Summary of the Key Changes Proposed
Senior Managers Regime: Fewer SMFs for Enhanced and Dual-Regulated Firms
The FCA does not propose changing the Senior Manager Functions (SMFs) within core and limited-scope firms. So, the SMFs will not change for the majority of regulated firms.
However, for enhanced SM&CR firms, the FCA seeks a more proportionate approach and proposes to reduce the number of SMFs and to allow firms to notify the FCA instead of seeking approval for changes to the following SMFs:
- SMF 5 (Head of Internal Audit)
- SMF 10 (Chair of the Risk Committee)
- SMF 11 (Chair of the Audit Committee)
- SMF 12 (Chair of the Remuneration Committee)
- SMF 13 (Chair of the Nomination Committee)
- SMF 14 (Senior Independent Director)
- SMF 15 (Chair of the With-Profits Committee)
Enhanced firms should note that requirements to undertake checks on individuals before appointment, the Duty of Responsibility and Senor Management Conduct Rules will still apply to notified SMFs.
In addition, the regulator proposes to remove:
- SMF 18 (Other Overall Responsibility)
- SMF 22 (Local Responsibility)
The FCA also intends to narrow the definition of SMF 7, Group Entity Senior Manager, limiting it to individuals exercising significant influence who also perform specified senior group functions such as CEO, CFO, CRO, COO, Compliance Oversight or MLRO roles.
Removal of the Certification Regime
As anticipated, the FCA proposes to remove the Certification Regime entirely. The FCA’s view is that the competent employee rules and Consumer Duty obligations already require firms to employ personnel who are suitable with the skills, knowledge and expertise necessary to carry out their roles.
Under these rules, firms are expected to assess an individual’s honesty and competence upon appointment and whenever there is reason to reassess their suitability. The FCA considers this a more proportionate and efficient approach that will deliver similar outcomes to the Certification Regime, without requiring firms to formally assess and certify fitness and propriety annually.
Removal of the Directory
Under the proposals, the FCA’s Directory of individuals performing certified roles would be removed entirely, so the requirement for firms to provide information on Directory persons would no longer apply. The FCA Register would remain and provide information on firms and both approved and notified SMFs.
Removal of Regulatory References for Certified Roles
The requirement for regulatory references will be removed for certified staff but will remain for individuals who are approved or notified SMFs.
Statements of Responsibility and Management Responsibility Maps
The FCA proposes to remove the requirement for firms to submit updated Statements of Responsibilities (SoRs) when there is significant change in responsibilities, therefore removing the Form J reporting requirement.
However, firms will need to maintain up-to-date SoRs internally and may have to provide them to the FCA upon request.
Similarly, enhanced firms will no longer need to submit updated Management Responsibility Maps to the regulator.
In addition, where there is only one individual within a firm that performs an SMF role, the requirement to maintain a SoR—and Management Responsibility Map for enhanced firms—will be removed.
12-Week Rule Extended to 18 Weeks
The FCA currently allows firms to appoint an individual to cover for an SMF without regulatory approval where the absence is temporary or reasonably unforeseen and the appointment is for less than 12 weeks. The FCA proposes to extend the 12-week rule to allow 18 weeks in which to submit an application to the FCA for approval of an SMF where there is temporary cover.
The regulator also proposes to remove the “reasonably unforeseen” requirement and replace it with rules on a “reasonable use” test, when considering when this rule can be relied on. The FCA considers the “reasonably unforeseen” test to be confusing for firms and applied inconsistently. The “reasonable use” test is intended to be clearer and easier to apply.
Removal of Certain Prescribed Responsibilities
The FCA proposes to remove nine prescribed responsibilities (PRs), retaining only the following for both core and enhanced firms:
- PR (a)—Responsibility for the Senior Managers Regime
- PR (d)—Responsibility for Financial Crime
- PR (z)—Responsibility for Client Assets
For enhanced firms only, PR (j-3)—Oversight of Outsourced Internal Audit, will also be retained.
Core firms will not have to update SoRs as a result of this proposed change and can do so at the next opportunity, while enhanced firms would need to implement these changes in existing SoRs.
Conduct Rules
The FCA does not intend to change the existing conduct rules (or the new nonfinancial misconduct rule and guidance) but proposes to simplify the associated training and breach reporting requirements for firms.
The FCA suggests a more proportionate approach that staff subject to the conduct rules are notified of:
- The conduct rules that apply to them
- The consequences of breaching those rules
Firms therefore will not have to provide conduct rules training but will be able to choose the most appropriate way to comply with the rule.
- Conduct Rules Breach Reporting
The regulator proposes to raise the reporting threshold to a final written warning or dismissal for all staff not subject to the Senior Manager Conduct Rules.
Greater flexibility over timing of the breach reporting is also suggested, replacing the annual reporting process with a requirement to notify the FCA within 14 months of imposing disciplinary action.
For non-SMFs also subject to the Senior Manager Conduct Rules (e.g., non-executive directors and temporary cover), there are no changes to the types of breaches to be reported or the definition of a disciplinary action, and the FCA proposes requiring firms to report breaches within seven business days and removing the annual requirement.
There are no changes in the breach reporting requirements for SMFs subject to all conduct rules.
