SYSC Senior Management Arrangements, Systems and Controls sourcebook

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SYSC 1

Application and purpose

SYSC 1.1A

Application

  • 01/04/2009



[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering:



- various topics relating to automated trading and direct electronic access. See

and



- certain aspects of the MiFID suitability requirements which also deal with the system and control aspects of suitability. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-suitability-requirements.]

SYSC 1.1A.1

handbook-guidance
The application of this sourcebook is summarised at a high level in the following table. The detailed application is cut back in SYSC 1 Annex 1 and in the text of each chapter.

SYSC 1.1A.1A

handbook-guidance
Chapters 4 to 9 are not applicable to CRR firms (other than incoming firms).

SYSC 1.1A.2

handbook-guidance
The provisions in SYSC should be read in conjunction with GEN 2.2.23 R to GEN 2.2.25 G. In particular:
(1) Provisions made by both the FCA and PRA may contain obligations for or references to FCA-authorised persons. GEN 2.2.23 R limits the application of those provisions so that the PRA will only apply them in respect of PRA-authorised persons and not to such FCA-authorised persons as are included within the provision.
(2) Provisions made by both the FCA and PRA may be applied by both regulators to PRA-authorised persons. Such provisions are applied by each regulator to the extent of its powers and regulatory responsibilities. This general principle also applies where the PRA have made rules in the PRA Rulebook for Solvency II firms which overlap with those in SYSC.
(3) For Solvency II firms, the FCA considers that the requirements and guidance in Chapters 2, 3, 12 to 18 and 21 of SYSC are not inconsistent with either:
(a) the parts of the PRA Rulebook implementing the governance provisions in the Solvency II Directive (articles 40 to 49) or
(b) the Solvency II Regulation (EU) 2015/35 of 10 October 2014 (articles 258 to 275).
In most cases, there is no direct overlap with those provisions because the SYSC requirements are directed at FCA conduct requirements not expressly covered by or under the Solvency II Directive. Where there is a direct overlap with SYSCrules and guidance, the FCA will take the Solvency II Directive derived requirements into account and will interpret the SYSCrules and guidance in a way that avoids inconsistency.

SYSC 1.2

Purpose

  • 01/12/2004

SYSC 1.2.1A

handbook-guidance
The purposes of SYSC are:
(1) to encourage firms' directors and senior managers to take appropriate practical responsibility for their firms' arrangements on matters likely to be of interest to the PRA because they impinge on the PRA's functions under the Act;
(2) to encourage firms to vest responsibility for effective and responsible organisation in specific directors and senior managers; and
(3) to create a common platform of organisational and systems and controls requirements for all firms.
  • 19/06/2014

SYSC 1.4

Application of SYSC 11 to SYSC 21

What?

SYSC 1.4.1

handbook-guidance
The application of each of chapters SYSC 11 to SYSC 21 is set out in those chapters and in SYSC 1.4.1A R and SYSC 1.4.1C R.

SYSC 1.4.1A

handbook-rule
SYSC 12, SYSC 19A, SYSC 19D, SYSC 20 and SYSC 21 do not apply to a firm in relation to its carrying on of auction regulation bidding.

SYSC 1.4.1B

handbook-guidance
Apart from SYSC 12, SYSC 19A, SYSC 19D, SYSC 20 and SYSC 21 which are disapplied by SYSC 1.4.1A R, the other chapters of SYSC 11 to SYSC 17 do not apply in relation to a firm's carrying on of auction regulation bidding because they only apply to an insurer. SYSC 18 provides guidance on the Public Interest Disclosure Act.

SYSC 1.4.1C

handbook-rule

SYSC 11 to SYSC 21 do not apply to a credit union.

  • 03/02/2016

SYSC 1 Annex 1

Detailed application of SYSC

  • 01/04/2009

Export chapter as

SYSC 4

General organisational requirements

SYSC 4.1

General requirements

[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]

SYSC 4.1.1

handbook-rule
(1) A firm must have robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems.
(2) [deleted]

[Note: article 74 (1) of CRD, article 13(5) second paragraph of MiFID, article 12(1)(a) of the UCITS Directive, and article 18(1) of AIFMD]

SYSC 4.1.2

handbook-rule
For a common platform firm, the arrangements, processes and mechanisms referred to in SYSC 4.1.1 R must be comprehensive and proportionate to the nature, scale and complexity of the risks inherent in the business model and of the common platform firm's activities and must take into account the specific technical criteria described in SYSC 4.1.7 R, SYSC 5.1.7 R, SYSC 7 and Band whichever of the following as applicable:
(1) (for a firm to which SYSC 19A applies) SYSC 19A (IFPRU Remuneration Code);
(2) (for a full-scope UK AIFM) SYSC 19B (AIFM Remuneration Code);
(3) (for a firm to which SYSC 19C applies) SYSC 19C (BIPRU Remuneration Code);
(4) (for a firm to which SYSC 19D applies) SYSC 19D (Dual-regulated firms Remuneration Code); or
(5) (for a firm to which the Remuneration part of the PRA Rulebook applies) the Remuneration part of the PRA Rulebook.
[Note: article 74 (2) of CRD]

SYSC 4.1.2A

handbook-guidance
Other firms should take account of the comprehensiveness and proportionality rule (SYSC 4.1.2 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

Mechanisms and procedures for a firm

SYSC 4.1.4

handbook-rule
A firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)) must, taking into account the nature, scale and complexity of the business of the firm, and the nature and range of the financial services and activities undertaken in the course of that business:
(1) (if it is a common platform firm or a management company) establish, implement and maintain decision-making procedures and an organisational structure which clearly and in a documented manner specifies reporting lines and allocates functions and responsibilities;
(2) establish, implement and maintain adequate internal control mechanisms designed to secure compliance with decisions and procedures at all levels of the firm;
(3) (if it is a common platform firm) establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the firm; and
(4) (if it is a management company) establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the management company as well as effective information flows with any third party involved.
[Note: articles 5(1) final paragraph, 5(1)(a), 5(1)(c) and 5(1)(e) of the MiFID implementing Directive and articles 4(1) final paragraph, 4(1)(a), 4(1)(c) and 4(1)(d) of the UCITS implementing Directive]

SYSC 4.1.4A

handbook-guidance
A firm that is not a common platform firm or a management company should take into account the decision-making procedures and effective internal reporting rules (SYSC 4.1.4R (1), (3) and (4)) as if they were guidance (and as if "should" appeared in those rules instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

SYSC 4.1.5

handbook-rule
A MiFID investment firm and a management company must establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question.
[Note: article 5(2) of the MiFID implementing Directive and article 4(2) of the UCITS implementing Directive]

Business continuity

SYSC 4.1.6

handbook-rule
A common platform firm must take reasonable steps to ensure continuity and regularity in the performance of its regulated activities. To this end the common platform firm must employ appropriate and proportionate systems, resources and procedures.
[Note: article 13(4) of MiFID]

