FCA Publishes Policy Statement and Guide on the SM&CR

Policy Statement and Guide on the extension of the Senior Managers and Certification Regime

July 4 was a busy day for FCA publications on the extension of the Senior Managers Regime and Certification Regime (SM&CR). The widely awaited Policy Statement (PS18/14) did not result in many surprises and largely confirmed that the SM&CR will apply as consulted upon in July and December 2017. The FCA also published “The Senior Managers and Certification Regime: Guide for Solo-Regulated Firms”.

The main issues to note are:

• The SM&CR regime will apply from December 9, 2019 for all FCA regulated firms
• The conduct rules will apply to all Senior Managers and Certified Staff from this date, so all Senior Managers and Certified Staff will need to have been identified by December 9, 2019
• Firms will have 12 months from commencement to complete fitness and propriety checks and the certification process
• The FCA has removed the proposed Prescribed Responsibility for ensuring the governing body is informed of its legal and regulatory obligations
• Firms will be able to opt up, from limited scope to core regime, or from core to enhanced regime, but will not be able to pick and choose which requirements they will apply. If firms choose to opt up, they will need to apply all the requirements of that regime and failure to do so will be a breach of the FCA rules
• Groups with multiple entities which include an enhanced firm will be able to apply the enhanced regime to other group firms that would otherwise be core
• The FCA has confirmed that if a Senior Manager is also carrying out a Certification Function, that individual will be subject to both regimes, unless the activities are so similar it can be covered by the Senior Management Function (“SMF”)
• The enhanced firm criteria are unchanged from the Consultation Paper, other than the introduction of a 3-year rolling average for certain criteria. It has been confirmed that firms will have 1 year to comply with the new requirements when a trigger has been hit
• Final rules on the status of the Head of Legal will be announced ahead of December 9, 2019

Access the Policy Statement here.

For the Guide, click here.

Introduction of the Directory

The FCA has also issued a Consultation Paper (“CP18/19) introducing the Directory. It was originally proposed that the FS Register would only have information on Senior Managers and not on Certified Staff. This proposal was unpopular with many respondents, so it’s a positive step that the FCA has listened to the industry and is now proposing to make information public on a wider range of roles.

The Directory will provide a single central location for information on both Directory Persons (all certified staff, non-SMF directors (both executive and non-executive) and sole traders and appointed Representatives) and Senior Managers at all FSMA firms regulated by the FCA.

The FCA has said that it aims to make the information in the Directory user friendly and accessible to customers, firms and stakeholders. The FS Register is widely used now and firms will find the Directory useful to check references, for data and market analysis and for due diligence when dealing with individuals at other firms. In addition, it will be useful for customers, giving them confidence when doing business with a firm’s employees or enabling them to check for local financial advisors.

Firms will remain responsible for keeping information up to date, for timely and accurate reporting on an ongoing basis and for ensuring suitability of Directory Persons. There will be fines for late or inaccurate reporting and anyone who has not made any changes for 12 months will have to confirm that there have been no changes.

Whist in our opinion the Directory is good for the industry, we appreciate that there will be an administrative burden on firms with tight reporting deadlines. For instance, firms will need to report on new individuals in relevant roles by the end of the first day that they start in the roles, or no later than one business day after a person has moved roles or left the firm.

The consultation paper on the Directory is open for comment until October 5, 2018. The FCA intends to issue final rules on the Directory and complete system and user testing by summer 2019.  Firms will then be able to submit their notifications using the existing Connect system. The Directory will be live for solo-regulated firms from December 9, 2019.

Click here for the Consultation Paper.

Final Guidance: The Duty of Responsibility for Insurers and FCA Solo-Regulated Firms

A Policy Statement relating to the FCA Guidance on the Duty of Responsibility issued on July 4, 2018 provided feedback on the consultation in December 2017. The FCA did not consider that any changes needed to be made to the Guidance. The FCA does however respond to concerns firms had about the perceived administrative burden in relation to record keeping to support whether they took reasonable steps. The FCA states that the burden of proof in enforcing the Duty of Responsibility lies with the FCA. The FCA will have to show that the relevant Senior Manager did not take reasonable steps a person in their position should reasonably been expected to take to avoid the breach or misconduct. However, the Regulator goes on to say that it may be in the interests of Senior Managers to keep such records.

The policy statement is here.

Policy Statement Extending the SM&CR to Insurers 

The FCA published the above Policy Statement on July 4, 2018 for the insurance industry providing feedback on its Consultations Papers on Individual Accountability for insurers issued in December 2017 and the transitioning consultation published in December 2017. The feedback received generally supported the FCA’s proposals and most asked for further clarification on how the rules would apply.

For the policy statement, click here.

Next Steps

We recommend that firms review the requirements of the SM&CR and assess the impact of the new regime on their business. Duff & Phelps has a team that specializes in the implementation and ongoing management of the new requirements, with implementation experience from the banking sector. We have supported a wide range of firms, including some of the largest multinational institutions. Please contact us to see how our team of experts can help you.