How long have you been authorised for?

0-1 years 1-3 years 3+ years

Do you have a Risk Map?

Yes
No

Regulated firms are required to look at all the risks that the firm faces. Many of these, such as market or counterparty exposure, are well known and form part of a firm’s reporting to the FSA. However a firm faces a wide range of other risks ranging from personnel, business continuity, reliance on third party suppliers (outsourcing) and even power supplies.

Any firm regulated by the FSA must look at all the constituent parts that it relies upon in conducting its investment business and is required to assess the potential impact of a failure. Such impact will range from minor to catastrophic. Once the risks are identified and assessed the firm has to determine the risk that it is able to take action to avoid or mitigate and what level it considers to be acceptable or unavoidable.

A risk map is a dynamic document that theoretically moves with every business decision and action that the firm undertakes. It is important that the risk map is reviewed at regular intervals and that it is always redrawn when a new service or activity is contemplated such as holding client money, opening a branch office or taking on a new team.

The FSA will often ask a firm for a copy of the Risk Map before allowing the firm to undertake certain activities and in exceptional circumstances may require a firm to cease conducting certain business until a Risk Map has been produced and acted on.

Do you have a Training and Competence plan?

Yes
No

Even if you have no staff carrying out activities which require a full Training and Competence Scheme, the FSA has published Guidance containing ‘Commitments’ to Training and Competence which every authorised firm must fulfil.

This means that you must be able to demonstrate to the Regulators that you have a systematic, planned approach to the training of  all your employees so that you can show that they have: 

• been assessed  as competent;
• are competent;
• are adequately supervised;
• regularly assessed for competence; and
• their level of competence is appropriate to your business.

Much more prescriptive and detailed requirements will apply if you have staff performing designated, mainly customer facing roles such as selling or advising, or who supervise staff in key administrative areas. Here FSA demands that you develop a full Training and Competence Scheme, which has to encompass: 

• recruitment procedures;
• explicit standards and processes  for the achievement;
• initial and ongoing assessment of competence; 
• training and development plans for staff and include similar arrangements for those supervising them.

 All of this has to be rigorously maintained and documented.

Have you addressed the implications of Corporate Governance?

Yes
No

Corporate governance covers every aspect of the operation and control of a firm ranging from the appropriate appointment of directors including service contracts, remuneration and responsibilities of non-executive directors through to internal control and internal audit.

Good corporate governance helps establish the culture of the firm from the highest level and enables firms to meet the heavy demands of regulation. High profile cases such as Enron, Worldcom and Refco are examples of failures of corporate governance where strong individuals have been able to avoid proper checks and balances and as a result been able to use a firm’s assets for their own personal advantage.

Corporate governance must however be proportionate to the firm and its activities.

Do you hold Client Money?

Yes
No

Investment clients may choose to leave money with a regulated firm and this is called Client Money. A regulated firm can hold this money under a statutory or non statutory trust and must ensure that it is ring fenced within the firm from the claims of general creditors.

The FSA have drafted prescriptive rules in order to ensure that this ring fencing is effective.

In order to be able to hold client money you must have specific permission from the FSA.

Do you have a full time, dedicated Compliance Officer?

Yes
No

Every firm requires the appointment of a UK based person responsible for compliance oversight who is usually called the Compliance Officer. Responsible to the senior management of the firm for day to day compliance, the Compliance Officer is required to ensure that the firms procedures are up-to-date and adhered to.

Do you have a dedicated MLRO?

Yes
No

Every firm is required to have a UK based Money Laundering Reporting Officer (MLRO). However, in many organisations the MLRO is tasked with other functions such as compliance or finance thereby diluting the resource.

The MLRO is tasked with ensuring that the firms procedures are in compliance with current best practice, that all relevant staff have received the appropriate training; to investigate internal reports of money laundering and where appropriate make a report to NCIS.

The MLRO is tasked with keeping up to date with changes in anti-money laundering regulation and to the FATF risk countries and to distribute this information to the firm.

In addition the MLRO is required to perform an annual review of the firm’s anti-money laundering procedures and make a report to the firm’s senior management.

As the anti-money laundering regime attracts severe penalties, including possible imprisonment for non-cooperation, this is a high profile role.