The FCA is set to bring in a new set of rules for all regulated firms, including financial advisers, to ensure individual accountability and conduct standards are met.
The regulator today published proposals to extend the Senior Managers and Certification Regime that currently applies to banks to the wider financial services industry.
The three key parts of the rules that apply to firms include, firstly, a requirement to clearly set out what areas of responsibilities senior managers at the firm have. A specific individual must be in charge of areas including financial crime prevention and compliance with client asset rules. These managers will receive FCA approval and be listed on the FCA register.
Secondly, the FCA has also proposed five conduct rules that all staff at firms will fall under, which are equivalent to those it imposed on banks.
- You must act with integrity
- You must act with due care, skill and diligence
- You must be open and cooperative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
There are an additional four conduct rules for the senior managers within a firm:
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
- You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
- You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
The final key piece of the proposed rules asks firms to “certify” each year that staff below senior manager level are fit and proper to carry out those jobs that are not covered by the SMR but “significantly impact customers or firms.”
The FCA gives the example that “if a firm employs a customer‑facing financial adviser, every manager above them in the same chain of responsibility will have to be certified (until the Senior Manager approved under the SMR is reached).”
Limited scope firms
Sole trading financial advisers, however, will be classified as “limited scope” firms.
These firms will not have to prescribe the FCA’s necessary responsibilities to individual senior managers, but will only need to have the compliance oversight function in place.
FCA executive director of supervision for retail and authorisations Jonathan Davidson says: “This is about individuals, not just institutions. The new conduct rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with.
“The regime will also ensure that senior managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”
At a press conference after the FCA’s annual public meeting last week, Money Marketing asked FCA chief executive Bailey if any extension of the SMR to financial advice firms, many of which are one-man-bands, would be appropriate.
Bailey said: “One of the big questions here, we’re taking it from the banks to the whole world of FCA firms, which is a large number, so getting the proportionality right, to your point that some of them are one person firms, is critical.
We wouldn’t load on the SMR that would apply to an international bank to a one-person firm. That’s taken up a lot of our time to get that right for the reason you give.”
Law firm Ashurst regulation partner Jake Green says: “No longer is it just the bank bosses who are in the regulator’s firing line. The FCA’s extension might make the administrative burden slightly less for smaller firms than for banks, but the proposed rules bring those running all types of financial services firms into the spotlight, even your IFA on the high street.
“On the one hand the regime clearly aims to be proportionate. However, many large fund/portfolio managers may be surprised to see the FCA suggest a figure of senior managers running into the ‘teens’. While that may not be the case, draft lines appear to be drawn.”
The consultation closes in November.