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The Importance of the Approved Persons Process

 

 

The approved person’s process

 

An approved person is an individual who has been approved by the PRA and/or the FCA to perform one or more Controlled Functions on behalf of an authorised firm.

Under section 59 of the Financial Services and Markets Act 2000 (FSMA), authorised firms are required to ensure that individuals seeking to perform one or more of the PRA–designated Controlled Functions seek PRA approval prior to taking up their position. 


Non-approval prior to taking up the role may lead to enforcement action against the firm and/or the individual.

 

 

The importance of the approved person process

 

The importance of the approved person process is sometimes underestimated by Challenger Banks when appointing their boards. 

What should Challenger Banks be aware of before approaching executives? 

Ultimately, the executives must satisfy the FCA that they meet and will maintain the criteria for approval. This is called the “Fit and Proper Test”. 

 

 

The “Fit and Proper Test”

 

The “Fit and Proper Test” is a benchmark used by the FCA to assess whether the executives are suitable to perform Controlled Functions. The most important considerations are: 

• Honesty, integrity and reputation. 
• Competence and capability. 
• Financial soundness. 
• Able to perform the Controlled Functions in line with a set of standards (the Statements of Principle and Code of Practice for Approved Persons). 

The FCA also evaluates the specific experience of any person required to fulfil the responsibility of governing the bank and whose decisions or actions are regularly taken into account by the board. 

Principle expertise: 

• Product related knowledge, such as deposit taking. 
• Liquidity, capital and other regulatory requirements. 
• Core banking system, including payment mechanisms. 
• Previous bank building or bank restructuring exposure. 

The approval process is not based upon passing an exam, but a judgement by the FCA based upon a considered decision. One may very crudely refer to this judgement as “gut instinct”. 

 

 

The Senior Managers Regime

 

The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime will involve allocating and mapping out responsibilities and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions (SMFs).


While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards.

 

 

The Certification Regime 

 

The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or submit to benchmarks). These staff will not be pre-approved by regulators, and firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators.


These preparations will be important not only when recruiting for roles that come under the Certification Regime but when reassessing each year the fitness and propriety of staff who are subject to the regime.

 

 

 

 

 

  • Will Banks – CFO

  • Challenger Capital

  • January 2016