SYSC 4.1.7

handbook-rule
A common platform firm and a management company must establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to its systems and procedures, that any losses are limited, the preservation of essential data and functions, and the maintenance of its regulated activities, or, in the case of a management company, its collective portfolio management activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of those activities.
[Note: article 5(3) of the MiFID implementing Directive,annex V paragraph 13 of the Banking Consolidation Directive, article 4(3) of the UCITS implementing Directive and article 85(2) of the CRD]

SYSC 4.1.7A

handbook-guidance
Other firms should take account of the business continuity rules (SYSC 4.1.6 R and 4.1.7 R) as if they were guidance (and as if "should" appeared in those rules instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

SYSC 4.1.8

handbook-guidance
The matters dealt with in a business continuity policy should include:
(1) resource requirements such as people, systems and other assets, and arrangements for obtaining these resources;
(2) the recovery priorities for the firm's operations;
(3) communication arrangements for internal and external concerned parties (including the appropriate regulator , clients and the press);
(4) escalation and invocation plans that outline the processes for implementing the business continuity plans, together with relevant contact information;
(5) processes to validate the integrity of information affected by the disruption; and
(6) regular testing of the business continuity policy in an appropriate and proportionate manner in accordance with SYSC 4.1.10 R.

Accounting policies

SYSC 4.1.9

handbook-rule
A common platform firm and a management company must establish, implement and maintain accounting policies and procedures that enable it, at the request of the appropriate regulator, to deliver in a timely manner to the appropriate regulator financial reports which reflect a true and fair view of its financial position and which comply with all applicable accounting standards and rules.
[Note: article 5(4) of the MiFID implementing Directive and article 4(4) of the UCITS implementing Directive]

Regular monitoring

SYSC 4.1.10

handbook-rule
A common platform firm and a management company must monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with SYSC 4.1.4 R to SYSC 4.1.9 R and take appropriate measures to address any deficiencies.
[Note: article 5(5) of the MiFID implementing Directive and article 4(5) of the UCITS implementing Directive]

SYSC 4.1.10A

handbook-guidance
Other firms should take account of the regular monitoring rule (SYSC 4.1.10 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G, but ignoring the cross-reference to SYSC 4.1.5 R and 4.1.9 R.

Audit committee

SYSC 4.1.11

handbook-guidance
Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to form an audit committee. An audit committee could typically examine management's process for ensuring the appropriateness and effectiveness of systems and controls, examine the arrangements made by management to ensure compliance with requirements and standards under the regulatory system, oversee the functioning of the internal audit function (if applicable) and provide an interface between management and external auditors. It should have an appropriate number of non-executive directors and it should have formal terms of reference.

Risk control: additional guidance

SYSC 4.1.13

handbook-guidance
Firms should also consider the additional guidance on risk-centric governance arrangements for effective risk management contained in SYSC 21.

Apportionment of responsibilities: the role of the non-executive director

SYSC 4.1.14

handbook-guidance
The role undertaken by a non-executive director will vary from one firm to another. 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.

SYSC 4.1.15

handbook-rule
(1) A firm must have in place appropriate procedures for its employees to report breaches internally through a specific, independent and autonomous channel.
(2) The channel in (1) may be provided through arrangements provided for by social partners.

[Note: article 71 (3) of CRD]
  • 01/01/2014

SYSC 4.2

Persons who effectively direct the business

SYSC 4.2.1

handbook-rule
The senior personnel of a common platform firm, a management companya full-scope UK AIFM, or of the UK branch of a non-EEA bank must be of sufficiently good repute and sufficiently experienced as to ensure the sound and prudent management of the firm.
[Note: article 9(1) of MiFID, article 7(1)(b) of the UCITS Directive article 8(1)(c) of AIFMD, article 11(1) second paragraph of the Banking Consolidation Directive and article 13(1) of the CRD]

SYSC 4.2.1A

handbook-guidance
Other firms should take account of the senior personnel rule (SYSC 4.2.1 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

SYSC 4.2.2

handbook-rule
A common platform firm, a management company, a full-scope UK AIFM and the UK branch of a non-EEA bank must ensure that its management is undertaken by at least two persons meeting the requirements laid down in SYSC 4.2.1 R and, for a full-scope UK AIFM, SYSC 4.2.7 R.
[Note: article 9(4) first paragraph of MiFID, article 7(1)(b) of the UCITS Directive, article 8(1)(c) of AIFMD and article 13(1) of CRD]

SYSC 4.2.3

handbook-guidance
In the case of a body corporate, the persons referred to in SYSC 4.2.2 R should either be executive directors or persons granted executive powers by, and reporting immediately to, the governing body. In the case of a partnership, they should be active partners.

SYSC 4.2.4

handbook-guidance
At least two independent minds should be applied to the formulation and implementation of the policies of a common platform firm, a management company, a full-scope UK AIFM and the UK branch of a non-EEA bank. Where a firm nominates just two individuals to direct its business, the appropriate regulator will not regard them as both effectively directing the business where one of them makes some, albeit significant, decisions relating to only a few aspects of the business. Each should play a part in the decision-making process on all significant decisions. Both should demonstrate the qualities and application to influence strategy, day-to-day policy and its implementation. This does not require their day-to-day involvement in the execution and implementation of policy. It does, however, require involvement in strategy and general direction, as well as knowledge of, and influence on, the way in which strategy is being implemented through day-to-day policy.

SYSC 4.2.5

handbook-guidance
Where there are more than two individuals directing the business of a common platform firm, a management company, a full-scope UK AIFM or the UK branch of a non-EEA bank, the appropriate regulator does not regard it as necessary for all of these individuals to be involved in all decisions relating to the determination of strategy and general direction. However, at least two individuals should be involved in all such decisions. Both individuals' judgement should be engaged so that major errors leading to difficulties for the firm are less likely to occur. Similarly, each individual should have sufficient experience and knowledge of the business and the necessary personal qualities and skills to detect and resist any imprudence, dishonesty or other irregularities by the other individual. Where a single individual, whether a chief executive, managing director or otherwise, is particularly dominant in such a firm this will raise doubts about whether SYSC 4.2.2 R is met.

