New obligations for senior managers in all authorised financial services firms are expected to be introduced from 2018.
From March 7 2016, firms in the banking sector will need to carry out their own assessment of whether senior individuals are ‘fit and proper’ on at least an annual basis. Now the Government has announced it intends to legislate – via its new Bank of England and Financial Services Bill – for the ‘Senior Managers & Certification Regime’ to be extended to all firms authorised by the Financial Conduct Authority (FCA). This would include all consumer credit firms and all of the smallest advisory or brokerage firms.
One of the requirements under the regime is the need for senior managers to take all possible steps to prevent regulatory breaches. Firms will also need to supply documentation to the regulator regarding each manager’s individual responsibilities.
FCA acting chief executive Tracey McDermott said of the proposals:
“Extending the senior managers’ and certification regime is an important step in embedding a culture of personal responsibility throughout the financial services industry.”
Lawyer Tamasin Little, a partner at King & Wood Mallesons, summarised the requirements by saying:
“The senior managers regime essentially shifts responsibility from the regulator to the firm for vetting and certifying most of the customer-facing staff.”
The move could mean that more enforcement action – via fines and bans from working in the industry – is taken against individuals rather than their firms.
At present, all individuals carrying out ‘approved persons’ roles need to be individually ratified by the FCA before they commence their duties. Under these plans, the firms themselves will need to carry out their own assessment on at least an annual basis. Essentially, this Senior Managers & Certification Regime will replace the Approved Persons Regime.
Anyone who carries out an approved person role must demonstrate that they are a ‘fit and proper’ person, having regard to their honesty, integrity and reputation; competence and capability; and financial soundness.
Those who will require this individual authorisation include:
• Directors – those who are responsible for the governance of the organization, whether or not they actually have the word Director in their job title. Non-executive directors also require approval
• Chief executive
• Apportionment and oversight officer – the individual who assigns responsibilities to other individuals, and who oversees the firm’s systems and controls
• Compliance officer – the individual who has overall responsibility for ensuring the organisation complies with its regulatory obligations
• Money laundering reporting officer (MLRO) – the individual to whom staff within the organisation should report any suspicions of possible money-laundering activity
• Those carrying out systems and controls functions – the individuals responsible for finance, risk assessment and internal audit
• Those carrying out significant management functions – such as the heads of key departments within the firm. Especially in smaller firms, it is often the case that those carrying out significant management functions also carry out at least one of the other controlled functions, and so a separate application may not be required here
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