UK's FSA Changes Its Handbook

by Robin Pilgrim, LawAndTax-News.com, London

12 February 2003

The UK's Financial Services Authority recently made a number of substantial changes to its Handbook. The Handbook contains the 'sourcebooks' which are in effect the rule-books for various types of financial institution. The rules have statutory effect as secondary legislation under the Financial Services And Markets Act 2000 (FSMA) and apply to anyone doing financial services business in the UK, whether or not they are resident in that country.

The changes were made on 16 January 2003, and the most important are as follows:

1. Amendments to the General provisions to:

• require all authorised firms to disclose their status under the FSMA in letters to private customers; and
• introduce permanent guidance to allow firms to reproduce the FSA logo on their letterheads on certain conditions.

There are some consequential minor changes to the Conduct of Business sourcebook,the Authorisation manual,the Credit unions sourcebook,the E-Commerce Directive sourcebook,the Professional firms sourcebook and the Glossary.

2. Amendments to the Interim Prudential sourcebook for Banks to:

• replace references to CEDEL with references to Clearstream, following the merger of CEDEL International and Deutsche Borse Clearing AG;and
• reflect that Bank of England Euro notes are eligible securities for use in its open market operations.

There are related amendments to the Interim Prudential sourcebooks for Building Societies and Investment businesses.

3.Amendments to the Conduct of Business sourcebook to:

• clarify various financial promotion requirements;
• make miscellaneous changes relating to broker funds, including a requirement for overseas life offices to assume responsibility to the customer for the acts and omissions of an independent financial adviser acting as broker fund adviser,and the reinstatement of the pre-N2 position as to written agreements for broker fund contracts (together with changes to the Glossary definition of broker fund adviser, to reduce its scope,and to the definition of broker fund, to include overseas long-term insurers);
• clarify that a firm is required to obtain notification of employees'personal account transactions only if in investments in which the firm carries on investment business or related investments;and
• correct a drafting error relating to the exemption available under article 42 of the Regulated Activities Order.

4. An amendment to the Market conduct sourcebook to delete CoredealMTS from the list of recognised investment exchanges, following the de-recognition of CoredealMTS as an investment exchange as at 29 November 2002.

5. New guidance in the Authorisation manual to make clear to firms applying for Part IV permission that the full fee must be received before the application process can begin,and to explain the consequences of not submitting the fee in full.

6. Amendments to the Supervision manual to:

• introduce a standard form for waiver applications which must be used by any firm applying for a waiver on or after 1 March 2003;
• include guidance to clarify that waiver applications will not be kept open indefinitely without contact from a firm to enable the application to be progressed;
• clarify the application to incoming EEA firms of the requirements on actuaries;
• clarify the application of the financial reporting requirements to authorised professional firms and the information insurers are required to provide on controllers; and
• reflect the change of name from CEDEL to Clearstream.

7. Amendments to the Enforcement manual to:

• clarify the FSA's policy on the use of the power to prohibit individuals; and
• provide guidance relating to requests by authorised or approved persons to pay financial penalties by instalments, and extend this guidance to financial penalties for market abuse.

8. An amendment to the Dispute resolution: Complaints sourcebook to change the time limits within which the Financial Ombudsman Service (FOS)can consider mortgage endowment complaints, which will allow the FOS to consider some complaints that might otherwise have been time barred.

9. An amendment to the Compensation sourcebook to incorporate provisions contained in a statutory instrument made under FSMA relating to credit unions and to ensure that future changes to the Compensation sourcebook apply to pre-2 July 2002 deposits with credit unions.

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