Preparing for the Senior Managers and Certification Regime

The FCA has published the transcript of a speech delivered by Debbie Gupta.
April 2019

John Begg

Senior Compliance Consultant, ATEB Consulting

LEARN MORE ABOUT THE AUTHOR
Subscribe to our Insights

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from sources reasonably believed to be reliable and are subject to change at any time. It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone.

The Senior Managers and Certification Regime (SM&CR) has been in place for Banking and large Investment organisations since March 2016. In December 2018, the regime was extended to Insurance firms. The regime is now to be extended to all FCA solo-regulated firms* on 9 December 2019. (*solo-regulated = firms regulated only by the FCA).

Information and guidance is available here.

We have created a guide for ATEB clients that summarises the requirements of SM&CR. We are also building a suite of tools to help firms prepare for SM&CR and to manage the process on an ongoing basis.

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from sources reasonably believed to be reliable and are subject to change at any time. It has been produced for information only. Views and opinions should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone.

Types of firm under SM&CR

There are three different levels depending upon the type of firm:

  • Limited scope firms

Such firms are subject to fewer requirement under SM&CR than Core Firms. This category applies to all firms that currently have a limited application of the Approved Persons Regime, including limited permission consumer credit firms, sole traders and authorised professional firms whose only regulated activities are non-mainstream regulated activities.

  • Core firms

Firms that are neither limited scope nor enhanced. A baseline of requirements applies. Specific examples given in this article relate to a Core firm and it is expected that most firms will be in this category.

  • Enhanced firms

A small proportion of solo-regulated firms that will have to apply extra rules. If a firm meets one or more of six defined criteria, it is an Enhanced firm.

SM&CR – an overview
 
Senior Managers Regime

From 9 December 2019, Senior Managers (i.e. individuals in Senior Management Functions (SMFs) as defined in the rules) will have accountability / responsibility for managing the firm is a way that supports market integrity. An individual in, or applying for, a role that is a SMF will be Senior Manager. Senior Managers are approved (or not) by the FCA as ‘fit and proper’.

Every Senior Manager (SM) must have a written Statement of Responsibility (SoR). This is a single document describing what the SM is accountable for, not how it is done. The SoR must be as brief as possible, self-contained without reference to other documents, succinct and clear without unnecessary detail.

A SM can hold more than one SMF but only needs one SoR.

Senior Management Functions (SMF) – Core firms

Firms might have one or more governing functions but do not need to have them all. There is no obligation to allocate an individual to a governing role if such a role does not currently exist and is not appropriate in the firm’s structure.

 

  • Governing Functions

SMF1 – Chief Executive

SMF3 – Executive Director

SMF27 – Partner (Other than a limited partner in a partnership registered under the Limited Partnership Act 1907.)

SMF9 – Chair

 

There are two required functions.

 

  • Required Functions

SMF16 – Compliance Oversight

This is the person responsible for the compliance function in the firm and reporting to the governing body on this;

SMF17 – Money Laundering Reporting Officer

This is the person who has responsibility for overseeing the firm’s compliance with the FCA’s rules on systems and controls against money laundering.

Prescribed responsibilities (PRs) – Core firms

Prescribed responsibilities are specific responsibilities as defined in SYSC 24 of the FCA Handbook that a firm must allocate to a Senior Manager. Each PR should be given to the Senior Manager who is the most senior person responsible for that activity or area. Normally, PRs can only be allocated to one individual.

  • Performance by the firm of its obligations under the SMR, including implementation and oversight;
  • Performance by the firm of its obligations under the Certification Regime;
  • Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules;
  • Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime;
  • Responsibility for the firm’s CASS compliance (if applicable).

 

Certification Regime

The Certification Regime covers specific functions that aren’t Senior Management Functions, but which have a significant impact on customers, the firm and/or market integrity – individuals are certified by the firm as fit and proper (at least annually).

Individuals in Certification Functions (CF) must be identified by 9 December 2019, but firms have a transition period of 12 months during which all assessment and certification must be completed. The full regime must be in place from 9 December 2020.

There are eight Certification Functions – those most likely to be relevant to Core firms are:

  • Client dealing function*

Expanded from current CF30 function – this applies to any person dealing in or arranging investments with clients;

  • Anyone who supervises or manages a Certified Function … whether directly or indirectly, but who is not a Senior Manager. For example, if a firm employs a customer-facing financial adviser, every manager above the adviser in the same chain of responsibility will have to be certified (until the Senior Manager approved under the SMR is reached);
  • Significant Management Function (current CF29)

This includes individuals with significant responsibility for a business unit – for example, this might apply to an Administration Manager.

 

*Client dealing function – clarification

The definition of client dealing is not intended to cover staff who operate purely in an administrative type role. Thus, the definition excludes any individual who has no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill.

Conduct Rules

In addition to the Senior Manager and Certification Regimes, there will be a set of Conduct Rules that apply to SMs and CFs from 9 December 2019 and will be mandatory for all other staff from 9 December 2020. ‘Other staff’ excludes what the FCA refers to as ‘ancillary staff’, for example cleaners and security staff.

The Conduct Rules set basic standards of good personal conduct, against which the FCA can hold individuals to account.

ALL the rules apply to Senior Managers from 9 December 2019.

The First Tier rules apply to Certificated staff from 9 December 2019 and to all other staff (excluding ancillary staff) from 9 December 2020.

 

Note: Disciplinary action arising from a breach of Conduct Rules is notifiable.

Our view

Although the SM&CR does not apply before 9 December 2019, firms do have to undertake some preparatory work before that date.

Every firm will need to ensure that it has a good grasp of SM&CR requirements and to implement the necessary preparations and process changes.

Small firms might start by appointing responsibility for SM&CR preparations to an individual. Larger firms might require a project team.

 

Action required by you

  • Ensure that all Senior Managers are aware of the requirements of SM&CR
  • Allocate responsibility for SM&CR to an individual or project team;
  • Create a plan to identify and implement short terms preparations and longer term process changes;

 

Contact your usual ATEB consultant for a copy of the ATEB guide and further assistance. Firms that are not ATEB clients can contact us here.

ATEB Consulting is a trading name of ATEB Business Solutions Limited Registered in England & Wales Reg. No: 5075208. Registered office: Evolve Business Centre, Cygnet Way, Houghton-le-Spring, County Durham, DH4 5QY