What Is Required to Be FCA-Approved?

Becoming an FCA-approved person is a significant responsibility within the UK financial services industry. Approval by the Financial Conduct Authority (FCA) ensures that individuals carrying out key roles within regulated firms are competent, honest, and capable of maintaining the high standards required by the regulator. The process involves rigorous assessments and adherence to strict rules to protect consumers and maintain market integrity. In this article, we will outline the requirements and procedures necessary to become FCA-approved.

Application Process for FCA Approval

The first step in becoming an FCA-approved person is a formal application. This process involves both the individual and the firm that employs them. The firm plays a crucial role in supporting the application and ensuring the individual meets the required criteria.

Controlled Functions

In order to be approved, the individual must be applying for one or more controlled functions within the firm. Controlled functions are specific roles identified by the FCA as having regulatory importance. These functions typically include senior management roles and customer-facing positions. The individual cannot perform any of these roles without first obtaining FCA approval. Examples of controlled functions include:

  • Senior Management Functions (SMFs): These are positions of significant responsibility within the firm, such as Chief Executive Officers, Risk Officers, and Compliance Officers.
  • Customer-Facing Roles: These include financial advisers, brokers, and other individuals who deal directly with consumers.

The application must be submitted by the authorized firm on behalf of the individual, confirming that the person is suitable for the role.

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Firm’s Responsibility in the Application

The firm has a duty to ensure that the candidate meets all necessary regulatory requirements before submitting the application. This involves conducting its own internal checks on the individual’s qualifications, experience, and background. The firm must demonstrate to the FCA that the candidate is appropriate for the role by providing evidence of their competence, honesty, and financial soundness.

Once the application is submitted, the FCA conducts a thorough review to assess whether the individual meets its standards. This is known as the Fit and Proper Test, which is a central component of the approval process.

The Fit and Proper Test

The Fit and Proper Test is a critical evaluation that the FCA uses to determine whether a candidate is suitable to become an approved person. The test assesses three core criteria:

1. Honesty, Integrity, and Reputation

The FCA places a high emphasis on the honesty and integrity of individuals applying for controlled functions. During this stage of the evaluation, the FCA investigates the individual’s personal and professional history to identify any issues that may affect their suitability. This includes:

  • Disclosure of criminal convictions or regulatory sanctions.
  • Evidence of ethical behavior in previous roles.
  • A review of the individual’s professional reputation within the industry.

If the individual has a history of misconduct, dishonesty, or poor ethical judgment, it is unlikely that the FCA will grant approval.

2. Competence and Capability

To be considered competent, the individual must possess the necessary skills, qualifications, and experience required to perform their designated role effectively. The FCA assesses the following:

  • Professional qualifications relevant to the role.
  • Work experience in similar positions.
  • Technical knowledge and understanding of financial regulations.

Individuals applying for senior management functions must demonstrate an advanced level of expertise, as their decisions can significantly impact the firm’s compliance with regulatory requirements.

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3. Financial Soundness

The FCA also evaluates the financial soundness of the candidate to ensure they are capable of managing financial risks and avoiding conflicts of interest. This includes reviewing the individual’s personal financial history, such as:

  • Credit history and any bankruptcies.
  • Personal financial solvency and any existing debt issues.

If an individual has a history of financial instability, they may be considered a risk and could be denied approval.

Compliance with FCA Conduct Rules

Once an individual is granted FCA approval, they are expected to adhere to strict conduct rules. These rules are in place to ensure that approved persons maintain high standards of behavior and ethical conduct while carrying out their responsibilities.

1. General Conduct Rules

The General Conduct Rules apply to most employees within authorized firms and include basic requirements such as:

  • Acting with integrity: Approved persons must always conduct themselves with honesty and fairness.
  • Acting in the best interest of clients: They must prioritize the interests of their customers and avoid conflicts of interest.
  • Ensuring due diligence: Approved persons must carry out their duties with the necessary level of care, skill, and attention.

2. Senior Manager Conduct Rules

For those in Senior Management Functions, additional conduct rules apply. These individuals are responsible for ensuring that the firm complies with all regulatory requirements. Key responsibilities include:

  • Overseeing governance: Senior managers must ensure that the firm’s governance structures are sound and that all activities are in line with the firm’s regulatory obligations.
  • Ensuring proper risk management: They must implement and maintain effective risk management processes to protect both the firm and its clients.
  • Reporting failures: Senior managers are responsible for reporting any regulatory breaches or issues that could impact the firm’s compliance.
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Ongoing Reporting and Accountability

Once an individual is approved, their obligations do not end. Ongoing accountability is a critical component of being an FCA-approved person. Individuals must continue to meet the FCA’s requirements throughout their tenure in the role. This includes the following responsibilities:

1. Reporting Changes in Circumstances

If an approved person’s circumstances change in a way that could affect their fitness or propriety, they are required to report these changes to both their firm and the FCA. Such changes may include:

  • Personal financial difficulties.
  • Criminal charges or investigations.
  • Significant changes in their role or responsibilities.

2. Accountability for Failures

Under the Senior Managers and Certification Regime (SM&CR), senior managers are held personally accountable for regulatory failures that occur within their areas of responsibility. If a firm is found to be in breach of FCA regulations, senior managers can face disciplinary actions, such as:

  • Fines.
  • Suspension from their role.
  • Revocation of their FCA approval.

The SM&CR ensures that senior managers take their responsibilities seriously and act in a manner that protects the interests of both the firm and its clients.

Disciplinary Actions for Non-Compliance

Failure to comply with the FCA’s rules can lead to disciplinary actions. This applies not only to the firm but also to the approved person individually. Penalties for non-compliance include:

  • Financial penalties: Individuals may be fined for breaches of conduct rules or regulatory failures.
  • Suspension: The FCA has the authority to suspend an approved person from their role temporarily or permanently.
  • Revocation of approval: In serious cases, the FCA may revoke an individual’s approval, barring them from carrying out any further controlled functions within the financial services industry.

Conclusion

Becoming an FCA-approved person is a rigorous and highly responsible process that involves meeting strict criteria set by the FCA. From passing the Fit and Proper Test to complying with conduct rules and maintaining ongoing accountability, individuals seeking FCA approval must demonstrate competence, integrity, and sound judgment in their roles. The FCA’s stringent requirements ensure that only qualified and ethical individuals are entrusted with key roles within the financial services industry, safeguarding consumers and maintaining the integrity of financial markets.