SYSC 4.2.6

handbook-rule
If a common platform firm, (other than a credit institution or AIFM investment firm) or the UK branch of a non-EEA bank, is:
(1) a natural person; or
(2) a legal person managed by a single natural person;
it must have alternative arrangements in place which ensure sound and prudent management of the firm.
[Note: article 9(4) second paragraph of MiFID]

SYSC 4.3

Responsibility of senior personnel

  • 01/01/2007

SYSC 4.3.1

handbook-rule
A firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)), when allocating functions internally, must ensure that senior personnel and, where appropriate, the supervisory function, are responsible for ensuring that the firm complies with its obligations under the regulatory system. In particular, senior personnel and, where appropriate, the supervisory function must assess and periodically review the effectiveness of the policies, arrangements and procedures put in place to comply with the firm's obligations under the regulatory system and take appropriate measures to address any deficiencies.
[Note: article 9(1) of the MiFID implementing Directive and articles 9(1) and 9(3) of the UCITS implementing Directive]

SYSC 4.3.2

handbook-rule
A common platform firm (with the exception of a sole trader who does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)) and a management company, must ensure that:
(1) its senior personnel receive on a frequent basis, and at least annually, written reports on the matters covered by SYSC 6.1.2 R to SYSC 6.1.5 R, SYSC 6.2.1 R and SYSC 7.1.2 R, SYSC 7.1.3 R and SYSC 7.1.5 R to SYSC 7.1.7 R, indicating in particular whether the appropriate remedial measures have been taken in the event of any deficiencies; and
(2) the supervisory function, if any, receives on a regular basis written reports on the same matters.
[Note: article 9(2) and article 9(3) of the MiFID implementing Directive and articles 9(4) and 9(6) of the UCITS implementing Directive]

SYSC 4.3.2A

handbook-guidance
Other firms should take account of the written reports rule (SYSC 4.3.2 R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

SYSC 4.3.3

handbook-guidance
The supervisory function does not include a general meeting of the shareholders of a firm , or equivalent bodies, but could involve, for example, a separate supervisory board within a two-tier board structure or the establishment of a non-executive committee of a single-tier board structure.

SYSC 4.3A

CRR firms

  • 01/01/2014

Management body

SYSC 4.3A.1

handbook-rule
A CRR 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) has overall responsibility for the firm;
(2) approves and oversees implementation of the firm's strategic objectives, risk strategy and internal governance;
(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) oversees the process of disclosure and communications;
(5) has responsibility for providing effective oversight of senior management.
(6) monitors and periodically assesses the effectiveness of the firm's governance arrangements and takes appropriate steps to address any deficiencies.

[Note: article 88(1) of CRD]
  • 01/01/2014

SYSC 4.3A.2

handbook-rule
A CRR firm must ensure that the chairman of the firm's management body does not exercise simultaneously the chief executive function within the same firm, unless justified by the firm and authorised by the appropriate regulator.

[Note: article 88(1)(e) of CRD]
  • 01/01/2014

SYSC 4.3A.3

handbook-rule
A CRR firm must ensure that the members of the management body of the firm:
(1) are of sufficiently good repute;
(2) possess sufficient knowledge, skills and experience to perform their duties;
(3) possess adequate collective knowledge, skills and experience to understand the firm's activities, including the main risks;
(4) reflect an adequately broad range of experiences;
(5) commit sufficient time to perform their functions in the firm; and
(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: article 91(1)-(2) and (7)-(8) of the CRD]
  • 01/01/2014

SYSC 4.3A.4

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

[Note: article 91(3) of the CRD]
  • 01/01/2014

SYSC 4.3A.5

handbook-rule
A CRR 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: article 91(3) of the CRD]
  • 01/01/2014

SYSC 4.3A.6

handbook-rule
(1) A CRR 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:
(a) one executive directorship with two non-executive directorships; and
(b) four non-executive directorships.
(2) Paragraph (1) does not apply to members of the management body that represent the United Kingdom.


[Note: article 91(3) of the CRD]
  • 01/07/2014

SYSC 4.3A.6A

handbook-guidance
In SYSC 4.3A.6 R a 'CRR firm that is significant' means a deposit-taker or designated investment firm whose size, interconnectedness, complexity and business type gives it the capacity to cause some disruption to the UK financial system (and through that to economic activity more widely) by failing or by carrying on its business in an unsafe manner.
  • 01/07/2014

SYSC 4.3A.6B

handbook-guidance
[deleted]

SYSC 4.3A.7

handbook-rule
For the purposes of SYSC 4.3A.5 R and SYSC 4.3A.6 R:
(1) directorships in organisations which do not pursue predominantly commercial objectives shall not count; and
(2) the following shall count as a single directorship:
(a) executive or non-executive directorships held within the same group; or
(b) executive or non-executive directorships held within:
(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
(ii) undertakings (including non-financial entities) in which the firm holds a qualifying holding.


[Note: article 91(4) and (5) of the CRD]
  • 01/01/2014

Nomination Committee

SYSC 4.3A.8

handbook-rule
A CRR firm that is significant must:
(1) establish a nomination committee composed of members of the management body who do not perform any executive function in the firm;
(2) ensure that the nomination committee is able to use any forms of resources the nomination committee deems appropriate, including external advice; and
(3) ensure that the nomination committee receives appropriate funding.


[Note: article 88(2) of the CRD]
  • 01/01/2014

SYSC 4.3A.8A

handbook-guidance
In SYSC 4.3A.8 R a 'CRR firm that is significant' means a deposit-taker or designated investment firm whose size, interconnectedness, complexity and business type gives it the capacity to cause some disruption to the UK financial system (and through that to economic activity more widely) by failing or by carrying on its business in an unsafe manner.
  • 01/01/2014

SYSC 4.3A.9

handbook-rule
A CRR firm that has a nomination committee must ensure that the nomination committee:
(1) engage a broad set of qualities and competences when recruiting members to the management body and for that purpose puts in place a policy promoting diversity on the management body;
(2) identifies and recommends for approval, by the management body or by general meeting, candidates to fill management body vacancies, having evaluated the balance of knowledge, skills, diversity and experience of the management body;
(3) prepares a description of the roles and capabilities for a particular appointment, and assesses the time commitment required;
(4) decides on a target for the representation of the underrepresented gender in the management body and prepares a policy on how to increase the number of the underrepresented gender in the management body in order to meet that target;
(5) periodically, and at least annually, assesses the structure, size, composition and performance of the management body and makes recommendations to the management body with regard to any changes;
(6) periodically, and at least annually, assesses the knowledge, skills and experience of individual members of the management body and of the management body collectively, and reports this to the management body;
(7) periodically reviews the policy of the management body for selection and appointment of senior management and makes recommendations to the management body; and
(8) in performing its duties, and to the extent possible, on an ongoing basis, takes account of the need to ensure that the management body's decision making is not dominated by any one individual or small group of individuals in a manner that is detrimental to the interest of the firm as a whole;


[Note: article 88(2) and article 91(10) of the CRD]
  • 01/01/2014

SYSC 4.3A.10

handbook-rule
A CRR firm that does not have a nomination committee must engage a broad set of qualities and competences when recruiting members to the management body. For that purpose a CRR firm that does not have a nomination committee must put in place a policy promoting diversity on the management body.

