10 11月 The Senior Managers & Certification Regime
A replacement for the Approved Persons Regime
A Financial Conduct Authority (‘FCA’) consultation closed recently that will affect almost every firm that offers financial services and is regulated by the FCA.
CP17/25 concluded on 3 November 2017 and the FCA expects to produce a policy statement in the summer of 2018.
The consultation proposals revamp how people within FCA regulated entities are themselves regulated. Regulated firms should be aware of the proposals and consider their potential impact ahead of final rules being published next year.
Elemental CoSec can provide advice and help your firm’s transition to the new regime. Please 请联系我们。 to discuss.
The Approved Persons Regime
Regulated firms will be familiar with the current regime. People who perform ‘controlled functions’ at both senior and customer-facing levels need to be approved by the FCA before they start their roles.
The FCA applies the Statement of Principles and Code of Practice to people holding controlled functions. Firms must also ensure that people performing controlled functions are fit and proper.
Terms like CF10, CF11 and CF30 will be familiar to compliance officers throughout the UK. However, the new proposed senior managers & certification regime (‘SM&CR’) will assign these terms to the past.
In March 2016, the SM&CR replaced the Approved Persons Regime for banks. Now it is proposed that the SM&CR be extended to all FCA regulated firms. This note discusses only the ‘core regime’. Large firms may be subject to the ‘enhanced regime’ and smaller firms may ‘Limited Scope’ – further information is available in CP17/25. The SM&CR will create two sets of roles:
- ‘Senior managers’ – a new function that will require approval from the FCA. Firms will need to ensure that senior managers are fit to do their jobs at least annually.
- ‘Significant harm functions’ – these functions will not require FCA approval, but firms will be obliged to ensure that people performing them are suitable for their role at least annually.
The SM&CR represents a significant change from the Approved Persons regime however the FCA state that it is not designed to change how firms are organised or to force firms to take on new hires to fill specific functions. Rather, the SM&CR will augment whatever existing governance structures firms have in place.
Senior Managers – goodbye CF’s, hello SMF’s
Senior managers will still need to be approved by the FCA before starting their roles. A Statement of Responsibilities must be produced for each senior manager. The FCA has proposed the following Senior Management Functions:
- SMF 9 – Chair (Governing Function)
- SMF1 – Chief Executive (Governing Function)
- SMF3 – Executive Director (Governing Function)
- SMF27 – Partner (Governing Function)
- SMF16 – Compliance Oversight (Required Function)
- SMF17 – Money Laundering Reporting Officer (Required Function)
The similarities to the Approved Persons regime are clear. Not all SMFs are required and some will be straight swaps for the current CFs (CF10 for SMF16 for example).
Specific responsibilities called ‘Prescribed Responsibilities’ will need to be given to Senior Managers to ensure that somebody is accountable for the SM&CR.
Significant harm functions – Certification Functions
The Certification Regime, as it is termed by the FCA, will apply to employees who are not senior managers but who could cause significant harm to the firm or its customers. They don’t need to be authorised by the FCA, but firms will need to check and confirm that they are fit and proper to perform their role at least once a year, i.e. firms will need to certify them.
The Certified Functions are as follows:
- Significant management function
- Proprietary traders
- CASS oversight function
- Functions that are subject to qualification requirements
- Client dealing functions
- Algorithmic traders
- Materials risk takers
- Anyone who supervises or managers anyone performing one of the functions above.
Interestingly, the ‘client dealing function’ is expanded from the current CF30 function and therefore means that persons who currently require approval from the FCA to perform the customer function will no longer need to be approved under the SM&CR; they will need to be certified by their firm.
Fit and proper requirements
The FCA would like firms to take responsibility for their staff being fit and proper to do their jobs. A firm should assess its employees on an ongoing basis and at least once a year.
New evidential requirements for senior managers include the requirement for a firm to undertake a criminal record check as part of each Senior Manager’s application for approval. This will require firms to register with the Disclosure and Barring Service and could create significant administrative work.
The current conduct rules in the APER Handbook will be replaced with Conduct Rules for all firms. There will be two tiers of conduct rules. The first tier will apply to all individuals whilst the second tier will apply to senior managers only.
The FCA Handbook
The proposed changed under the SM&CR will be implemented in SUP10C of the FCA Handbook. SUP10A (the location of the Approved Persons regime) will be deleted.
The SM&CR is a significant change to the landscape of regulation in the UK. It arguably encourages greater self-regulation by firms with the introduction of the certification regime and will require firms to take action once the rules are finalised in 2018.
If you would like further information or guidance about the SM&CR and how it could affect your firm, including advice on how to approach drafting statements of responsibility and how to allocate prescribed responsibilities, the specialists at Elemental can help.
Firms may wish to keep a look out for the FCA’s policy statement expected in the summer of 2018.
Elemental CoSec Limited
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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.