December 15, 2017 The Senior Managers & Certification Regime – the Transition
Transitioning FCA firms and individuals
As discussed in a recent Elemental news article available here, the Financial Conduct Authority (‘FCA’) is creating a new regime called the Senior Managers & Certification Regime (‘SM&CR’) that will change how individuals are assessed and held accountable for what they do.
CP17/40 was published recently and concludes on 21 February 2018. The consultation provides more information about the transition to the SM&CR from the current Approved Persons Regime.
Elemental CoSec can provide advice and help your firm’s transition to the new regime.
SM&CR transitional arrangements
For the majority of firms, the FCA is proposing that individuals who are currently approved persons will be automatically converted into the corresponding new Senior Management Functions. This note discusses only the ‘core regime’. Large firms may be subject to the ‘enhanced regime’ and smaller firms may be ‘Limited Scope’ – they will be subject to different transitional arrangements. More information is available in CP 17/40.
The Financial Services Register
Only details of people holding Senior Management Functions will be included on the Financial Services Register upon the implementation of the SM&CR because only these roles will be approved by the FCA under the new regime.
Individuals performing so-called Certification Functions will not appear on the register. This will result in a large number of individuals who are currently approved persons in respect of CF30 (customer function) only being removed from the register as they will be considered to be undertaking the client dealing function under the SM&CR, a significant harm function that will be part of the group of Certification Functions and will, therefore not require registration.
The FCA has assumed that the new rules will be in place in mid-to-late 2019. It falls to the Treasury to determine the precise date. What is clear is that the FCA plans to implement the rules for Certification gradually, so firms can get used to the new regime.
Certification Regime implementation
Once a year firms will need to confirm that their certified staff are fit and proper for their roles. The first certification requirement will be 12 months after the start of the SM&CR (so most likely sometime in mid-to-late 2020).
Although firms will need to certify existing employees who will be performing the same role after the start of the new regime, they will not need to provide regulatory references or criminal record checks (which will be required for new employees performing a Certified Function).
Senior Management Regime implementation
Firms will not have to apply for re-approval for their approved individuals. No extra checks will be required because firms already have to ensure that these individuals are, and continue to be, fit and proper.
The following table maps the current controlled function to the corresponding Senior Management Function:
|Current controlled function||Possible corresponding Senior
|CF1 – Director||SMF3 – Executive Director|
|CF2 – Non-Executive Director||SMF9 – Chair|
|CF3 – Chief Executive||SMF1 – Chief Executive
SMF19 – Head of Third Country Branch
|CF4 – Partner||SMF3 – Executive Director
SMF27 – Partner
|CF5 – Director of Unincorporated Association||SMF3 – Executive Director|
|CF6 – Small Friendly Society Function||SMF3 – Executive Director|
|CF8 – Apportionment and Oversight Function||SMF29 – Limited Scope|
|CF10 – Compliance Oversight||SMF16 – Compliance Oversight|
|CF11 – Money Laundering Reporting
|SMF17 – Money Laundering Reporting
|CF29 – Significant Management Function||SMF21 – EEA Branch Senior Management Function|
Source: CF17/40 Chapter 4
For most firms the transition to the SM&CR should be relatively painless. However, it remains important to understand the new regime and what is expected moving forward.
Firms are welcome to respond to the questions contained in CP17/40 up until the consultation closes on 21 February 2018. Policy statements are then expected from the FCA in summer next year.
If you require any guidance in respect of the SM&CR, please contact Elemental CoSec.
Elemental CoSec Limited
Useful resources and links:
The FCA CP17/40 progress page: https://www.fca.org.uk/publications/consultation-papers/cp17-40-individual-accountability-transitioning-fca-firms-and-individuals-senior-manager
This overview has been provided for general information only. It does not purport to be complete and should not be relied upon and advice should always be taken if you are in any doubt as to the relevant rules.