a sufficient understanding of the risks involved;
(2) permitting expansion of the business without reasonably assessing the potential risks of that expansion;
(3) inadequately monitoring highly profitable transactions or business practices or unusual transactions or business practices;
(4) accepting implausible or unsatisfactory explanations from subordinates without testing the veracity of those explanations;
(5) failing to obtain independent, expert opinion where appropriate; (see APER 4.6.12 G).

01/12/2001

APER 4.6.5

Delegating the authority for dealing with an issue or a part of the business to an individual or individuals (whether in-house or outside contractors) without reasonable grounds for believing that the delegate had the necessary capacity, competence, knowledge, seniority or skill to deal with the issue or to take authority for dealing with part of the business, falls within APER 4.6.2 E (see APER 4.6.13 G).

01/12/2001

APER 4.6.6

Failing to take reasonable steps to maintain an appropriate level of understanding about an issue or part of the business that he has delegated to an individual or individuals (whether in-house or outside contractors) falls within APER 4.6.2 E (see APER 4.6.14 G).

01/12/2001

APER 4.6.7

Behaviour of the type referred to in APER 4.6.6 E includes but is not limited to:

(1) disregarding an issue or part of the business once it has been delegated;
(2) failing to require adequate reports once the resolution of an issue or management of part of the business has been delegated;
(3) accepting implausible or unsatisfactory explanations from delegates without testing their veracity.

01/12/2001

APER 4.6.8

Failing to supervise and monitor adequately the individual or individuals (whether in-house or outside contractors) to whom responsibility for dealing with an issue or authority for dealing with a part of the business has been delegated falls within APER 4.6.2 E.

01/12/2001

APER 4.6.9

Behaviour of the type referred to in APER 4.6.8 E includes, but is not limited to:

(1) failing to take personal action where progress is unreasonably slow, or where implausible or unsatisfactory explanations are provided;
(2) failing to review the performance of an outside contractor in connection with the delegated issue or business.

01/12/2001

APER 4.6.10

In determining whether or not the conduct of an approved person performing a significant influence function under APER 4.6.5 E, APER 4.6.6 E and APER 4.6.8 E complies with Statement of Principle 6 (see APER 2.1.2 P), the following are factors which, in the opinion of the FSA, are to be taken into account:

(1) the competence, knowledge or seniority of the delegate; and
(2) the past performance and record of the delegate.

01/12/2001

APER 4.6.11

An approved person performing a significant influence function will not always manage the business on a day-to-day basis himself. The extent to which he does so will depend on a number of factors, including the nature, scale and complexity of the business and his position within it. The larger and more complex the business, the greater the need for clear and effective delegation and reporting lines. The FSA will look to the approved person performing a significant influence function to take reasonable steps to ensure that systems are in place which result in issues being addressed at the appropriate level. When issues come to his attention, he should deal with them in an appropriate way.

01/12/2001

Knowledge about the business

APER 4.6.12

(1) It is important for the approved person performing a significant influence function to understand the business for which he is responsible (APER 4.6.4 E). An approved person performing a significant influence function is unlikely to be an expert in all aspects of a complex financial services business. However, he should understand and inform himself about the business sufficiently to understand the risks of its trading, credit or other business activities.
(2) It is important for an approved person performing a significant influence function to understand the risks of expanding the business into new areas and, before approving the expansion, he should investigate and satisfy himself, on reasonable grounds, about the risks, if any, to the business.
(3) Where unusually profitable business is undertaken, or where the profits are particularly volatile or the business involves funding requirements on the firm beyond those reasonably anticipated, he should require explanations from those who report to him. Where those explanations are implausible or unsatisfactory, he should take steps to test the veracity of those explanations.
(4) Where the approved person performing a significant influence function is not an expert in a business area, he should consider whether he or those with whom he works have the necessary expertise to provide him with an adequate explanation of issues within that business area. If not he should seek an independent opinion from elsewhere within or outside the firm.

