Mon, Apr 13, 2020

SM&CR and Covid-19 - FCA Expectations on Solo-Regulated Firms

Firms affected by coronavirus will need to constantly review their governance arrangements and make changes as circumstances evolve. The Financial Conduct Authority (FCA) does not require firms to have a single Senior Manager responsible for their response to the coronavirus pandemic.  Firms should allocate responsibilities in a way which enables them to manage the risks they are exposed to. The FCA recognizes that some firms may need to change Senior Managers’ responsibilities or make temporary arrangements to cover absences as a result of the pandemic.

The FCA will not enforce firms’ requirement to submit updated Statements of Responsibilities (SoRs) if the change:

  • Is made to cover sickness, or any other temporary change made in response to the pandemic; and
  • Is temporary and expected to revert back to the firm’s normal arrangements after the pandemic is over.

Firm must clearly document any changes to the allocation of responsibilities internally so everyone understands who is responsible for what. Firms must always keep a running commentary in their internal records of their Senior Managers and how responsibilities are allocated, and statements of responsibilities, job descriptions and responsibilities maps (where applicable) up to date. These records must be made available to the FCA on request. 

However, fixed firms (more complex high-risk firms with a nominated supervisor at the FCA) should inform the FCA by email or phone call of any changes they would normally include in updated SoRs and of any furloughed Senior Managers.

Furloughed Senior Managers

Firms may decide to furlough Senior Managers if they are unable to carry out their responsibilities, for instance due to illness or caring responsibilities. In these cases, the furloughed Senior Manager will retain their approval by the FCA and will not have to reapply when they return to their positions. The firm remains responsible for ensuring that the furloughed Senior Manager is fit and proper.

For enhanced firms subject to the Overall Responsibility Rule, the responsibilities of the furloughed Senior Manager must be allocated to another Senior Manager.

Individuals performing required functions such as Compliance Oversight and the money laundering reporting officer (MLRO) should only be furloughed as a last resort. However, in these circumstances firms will need to replace the furloughed individual until their return.  

Other Senior Manager functions are not mandatory, so firms have greater flexibility to furlough individuals performing them, especially if a firm suspends a business area or service that a Senior Manager is responsible for due to the coronavirus.

Temporary Arrangements for Senior Managers and the 12-week Rule

The 12-week rule allows an individual to cover for a Senior Manager without FCA approval, where the arrangement is temporary or unexpected and the appointment is for less than 12 weeks.  

The FCA has stated that if the temporary arrangements last longer than 12 weeks as a result of the coronavirus, firms can notify the FCA that they “Consent to Modification” of the 12 week rule.  FCA states that these temporary arrangements can be extended up to 36 weeks, as it recognizes that governance arrangements may need to change and be kept under constant review in these exceptional times.

Under the modification, firms will be able to reallocate Prescribed Responsibilities to another Senior Manager who is standing in for an absent Senior Manager.  If it is not possible to reallocate to another Senior Manager during the pandemic, firms should allocate to the most senior person responsible for the area, who has sufficient authority and appropriate level of knowledge and competence.  The manager covering the responsibility must have access to the relevant governance forums needed to fulfil their responsibilities.

The 12 week rule and the Consent to Modification can also be applied to furloughed staff.

As stated above, firms will need to keep clear and detailed internal records of these changes, however temporary, including SoRs and Responsibilities Maps.

To see the full statement for solo-regulated firms, please click here.

To view the FCA statement on its expectations of dual-regulated firms, which differ slightly, please click here

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