Senior management arrangements

Part

SYSC Senior Management Arrangements, Systems and Controls sourcebook

Chapter

Senior management arrangements

Printed on: 01/11/2024

Rulebook at: 14/12/2009

SYSC 2

Senior management arrangements

SYSC 2.1

Apportionment of Responsibilities

01/12/2004

SYSC 2.1.1

A firm must take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among its directors and senior managers in such a way that:

(1) it is clear who has which of those responsibilities; and
(2) the business and affairs of the firm can be adequately monitored and controlled by the directors, relevant senior managers and governing body of the firm.

01/12/2001

SYSC 2.1.2

The role undertaken by a non-executive director will vary from one firm to another. For example, the role of a non-executive director in a friendly society may be more extensive than in other firms. Where a non-executive director is an approved person, for example where the firm is a body corporate, his responsibility and therefore liability will be limited by the role that he undertakes. Provided that he has personally taken due care in his role, a non-executive director would not be held discipliniarily liable either for the failings of the firm or for those of individuals within the firm. The non-executive director function, for the purposes of the approved persons regime, is described in SUP 10.

01/12/2001

SYSC 2.1.3

A firm must appropriately allocate to one or more individuals, in accordance with SYSC 2.1.4 R, the functions of:

(1) dealing with the apportionment of responsibilities under SYSC 2.1.1 R; and
(2) overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R.

01/12/2001

SYSC 2.1.4

Allocation of functions

This table belongs to SYSC 2.1.3 R

1: Firm type

2: Allocation of both functions must be to the following individual, if any (see Note):

3: Allocation to one or more individuals selected from this column is compulsory if there is no allocation to an individual in column 2, but is otherwise optional and additional:

(1) A firm which is a body corporate and is a member of a group, other than a firm in row (2)

(1) the firm's chief executive (and all of them jointly, if more than one); or

the firm's and its group's:
(1) directors; and (2) senior managers

(2) a director or senior manager responsible for the overall management of:

(a) the group; or (b) a group division within which some or all of the firm's regulated activities fall

(2) An incoming EEA firm or incoming Treaty firm (note: only the function in SYSC 2.1.3 R (2) must be allocated)

(not applicable)

the firm's and its group's:
(1) directors; and (2) senior managers

(3) Any other firm

the firm's chief executive (and all of them jointly, if more than one)

the firm's and its group's:
(1) directors; and (2) senior manager's

Note: Column 2 does not require the involvement of the chief executive or other executive director or senior manager in an aspect of corporate governance if that would be contrary to generally accepted principles of good corporate governance.

01/12/2001

SYSC 2.1.5

SYSC 2.1.3 R and SYSC 2.1.4 R give a firm some flexibility in the individuals to whom the functions may be allocated. It will be common for both the functions to be allocated solely to the firm's chief executive. SYSC 2.1.6 G contains further guidance on the requirements of SYSC 2.1.3 R and SYSC 2.1.4 R in a question and answer form.

01/12/2001

SYSC 2.1.6

Frequently asked questions about allocation of functions in SYSC 2.1.3 R

This table belongs to SYSC 2.1.5 G

Question

Answer

Does an individual to whom a function is allocated under SYSC 2.1.3 R need to be an approved person?

An individual to whom a function is allocated under SYSC 2.1.3 R will be performing the apportionment and oversight function (CF 8, see SUP 10.7.1 R ) and an application must be made to the FSA for approval of the individual before the function is performed under section 59 of the Act (Approval for particular arrangements).There are exceptions from this in SUP 10.1 (Approved persons - Application).

If the allocation is to more than one individual, can they perform the functions, or aspects of the functions, separately?

If the functions are allocated to joint chief executives under SYSC 2.1.4 R, column 2, they are expected to act jointly.If the functions are allocated to an individual under SYSC 2.1.4 R, column 2, in addition to individuals under SYSC 2.1.4 R, column 3, the former may normally be expected to perform a leading role in relation to the functions that reflects his position. Otherwise, yes.

What is meant by "appropriately allocate" in this context?

The allocation of functions should be compatible with delivering compliance with Principle 3, SYSC 2.1.1 R and SYSC 3.1.1 R. The FSA considers that allocation to one or two individuals is likely to be appropriate for most firms.

If a committee of management governs a firm or group, can the functions be allocated to every member of that committee?

Yes, as long as the allocation remains appropriate (see Question 3). If the firm also has an individual as chief executive, then the functions must be allocated to that individual as well under SYSC 2.1.4 R, column 2 (see Question 7).

Does the definition of chief executive include the possessor of equivalent responsibilities with another title, such as a managing director or managing partner?

Yes.

Is it possible for a firm to have more than one individual as its chief executive?

Although unusual, some firm may wish the responsibility of a chief executive to be held jointly by more than one individual. In that case, each of them will be a chief executive and the functions must be allocated to all of them under SYSC 2.1.4 R, column 2 (see also Questions 2 and 7).

If a firm has an individual as chief executive, must the functions be allocated to that individual?

Normally, yes, under SYSC 2.1.4 R, column 2.
But if the firm is a body corporate and a member of a group, the functions may, instead of to the firm's chief executive, be allocated to a director or senior manager from the group responsible for the overall management of the group or of a relevant group division, so long as this is appropriate (see Question 3). Such individuals willnevertheless require approval by the FSA (see Question 1).
If the firm chooses to allocate the functions to a director or senior manager responsible for the overall management of a relevant group division, the FSA would expect that individual to be of a seniority equivalent to or greater than a chief executive of the firm for the allocation to be appropriate.
See also Question 14.

If a firm has a chief executive, can the functions be allocated to other individuals in addition to the chief executive?

