Implementing the Self-Assessment Rule (SUP 12.6)

As we approach the end of 2023, principal firms in the UK that offer a regulatory cover to appointed representative firms face a crucial milestone. In December 2022, a new regulatory requirement, stemming from PS22-11 (on improving the Appointed Representatives regime), came into effect, necessitating firms to conduct a self-assessment of their compliance with SUP 12 regulations. In this article, we will delve into the details of this rule, its significance for principal firms, and the steps that should be taken in preparation for compliance before December 2023.

Understanding the New Rule

To begin, let’s recap the key elements of the new rule, which is now in effect and requires compliance before December 2023:

1. Annual Self-Assessment: At least once every 12 months, the governing body of a firm must conduct a comprehensive self-assessment.
2. Self-Assessment Document: Firms are required to create a written record, known as the “self-assessment document,” which covers two critical aspects:
   
   – The firm’s compliance with SUP 12 regulations.
   – Identification of any material deficiencies or concerns related to compliance.
3. Action Plan: The governing body must agree on the steps to be taken to address the identified deficiencies and concerns.
4. Inclusion of Appointed Representatives: The self-assessment document must also encompass concerns arising from recent reviews of the firm’s appointed representatives, in accordance with SUP 12.6A.2R or SUP 12.6A.3R.
5. Specific Assessment Areas: SUP 12.6A.7G (updated on December 2022) outlines the areas that the self-assessment document should cover:
   
   – The effectiveness of the firm’s arrangements for overseeing its appointed representatives.
   – The adequacy of the firm’s controls and resources in line with SUP 12.4.2R(3).
   – The firm’s assessment of the risk of harm to consumers or market integrity due to its appointed representatives’ activities.
   – Outcomes of any re-assessment of the continuing adequacy of controls and resources.
   – Methodologies used to assess and verify the firm’s compliance with the requirements.

The Significance for Principal Firms

Now, let’s explore why this rule is of particular importance to principal firms, especially those in the regulatory hosting sector.

1. Regulatory Compliance: Compliance with SUP 12 regulations is not just a box-ticking exercise; it is essential for maintaining regulatory compliance and safeguarding consumers.
2. Consumer Protection: Principal firms play a pivotal role in overseeing the activities of their appointed representatives. Ensuring compliance helps protect consumers from potential harm.
3. Market Integrity: Upholding compliance standards contributes to the overall integrity and stability of the financial markets.

Next Steps for Principal Firms

With the December 2023 compliance deadline approaching, principal firms must take proactive steps to ensure compliance with SUP 12.6. Laven Hosting is providing such templates as part of its regulatory hosting support services. However, here is a roadmap to guide your preparations:

1. Awareness and Education: Ensure that all relevant team members are aware of the new rule and its requirements.
2. Data Gathering: Begin collecting the data and information necessary for the self-assessment document.
3. Assessment and Documentation: Develop a comprehensive assessment process that covers all the areas outlined in SUP 12.6A.7G and document your assessment process and findings meticulously to ensure transparency and clarity.
4. Governance and Approval: The governing body must review and approve the self-assessment document before submission.
5. Action Plan: Develop a clear and actionable plan to address any deficiencies or concerns identified during the assessment.
6. Regular Review: Understand that self-assessment should not be a one-time event. It should be an ongoing process to ensure continued compliance.

Conclusion

Compliance is not just a regulatory obligation; it’s a means to ensure the integrity of your operations and protect the interests of consumers and the financial market as a whole. By following the steps outlined above and proactively embracing compliance, principal firms can navigate this new regulatory landscape with confidence.

Stay tuned for more updates and insights as the compliance deadline approaches, and make sure to stay informed and prepared for the changes that lie ahead.