UK: FSA postpones clarification of the role of non-executive directors but extends reach of the approved persons regime

Yesterday the Financial Services Authority published a policy statement setting out feedback and final rules following its approved persons regime (significant influence function) review. Directors - executive and non-executive - of FSA authorised firms fall within the approved persons regime because they exercise controlled functions. The FSA proposed, as part of the review, amending the Statements of Principle and Code of Practice for Approved Persons within the FSA Handbook in order to clarify the role and expectations placed upon non-executive directors. This has been postponed because the FSA wishes to consider the Walker Review recommendations and those that the Financial Reporting Council may make following its review of the Combined Code (the FRC published a progress report today).

In its review, the FSA also proposed extending controlled functions CF1 (director) and CF2 (non-executive director) to those exercising significant influence over authorised firms. This was intended to bring within the approved persons regime those individuals (e.g., directors, non-executive directors and senior managers) who had significant influence over the authorised firm but who were, e.g., employed by the authorised firm's parent undertaking or holding company and potentially outside of the FSA regulatory ambit. The FSA will be implementing this proposal by amending the director and non-executive director controlled function definitions. The definition of the director function will be amended to include a person:

(a) who is a director, partner, officer, member (if the parent undertaking or holding company is a limited liability partnership), senior manager, or employee (other than a non-executive director) of a parent undertaking or holding company (except where that parent undertaking or holding company is an EEA firm); and
(b) whose decisions or actions are regularly taken into account by the governing body of the [authorised] firm".

The definition of the non-executive director function in respect of an authorised firm will also be amended to include a:

non-executive director of a parent undertaking or holding company (except where that parent undertaking or holding company is an EEA firm) whose decisions, or actions are regularly taken into account by the governing body of the [authorised] firm".