[Note: article 91(10) of the CRD]
  • 01/01/2014

Website

SYSC 4.3A.11

handbook-rule
A CRR firm that maintains a website must explain on the website how it complies with the requirements of SYSC 4.3A.1 R to SYSC 4.3A.3 R and SYSC 4.3A.4 R to SYSC 4.3A.11 R.

[Note: article 96 of the CRD]
  • 01/01/2014

SYSC 4.4

Apportionment of responsibilities

  • 01/04/2009

Application

SYSC 4.4.1

handbook-rule
This section applies to:
(1) an authorised professional firm in respect of its non-mainstream regulated activities unless the firm is also conducting other regulated activities and has appointed approved persons to perform the governing functions with equivalent responsibilities for the firm'snon-mainstream regulated activities and other regulated activities;
(2) activities carried on by a firm whose principal purpose is to carry on activities other than regulated activities and which is:
(a) an oil market participant; or
(b) a service company; or
(c) an energy market participant; or
(d) a wholly-owned subsidiary of:
(i) a local authority; or
(ii) a registered social landlord; or
(e) a firm with permission to carry on insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity;
(3) [deleted]
(4) [deleted]
(5) [deleted]
(a) [deleted]
(b) [deleted]
(6) [deleted]
(7) an incoming Treaty firm, an incoming EEA firm or a UCITS qualifier (but only SYSC 4.4.5R (2) applies for these firms); and
(8) a sole trader, but only if he employs any person who is required to be approved under section 59 of the Act (Approval for particular arrangements).

SYSC 4.4.2

handbook-guidance
This section does not apply to a common platform firm.

Maintaining a clear and appropriate apportionment

SYSC 4.4.3

handbook-rule
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.

Allocating functions of apportionment and oversight

SYSC 4.4.5

handbook-rule
A firm must appropriately allocate to one or more individuals, in accordance with the following table, the functions of:
(1) dealing with the apportionment of responsibilities under SYSC 4.4.3 R; and
(2) overseeing the establishment and maintenance of systems and controls under SYSC 4.1.1 R.

SYSC 4.4.6

handbook-guidance
Frequently asked questions about allocation of functions in SYSC 4.4.5 R

Export chapter as

SYSC 5

Employees, agents and other relevant persons

SYSC 5.1

Skills, knowledge and expertise

  • 01/01/2007



[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]

SYSC 5.1.1

handbook-rule
A firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them.
[Note: article 5(1)(d) of the MiFID implementing Directive, articles 12(1)(a) and 14(1)(c) of the UCITS Directive and article 5(1) of the UCITS implementing Directive]

SYSC 5.1.2

handbook-guidance
A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it. This includes assessing an individual's honesty and competence. This assessment should normally be made at the point of recruitment. An individual's honesty need not normally be revisited unless something happens to make a fresh look appropriate.

SYSC 5.1.3

handbook-guidance
Any assessment of an individual's suitability should take into account the level of responsibility that the individual will assume within the firm. The nature of this assessment will generally differ depending upon whether it takes place at the start of the individual's recruitment, at the end of the probationary period (if there is one) or subsequently.

SYSC 5.1.4A

handbook-guidance
Firms which are carrying on activities that are not subject to TC may nevertheless wish to take TC into account in complying with the competence requirements in SYSC.

SYSC 5.1.5

handbook-guidance
The requirements on firms with respect to approved persons are in Part V of the Act (Performance of regulated activities) and SUP 10A and SUP 10B.

SYSC 5.1.5A

handbook-guidance
If a firm requires employees who are not subject to a qualification requirement in TC to pass a relevant examination from the list of recommended examinations maintained by the Financial Skills Partnership, the appropriate regulator will take that into account when assessing whether the firm has ensured that the employee satisfies the knowledge component of the competent employees rule.

Segregation of functions

SYSC 5.1.6

handbook-rule
A common platform firm and a management company must ensure that the performance of multiple functions by its relevant persons does not and is not likely to prevent those persons from discharging any particular functions soundly, honestly and professionally.
[Note: article 5(1)(g) of the MiFID implementing Directive and article 5(3) of the UCITS implementing Directive]

SYSC 5.1.7

handbook-rule
The senior personnel of a common platform firm must define arrangements concerning the segregation of duties within the firm and the prevention of conflicts of interest.
[Note:article 88 of the CRD and annex V paragraph 1 of the Banking Consolidation Directive]

SYSC 5.1.7A

handbook-guidance
Other firms should take account of the segregation of functions rules (SYSC 5.1.6 R and SYSC 5.1.7 R) as if they were guidance (and as if should appeared in those rules instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 5.1.8

handbook-guidance
The effective segregation of duties is an important element in the internal controls of a firm in the prudential context. In particular, it helps to ensure that no one individual is completely free to commit a firm's assets or incur liabilities on its behalf. Segregation can also help to ensure that a firm'sgoverning body receives objective and accurate information on financial performance, the risks faced by the firm and the adequacy of its systems.

SYSC 5.1.9

handbook-guidance
A firm should normally ensure that no single individual has unrestricted authority to do all of the following:
(1) initiate a transaction;
(2) bind the firm;
(3) make payments; and
(4) account for it.

SYSC 5.1.10

handbook-guidance
Where a firm is unable to ensure the complete segregation of duties (for example, because it has a limited number of staff), it should ensure that there are adequate compensating controls in place (for example, frequent review of an area by relevant senior managers).

SYSC 5.1.11

handbook-guidance
Where a common platform firm outsources its internal audit function, it should take reasonable steps to ensure that every individual involved in the performance of this service is independent from the individuals who perform its external audit. This should not prevent services from being undertaken by a firm's external auditors provided that:
(1) the work is carried out under the supervision and management of the firm's own internal staff; and
(2) potential conflicts of interest between the provision of external audit services and the provision of internal audit are properly managed.

Awareness of procedures

SYSC 5.1.12

handbook-rule
A common platform firm and a management company must ensure that its relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities.
[Note: article 5(1)(b) of the MiFID implementing Directive and article 4(1)(b) of the UCITS implementing Directive]

SYSC 5.1.12A

handbook-guidance
Other firms should take account of the rule concerning awareness of procedures (SYSC 5.1.12 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

General

SYSC 5.1.13

handbook-rule
The systems, internal control mechanisms and arrangements established by a firm in accordance with this chapter must take into account the nature, scale and complexity of its business and the nature and range of financial services and activities undertaken in the course of that business.
[Note: article 5(1) final paragraph of the MiFID implementing Directiveand articles 4(1) final paragraph and 5(4) of the UCITS implementing Directive]

SYSC 5.1.14

handbook-rule
A common platform firm and a management company must monitor and, on a regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with this chapter, and take appropriate measures to address any deficiencies.
[Note: article 5(5) of the MiFID implementing Directive and articles 4(5) of the UCITS implementing Directive]

