Firms will hopefully have already ticked off some of the
urgent initial steps
It is now less than 11 months to the implementation of the extension of the Senior Managers and Certification Regime to FCA solo-regulated businesses. It may seem a long way in the distance, but 9 December will soon be here and firms will need some time to prepare.
We are seeing firms assembling project groups. As with any regulatory change project, the compliance function will have a key role but this is very much a “people regime” and so there are considerable human resource requirements.
You will have hopefully ticked off some of the urgent initial steps, such as assessing whether you are subject to the limited, core or enhanced elements of the regime. You may have started to identify the immediately obvious senior managers which will typically be your existing approved persons such as directors/partners, senior compliance and money laundering-reporting individuals.
However, have you been able to identify your certified population? For wealth and financial planning firms, your advisers will become certified and other individuals who may have significant management responsibilities could also be deemed certified. The criteria to consider is whether an individual could cause your firm or your customers/clients significant harm by their action.
When you’ve mapped out your senior managers and their reporting lines, do you have any senior managers reporting to another senior manager? Given that the purpose of the regime is to identify the individual ultimately accountable for an area, does it make sense to have them reporting to another senior manager rather than directly to the board?
We have seen a number of initial mapping exercises that have promoted healthy and beneficial debate, resulting in minor amendments to reporting lines that significantly increase the information flow into the board. SMCR is not the end itself – when approached in an open and positive manner it can identify changes that will benefit the business’s operational design and ultimately its customers.
Beyond identifying the relevant elements of the regime, the senior managers, prescribed responsibilities, individuals subject to the certification regime and employees subject to the conduct rules, what else is in your project plan and what potential areas should you be aware of?
One of the key challenges facing many firms is the level of HR resource required to prepare for SMCR, drafting statements of responsibility, making the relevant adaptations to contracts for senior employees, employee handbooks, disciplinary procedures, recruitment and reference requesting processes and reference giving to name a few.
Project plans should allow time for SoRs to be discussed and agreed with senior managers and for appropriate training to be provided to senior managers, to ensure awareness of roles and responsibilities, training of certified staff and conduct rules training for all staff to which the conduct rules apply.
Many firms, when reviewing their initial and annual fit and proper tests, are considering whether the requirement for criminal records checks for senior managers should be voluntarily extended to certified employees.
Preparation for both the senior management and certification elements of the regime should include detailing not only initial preparations but also your “business as usual” policies and processes, including how senior managers should meet the requirements of evidence having taken reasonable steps in fulfilling their roles.
You must also detail how you will meet the record-keeping requirements and how policies, processes, SoRs and responsibility maps will be updated and adapted over time, including processes for updating references already given if new information comes to light about an ex-employee.
While firms have a transitional period of 12 months from December to certify those individuals who will be certification staff and 12 months to train its conduct rules staff, firms are looking to try to ensure that the fit and proper assessment process dovetails with the timing of existing appraisal and training and competence reviews.
The FCA has attempted to be as proportionate as possible, introducing a core regime for the majority of wealth and financial planning firms, as opposed to the enhanced regime – which is very similar to the existing regime for the banks and building societies – for the most complex and large companies.
That being said, do not underestimate the amount of time required to meet the implementation requirements. Starting now would be prudent given we already have the near final rules from the FCA and are not anticipating any further major changes.
Simon Collins is managing director, regulatory, at Eversheds Sutherland