Senior Managers and Certification Regime

Andrew Tyrtania, Client Projects Director (26th September 2016)

 

Andrew Tyrtania

The government has passed legislation to extend the Senior Managers and Certification regime (SM&CR) to all sectors of the financial services industry, replacing the discredited Approved Persons Regime. The Approved Persons regime is viewed as being an effective gateway for entry, but not an effective means for continuing supervision of individuals, in particular at senior management level.

The FCA has announced that the extension will take place in 2018. Currently, 10,500 individuals fall within the SMR and a further 32,302 within the certification regime. The extension will potentially bring a further 92,300 individuals into the SMR and 66,000 into the certification regime for the first time.

Given the fundamental changes that firms will need to make in advance of its implementation, it is widely acknowledged that they need to start preparing as soon as possible. FCA has now postponed consultation on the extended regime to 2017. In the meantime supervisory feedback on the implementation has been provided and investment firms will find this Feedback Statement useful.

The FCA has announced that the extension will take place in 2018. 

Key Features

The key features of the extended SM&CR are:

  • an approval regime focused on senior management, with requirements on firms to submit robust documentation on the scope of these individuals’ responsibilities 
  • a statutory requirement for senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility 
  • a requirement on firms to certify as fit and proper any individual who performs a function that could cause significant harm to the firm or its customers, both on recruitment and annually thereafter 
  • a power for the regulator to apply enforceable Rules of Conduct to any individual who can impact their respective statutory objectives

The new regime will bring those holding Significant Influence Functions (SIF) under the current system directly into corresponding categories of Senior Management Function (SMF). Current SIFs will need to be grandfathered by the regulator and new applicants will require approval from FCA.

The Certification Regime will apply to individuals who are not carrying out SMFs but whose roles have been deemed capable of causing significant harm to the firm or its customers by the regulators. The regime requires firms themselves to assess the fitness and propriety of persons performing other key roles, and to formally certify this at least annually. These roles (“significant harm functions”) are also specified by the regulators in rules but the appointments are not subject to prior regulatory approval.

The implementing legislation also provides for the PRA and FCA to be able to make Rules of Conduct applying to non-executive directors (NEDs).

Preparation

Firms should keep an eye on developments and in the meantime are recommended to begin preparing staff for the changes ahead, which may involve changes to role descriptions and contracts of employment. The new regime may bring existing staff into the regime who are not presently Approved Persons. As a consequence, firms may need to move, recruit or lose certain staff if they are unwilling to accept the responsibilities.

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