Although its full implementation has been delayed, all firms authorised by the Financial Conduct Authority (FCA) need to take careful note of the Senior Managers & Certification Regime (SM&CR). This new regime will replace the existing Approved Persons Regime.
At present, SM&CR only applies to banks, building societies, credit unions and large investment firms, but the FCA remains committed to introducing it throughout the financial services sector. Its introduction is now expected to occur sometime in 2019 – the exact implementation date will be confirmed by the Government in due course once the relevant legislation has completed its passage through Parliament.
The two central aims of the new Regime are:
- Encouraging a corporate culture where staff at all levels take personal responsibility for their actions
- Ensuring firms and staff clearly understand and can demonstrate where responsibility lies
The three principal components of SM&CR are:
- The Senior Managers Regime
- The Certification Regime
- The Conduct Rules
As with the existing Approved Persons Regime, the Senior Managers Regime will require firms to obtain approval from the FCA whenever they intend to appoint an individual to a management role for the first time. As at present, whether the FCA grants approval will depend on whether they are satisfied that the person is ‘fit and proper’ to carry out such an important role.
The definition of ‘senior managers’ the FCA will use is likely to encompass individuals carrying out the following roles, or equivalent roles:
- Chief Executive
- Executive Director
- Compliance Oversight
- Money Laundering Reporting Officer
For each senior manager, firms will need to produce a document called a Statement of Responsibilities, which clearly sets out what they are responsible and accountable for. If something within their remit goes wrong, then they can be held personally accountable and the FCA can fine them, or ban them from working in senior roles, or even impose an outright ban on them working in financial services.
Duties of Senior Managers under the new Regime will include:
- Taking reasonable steps to ensure that the business of the firm for which they are responsible is controlled effectively
- Taking reasonable steps to ensure that the business of the firm for which they are responsible complies with the relevant requirements and standards of the regulatory system
- Taking reasonable steps to ensure that any delegation of their responsibilities is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively
- Disclosing appropriately any information of which the FCA, or Prudential Regulation Authority, would reasonably expect notice
The Senior Managers Regime also requires firms to carry out their own annual assessment of whether each of their senior managers remains fit and proper to continue in their role.
The second component of the Regime is the Certification Regime. It applies to employees who are not considered to be senior managers but who carry out roles that could significantly impact customers or firms. Examples might include employees in more junior managerial roles, or investment advisers. These roles will be known as ‘certification functions’.
These individuals will not need to be approved by the FCA at any stage, and it will be the responsibility of the firm to certify these individuals for their fitness, skill and propriety at least once a year.
Finally, five new Conduct Rules will apply to all staff at all FCA authorised firms. These high-level rules will require all employees to:
- Act with integrity
- Act with due care, skill and diligence
- Be open and cooperative with regulators
- Pay due regard to customer interests and treat them fairly
- Observe proper standards of market conduct
Firms will need to inform the FCA should they take disciplinary action against an employee for breaching one or more of these Conduct Rules.
Although its implementation is still more than 12 months away, firms would do well to start preparing for SM&CR now. A good starting point is to consider which individuals might be classed as senior managers, and what their responsibilities are; then to consider which individuals might be covered by the Certification requirements.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article