Threshold Conditions
By Terence Clark
You will all recall that when you completed your Financial Services Authority applications, you signed up to a number of Threshold Conditions which are contained in their own Sourcebook – COND.
Since the arrival of the Financial Conduct Authority( FCA) there have been some revisions.
It is important to note that all of these conditions apply to all firms and you should be able to abide by these at all times. They are as follows and the numbers relate to the appropriate FCA Rulebook chapter.
COND 2.2 Location of offices
If you are a body corporate, incorporated in the United Kingdom( UK), your head office and registered office must be in the UK. If you are not a body corporate, your main office must be in the UK and you must be carrying on business in the UK
COND 2.3 Effective supervision
A firm must be capable of being effectively supervised by the FCA taking into account the nature of the organisation and complexity of its business and the activities it undertakes.
COND 2.4 Appropriate resources
A firm must have appropriate resources at all times.( In this context, the FCA will interpret the term“ appropriate”, as meaning sufficient in terms of quantity, quality and availability) This is not just focused on Financial resources, but a firm’ s non-financial resources as well. These would cover personnel, skills, experience, systems and controls and effective management.
COND 2.5 Suitability
A firm must be a fit and proper person( entity) having regard to all the circumstances, including any connection with any person, the nature( including the complexity) of any regulated activity carried on, the need to ensure that affairs are conducted in an appropriate manner, having regard in particular to the interests of consumers and the integrity of the UK financial system.
Also, whether a firm has complied with and continues to comply with requirements imposed by the FCA in the exercise of its functions, or requests made by the FCA, relating to the provision of information to the FCA and, where the firm has so complied or is so complying, the manner of that compliance. There is also a focus on whether those who manage the firm’ s affairs have adequate skills and experience and act with probity; whether the business is being, or is going to be, managed in such a way as to ensure that its affairs will be conducted in a sound and prudent manner; and the need to minimise the extent to which it is possible for the business carried on to be used for a purpose connected with financial crime.
COND 2.7 Business model
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This is the newest of the conditions and came into place with the advent of the FCA. It aligns itself with the Business Risk awareness work and, indeed, good corporate governance.
A firm’ s strategy for doing business must be suitable for a person carrying on the regulated activities that are undertaken. All firms must consider for example:
( 1) the assumptions underlying the firm’ s business model and justification for it;
( 2) the rationale for the business the firm proposes to do or continues to do, its competitive advantage, viability and the longer-term profitability of the business;( 3) the needs of, and risks to, consumers;( 4) the expectations of stakeholders, for example, shareholders and regulators;( 5) the products and services being offered and product strategy;( 6) the governance and controls of the firm and of any member of its group( if appropriate);( 7) the growth strategy and any risks arising from it;( 8) any diversification strategies; and( 9) the impact of the external macroeconomic and business environment.
In effect, the FCA wants to ensure that your firm is still going to be around short, medium and long term.
As a final reminder, it is important that all firms can show that they continue to meet these conditions at all times and on a regular basis and document that they have reviewed these conditions and that the firm is satisfied that they continue to meet them.
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