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Compliance Tip - November 2008
Does your Platform need extending?
Relevance
FSA published Policy Statement PS08/9 "Organisational systems and controls - extending the common platform" in September. The provisions will come into force on 1st April 2009 - the date has been extended from the original proposed date of 1st October 2008. The changes will take place mainly as Guidance.
This compliance tip is mainly applicable to home finance and insurance intermediaries together with those investment firms not already subject to the MiFID rules. Most other firms are already caught by these "Common Platform" requirements and need not read on, other than as a reminder.
Content
The Common Platform was first seen as part of the arrangements made to implement the MiFID & CRD Directives. The FSA has confirmed that it will extend the "Common Platform provisions" to nearly all firms not already subject to them. The provisions concern the organisational and systems and controls requirements in the common platform (by which is meant Chapters 4-10 of the Senior Management Arrangements, Systems and Controls sourcebook [SYSC] ).
In broad terms, the Common Platform requirements are:
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General Organisational Requirements
The firm must have robust governance arrangements including clear organisational structure and reporting lines, effective systems for the identification and management of risks and appropriate administrative, accounting and information processing systems. The firm must also have experienced and reputable management and appropriate internal management practices and allocation of responsibilities.
Employees, Agents and Other Relevant Persons
Personnel employed by the firm must have appropriate skills, knowledge and expertise to carry out the functions allocated to them.
Compliance (including Internal Audit) and Financial Crime
The firm must have and maintain appropriate policies and procedures to enable the firm to comply with its regulatory responsibilities. Where appropriate to the nature and scale of the firm's activities, an independent internal audit function must be maintained. The firm must also establish and maintain appropriate systems and controls to enable it to identify and manage money laundering and other financial crime risks.
Risk Control
The firm must establish and maintain adequate risk management policies and procedures that identify the risks to the firm's activities and, as appropriate, establish the level of risk the firm is prepared to tolerate.
Outsourcing
Where appropriate, the firm must ensure that it takes appropriate measures to avoid undue additional operational risks arising through any outsourcing arrangements. Outsourcing will not be undertaken where this affects materially the firm's internal controls and prevents the FSA from monitoring the firm's compliance with its regulatory obligations.
Conflicts of Interest
The firm must have appropriate systems to identify and manage conflicts of interest between the firm (including its staff and, if any it's appointed representatives) and a client or between one client and another client.
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The FSA says that, with certain exceptions on areas such as outsourcing and managing conflicts of interest which will be subject to new provisions, firms complying with the existing provisions in SYSC 2 and 3 now will not need to change their behaviour when moving to the common platform.
Key Action Point
Firms will need to review their existing senior management arrangements, systems & controls to assess their adequacy for the common platform requirements and consider also whether any changes are needed to cope with the further specific provisions on outsourcing and conflicts of interest.
For example:
a) in arranging any outsourcing of services the implications of the distinction between having 'responsibility for' and organising the 'provision of' the outsourced services needs to be carefully considered.
b) managing conflicts of interest means taking all reasonable steps to prevent conflicts of interest from giving rise to a material risk of damage to the interests of clients. A requirement then exists to provide further disclosure of any such conflicts which have not been adequately managed.
Help
Resources Compliance will be running seminars touching on this area and other hot topics in the coming months. Any firms requiring further immediate guidance on this issue should contact their usual Consultant or the Resources Compliance office on 0161 486 1000.
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