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Senior Managers and Certification Regime

The Financial Conduct Authority (FCA) introduced the Senior Managers & Certification Regime (SM&CR) for all FCA regulated firms in December of 2019. The Regime represented a significant change to these firms and requires resource and planning to implement effectively.

Forming part of the FCA’s Culture and Governance priority, SM&CR aims to promote the development of a ‘culture of accountability’ at all levels within FCA regulated firms.

There are three categories of FCA regulated firm i.e., Limited Scope, Core and Enhanced. SM&CR applies each of these categories in varying ways and must adhere to the rules that apply in respect of each category.

Replacing the FCA’s Approved Persons Regime, FCA authorised firms are no longer able to apply ‘Control Functions’ but must instead appoint Senior Management Functions (SMFs). These functions are typically held by the most senior people within a firm. This forms part of the Senior Managers element of SM&CR. The Certification Regime (CR), the second element of SM&CR, requires that firms determine whether they are required to appoint a Certification Function.

The appointment of a Senior Management Function and/or Certification Function may only occur where the appointment satisfies fitness and propriety requirements, and in the case of SMFs, where the appointment has been approved by the FCA. Certification Functions are approved by firms internally as opposed to the FCA. Certification functions should therefore be assessed and if found to be appropriate, issued a Certificate which is valid for a maximum of 12 months. The ongoing fitness and propriety of both SMFs and CRs must be assessed annually as minimum.

SMFs must have Statements of Responsibility. Depending upon a firm’s category e.g., Core firm, Statements of Responsibility will also have mandatory Prescribed Responsibilities (PR), which will be split amongst relevant SMFs or held by just one. This enables the FCA to identify who is accountable for a responsibility. PRs would not apply to Limited Scope firms.

For all categories of firm, there are Conduct Rules that must be adhered to. These are a set of minimum standards of individual behaviour and applies to all Senior Managers, Certification Functions, Non-executive Directors who are not SMFs and all other employees apart from ancillary staff. There are two tiers of conduct rules i.e., Individual Conduct Rules and Senior Management Conduct Rules. Firms should seek to understand how the Conduct Rules are understood in the context of roles and responsibilities and ensure relevant individuals are appropriately trained.

Authorised firms must notify the FCA whenever they take disciplinary action against an individual for a breach of the Conduct Rules. Contact our experts at Scott Robert for support and advice.

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Senior Managers and Certification Regime