SYSC 5.1.15

handbook-guidance
Other firms should take account of the rule requiring monitoring and evaluation of the adequacy and effectiveness of systems (SYSC 5.1.14 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

Export chapter as

SYSC 6

Compliance, internal audit and financial crime

SYSC 6.1

Compliance

  • 01/01/2007



[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]

SYSC 6.1.1

handbook-rule
A firm must establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives(or where applicable, tied agents) with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime.
[Note: article 13(2) of MiFID and article 12(1)(a) of the UCITS Directive]

SYSC 6.1.2

handbook-rule
A common platform firm and a management company must, taking intoaccount the nature, scale and complexity of its business, and the nature and range of financial services and activities undertaken in the course of that business, establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under the regulatory system, as well as associated risks, and put in place adequate measures and procedures designed to minimise such risks and to enable the appropriate regulator to exercise its powers effectively under the regulatory system and to enable any other competent authority to exercise its powers effectively under MiFID or the UCITS Directive.
[Note: article 6(1) of the MiFID implementing Directive and article 10(1) of the UCITS implementing Directive]

SYSC 6.1.2A

handbook-guidance
Other firms should take account of the adequate policies and procedures rule (SYSC 6.1.2 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 6.1.3

handbook-rule
A common platform firm and a management company must maintain a permanent and effective compliance function which operates independently and which has the following responsibilities:
(1) to monitor and, on a regular basis, to assess the adequacy and effectiveness of the measures and procedures put in place in accordance with SYSC 6.1.2 R, and the actions taken to address any deficiencies in the firm's compliance with its obligations; and
(2) to advise and assist the relevant persons responsible for carrying out regulated activities to comply with the firm's obligations under the regulatory system.

[Note: article 6(2) of the MiFID implementing Directive and article 10(2) of the UCITS implementing Directive]

SYSC 6.1.3A

handbook-guidance
(1) Other firms should take account of the compliance function rule (SYSC 6.1.3 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.
(2) Notwithstanding SYSC 6.1.3 R, as it applies under (1), depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate compliance function. Where a firm has a separate compliance function the firm should also take into account SYSC 6.1.3 R and SYSC 6.1.4 R as guidance.

SYSC 6.1.4

handbook-rule
In order to enable the compliance function to discharge its responsibilities properly and independently, a common platform firm and a management company must ensure that the following conditions are satisfied:
(1) the compliance function must have the necessary authority, resources, expertise and access to all relevant information;
(2) a compliance officer must be appointed and must be responsible for the compliance function and for any reporting as to compliance required by SYSC 4.3.2 R;
(3) the relevant persons involved in the compliance functions must not be involved in the performance of services or activities they monitor;
(4) the method of determining the remuneration of the relevant persons involved in the compliance function must not compromise their objectivity and must not be likely to do so.

[Note: article 6(3) first paragraph of the MiFID implementing Directive and article 10(3) of the UCITS implementing Directive]

SYSC 6.1.4-A

handbook-guidance

In setting the method of determining the remuneration of relevant persons involved in the compliance function:

(1) firms that SYSC 19A applies to will also need to comply with the Remuneration Code;
(2) BIPRU firms will also need to comply with the BIPRU Remuneration Code;
(3) firms that SYSC 19D applies to will also need to comply with the Dual-regulated firms Remuneration Code; and
(4) firms that the Remuneration part of the PRA Rulebook applies to will also need to comply with it.

SYSC 6.1.5

handbook-rule
A common platform firm and a management company need not comply with SYSC 6.1.4 R (3) or SYSC 6.1.4 R (4) if it is able to demonstrate that in view of the nature, scale and complexity of its business, and the nature and range of financial services and activities, the requirements under those rules are not proportionate and that its compliance function continues to be effective.
[Note: article 6(3) second paragraph of the MiFID implementing Directive and article 10(3) second paragraph of the UCITS implementing Directive]

SYSC 6.1.6

handbook-rule
Other firms should take account of the proportionality rule (SYSC 6.1.5 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 6.1.7

handbook-rule
(1) This rule applies to a common platform firm conducting investment services and activities from a branch in another EEA State.
(2) References to the regulatory system in SYSC 6.1.1R, SYSC 6.1.2 R and SYSC 6.1.3 R apply in respect of a firm'sbranch as if regulatory system includes a Host State's requirements under MiFID and the MiFID implementing Directive which are applicable to the investment services and activities conducted from the firm'sbranch.
[Note: article 13(2) of MiFID]

SYSC 6.2

Internal audit

  • 01/01/2007

SYSC 6.2.1

handbook-rule
A common platform firm and a management company must, where appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of its financial services and activities, undertaken in the course of that business, establish and maintain an internal audit function which is separate and independent from the other functions and activities of the firm and which has the following responsibilities:
(1) to establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the firm's systems, internal control mechanisms and arrangements;
(2) to issue recommendations based on the result of work carried out in accordance with (1);
(3) to verify compliance with those recommendations;
(4) to report in relation to internal audit matters in accordance with SYSC 4.3.2 R.

[Note: article 8 of the MiFID implementing Directive and article 11 of the UCITS implementing Directive]

SYSC 6.2.1A

handbook-guidance
Other firms should take account of the internal audit rule (SYSC 6.2.1 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 6.2.2

handbook-guidance
The term 'internal audit function' in SYSC 6.2.1 R (and SYSC 4.1.11 G) refers to the generally understood concept of internal audit within a firm , that is, the function of assessing adherence to and the effectiveness of internal systems and controls, procedures and policies. The internal audit function is not a controlled function itself, but is part of the systems and controls function (CF28).

Export chapter as

SYSC 7

Risk control

SYSC 7.1

Risk control

  • 01/01/2007



[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]

SYSC 7.1.1

handbook-guidance
SYSC 4.1.1 R requires a firm to have effective processes to identify, manage, monitor and report the risks it is or might be exposed to.

SYSC 7.1.2

handbook-rule
A common platform firm must establish, implement and maintain adequate risk management policies and procedures, including effective procedures for risk assessment, which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm.
[Note: article 7(1)(a) of the MiFID implementing Directive, article 13(5) second paragraph of MiFID]

SYSC 7.1.2A

handbook-guidance
Other firms should take account of the risk management policies and procedures rule (SYSC 7.1.2 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 7.1.3

handbook-rule
A common platform firm must adopt effective arrangements, processes and mechanisms to manage the risk relating to the firm's activities, processes and systems, in light of that level of risk tolerance.
[Note: article 7(1)(b) of the MiFID implementing Directive]

SYSC 7.1.4

handbook-rule
The management body of a common platform firm must approve and periodically review the strategies and policies for taking up, managing, monitoring and mitigating the risks the firm is or might be exposed to, including those posed by the macroeconomic environment in which it operates in relation to the status of the business cycle.
[Note: article 76(1) of CRD]

SYSC 7.1.4AA

handbook-guidance

For a common platform firm included within the scope of chapter 15 of the Internal Capital Adequacy Assessment Part of the PRA Rulebook, the strategies, policies and procedures for identifying, taking up, managing, monitoring and mitigating the risks to which the firm is or might be exposed include conducting reverse stress testing in accordance with chapter 15 of the Internal Capital Adequacy Assessment Part of the PRA Rulebook. A common platform firm which falls outside the scope of chapter 15 of the Internal Capital Adequacy Assessment Part of the PRA Rulebook should consider conducting reverse stress tests on its business plan as well. This would further senior personnel’s understanding of the firm's vulnerabilities and would help them design measures to prevent or mitigate the risk of business failure.

