In less than five months the Senior Managers & Certification Regime will be extended to FCA solo regulated firms. There is still time to prepare but, if you haven’t begun yet, you should start now.
Most aspects of the regime come in to effect on 9 December 2019 but full implementation and the introduction of formal conduct rules for some staff members will happen 12 months later.
FCA senior staff members talk about the desire for a transformation of culture within the financial services industry and achieving consistently high standards of personal conduct.
Accountability and governance are at the core of the regime and, while the focus is strongly on senior managers, accountability is addressed at all levels of a business from the top down. It will apply to most advisers, investment managers and supervisors, and some conduct rules will apply to virtually all staff members.
There are three tiers of the regime:
- The majority of firms will fall within the core regime.
- A small number will have fewer requirements and fall under the limited scope regime. This includes authorised professional firms that undertake only non-mainstream regulated activities and sole traders, but not single-person limited companies.
- The enhanced regime covers large firms such as those with income from intermediary activities of more than £35m per annum or assets under management of £50bn. These firms will have significantly more senior management functions and additional requirements in documenting their management structure through a responsibilities map.
Preparation should include putting together a project plan and deciding which individuals within your firm are going to lead the implementation. The work must be owned and driven by your senior management. New requirements will affect virtually every area of your business operations.
The regime does not require you to change the management structure of your firm or make new appointments, but you need to consider the individuals in these roles and be sure that they remain suitable. For core firms most senior managers will be mapped across to the new equivalent senior management function, unless you tell the FCA otherwise.
As currently, senior managers should be fit and proper for the role. For most core firms this will refer to directors or partners, compliance oversight officers and money laundering reporting officers. Being fit and proper includes competence and capability, relevant experience and personal characteristics.
Colleagues will also have to undertake compulsory criminal record checks for new senior management appointments, both internal and external.
The role of chair is not currently an approved person’s role but it will be a senior management function under SM&CR and, if you have a chair, this person will need to be approved by the FCA.
Duty of responsibility
A new duty of responsibility will apply to all senior managers. This is to enable the FCA to hold individuals to account for failings in a firm if they are proven not to have taken reasonable steps to prevent an issue occurring or to stop it recurring.
Your firm and the staff involved will need to be comfortable with the additional requirements and responsibilities that apply under the SM&CR before deciding whether they will be transitioned to the equivalent senior management functions under the new regime.
Statements of responsibilities for all senior managers will have to be prepared, outlining each area of the business they will be accountable for.
Another point on the SM&CR ‘to do’ list should be the allocation of prescribed responsibilities covering the implementation of different parts of the regime, and the allocation of responsibility for mitigation of financial crime risk.
Currently, FCA-approved individuals such as investment advisers and investment managers will no longer be approved. Instead you will have to certify them on an annual basis as fit and proper to undertake the role. Other staff included in the regime are advisers (who require an appropriate qualification), including mortgage advisers, long-term care advisers and pension transfer specialists.
The client-dealing function will capture investment managers but does not include staff involved in placing orders in an administrative capacity. Supervisors of certification staff will also have to be certified.
Be aware you’ll need to identify your certification staff when the regime is introduced, although you’ll have a further 12 months to complete the formal certification process.
To promote high standards of behaviour the FCA is introducing two tiers of conduct rules.
The first tier, covering integrity, skill, care and diligence, co-operation with the regulator and treating customers fairly, applies to all staff unless their role is not specific to financial services.
The second tier applies to senior managers and focuses strongly on individual accountability, which is the central theme of the SM&CR.
Jon Roberts is a policy consultant at Threesixty