What Makes Someone an FCA-Approved Person?

An FCA-approved person is an individual authorized by the Financial Conduct Authority (FCA) to carry out specific controlled functions within a firm that operates in the UK financial sector. To obtain this status, the individual must meet stringent requirements and demonstrate a high level of integrity, competence, and suitability for the role. The Approved Persons Regime (APER) ensures that individuals holding significant positions within financial services are qualified to act in the best interests of customers and maintain the firm’s compliance with regulatory standards.

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Key Criteria for Becoming an FCA-Approved Person

1. The Fit and Proper Test

One of the central pillars of becoming an FCA-approved person is passing the fit and proper test, which assesses a candidate’s suitability based on three main areas:

Honesty, Integrity, and Reputation: The FCA requires individuals to demonstrate a history of honesty and integrity. Any past misconduct, failure to disclose relevant information, or reputational issues could jeopardize the application. This criterion ensures that only those with a proven track record of ethical behavior are approved.
Competence and Capability: The individual must possess the necessary skills, experience, and qualifications to perform their designated role effectively. This is particularly critical for senior positions such as directors, compliance officers, or money laundering reporting officers.
Financial Soundness: An approved person should demonstrate financial soundness. Individuals with significant financial problems, such as bankruptcy, may be deemed unfit to handle financial responsibilities. This measure ensures that those managing the financial affairs of others are financially stable themselves.

2. Application Process

The application process to become an FCA-approved person is thorough and is submitted by the firm on behalf of the candidate. The firm must provide a detailed submission to the FCA, including comprehensive information about the candidate’s professional background, financial status, and any potential issues that could affect their suitability.

The firm is responsible for ensuring that the candidate meets the fit and proper criteria before applying. The FCA then evaluates the application based on the data provided and may conduct further investigations or request additional information.

Controlled Functions

An FCA-approved person is authorized to perform specific roles known as controlled functions. These are tasks that hold significant regulatory importance, as individuals in these positions make critical decisions or oversee the firm’s compliance with regulatory frameworks.

Examples of Controlled Functions:

Director Roles: Individuals who hold directorships within a firm are responsible for strategic oversight and must ensure that the firm operates within regulatory guidelines.
Compliance Oversight: This role involves ensuring that the firm adheres to the relevant regulatory standards and takes corrective actions where necessary.
Money Laundering Reporting Officer (MLRO): The MLRO is tasked with overseeing anti-money laundering (AML) compliance and ensuring the firm adheres to all relevant AML regulations.

Each of these roles requires individuals to maintain the highest standards of integrity and competence, as failure to meet these expectations can have significant consequences for both the firm and the financial system at large.

Compliance with FCA Conduct Rules

Once approved, individuals must adhere to the FCA’s Conduct Rules, which form part of the regulatory framework governing their behavior. These rules set out the standards of behavior expected from individuals carrying out controlled functions.

The Conduct Rules Include:

Acting with Integrity: Approved persons are required to demonstrate integrity in all aspects of their work, ensuring that their actions align with ethical and legal standards.
Acting with Due Skill, Care, and Diligence: Individuals must carry out their responsibilities with a high level of competence and due diligence, ensuring that decisions are made thoughtfully and with consideration for potential impacts.
Treating Customers Fairly: This principle underlines the requirement that approved persons act in the best interests of customers, treating them fairly and ensuring they are not misled or exploited.

These rules are part of the broader Statements of Principle and Code of Practice for Approved Persons (APER), which sets out further expectations for individuals in these positions. Failure to adhere to these principles can result in disciplinary actions by the FCA.

Ongoing Responsibilities of FCA-Approved Persons

Once an individual is approved, they must maintain their fitness and propriety throughout their tenure. This requires continuous adherence to the FCA’s standards, and any changes in circumstances that could affect their suitability for the role must be reported to the FCA immediately.

Examples of Changes That Must Be Reported:

Financial difficulties: If an approved person experiences significant financial distress, such as bankruptcy, they must inform the FCA as this could affect their suitability to perform controlled functions.
Disciplinary actions: If the individual faces any disciplinary measures within the firm or from other regulatory bodies, these must also be disclosed to the FCA.

Maintaining high standards of professionalism and ensuring ongoing compliance with FCA rules is essential for continued approval.

Disciplinary Actions for Non-Compliance

Failing to adhere to the FCA’s rules can have serious consequences for approved persons. The FCA has the authority to impose disciplinary actions, including fines, suspension, or revocation of approval.

Common Reasons for Disciplinary Actions:

Breach of Conduct Rules: Failing to comply with the FCA’s conduct rules can lead to significant penalties. For instance, if an individual fails to treat customers fairly or does not act with due care and diligence, they may face disciplinary action.
Failure to Report Changes: If an approved person fails to report changes in their circumstances that could affect their suitability, they could be subject to sanctions.
Serious Misconduct: Instances of fraud, financial mismanagement, or unethical behavior can result in immediate suspension or removal of FCA approval.

These disciplinary measures serve to uphold the integrity of the financial system and ensure that approved persons remain accountable for their actions.

Conclusion

Becoming an FCA-approved person is a rigorous process that requires meeting stringent standards of integrity, competence, and financial soundness. Through the fit and proper test, application process, and compliance with ongoing responsibilities, approved persons are held to the highest standards of conduct. Controlled functions, such as directorships, compliance oversight, and MLRO roles, come with significant responsibilities and the requirement to adhere to the FCA’s conduct rules.

Non-compliance can lead to severe penalties, including disciplinary actions that can impact an individual’s career and the firm’s reputation. Therefore, maintaining FCA approval involves a constant commitment to upholding ethical behavior and ensuring regulatory compliance.