Prudential Regulation Authority Rulebook

5.1

A firm must ensure that the management body defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the firm, including the segregation of duties in the organisation and the prevention of conflicts of interest. The firm must ensure that the management body:

1. (1) has overall responsibility for the firm;
2. (2) approves and oversees implementation of the firm’s strategic objectives, risk strategy and internal governance;
3. (3) ensures the integrity of the firm’s accounting and financial reporting systems, including financial and operational controls and compliance with the regulatory system;
4. (4) oversees the process of disclosure and communications;
5. (5) has responsibility for providing effective oversight of senior management; and
6. (6) monitors and periodically assesses:
1. (a) the adequacy and the implementation of the firm’s strategic objectives in the provision of its regulated activities;
2. (b) the effectiveness of the firm’s governance arrangements and adequacy of the policies relating to the provision of services to clients; and
3. (c) takes appropriate steps to address any deficiencies.

[Note: Art. 88(1) of the CRD and Art. 9(3) of MiFID II]

5.1A

Without prejudice to 5.1, those arrangements must ensure that the management body defines, approves and oversees:

1. (1) the organisation of the firm for the provision of regulated activities, including the skills, knowledge and expertise required by personnel, the resources, the procedures and the arrangements for the provision of services and activities, taking into account the nature, scale and complexity of its business and all the requirements the firm has to comply with; and
2. (2) a policy as to services, activities, products and operations offered or provided in accordance with the risk tolerance of the firm and the characteristics and needs of the clients of the firm to whom they will be offered or provided, including carrying out appropriate stress testing, where appropriate; and
3. (3) a remuneration policy of persons involved in the provision of services to clients aiming to encourage responsible business conduct, fair treatment of clients as well as avoiding conflict of interest in the relationship with clients.

[Note: Art. 9(3) of MiFID II]

5.2

A firm must ensure that the members of the management body of the firm:

1. (1) are of sufficiently good repute;
2. (2) possess sufficient knowledge, skills and experience to perform their duties;
3. (3) possess adequate collective knowledge, skills and experience to understand the firm’s activities, including the main risks;
4. (4) reflect an adequately broad range of experiences;
5. (5) commit sufficient time to perform their functions in the firm; and
6. (6) act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of senior management where necessary and to effectively oversee and monitor management decision-making.

[Note: Art. 91(1)-(2) and (7)-(8) of the CRD and Art. 9(1) and (4) of MiFID II]

5.3

A firm must devote adequate human and financial resources to the induction and training of members of the management body.

[Note: Art. 91(9) of the CRD]

5.4

A firm must ensure that the members of the management body of the firm do not hold more directorships than is appropriate taking into account individual circumstances and the nature, scale and complexity of the firm’s activities.

[Note: Art. 91(3) of the CRD and Art. 9(1) of MiFID II]

5.5

1. (1) A firm that is significant must ensure that the members of the management body of the firm do not hold more than one of the following combinations of directorship in any organisation at the same time:
1. (a) one executive directorship with two non-executive directorships; and
2. (b) four non-executive directorships.
2. (2) Paragraph (1) does not apply to members of the management body that represent the UK.

[Note: Art. 91(3) of the CRD and Art. 9(1) of MiFID II]

5.6

For the purposes of 5.4 and 5.5:

1. (1) directorships in organisations which do not pursue predominantly commercial objectives shall not count; and
2. (2) the following shall count as a single directorship:
1. (a) executive or non-executive directorships held within the same group; or
2. (b) executive or non-executive directorships held within:
1. (i) firms that are members of the same institutional protection scheme provided that the conditions set out in Article 113(7) of the CRR are fulfilled; or
2. (ii) undertakings (including non-financial entities) in which the firm holds a qualifying holding.

[Note: Art. 91(4) and (5) of the CRD and Art. 9(1) of MiFID II]

5.7

A firm must ensure that the members of the management body of the firm have adequate access to information and documents that are needed to oversee and monitor management decision-making.

[Note: Art. 9(3) of MiFID II]

5.8

A firm that maintains a website must explain on the website how it complies with the requirements of this Chapter and Senior Management Functions 8.2.

[Note: Art. 96 of the CRD]