The Financial Conduct Authority (FCA) has issued a consultation paper (CP19/4) entitled “Optimising the Senior Managers & Certification Regime and feedback to DP16/4 – Overall responsibility and the legal function”. This CP amends and clarifies some of the areas under the Senior Managers & Certification Regime (“SM&CR”) that the FCA has been consulting upon.
Client Dealing Function
After publishing the Policy Statements on 4th July 2018 containing near final rules, the FCA received a large volume of feedback requesting further clarification on whether the client dealing function applies to staff who interact with clients in an administrative capacity. Under the proposed rules, many low risk staff who are unlikely to harm consumers may be caught as they are taking part in “managing” or “arranging” activities. However, their roles many not involve making material decisions relating to matters that may impact the firm or its customers. These individuals will follow procedures with appropriate systems and controls in place to prevent them from causing harm to consumers.
The FCA proposes to amend the scope of the client dealing function in the Certification Regime to allow firms to exclude staff who have purely administrative roles. This clarification is useful and provides more clarity over who should be included in the Client Dealing Certification Function.
Systems and Controls Roles
Under the Approved Persons Regime, a person who is responsible for systems and controls within a firm (but is not a director or partner/member) has to be approved as Controlled Function CF28, although this requirement is applied inconsistently across the industry at the moment. In most cases, roles previously covered by CF28 will come under the Material Risk Taker or Significant Management Certification Functions, so will already be in scope of the Certification Regime. However, if a Senior Manager within a Core Firm holds a Senior Manager Function and also performs the systems and controls role, the FCA is proposing that individual will need to be certified for the systems and controls part of their role. This will ensure that firms assess the fitness and propriety of individuals performing these important roles.
Enhanced firms will already have to hold the Systems and Controls Senior Manager Function so this change only affects Core and Limited Scope firms.
Following FCA discussion and consultation over a number of years on the issue of how SM&CR will apply to the legal function, the FCA has confirmed that the Head of Legal will be excluded from the Senior Managers Regime. This is because legal privilege may restrict the FCA from using its powers over SMs.
It will, however, be included in the Certification Regime, as either a Material Risk Taker or Significant Management Function. The FCA states that this would provide the advantages of Senior Manager Regime but without compromising legal privilege.
The FCA stresses that although it is removing the requirement for the Head of Legal to be a Senior Manager Function, that does not mean that a lawyer is excluded from performing another Senior Manager Function.
The FCA proposes that the Senior Manager Conduct Rule 4 will apply to non-executive directors at UK Limited Scope firms. This brings them in scope of the extended SM&CR and is consistent with the requirements for Core and Enhanced firms.
Amending the intermediary revenue criteria – enhanced firms
The FCA is proposing to bring retail investment intermediaries with regulated revenue of more than £35m that do not complete RMA-B within scope of the Enhanced regime.
The RMA-B is one of the Retail Mediation Activities data items and contains financial information. Some firms that undertake intermediation business but also other activities submit returns other than RMA-B. Non-RMA-B firms will be required to annually self-assess and notify the FCA if they have, on a three-year rolling average basis, over £35m in regulated revenue from retail investment activities and other relevant activities. This is to ensure that the Enhanced Regime is applied fairly to all relevant firms.
These clarifications are welcomed and should help firms in their implementation of SM&CR.
The consultation is open for comment until April 23, 2019.