The FSA has a designation for people who have a responsible role in insurance mediation. Steve Dutton explains
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 Once approved, a person must maintain his fitness and propriety or risk having approval withdrawn.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
Test yourself on approved persons
1. Statement of Principle 3 requires an approved person to observe proper standards of what, in carrying out his controlled function?
A Honesty and integrity
B Knowledge and skill
C Market conduct
2. How must an approved person act under Statement of Principle 2 in carrying out his controlled function?
A With honesty, integrity and propriety
B With due skill, care and diligence
C With competence, skill and capability
D With speed and accuracy
3. The rules about approved persons apply to people within the industry who do what, specifically?
A Occupy a senior role
B erform a controlled function
C Undertake regulated activities
D Put in place compliance systems and controls
4. Statements of Principle 5 - 7 apply to approved persons who are performing what type of controlled functions?
A Significant influence functions
B Regulated functions
C Approved functions
D Responsible functions
5. What piece of information should a firm disclose to the regulator as part of the application for an employee to have approved person status?
A Her age, medical records, health records and marital status
B Confirmation of her O and A level examinations from the 1980s
C Records from her appraisals over the past five years
D Her employment history and relevant professional qualifications
6. How does the Code of Conduct for Approved Persons work?
A It provides a complete list of all conduct and behaviour that would breach the Statements of Principle for Approved Persons
B It provides examples and guidance on the kind of conduct and behaviour that would breach the Statements of Principle for Approved Persons
C It provides a complete list of all conduct and behaviour that must be performed in order to comply with the Statements of Principle for Approved Persons
D It provides examples and guidance on the kinds of conduct and behaviour that should be performed to comply with the Statements of Principle for Approved Persons
7. Which of these events in a person's history would be relevant to his application for approved person status under the honesty, integrity and reputation heading?
A He worked in an IFA firm with three other men who were censured by a previous regulator for breaching its rules
B He was a junior employee in a company that offered credit facilities to customers but had its licence withdrawn
C He was asked to resign from his position as non-executive director of small general insurance broker
D He was asked to meet with a regulator to discuss the systems and controls that his firm had in place to deal with client assets
8. What will happen to an application for approved person status where the applicant has a criminal conviction which is not relevant to the function to be performed?
A It will not automatically be rejected and the rest of the application can be considered
B The application will have to be deferred until the conviction is spent under the Rehabilitation of Offenders Act 1974
C The FSA will grant a limited form of authorisation and require the firm to monitor the individual's performance very closely
D The application will be refused automatically and the applicant will not be able to apply again in the future
9. There are three headings under which the FSA assesses whether someone should be authorised to become an approved person. Which of these options IS NOT one of these headings?
A Honesty, integrity and reputation
B Competence and capability
C Skill and knowledge
D Financial soundness
10. What limit is placed on the information about previous convictions that the FSA can seek from the applicant for approved person status?
A It can only ask for information about any convictions that the applicant has received within the past three years.
B It can ask for any information about convictions received within the past ten years, but only those relating to financial dishonesty
C It can ask for any information about convictions no matter how long ago, as long as they are not spent under the Rehabilitation of Offenders Act 1974
D It can ask for any information about convictions no matter how long ago and spent or not