Everything you need to know to get preparations in order ahead of the December deadline
The extension of the Senior Managers and Certification Regime to FCA-regulated firms falls on 9 December. You should be starting preparations now. The regime centres on accountability, culture and governance. It aims to:
- Encourage staff to take personal responsibility;
- Improve conduct at all levels of the financial services industry;
- Ensure business leaders and staff understand who does what within a firm.
There are three tiers to it, as follows:
- Core firms: includes those currently subject to the full approved persons regime;
- Limited scope firms: includes sole traders and authorised professional firms whose only regulated activities are non-mainstream ones;
- Enhanced regime firms: includes firms with assets under management of £50bn or more and those with intermediary regulated business revenue of £35m or more per annum.
So let’s take a closer look at some of the key elements.
Who are senior managers?
Generally, directors, partners and those who hold either compliance oversight or money laundering reporting officer roles. They will continue to require FCA approval.
“Chair” is a new senior management function, although it is not compulsory.
Enhanced regime firms include functions such as the chief finance function and head of internal audit.
Senior managers have a role to play in establishing good culture and governance within a firm.
Existing controlled functions will be mapped across to the new senior management functions for limited scope and core regime firms. It is more complex for enhanced regime firms because of new functions with no current equivalent.
The senior manager appointed should be the most senior person responsible for that area. For sole traders, the only senior management function that applies will be “compliance oversight”.
You will need to ensure that each senior manager is fit for their role. For new appointments, a criminal record check will be required.
Statement of responsibilities
An SoR sets out the responsibilities for each senior manager. For new appointments, there is a standard FCA form. You will not need to submit this for individuals who will be mapped across to the new regime. However, you will need to document and maintain an SoR for these individuals.
It will include any prescribed responsibilities that have been allocated to the senior manager. Formal prescribed responsibilities do not apply to limited scope firms.
For enhanced regime firms, there is a requirement for a responsibilities map, setting out the management and governance arrangements and handover procedures to enable a new senior manager to have the resources to carry out their responsibilities.
This applies to employees whose role could cause significant harm to the firm or customers. These are called “certification functions”.
Individuals will need to be certified internally as fit, proper and suitable. They will include investment advisers, mortgage advisers, investment managers and anybody who supervises or manages any individual with a certified function, including each layer of management up to the senior manager responsible.
They will not be approved by the FCA and will not appear on the financial services register. Instead, a directory of certified staff has been proposed through consultation.
It will be the responsibility of your firm to populate the directory through the Connect system.
The certification regime does not apply to non-executive directors or sole traders with no employees.
New conduct rules will be introduced for staff within authorised firms.
Tier 1 conduct rules will apply to all, other than ancillary staff (such as cleaners or security staff). Anyone who deals with clients or is involved in the delivery of financial services work will fall within scope.
Tier 1 rules are based on principles of integrity, due skill and diligence, co-operation with the regulator and treating customers fairly.
Staff will need to be aware of the conduct rules and how they apply to their role. Breaches of tier 1 rules will be reportable annually.
The tier 1 rules will apply to senior managers and certified staff from 9 December. There will be a 12-month transitional period to allow training on conduct rules for other staff.
Senior managers will also be subject to tier 2 conduct rules. These are focused on individual accountability and information disclosure to the FCA. Breaches of tier 2 rules will need to be reported within seven days.
The SM&CR does not extend to AR firms. Staff within AR firms will continue to be approved persons, where applicable. The requirements of the SM&CR will not apply, although you may wish to apply its rules internally. Your obligations as a principal firm will remain.
Jon Roberts is compliance policy consultant at Threesixty