Application provision

1.1 Unless otherwise stated, this Part applies to a CRR firm

  1. (1) with respect to the carrying on of the following from an establishment in the UK:
    1. (a) regulated activities;
    2. (b) activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of Regulated Activities Order;
    3. (c) ancillary activities;
    4. (d) in relation to MiFID business, ancillary services; and
    5. (e) unregulated activities in a prudential context; and
  2. (2) with respect to the carrying on of passported activities by it from a branch in another EEA state;
  3. (3) in a prudential context with respect to activities wherever they are carried on; and
  4. (4) taking into account any activity of other members of a group of which the firm is a member.

1

Application and Definitions

1.1

02/04/2015

Unless otherwise stated, this Part applies to a CRR firm

  1. (1) with respect to the carrying on of the following from an establishment in the UK:
    1. (a) regulated activities;
    2. (b) activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of Regulated Activities Order;
    3. (c) ancillary activities;
    4. (d) in relation to MiFID business, ancillary services; and
    5. (e) unregulated activities in a prudential context; and
  2. (2) with respect to the carrying on of passported activities by it from a branch in another EEA state;
  3. (3) in a prudential context with respect to activities wherever they are carried on; and
  4. (4) taking into account any activity of other members of a group of which the firm is a member.

1.2

02/04/2015

In this Part, the following definitions shall apply:

authorisation

means authorisation as an authorised person for the purposes of FSMA.

control

means control as defined in Article 1 of the Seventh Council Directive 83/349/EEC (The Seventh Company Law Directive).

listed activities

means an activity listed in Annex 1 to the CRD.

relevant services and activities

means regulated activities, listed activities or ancillary services.

2

Outsourcing

2.1

02/04/2015

A firm must:

  1. (1) when relying on a third party for the performance of operational functions which are critical for the performance of relevant services and activities on a continuous and satisfactory basis, ensure that it takes reasonable steps to avoid undue additional operational risk;
  2. (2) not undertake the outsourcing of important operational functions in such a way as to impair materially:
    1. (a) the quality of its internal control; and
    2. (b) the ability of the PRA to monitor the firm’s compliance with all obligations under the regulatory system and, if different, of a competent authority to monitor the firm’s compliance with all obligations under MiFID.

Additional Notes


[Note: Art. 13(5) first paragraph of MiFID]

2.2

02/04/2015

For the purposes of this Part an operational function is regarded as critical or important if a defect or failure in its performance would materially impair the continuing compliance of a firm with the conditions and obligations of its authorisation or its other obligations under the regulatory system, or its financial performance, or the soundness or the continuity of its relevant services and activities.

Additional Notes


[Note: Art. 13(1) of the MiFID implementing Directive]

2.3

02/04/2015

Without prejudice to the status of any other function, the following functions will not be considered as critical or important for the purposes of this Part:

  1. (1) the provision to the firm of advisory services, and other services which do not form part of the relevant services and activities of the firm, including the provision of legal advice to the firm, the training of personnel of the firm, billing services and the security of the firm’s premises and personnel; and
  2. (2) the purchase of standardised services, including market information services and the provision of price feeds.

Additional Notes


[Note: Art. 13(2) of the MiFID implementing Directive]

2.4

02/04/2015

If a firm outsources critical or important operational functions or any relevant services and activities, it remains fully responsible for discharging all of its obligations under the regulatory system and must comply, in particular, with the following conditions:

  1. (1) the outsourcing must not result in the delegation by senior personnel of their responsibility;
  2. (2) the relationship and obligations of the firm towards its clients under the regulatory system must not be altered;
  3. (3) the conditions with which the firm must comply in order to be authorised, and to remain so, must not be undermined;
  4. (4) none of the other conditions subject to which the firm’s authorisation was granted must be removed or modified.

Additional Notes


[Note: Art. 14(1) of the MiFID implementing Directive]

2.5

02/04/2015

A firm must exercise due skill and care and diligence when entering into, managing or terminating any arrangement for the outsourcing to a service provider of critical or important operational functions or of any relevant services and activities.

Additional Notes


[Note: Art. 14(2) first paragraph of the MiFID implementing Directive]

2.6

02/04/2015

A firm must in particular take the necessary steps to ensure that the following conditions are satisfied:

  1. (1) the service provider must have the ability, capacity, and any authorisation required by law to perform the outsourced functions, services or activities reliably and professionally;
  2. (2) the service provider must carry out the outsourced services effectively, and to this end the firm must establish methods for assessing the standard of performance of the service provider;
  3. (3) the service provider must properly supervise the carrying out of the outsourced functions, and adequately manage the risks associated with the outsourcing;
  4. (4) appropriate action must be taken if it appears that the service provider may not be carrying out the functions effectively and in compliance with applicable laws and regulatory requirements;
  5. (5) the firm must retain the necessary expertise to supervise the outsourced functions effectively and to manage the risks associated with the outsourcing, and must supervise those functions and manage those risks;
  6. (6) the service provider must disclose to the firm any development that may have a material impact on its ability to carry out the outsourced functions effectively and in compliance with applicable laws and regulatory requirements;
  7. (7) the firm must be able to terminate the arrangement for the outsourcing where necessary without detriment to the continuity and quality of its provision of services to clients;
  8. (8) the service provider must co-operate with the PRA and any other relevant competent authority in connection with the outsourced activities;
  9. (9) the firm, its auditors, the PRA and any other relevant competent authority must have effective access to data related to the outsourced activities, as well as to the business premises of the service provider; and the PRA and any other relevant competent authority must be able to exercise those rights of access;
  10. (10) the service provider must protect any confidential information relating to the firm and its clients;
  11. (11) the firm and the service provider must establish, implement and maintain a contingency plan for disaster recovery and periodic testing of backup facilities where that is necessary having regard to the function, service or activity that has been outsourced.

Additional Notes


[Note: Art. 14(2) second paragraph of the MiFID implementing Directive]

2.7

02/04/2015

A firm must ensure that the respective rights and obligations of the firm and of the service provider are clearly allocated and set out in a written agreement.

Additional Notes


[Note: Art. 14(3) of the MiFID implementing Directive]

2.8

02/04/2015

If a firm and the service provider are members of the same group, the firm may, for the purpose of complying with 2.5 to 2.9, take into account the extent to which the firm controls the service provider or has the ability to influence its actions.

Additional Notes


[Note: Art. 14(4) of the MiFID implementing Directive]

2.9

02/04/2015

A firm must make available on request to the PRA and any other relevant competent authority all information necessary to enable the PRA and any other relevant competent authority to supervise the compliance of the performance of the outsourced activities with the requirements of the regulatory system.

Additional Notes


[Note: Art. 14(5) of the MiFID implementing Directive]