01/12/2001

Delegation

APER 4.6.13

(1) An approved person performing a significant influence function may delegate the investigation, resolution or management of an issue or authority for dealing with a part of the business to individuals who report to him or to others.
(2) The approved person performing a significant influence function should have reasonable grounds for believing that the delegate has the competence, knowledge, skill and time to deal with the issue. For instance, if the compliance department only has sufficient resources to deal with day-to-day issues, it would be unreasonable to delegate to it the resolution of a complex or unusual issue without ensuring it had sufficient capacity to deal with the matter adequately.
(3) If an issue raises questions of law or interpretation, the approved person performing a significant influence function may need to take legal advice. If appropriate legal expertise is not available in-house, he may need to consider appointing an appropriate external adviser.
(4) The FSA recognises that the approved person performing a significant influence function will have to exercise his own judgment in deciding how issues are dealt with, and that in some cases that judgment will, with the benefit of hindsight, be shown to have been wrong. He will not be in breach of Statement of Principle 6 unless he fails to exercise due and reasonable consideration before he delegates the resolution of an issue or authority for dealing with a part of the business and fails to reach a reasonable conclusion. If he is in doubt about how to deal with an issue or the seriousness of a particular compliance problem, then, although he cannot delegate to the FSA the responsibility for dealing with the problem or issue, he can speak to the FSA to discuss his approach (see APER 4.6.5 E).

01/12/2001

Continuing responsibilities where an issue has been delegated

APER 4.6.14

Although an approved person performing a significant influence function may delegate the resolution of an issue, or authority for dealing with a part of the business, he cannot delegate responsibility for it. It is his responsibility to ensure that he receives reports on progress and questions those reports where appropriate. For instance, if progress appears to be slow or if the issue is not being resolved satisfactorily, then the approved person performing a significant influence function may need to challenge the explanations he receives and take action himself to resolve the problem. This may include increasing the resource applied to it, reassigning the resolution internally or obtaining external advice or assistance. Where an issue raises significant concerns, an approved person performing a significant influence function should act clearly and decisively. If appropriate, this may be by suspending members of staff or relieving them of all or part of their responsibilities (see APER 4.6.6 E).

01/12/2001

APER 4.7

Statement of Principle 7

01/12/2004

APER 4.7.1

The Statement of Principle 7 (see APER 2.1.2 P) is in the following terms: "An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system."

01/12/2001

APER 4.7.2

In the opinion of the FSA, conduct of the type described in APER 4.7.3 E, APER 4.7.4 E, APER 4.7.5 E, APER 4.7.7 E, APER 4.7.9 E, APER 4.7.10 E or APER 4.7.11A E does not comply with Statement of Principle 7 (APER 2.1.2 P).

06/08/2009

APER 4.7.3

Failing to take reasonable steps to implement (either personally or through a compliance department or other departments) adequate and appropriate systems of control to comply with the relevant requirements and standards of the regulatory system in respect of its regulated activities falls within APER 4.7.2 E. In the case of an approved person who is responsible, under SYSC 2.1.3 R (2) or SYSC 4.4.5 R (2), with overseeing the firm's obligation under SYSC 3.1.1 R or SYSC 4.1.1 R, failing to take reasonable care to oversee the establishment and maintenance of appropriate systems and controls falls within APER 4.7.2 E.

01/04/2009

APER 4.7.4

Failing to take reasonable steps to monitor (either personally or through a compliance department or other departments) compliance with the relevant requirements and standards of the regulatory system in respect of its regulated activities falls within APER 4.7.2 E (see APER 4.7.12 G).

01/12/2001

APER 4.7.5

Failing to take reasonable steps adequately to inform himself about the reason why significant breaches (whether suspected or actual) of the relevant requirements and standards of the regulatory system in respect of its regulated activities may have arisen (taking account of the systems and procedures in place) falls within APER 4.7.2 E.

01/12/2001

APER 4.7.6

Behaviour of the type referred to in APER 4.7.5 E includes, but is not limited to, failing to investigate what systems or procedures may have failed including, where appropriate, failing to obtain expert opinion on the adequacy of the systems and procedures.

01/12/2001

APER 4.7.7

Failing to take reasonable steps to ensure that procedures and systems of control are reviewed and, if appropriate, improved, following the identification of significant breaches (whether suspected or actual) of the relevant requirements and standards of the regulatory system relating to its regulated activities, falls within APER 4.7.2 E (see APER 4.7.13 G).

01/12/2001

APER 4.7.8

Behaviour of the type referred to in APER 4.7.7 E includes, but is not limited to:

(1) unreasonably failing to implement recommendations for improvements in systems and procedures;
(2) unreasonably failing to implement recommendations for improvements to systems and procedures in a timely manner.

