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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