The FSA has been taking a more intrusive approach to regulating the appointment of senior functions within companies. But how does this affect brokers?

When did you last have to replace a senior member of your company? And when do you think the next time may be? Because regulations are changing, and it’s up to you to keep up to date with the increasing demands of the FSA’s approved persons regime.

In October, the regulator sent a letter to the chief executives of all of its 5,000 relationship managed firms to clarify its “more intrusive regulatory approach” to appointing individuals with responsibility for significant influence functions (SIFs). It also emphasised firms’ responsibility to engage with the FSA at an early stage when selecting candidates.

Many brokers may shrug their shoulders at this. After all, intermediaries only make up around 5% of the companies on the relationship managed list, according to Biba’s head of compliance and training, Steve White.

But the “Dear CEO” letter, as it is known, is symptomatic of a wider, more rigorous approach to the approved persons regime. The FSA has been responsible for authorising the appointment of approved persons since 2000. But following its Northern Rock review, it decided it would have to take a more active role in making sure that financial services firms had the right management in place.

A consultation paper on this was issued in December last year, which led to a policy change in July. This stressed a more intrusive approach, in particular that it would be interviewing more candidates in circumstances where it had reason for concern. According to the FSA, following over 170 interviews with its panel in the past year, 19 people have withdrawn their candidacies.

Another, broader, change has been an alteration to the application form for all approved persons, which now asks for more detailed information on candidates.

FSA director of permissions, decisions and reporting Graeme Ashley-Fenn says: “What we have identified is that firms themselves are not paying close enough attention. This applies to brokers as well. If they are appointing someone, they need to make sure that the person has the right propriety, honesty, integrity and also the right competency to fulfil the role.”

Institute of Insurance Brokers’ head of technical services, Ann Peel, says: “Our members, which are typically smaller firms, are unlikely to feel an immediate impact. However, they need to be aware that the regulation process is now more rigorous and will probably take longer. Firms will have to do a good deal more vetting themselves in order to be confident that the person concerned is fully competent to undertake the role and will meet FSA criteria.”

So what happens if the FSA feels that a candidate is unsuitable? In some cases, this can be addressed by agreeing a development plan to fulfil training needs around competencies, which would be reviewed by the FSA after six months.

If it is not satisfied that a development plan will rectify the problem, the FSA will ask the firm if it still wants to proceed with the application. If it does, then the FSA convenes a committee to assess whether to issue a warning notice to the firm and individual in question. An appeal can then be made against this, if the firm and applicant feel they are being treated unfairly.

While the more rigorous approach of the regulator may not affect you now, if you are not aware of it when you next appoint a senior person, it could lead to unnecessary difficulty.

It’s time to start paying attention.

Approved persons FSA checklist

  • Relationship managed firms need to engage with the FSA at the shortlisting stage of the application process to ensure candidates are suitable.
  • All firms regulated by the FSA must complete an application in the form of ‘Long Form A: Applications to perform controlled functions under the approved persons regime’, which can be downloaded from the FSA website.
  • Note that section 6 of the form has been revised and a more detailed response is required. Emphasis is on demonstrating the candidate’s honesty, integrity, reputation, competence and financial soundness.
  • The FSA requires the candidate’s previous employer to provide facts, rather than opinions, about the applicant’s suitability.
  • Failure to notify the FSA of a SIF appointment may result in investigations and ultimately enforcement action. The responsibility lies with the firm rather than the individual candidate. IT