Yes. SYSC 2.1.4 R, column 3, permits a firm to allocate the functions, additionally, to the firm's (or where applicable the group's) directors and senior managers as long as this is appropriate (see Question 3).

What if a firm does not have a chief executive?

Normally, the functions must be allocated to one or more individuals selected from the firm's (or where applicable the group's) directors and senior managers under SYSC 2.1.4 R, column 3.
But if the firm:
(1) is a body corporate and a member of a group; and
(2) the group has a director or senior manager responsible for the overall management of the group or of a relevant group division;
then the functions must be allocated to that individual (together, optionally, with individuals from column 3 if appropriate) under SYSC 2.1.4 R, column 2.

What do you mean by "group division within which some or all of the firm's regulated activities fall"?

A "division" in this context should be interpreted by reference to geographical operations, product lines or any other method by which the group's business is divided.
If the firm's regulated activities fall within more than one division and the firm does not wish to allocate the functions to its chief executive, the allocation must, under SYSC 2.1.4 R, be to:
(1) a director or senior manager responsible for the overall management of the group; or
(2) a director or senior manager responsible for the overall management of one of those divisions;
together, optionally, with individuals from column 3 if appropriate. (See also Questions 7 and 9.)

How does the requirement to allocate the functions in SYSC 2.1.3 R apply to an overseas firm which is not an incoming EEA firm, incoming Treaty firm or UCITS qualifier?

The firm must appropriately allocate those functions to one or more individuals, in accordance with SYSC 2.1.4 R, but:
(1) The responsibilities that must be apportioned and the systems and controls that must be overseen are those relating to activities carried on from a UK establishment with certain exceptions (see SYSC 1 Annex 1.1.7 R). Note that SYSC 1 Annex 1.1.10 R does not extend the territorial scope of SYSC 2 for an overseas firm.
(2) The chief executive of an overseas firm is the person responsible for the conduct of the firm's business within the United Kingdom (see the definition of "chief executive"). This might, for example, be the manager of the firm's UK establishment, or it might be the chief executive of the firm as a whole, if he has that responsibility.
The apportionment and oversight function applies to such a firm, unless it falls within a particular exception from the approved persons regime (see Question 1).

How does the requirement to allocate the functions in SYSC 2.1.3 R apply to an incoming EEA firm or incoming Treaty firm?

SYSC 1 Annex 1.1.1R and SYSC 1 Annex 1.1.8 R restrict the application of SYSC 2.1.3 R for such a firm. Accordingly:
(1) Such a firm is not required to allocate the function of dealing with apportionment in SYSC 2.1.3 R (1).
(2) Such a firm is required to allocate the function of oversight in SYSC 2.1.3 R (2). However, the systems and controls that must be overseen are those relating to matters which the FSA, as Host State regulator, is entitled to regulate (there is guidance on this in SUP 13A Annex 2 G ). Those are primarily, but not exclusively, the systems and controls relating to the conduct of the firm's activities carried on from its UK branch.
(3) Such a firm need not allocate the function of oversight to its chief executive; it must allocate it to one or more directors and senior managers of the firm or the firm's group under SYSC 2.1.4 R, row (2).
(4) An incoming EEA firm which has provision only for cross border services is not required to allocate either function if it does not carry on regulated activities in the United Kingdom; for example if they fall within the overseas persons exclusions in article 72 of the Regulated Activities Order.
See also Questions 1 and 15.

What about a firm that is a partnership or a limited liability partnership?

The FSA envisages that most if not all partners or members will be either directors or senior managers, but this will depend on the constitution of the partnership (particularly in the case of a limited partnership) or limited liability partnership. A partnership or limited liability partnership may also have a chief executive (see Question 5). A limited liability partnership is a body corporate and, if a member of a group, will fall within SYSC 2.1.4 R, row (1) or (2).

What if generally accepted principles of good corporate governance recommend that the chief executive should not be involved in an aspect of corporate governance?

The Note to SYSC 2.1.4 R provides that the chief executive or other executive director or senior manager need not be involved in such circumstances. For example, the Combined Code developed by the Committee on Corporate Governance recommends that the board of a listed company should establish an audit committee of non-executive directors to be responsible for oversight of the audit. That aspect of the oversight function may therefore be allocated to the members of such a committee without involving the chief executive. Such individuals may require approval by the FSAin relation to that function (see Question 1).

What about electronic commerce activities carried on from an establishment in another EEA State with or for a person in the United Kingdom?

SYSC does not apply to an incoming ECA provider acting as such.

01/04/2009

SYSC 2.2

Recording the apportionment

01/12/2004

SYSC 2.2.1

(1) A firm must make a record of the arrangements it has made to satisfy SYSC 2.1.1 R (apportionment) and SYSC 2.1.3 R (allocation) and take reasonable care to keep this up to date.
(2) This record must be retained for six years from the date on which it was superseded by a more up-to-date record.

01/12/2001

SYSC 2.2.2

(1) A firm will be able to comply with SYSC 2.2.1 R by means of records which it keeps for its own purposes provided these records satisfy the requirements of SYSC 2.2.1 R and provided the firm takes reasonable care to keep them up to date. Appropriate records might, for this purpose, include organisational charts and diagrams, project management documents, job descriptions, committee constitutions and terms of reference provided they show a clear description of the firm's major functions.
(2) Firms should record any material change to the arrangements described in SYSC 2.2.1 R as soon as reasonably practicable after that change has been made.

01/12/2001

SYSC 2.2.3

Where responsibilities have been allocated to more than one individual, the firm's record should show clearly how those responsibilities are shared or divided between the individuals concerned.

01/12/2001