  • 03/08/2015

SYSC 7.1.4B

handbook-guidance
Other firms should take account of the risk management rules (SYSC 7.1.3 R and SYSC 7.1.4 R) as if they were guidance (and as if "should" appeared in those rules instead of "must") as explained in SYSC 1 Annex 1.3.3 G.

SYSC 7.1.5

handbook-rule
A common platform firm must monitor the following:
(1) the adequacy and effectiveness of the firm's risk management policies and procedures;
(2) the level of compliance by the firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with SYSC 7.1.3 R;
(3) the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons to comply with such arrangements or processes and mechanisms or follow such policies and procedures.
[Note: article 7(1)(c) of the MiFID implementing Directive]

SYSC 7.1.6

handbook-rule
A common platform firm must, where appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of the investment services and activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:
(1) implementation of the policies and procedures referred to in SYSC 7.1.2 R to SYSC 7.1.5 R; and
(2) provision of reports and advice to senior personnel in accordance with SYSC 4.3.2 R.
[Note: MiFID implementing Directive Article 7(2) first paragraph]

SYSC 7.1.7

handbook-rule
Where a common platform firm is not required under SYSC 7.1.6 R to maintain a risk management function that functions independently, it must nevertheless be able to demonstrate that the policies and procedures which it has adopted in accordance with SYSC 7.1.2 R to SYSC 7.1.5 R satisfy the requirements of those rules and are consistently effective.
[Note: article 7(2) second paragraph of the MiFID implementing Directive]

SYSC 7.1.7A

handbook-guidance
Other firms should take account of the risk management rules (SYSC 7.1.5 R to SYSC 7.1.7 R) as if they were guidance (and as if should appeared in those rules instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 7.1.7B

handbook-guidance
In setting the method of determining the remuneration of employees involved in the risk management function:
(1) firms that SYSC 19D applies to will also need to comply with the Dual-regulated firms Remuneration Code; and
(2) firms that the Remuneration part of the PRA Rulebook applies to will also need to comply with it.

SYSC 7.1.7C

handbook-guidance
Firms should also consider the additional guidance on risk-centric governance arrangements for effective risk management contained in SYSC 21.

SYSC 7.1.8

handbook-guidance
(1) [deleted]
(2) The term 'risk management function' in SYSC 7.1.6 R and SYSC 7.1.7 R refers to the generally understood concept of risk assessment within a firm , that is, the function of setting and controlling risk exposure. The risk management function is not a controlled function itself, but is part of the systems and controls function (CF28).

Additional rules for CRR firms

SYSC 7.1.17

handbook-rule
(1) The management body of a CRR firm has overall responsibility for risk management. It must devote sufficient time to the consideration of risk issues.
(2) The management body of a CRR firm must be actively involved in and ensure that adequate resources are allocated to the management of all material risks addressed in the rules implementing the CRD and in the EU CRR as well as in the valuation of assets, the use of external ratings and internal models related to those risks.
(3) A CRR firm must establish reporting lines to the management body that cover all material risks and risk management policies and changes thereof.


[Note: article 76(2) of CRD]
  • 01/01/2014

SYSC 7.1.18

handbook-rule
(1) A CRR firm that is significant must establish a risk committee composed of members of the management body who do not perform any executive function in the firm. Members of the risk committee must have appropriate knowledge, skills and expertise to fully understand and monitor the risk strategy and the risk appetite of the firm.
(2) The risk committee must advise the management body on the institution's overall current and future risk appetite and assist the management body in overseeing the implementation of that strategy by senior management.
(3) The risk committee must review whether prices of liabilities and assets offered to clients take fully into account the firm's business model and risk strategy. Where prices do not properly reflect risks in accordance with the business model and risk strategy, the risk committee must present a remedy plan to the management body.


[Note: article 76(3) of CRD]
  • 01/01/2014

SYSC 7.1.18A

handbook-guidance
In SYSC 7.1.18 R a 'CRR firm that is significant' means a deposit-taker or designated investment firm whose size, interconnectedness, complexity and business type gives it the capacity to cause some disruption to the UK financial system (and through that to economic activity more widely) by failing or by carrying on its business in an unsafe manner.
  • 01/01/2014

SYSC 7.1.19

handbook-rule
(1) A CRR firm must ensure that the management body in its supervisory function and, where a risk committee has been established, the risk committee have adequate access to information on the risk profile of the firm and, if necessary and appropriate, to the risk management function and to external expert advice.
(2) The management body in its supervisory function and, where one has been established, the risk committee must determine the nature, the amount, the format, and the frequency of the information on risk which it is to receive.


[Note: article 76(4) of CRD]
  • 01/01/2014

SYSC 7.1.20

handbook-rule
In order to assist in the establishment of sound remuneration policies and practices, the risk committee must, without prejudice to the tasks of the remuneration committee, examine whether incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings.

[Note: article 76(4) of CRD]
  • 01/01/2014

SYSC 7.1.21

handbook-rule
(1) A CRR firm's risk management function (SYSC 7.1.6 R) must be independent from the operational functions and have sufficient authority, stature, resources and access to the management body.
(2) The risk management function must ensure that all material risks are identified, measured and properly reported. It must be actively involved in elaborating the firm's risk strategy and in all material risk management decisions and it must be able to deliver a complete view of the whole range of risks of the firm.
(3) A CRR firm must ensure that the risk management function is able to report directly to the management body in its supervisory function, independent from senior management and that it can raise concerns and warn the management body, where appropriate, where specific risk developments affect or may affect the firm, without prejudice to the responsibilities of the management body in its supervisory and/or managerial functions pursuant to the CRD and the CRR.


[Note: article 76(5) of CRD]
  • 01/01/2014

SYSC 7.1.22

handbook-rule
The head of the risk management function must be an independent senior manager with distinct responsibility for the risk management function. Where the nature, scale and complexity of the activities of the CRR firm do not justify a specially appointed person, another senior person within the firm may fulfil that function, provided there is no conflict of interest. The head of the risk management function must not be removed without prior approval of the management body and must be able to have direct access to the management body where necessary.

