This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy policy for more information on the cookies we use and how to delete or block them.
Article:

Extending the Senior Managers & Certification Regime to FCA Firms

13 July 2018

The FCA has now published the near-final rules on the extension of the Senior Managers and Certification Regimes (SMCR) to all FCA solo-regulated firms authorised under FSMA. The SMCR aims to strengthen individual accountability in financial services. The FCA is extending SMCR in a way that is proportionate to the size of Firm, therefore requirements will vary depending on your Firm’s classification.
 

What is your Firm type?

Under the proportional approach, SMCR requirements will vary depending on a Firm’s classification – with larger firms subject to more onerous rules. Using the SMCR: Guide for FCA sole-regulated firms, a Firm must determine whether it will be classified as a:

  • Limited Scope Firm – Firms that have fewer requirements than Core Firms
  • Core Firm–  Firms that will have a baseline of SMCR requirements applied
  • Enhanced Firm – A small proportion of Firms that will have to apply extra rules


What are the applicable requirements?

Senior Management Functions (SMF)

A SMF is a new type of controlled function under FSMA. Individuals who hold these functions are known as Senior Managers (SMs). The SMFs which apply depend on the Firm type.

  • Limited Scope Firms – There are 3 SMFs within the Limited Scope tier. The number of functions that a Limited Scope Firm needs will also depend on specific permissions and activities
  • Core Firms – There are 5 SMFs applicable to Core Firms
  • Enhanced Firms – There are 17 SMFs applicable to Enhanced Firms

Prescribed Responsibilities

Prescribed responsibilities (PRs) are specific responsibilities that a Firm must allocate to a SM.  Assigning responsibilities ensures that SMs are accountable for individual conduct and prudential risks.

  • Limited Scope Firms – PRs are not applicable to Limited Scope Firms.
  • Core Firm – Five PRs must be divided and allocated to the SMs
  • Enhanced Firms – 12 PRs must be divided and assigned to the SMs

Management Responsibilities Maps (MRM)

Enhanced Firms must prepare and maintain MRM - a single document that sets out the Firm’s management and governance arrangements.

Handover Procedures

Enhanced Firms must take all reasonable steps to make sure that SMs have all the information and materials that they need to do their job effectively. Firms must have a policy that articulates how they comply with this requirement and maintain adequate records of the steps it has taken to ensure compliance.

Certification Regime

Applicable to all Firm types. Certification covers specific functions that are not SMFs but can have a significant impact on customers, the Firm and/or market integrity.

Fitness and Propriety (F&P)

Applicable to all Firm types. Firms must take responsibility for checking that their SMs, Non-Executive Directors and Certification individuals are fit and proper to do their jobs.

Regulatory References

Applicable to all Firm types. Firms must receive and provide a regulatory reference for both incoming and departing SMs and Certified individuals.

Conduct rules

The Individual Conduct Rules apply to all Firms and all staff (except those performing ancillary roles). The Conduct Rules are intended to improve standards of individual behavior in financial services. In addition, there are a set of Senior Manager Conduct Rules applicable only to SMs.


Next steps and implementation dates

Firms affected by these changes will migrate to the new regime from 9 December 2019. For all solo-regulated Firms, the first step is to establish the classification of your Firm. Next, the main task is to identify the respective populations of SMs and Certified individuals. To aid this, the FCA has allowed two transitional provisions to help Firms migrate to the new regime:

  1. Firms will first need to identify their Certification Staff at the start of the new regime, but have 12 months from the commencement date to complete the initial certification process; and
  2. Senior Managers and Certified Staff will need to be identified and trained and abide by the Conduct Rules from the start of the new regime, but Firms will have 12 months to train their other staff on the Conduct Rules.

If you would like to discuss any of the changes above, or have any questions, please do get in touch.