Senior Management Arrangements, Systems and Controls (SYSC) | FCA Handbook Guidance

The Senior Management Arrangements, Systems and Control sourcebook is one of the core building blocks of the FCA handbook. It sets out a framework within which a business should be managed and controlled.

The main purposes of SYSC are to:

1. Encourage Directors and Senior Managers to take responsibility for a firm’s arrangements on matters likely to be of interest to the FCA.
2. Ensure that firms are clear on how they need to organise and control their affairs responsibly and effectively, with adequate risk management systems.
3. Encourage firms to allocate responsibility for effective and responsible organisation to specific directors and senior managers.

This sourcebook promotes Principle 3, “a firm must take reasonable care to organise and control its affairs’ responsibly and effectively, with adequate risk management systems”.

Responsibility for compliance is on a top-down basis and the FCA are quite clearly giving responsibility for the organisation of the firm and its compliance with regulations to the senior managers. The senior managers need to recognise and understand their responsibilities and these need to be confirmed on a formal written basis.

This sourcebook looks at the way a firm organises itself and the systems and controls which need to be established in the following areas:

• governance and organisational structure;
• monitoring of systems and controls;
• compliance/internal audit/financial crime;
• risk control;
• management information;
• employees and remuneration
• knowledge, ability and good repute
• outsourcing;
• conflicts of interest;
• business planning/business continuity;
• whistle-blowing;
• records;

The FCA would expect the firm to have considered the following issues in establishing and maintaining their systems and controls:

• the size of the firm;
• the scale and complexity of the business (small firms are not expected to have the full range of procedures and systems that a well-run large firm requires);
• the need to counter the risk that the firm might be used to further financial crime
• the diversity of operations; and
• the volume and size of transactions.

Financial crime is defined as any offence involving fraud, dishonesty, misconduct in, or misuse of, information relating to any financial market or handling directly or indirectly the proceeds of crime and is covered in a later section.

It is important, however, that whatever the size of the firm it should be able to demonstrate that it has considered which systems and controls are relevant to its business.

As well as clear documentation of procedures, firms need to ensure that they can clearly evidence how procedures have been complied with throughout the organisation. It is vitally important therefore, that such information should be kept both up to date and communicated to all members of staff.

Background

Since 2009 a single SYSC sourcebook has applied to most firms in the Financial Services sector.

For General Insurance Intermediaries this meant a much longer and more detailed sourcebook than previously as they are now sharing the same handbook text as Investment firms and the like – generally referred to in the text as “Common Platform firms”.

However, much of the new content (added in 2009), although stated in the form of Rules, is subsequently downgraded for Insurance Intermediaries to Guidance only status which the FCA says “should be applied in a proportionate manner, taking into account the nature, scale and complexity of the firm’s business”.

A table summarising the SYSC requirements for Insurance Intermediaries including whether they should be treated as rules or guidance is included in the template section at the end of this chapter (SYSC Template 13).

The Insurance Distribution Directive (IDD) effective 1st October 2018 resulted in further changes to the SYSC sourcebook including:

1. Significant strengthening of the Conflicts of Interests requirements and upgrading previous Guidance to Rules for all firms.
2. Introducing a new Remuneration rule to ensure that remuneration arrangements do not conflict with a firm’s duty to act in a customer’s best interests.
3. Significant expansion of the “Competent Employees Rule” including a new minimum CPD requirement.
4. Moving “Good Repute” requirements from the previous MIPRU sourcebook to SYSC and requiring firms to “ensure” rather than “establish on reasonable grounds” that relevant staff are of good repute.

The Senior Managers and Certification Regime (SMCR), effective from 9th December 2019 for Insurance Intermediaries, introduced new Rules and Guidance some of which were added to the SYSC Sourcebook but many others are in other Sourcebooks including Code of Conduct (COCON) and Supervision (SUP).
In the Special Topics section of this manual there is an overview of the full SMCR regime.
In this SYSC section of the manual those sections added to SYSC as a result of SMCR are covered in detail at the end of Section A. These cover:

• Classification of SMCR firms
• Allocation of Prescribed Responsibilities – Certification Regime
• Regulatory References

This section comprises:

Section A – Details of the SYSC Rules and Guidance together with BIBA manual guidance on how these can be addressed.

Section B – Special Topics. More detailed guidance on the following topics:

• Financial Crime
• Money Laundering
• Information Security
• Anti-Bribery and Corruption
• Financial Sanctions
• Business Strategy/Plan
• Management Information