Licensing Framework, Fitness and Propriety
Entry, then ongoing compliance
This module tests how firms and individuals become authorised, what the SC examines before granting a licence, and the duties that continue afterwards.
- CMSA s.58: no person may carry on a business in a regulated activity without a CMSL. The licence is activity-specific - the regulated activities include dealing in securities, dealing in derivatives, fund management, dealing in private retirement schemes, advising on corporate finance, investment advice and financial planning - so a firm needing several must be licensed for each. Clearing houses are separately approved by the SC.
- Individuals performing regulated activities hold a CMSR, are attached to one CMSL holder, and keep their qualification and continuing professional education record current.
- Fit and proper criteria cover honesty, integrity and reputation; competence and capability; financial soundness; and the ability to carry out duties efficiently, honestly and fairly. Evidence weighs criminal convictions (especially dishonesty), bankruptcy or insolvency, civil judgments, regulatory or professional disciplinary action, dismissal, AML findings and past business conduct.
- Applicants must show adequate financial resources, a viable business plan, compliance and risk functions, a compliance officer, suitable directors and controllers, technology and business continuity arrangements.
- Ongoing: notify the SC of changes to directors, chief executive, controllers, name or address; submit audited accounts and compliance reports; maintain minimum financial requirements, professional indemnity cover and annual fees; cooperate with supervision.
Worked example
A firm proposes a director who was made bankrupt three years ago and censured by a regulator five years ago for mis-selling. On those facts he is unlikely to satisfy the financial soundness and reputation tests; the SC weighs the nature of the conduct, time elapsed, rehabilitation and candour. Concealing the history in the application is itself a fitness problem and worse than disclosing it.
Traps
- Treating fitness as a one-off test at application; it is continuous.
- Assuming passing an exam is the licence.
- Overlooking the notification duty after a change of control.