All about approved persons

he concept of an “approved person” is central to the FSA’s regulatory approach – but what does it mean? An approved person is someone who the regulator has given permission to carry out a controlled function.

For a member of staff to become approved, a firm must submit an application to the FSA, which will then consider whether the applicant is fit and proper to perform the controlled function.

The ‘fit and proper’ test for approved persons monitors three areas – honesty, integrity and reputation; competence and capability; and financial soundness. Once approved, a person must maintain his fitness and propriety or risk having approval withdrawn.

For honesty, integrity and reputation, the FSA will consider whether the applicant has ever been convicted of a criminal offence, paying particular attention to offences of dishonesty, fraud, or financial crime.

When assessing a person’s suitability to be approved, the FSA is exempt from the Rehabilitation of Offenders Act (1974), meaning any criminal convictions must be disclosed. Each case is looked at on its merits so a conviction may not necessarily bar an individual from being an approved person.

When determining competence and capability, the FSA asks whether the person meets the requirements of the Training and Competence Sourcebook in relation to the controlled functions for which he is seeking approval; and whether the person has demonstrated by his experience or training that he is able or will be able to perform the controlled function?

Finally, the FSA will examine the candidate’s financial soundness. Here the main issues are whether the person has been the subject of any outstanding judgment debt or award in the UK or elsewhere, or one that was not satisfied within a reasonable period; and whether the person has (in the UK or elsewhere) made any arrangements with their creditors, filed for bankruptcy, been adjudged bankrupt, had assets sequestrated, or been involved in proceedings relating to any of these.

The FSA is not interested in how much money an applicant has and will rarely ask for a statement of assets and liabilities. An applicant with limited financial means is just as likely to succeed as one with a healthier bank balance.

Once the FSA has granted approval, the approved person must still comply with its Statements of Principle for Approved persons, one of the high level standards that applies to all authorised firms.

These Statements of Principle are supported by the Code of Conduct for Approved Persons, which gives examples of behaviour that would not comply with the statements of principle.

The code is designed to help the FSA and authorised firms decide whether a person’s conduct falls below the standards expected by the Statements of Principle and when doing this the FSA would also establish whether the conduct being considered relates to any activities that are subject to other provisions of the handbook, and is consistent with the requirements and standards of the regulatory system relevant to the firm for which the approved person works.

The Statements of Principle with which approved persons must comply are broken down into two groups.

Statements of Principle 1 – 4 apply to all approved persons, requiring them to act with integrity, due skill, and observance of market conduct when carrying out their controlled function, and to deal with the FSA and other regulators in an open and cooperative way, disclosing appropriately any information of which the FSA would reasonably expect notice.

Statements of Principle 5 – 7 apply to those approved persons who are performing significant influence functions – management functions relating to the governance of the organisation.

The principles state that an approved person must take reasonable steps to ensure the business of the firm for which they are responsible in their controlled function is organised so that it can be controlled effectively; exercise due skill, care and diligence in managing the business of the firm; and take reasonable steps to ensure the business of the firm complies with the relevant requirements and standards of the regulatory system.

This is the framework of what an approved person is, how they become approved and what their responsibilities are.

Steve Dutton is business development manager at the CII