[Note: article 76(5) of CRD]
  • 01/01/2014

Export chapter as

SYSC 8

Outsourcing

SYSC 8.1

General outsourcing requirements



[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering certain aspects of the MiFID compliance function requirements. See http://www.esma.europa.eu/content/Guidelines-certain-aspects-MiFID-compliance-function-requirements.]

SYSC 8.1.1

handbook-rule
A common platform firm must:
(1) when relying on a third party for the performance of operational functions which are critical for the performance of regulated activities, listed activities or ancillary services (in this chapter "relevant services and activities") on a continuous and satisfactory basis, ensure that it takes reasonable steps to avoid undue additional operational risk;
(2) not undertake the outsourcing of important operational functions in such a way as to impair materially:
(a) the quality of its internal control; and
(b) the ability of the appropriate regulator 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.

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

SYSC 8.1.1A

handbook-guidance
Other firms should take account of the outsourcing rule (SYSC 8.1.1 R) as if it were guidance (and as if should appeared in that rule instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 8.1.2

handbook-guidance
The application of SYSC 8.1 to relevant services and activities (see SYSC 8.1.1 R (1)) is limited by SYSC 1 Annex 1 (Part 2) (Application of the common platform requirements).

SYSC 8.1.3

handbook-guidance
SYSC 4.1.1 R requires a firm to have effective processes to identify, manage, monitor and report risks and internal control mechanisms. Except in relation to those functions described in SYSC 8.1.5 R, where a firm relies on a third party for the performance of operational functions which are not critical or important for the performance of relevant services and activities (see SYSC 8.1.1 R (1)) on a continuous and satisfactory basis, it should take into account, in a manner that is proportionate given the nature, scale and complexity of the outsourcing, the rules in this section in complying with that requirement.

SYSC 8.1.4

handbook-rule
For the purposes of this chapter 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 common platform 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.
[Note: article 13(1) of the MiFID implementing Directive]

SYSC 8.1.5

handbook-rule
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 chapter:
(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;
(2) the purchase of standardised services, including market information services and the provision of price feeds;
[Note: article 13(2) of the MiFID implementing Directive]
(3) the recording and retention of relevant telephone conversations or electronic communications subject to COBS 11.8.

SYSC 8.1.5A

handbook-guidance
Other firms should take account of the critical functions rules (SYSC 8.1.4 R and SYSC 8.1.5 R) as if they were guidance (and as if should appeared in those rules instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 8.1.6

handbook-rule
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) the outsourcing must not result in the delegation by senior personnel of their responsibility;
(2) the relationship and obligations of the firm towards its clients under the regulatory system must not be altered;
(3) the conditions with which the firm must comply in order to be authorised, and to remain so, must not be undermined;
(4) none of the other conditions subject to which the firm'sauthorisation was granted must be removed or modified.
[Note: article 14(1) of the MiFID implementing Directive]

SYSC 8.1.7

handbook-rule
A common platform 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.
[Note: article 14(2) first paragraph of the MiFID implementing Directive]

SYSC 8.1.8

handbook-rule
A common platform firm must in particular take the necessary steps to ensure that the following conditions are satisfied:
(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) 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) the service provider must properly supervise the carrying out of the outsourced functions, and adequately manage the risks associated with the outsourcing;
(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) 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) 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) 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) the service provider must co-operate with the appropriate regulator and any other relevant competent authority in connection with the outsourced activities;
(9) the firm, its auditors, the appropriate regulator 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 appropriate regulator and any other relevant competent authority must be able to exercise those rights of access;
(10) the service provider must protect any confidential information relating to the firm and its clients;
(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.
[Note: article 14(2) second paragraph of the MiFID implementing Directive]

SYSC 8.1.9

handbook-rule
A common platform 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.
[Note: article 14(3) of the MiFID implementing Directive]

SYSC 8.1.10

handbook-rule
If a common platform firm and the service provider are members of the same group, the firm may, for the purpose of complying with SYSC 8.1.7 R to SYSC 8.1.11 R and SYSC 8.2 and SYSC 8.3, take into account the extent to which the common platform firmcontrols the service provider or has the ability to influence its actions.
[Note: article 14(4) of the MiFID implementing Directive]

SYSC 8.1.11

handbook-rule
A common platform firm must make available on request to the appropriate regulator and any other relevant competent authority all information necessary to enable the appropriate regulator and any other relevant competent authority to supervise the compliance of the performance of the outsourced activities with the requirements of the regulatory system.
[Note: article 14(5) of the MiFID implementing Directive]

SYSC 8.1.11A

handbook-guidance
Other firms should take account of the outsourcing of important operational functions rules (SYSC 8.1.7 R to SYSC 8.1.11 R) as if they were guidance (and as if should appeared in those rules instead of must) as explained in SYSC 1 Annex 1.3.3 G.

SYSC 8.1.12

handbook-guidance
As SUP 15.3.8 G explains, a firm should notify the appropriate regulator when it intends to rely on a third party for the performance of operational functions which are critical or important for the performance of relevant services and activities on a continuous and satisfactory basis.
[Note: recital 20 of theMiFID implementing Directive]

Export chapter as

SYSC 9

Record-keeping

SYSC 9.1

General rules on record-keeping

  • 01/11/2007

SYSC 9.1.1

handbook-rule
A firm must arrange for orderly records to be kept of its business and internal organisation, including all services and transactions undertaken by it, which must be sufficient to enable the appropriate regulator or any other relevant competent authority under MiFID or the UCITS Directive to monitor the firm's compliance with the requirements under the regulatory system, and in particular to ascertain that the firm has complied with all obligations with respect to clients.
[Note: article 13(6) of MiFID, article 5(1)(f) of the MiFID implementing Directive, article 12(1)(a) of the UCITS Directive and article 4(1)(e) of the UCITS implementing Directive]

SYSC 9.1.2

handbook-rule
A common platform firm must retain all records kept by it under this chapter in relation to its MiFID business for a period of at least five years.
[Note: article 51 (1) of the MiFID implementing Directive]

SYSC 9.1.3

handbook-rule
In relation to its MiFID business, a common platform firm must retain records in a medium that allows the storage of information in a way accessible for future reference by the appropriate regulator or any other relevant competent authority under MiFID, and so that the following conditions are met:
(1) the appropriate regulator or any other relevant competent authority under MiFID must be able to access them readily and to reconstitute each key stage of the processing of each transaction;
(2) it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections and amendments, to be easily ascertained;
(3) it must not be possible for the records otherwise to be manipulated or altered.
[Note: article 51(2) of the MiFID implementing Directive]

Guidance on record-keeping

SYSC 9.1.4

handbook-guidance
Subject to any other record-keeping rule in the Handbook, the records required under the Handbook should be capable of being reproduced in the English language on paper. Where a firm is required to retain a record of a communication that was not made in the English language, it may retain it in that language. However, it should be able to provide a translation on request. If a firm's records relate to business carried on from an establishment in a country or territory outside the United Kingdom, an official language of that country or territory may be used instead of the English language.

