The Conduct Rules do apply to anyone in a Limited Scope Firm that is in any way involved in, or supporting, financial services activities, and the firm is required to train relevant staff in how the Conduct Rules relate to their roles.

The Certification Regime does not apply to a sole trader as an individual, but may apply to their employees. So, the Certification Regime does not apply to a sole trader with no employees.

Most sole traders will not need to conduct a fit and proper assessment on themselves. This is because neither the governing SMFs nor the Certification Regime apply to a sole trader themselves, though these functions can apply to their employees.

Sole traders don’t need to get references about themselves from previous employers to perform a Senior Management Function as the sole trader. Firms do not need to request a regulatory reference for a candidate if they were previously a sole trader.

Sole traders do not need to conduct criminal records checks on themselves.

The Conduct Rules do not apply to a sole trader as an individual unless they hold a SMF. The Conduct Rules will apply to employees of sole traders (unless they perform one of the excluded ancillary roles).

Single Director Firms
This all appears very straightforward and sensible – Limited Scope firms have limited requirements, and sole traders have even fewer requirements.

However, while a firm that is a limited company with a single director might appear to be effectively the same as a sole trader, with the only difference being the legal structure under which the business operates, single director firms are not treated in the same way as sole traders for the purposes of SM&CR. 

To start with, a single director firm is NOT considered to be a Limited Scope Firm. It is considered to be a Core Firm and all Core Firm requirements apply, namely Senior Management Functions, Certified Staff and Conduct Rules.

This means that a single director, who we assume would be the adviser in the firm, must be certified each year as ‘fit and proper’ for any applicable SMF role(s) and their certified role as adviser. That raises the question of who makes that assessment. 

Daft as it seems for an individual to effectively mark their own homework, self-certification will be the only option if there is no one else in the firm of sufficient seniority and capability to do it credibly. The individual should reflect on anything that they need to do to maintain their competence, ensure that they do it and certify themselves. Guidance on fit and proper assessments can be found in the FIT sourcebook.

It is theoretically possible that such a Director does not meet the FSMA definition of an employee. In that case, the individual would be outside the certification regime with no need formally to self-certify but the firm would still have to keep the individual’s competence under review. If the Director had staff falling under certification for example, then they would need to assess their capability and certify that they are fit and proper on an annual basis.