Senior managers and certification regime extension to all financial services firms
Katharine Everett Nunns and Harry Cousens consider the FCA's proposals for extending the Senior Managers & Certification Regime.
In July 2017 the Financial Conduct Authority (FCA) published a Consultation Paper on extending the Senior Managers & Certification Regime (SM&CR) to all FCA firms. The window for contributing to the Consultation Paper closed on 3 November and a technical consultation paper addressing the operational aspects of the regulations is expected towards the end of the year.
The SM&CR was introduced on 7 March 2016 following recommendations from the Parliamentary Commission on Banking Standards as a result of the financial crisis. It presently applies to banks, building societies, credit unions and PRA-designated firms ("banking firms") and replaced the Approved Persons Regime for these firms. However, now that the SM&CR has been live for over 18 months, the FCA has set out its vision for an extended regime to ensure that all financial services firms develop a culture of individual accountability and sound corporate governance.
The purpose of the regime is to increase consumer trust in the market by holding individuals in the most senior positions accountable for their conduct and for the delivery of the business oversight responsibilities entrusted to them. The FCA estimates that the extension of the regime will mean that an additional 47,000 firms will have to comply with the SM&CR which will supersede the current Approved Persons Regime. This will mean that only Senior Managers will be pre-approved by the FCA to carry out their functions, and firms themselves will have to take on some of the burden of ensuring other relevant staff are certified as suitable to carry out their roles.
Senior managers should take careful note of what the SM&CR entails, because they will be expected to take personal responsibility for their roles in their business.
The SM&CR will affect almost every firm that offers financial services and is regulated by the FCA. However, the FCA has committed to taking a proportionate approach in respect of what will be required of firms depending on their size and potential impact on consumers or market integrity.
The FCA has recognised that it cannot simply copy across its Banking sector approach for the extension of the SM&CR. It plans to take a risk-based approach by dividing firms into the following 3 categories:
- Core Regime: There will be a set of baseline requirements comprising the Senior Managers Regime, the Certification Scheme and the Conduct Rules and this will apply to all "Core Firms".
- Enhanced Regime: The FCA proposes to apply extra requirements to a very small number of the larger and/or more complex solo-regulated firms that meet objective criteria (expected to be less than 1% of firms regulated by the FCA). Borderline cases could be dealt with under existing supervisory processes including waivers (if a firm thinks the enhanced regime should not apply to it) and the Own Initiative Requirement process (OIREQs) (if the FCA thinks a firm should be subject to the additional rules). "Enhanced Firms" (e.g. significant IFPRU Firms; those with Assets Under Management of £50 billion or more; and firms with total intermediary regulated business revenue of £35 million or more pa, among others) will need to have Responsibilities Maps, Handover Procedures, and will need to make sure that there is a Senior Manager responsible for every area, activity and management function of their firm ('Overall Responsibility').
- Limited Scope Regime: "Limited Scope Firms" will be those currently subject to a limited application of the Approved Persons Regime (eg Limited Permission Consumer Credit firms) and will only have to comply with a reduced set of requirements.
After reviewing the feedback it receives following the consultation, the FCA aims to publish its final rules in a Policy Statement next year and HM Treasury will specify when the new regime comes into force.
This note is for general information only and does not, and is not intended to, amount to legal advice and is not intended to be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.