Eyes wide open

Posted: 12th July 2015

To all Approved Persons in consumer credit; how much do you know about the Controlled Functions you hold?

A Controlled Function is not simply a tick in the Approved Persons box. It is an activity (or activities) you have to perform on behalf of an authorised firm.

Historically, regulators and regulated firms have struggled with the important issue of Approved Persons. Until recently the firm would generally be brought to task and the individual would be left alone. Those times are gone! There is a new promise from the FCA of potential personal liability if things do go wrong.

PERSONAL ACCOUNTABILITY

The FCA has the power, ability and renewed desire to hold senior management personally accountable in firms through the Approved Persons regime. Although the FCA’s Statements of Principle and Code of Practice for Approved Persons are new to Consumer Credit firms, they will be applied when firms become authorised. This means senior management need to be able to identify, understand and act on risks within their business and monitor those risks accordingly; ignorance is not a defence. Where the FCA finds failings in senior management, it can bring sanctions against individuals, ban them from holding Controlled Functions in the future, issue fines or impose jail sentences.

UNDERSTANDING CONTROLLED FUNCTIONS

With consumer credit authorisation in full swing, we’ve seen firms simply ‘going through the motions’ of choosing who their Approved Persons are. At a recent consumer credit event, I asked an audience of around 300 firms whether there were any existing or future Approved Persons in the audience. I was met with a plethora of hands! My next question was to ask the audience how many had Controlled Functions; the response didn’t surprise me. Only two people raised their hand and one of those didn’t know which Controlled Function they had. If you take one thing from this article it should be that all Approved Persons will have Controlled Functions, and all Controlled Functions will have their associated responsibilities.

HELPING YOU TO HELP YOURSELF

The FCA’s 'Being Regulated' guide for consumer credit firms provides some useful information regarding Controlled Functions and their associated responsibilities which you should definitely take the opportunity to read.

There are a number of straightforward steps you can take to prepare yourself for the Approved Persons regime:

• Get to know what Controlled Function(s) you have and the responsibility and accountability associated with it (them).
• Make sure you have the competence and capability to perform the role(s). This is done through one of the fit and proper tests, which asks you to consider whether you have the knowledge and time to carry out the role effectively.
• Read the FCA’s Statements of Principle and the Code of Practice for Approved Persons, then comply with them.
• Test that the controls and oversight arrangements in your firm are suitable to ensure that you are not causing customer detriment. What is your evidence if the FCA asks this question?
• Ensure your firm is ready for the reporting requirements of the FCA and that you are able to access this data easily upon request.
• Test yourself before the FCA does!

With your eyes wide open, being an Approved Person is a challenging but not impossible task.