SYSC 9.1.5

handbook-guidance
In relation to the retention of records for non-MiFID business, a firm should have appropriate systems and controls in place with respect to the adequacy of, access to, and the security of its records so that the firm may fulfil its regulatory and statutory obligations. With respect to retention periods, the general principle is that records should be retained for as long as is relevant for the purposes for which they are made.

SYSC 9.1.6

handbook-guidance
Schedule 1 to each module of the Handbook sets out a list summarising the record-keeping requirements of that module.
[Note: article 51(3) of MiFID implementing Directive]

SYSC 9.1.7

handbook-guidance
The Committee of European Securities Regulators (CESR) has issued recommendations on the list of minimum records under Article 51(3) of the MiFID implementing Directive.

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SYSC 21

Risk control: additional guidance

SYSC 21.1

Risk control: guidance on governance arrangements

  • 01/05/2011

Additional guidance on governance arrangements

SYSC 21.1.1A

handbook-guidance
References to “firm” in SYSC 21 should be read as excluding CRR firms (other than incoming firms)

Chief Risk Officer

SYSC 21.1.2

handbook-guidance
(1) A Chief Risk Officer should:
(a) be accountable to the firm'sgoverning body for oversight of firm-wide risk management;
(b) be fully independent of a firm's individual business units;
(c) have sufficient authority, stature and resources for the effective execution of his responsibilities;
(d) have unfettered access to any parts of the firm's business capable of having an impact on the firm's risk profile;
(e) ensure that the data used by the firm to assess its risks are fit for purpose in terms of quality, quantity and breadth;
(f) provide oversight and challenge of the firm's systems and controls in respect of risk management;
(g) provide oversight and validation of the firm's external reporting of risk;
(h) ensure the adequacy of risk information, risk analysis and risk training provided to members of the firm's governing body;
(i) report to the firm's governing body on the firm's risk exposures relative to its risk appetite and tolerance, and the extent to which the risks inherent in any proposed business strategy and plans are consistent with the governing body's risk appetite and tolerance. The Chief Risk Officer should also alert the firm's governing body to and provide challenge on, any business strategy or plans that exceed the firm's risk appetite and tolerance;
(j) provide risk-focused advice and information into the setting and individual application of the firm's remuneration policy (Where the Remuneration Code applies, see in particular SYSC 19A.3.15 E. Where the BIPRU Remuneration Code applies, see in particular SYSC 19C.3.15 E). Where the Dual-regulated Remuneration Code applies, see in particular SYSC 19D.2.16E. Where the Remuneration part of the PRA Rulebook applies, see the PRA’s Supervisory Statement on Remuneration).
(2) Firms will need to seek the appropriate regulator's approval for a Chief Risk Officer to perform the systems and controls function (see SUP 10 (Approved persons)).
(3) The appropriate regulator expects that where a firm is part of a group it will structure its arrangements so that a Chief Risk Officer at an appropriate level within the group will exercise functions in (1) taking into account group-wide risks.

[Note: The PRA’s Supervisory Statement on remuneration is available on the PRA website at http://www.bankofengland.co.uk/pra/Pages/default.aspx.]

Reporting lines of Chief Risk Officer

SYSC 21.1.3

handbook-guidance
(1) The Chief Risk Officer should be accountable to a firm'sgoverning body.
(2) The appropriate regulator recognises that in addition to the Chief Risk Officers primary accountability to the governing body, an executive reporting line will be necessary for operational purposes. Accordingly, to the extent necessary for effective operational management, the Chief Risk Officer should report into a very senior executive level in the firm. In practice, the appropriate regulator expects this will be to the chief executive, the chief finance officer or to another executive director.

Appointment of Chief Risk Officer

SYSC 21.1.4

handbook-guidance
(1) Firms should ensure that a Chief Risk Officers remuneration is subject to approval by the firm'sgoverning body, or an appropriate sub-committee.
(2) Firms should also ensure that the Chief Risk Officer may not be removed from that role without the approval of the firm'sgoverning body.

Governing body risk committee

SYSC 21.1.5

handbook-guidance
(1) The appropriate regulator considers that, while the firm'sgoverning body is ultimately responsible for risk governance throughout the business, firms should consider establishing a governing body risk committee to provide focused support and advice on risk governance.
(2) Where a firm has established a governing body risk committee, its responsibilities will typically include:
(a) providing advice to the firm'sgoverning body on risk strategy, including the oversight of current risk exposures of the firm, with particular, but not exclusive, emphasis on prudential risks;
(b) development of proposals for consideration by the governing body in respect of overall risk appetite and tolerance, as well as the metrics to be used to monitor the firm's risk management performance;
(c) oversight and challenge of the design and execution of stress and scenario testing;
(d) oversight and challenge of the day-to-day risk management and oversight arrangements of the executive;
(e) oversight and challenge of due diligence on risk issues relating to material transactions and strategic proposals that are subject to approval by the governing body;
(f) provide advice to the firm'sremuneration committee on risk weightings to be applied to performance objectives incorporated in the incentive structure for the executive;
(g) providing advice, oversight and challenge necessary to embed and maintain a supportive risk culture throughout the firm.
(3) Where a governing body risk committee is established, its chairman should be a non-executive director, and while its membership should predominantly be non-executive it may be appropriate to include senior executives such as the chief finance officer.

SYSC 21.1.6

handbook-guidance
In carrying out their risk governance responsibilities, a firm'sgoverning body and governing body risk committee should have regard to any relevant advice from its audit committee or internal audit function concerning the effectiveness of its current control framework. In addition, they should remain alert to the possible need for expert advice and support on any risk issue, taking action to ensure that they receive such advice and support as may be necessary to meet their responsibilities effectively.

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Transitional Provisions and Schedules

SYSC TP 2

Firms other than common platform firms, insurers, managing agents and the Society

SYSC Sch 1

Record keeping requirements

  • 01/12/2004

SYSC Sch 1.1

handbook-guidance

SYSC Sch 1.2

handbook-guidance

SYSC Sch 2

Notification requirements

  • 01/12/2004

SYSC Sch 2.1

handbook-guidance

SYSC Sch 3

Fees and other required payments

  • 01/12/2004

SYSC Sch 3.1

handbook-guidance

SYSC Sch 6

Rules that can be waived

  • 01/12/2004

SYSC Sch 6.1B

handbook-guidance
As a result of section 138A of the Act (Modification or waiver of rules) the PRA has power to waive all its rules, other than rules made under section 137O (Threshold condition code). However, if the rules incorporate requirements laid down in European directives, it will not be possible for the PRA to grant a waiver that would be incompatible with the United Kingdom's responsibilities under those directives.
  • 01/04/2013

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