DPB compliance review

A licensed firm of ICAEW is required by the DPB (Investment Business) Handbook to carry out a review at least once a year of how effectively it is complying with the Handbook. This review should include client file reviews.

You should keep evidence of the review, including a written summary, for at least six years.

This helpsheet includes a checklist of the matters you need to address when you conduct such a review, and is intended to act as part of the evidence and written summary of the review.

You may need to make additions and amendments to the checklist to address fully your firm’s particular circumstances.

If you answer ‘No’ to any of the questions on the checklist, it will usually indicate that further action may be needed.

This helpsheet has not been designed to determine whether a firm needs to be licensed by the Institute or authorised by the Financial Conduct Authority (FCA). Schedule 4 to Part 3 of the Handbook sets out the work that is not regulated, together with any conditions. Other schedules in Part 3 will also help determine whether the firm needs to be licensed or authorised. If in doubt, please contact the DPB helpline on +44 (0)1908 546 370.

The Financial Services and Markets Act 2000 (the Act) and the Regulated Activities Order 2001 (SI 2001/No.544) (as amended) identify a range of investments and activities that are regulated.

A firm needs to obtain authorisation from the FCA to undertake these regulated activities involving regulated investments. The fact that only authorised firms are allowed to conduct these activities is referred to as the general prohibition.

The legislation provides for some exclusions to the general prohibition. Any firm may undertake these excluded activities. In order for such exclusions to apply, any attaching conditions must be met. If these conditions are not met, the activity becomes regulated and the firm needs to be licensed or authorised.

Part XX of the Act introduced the concept of the Designated Professional Body, of which the Institute is one. It offers an alternative to the need to be authorised by the FCA. A firm that obtains a licence from the Institute is exempt from the requirement to be authorised for a limited range of what would otherwise be regulated activities, hence the term exempt regulated activities. Further details are provided in the Handbook.

Licensed firms can only conduct regulated activities that are not prohibited by the Non-Exempt Activities Order 2001 (SI 2001/No.1227) (as amended). The list of prohibited activities is given in Schedule 1 to Part 3 of the Handbook. Part 3 of the Handbook contains the regulations that Part XX of the Act requires. It is a criminal offence to undertake exempt regulated activities in breach of the regulations or conduct investment business that requires authorisation under the Act.

A licensed firm may only make investment advertisements or other financial promotions if such an advertisement is approved by an authorised person or covered by an exemption in the Financial Promotions Order (SI 2005/1529). This may require the use of prescribed wording. It is a criminal offence to make a financial promotion in breach of general restrictions in the Act.

Licensed firms can conduct regulated activities that are prohibited under the regulations if they are permitted to do so as an appointed representative of a person authorised by the FCA. This checklist does not deal with such a situation. If a licensed firm that is an appointed representative of an authorised person is using this helpsheet to undertake its compliance review, the firm will need to make significant adjustments to the checklist.

This helpsheet follows the requirements of the Handbook, in particular:

• Part 2, Terms and conditions of a licence;
• Part 3, Regulated activities (investment business) regulations; and
• Part 4, Conduct of business code

References to the requirements of the Handbook are given in the comments column, and terms used in this helpsheet should be interpreted in accordance with the Handbook.

Terms defined in Part 9 of the Handbook are given in italics in this helpsheet.

This helpsheet does not include a compliance review covering ICAEW’s Clients’ Money Regulations. Monies received as commission in respect of exempt regulated activities should be handled in accordance with paragraphs 3.11 and/or 4.15 of the Handbook.

The Money Laundering Regulations 2007 extended the requirement to have anti-money laundering reporting procedures beyond the undertaking of regulated or exempt regulated activities. Procedures are now required to cover the provision by way of business of tax advice, accountancy services, audit services by a registered auditor, company/trust formation operation or management, and the provision of insolvency practitioner services. In other words, most services provided by most firms.

A separate compliance review could prove useful in assuring compliance with money laundering legislation.

This helpsheet assumes you are familiar with the Handbook, its requirements and the terms and expressions used. Further guidance is available in the Handbook. You should also look out for the newsletter DPB update and visit www.icaew.com/dpb for information to help you keep up to date.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.