01/12/2001

APER 4.7.9

In the case of the money laundering reporting officer, failing to discharge the responsibilities imposed on him by the firm in accordance with SYSC 3.2.6I R or SYSC 6.3.9 R falls within APER 4.7.2 E.

01/04/2009

APER 4.7.10

In the case of an approved person performing a significant influence function responsible for compliance under SYSC 3.2.8 R, SYSC 6.1.4 R or SYSC 6.1.4A R, failing to take reasonable steps to ensure that appropriate compliance systems and procedures are in place falls within APER 4.7.2 E (see APER 4.7.14 G).

01/04/2009

APER 4.7.11

The FSA expects an approved person performing a significant influence function to take reasonable steps both to ensure his firm's compliance with the relevant requirements and standards of the regulatory system and to ensure that all staff are aware of the need for compliance.

01/12/2001

APER 4.7.11A

Where the approved person is a proprietary trader under SUP 10.9.10 R (1A), failing to maintain and comply with appropriate systems and controls in relation to that activity falls within APER 4.7.2 E.

06/08/2009

Systems of control

APER 4.7.12

An approved person performing a significant influence function need not himself put in place the systems of control in his business (APER 4.7.4 E). Whether he does this depends on his role and responsibilities. He should, however, take reasonable steps to ensure that the business for which he is responsible has operating procedures and systems which include well-defined steps for complying with the detail of relevant requirements and standards of the regulatory system and for ensuring that the business is run prudently. The nature and extent of the systems of control that are required will depend upon the relevant requirements and standards of the regulatory system, and the nature, scale and complexity of the business (see APER 3.3.2).

01/12/2001

Possible breaches of regulatory requirements

APER 4.7.13

Where the approved person performing a significant influence function becomes aware of actual or suspected problems that involve possible breaches of relevant requirements and standards of the regulatory system falling within his area of responsibility, then he should take reasonable steps to ensure that they are dealt with in a timely and appropriate manner (APER 4.7.7 E). This may involve an adequate investigation to find out what systems or procedures may have failed and why. He may need to obtain expert opinion on the adequacy and efficacy of the systems and procedures.

01/12/2001

Review and improvement of systems and procedures

APER 4.7.14

Where independent reviews of systems and procedures have been undertaken and result in recommendations for improvement, the approved person performing a significant influence function should ensure that, unless there are good reasons not to, any reasonable recommendations are implemented in a timely manner (APER 4.7.10 E). What is reasonable will depend on the nature of the inadequacy and the cost of the improvement. It will be reasonable for the approved person performing a significant influence function to carry out a cost benefit analysis when assessing whether the recommendations are reasonable.

01/12/2001

Transitional Provisions and Schedules

APER TP 1

Transitional Provisions

APER TP 1.1

There are no transitional provisions in APER. However, GEN contains some technical transitional provisions that apply throughout the Handbook and which are designed to ensure a smooth transition at commencement.

01/12/2004

APER Sch 1

Record keeping requirements

01/12/2004

APER Sch 1.1

There are no record keeping requirements in APER.

01/12/2004

APER Sch 2

Notification requirements

01/12/2004

APER Sch 2.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant requirements for notification and reporting.

01/12/2004

APER Sch 2.2

It is not a complete statement of those requirements and should not be relied on as if it were.

01/12/2004

APER Sch 2.3

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

Statement of Principle 4 (APER 2.1.2 P)

Any information of which the FSA would reasonably expect notice

Appropriate disclosure

Any information of which the FSA would reasonably expect notice

Appropriate

01/12/2004

APER Sch 3

Fees and required payments

01/12/2004

APER Sch 3.1

There are no requirements for fees or other payments in APER.

01/12/2004

APER Sch 4

Powers exercised

01/12/2004

APER Sch 4.1

The following powers in the Act have been exercised by the FSA to issue the Statements of Principle and Code of Practice for Approved Persons:

Section 64(1) and (2) (Conduct: statements and codes).

01/12/2004

APER Sch 4.2

The following power in the Act has been exercised by the FSA to give the guidance in APER:

Section 157(1) (Guidance).

01/12/2004

APER Sch 5

Rights of action for damages

01/12/2004

APER Sch 5.1

There are no rules in APER.

01/12/2004

APER Sch 6

Rules that can be waived

01/12/2004

APER Sch 6.1

There are no rules in APER.

01/12/2004