The FCA has set out how it proposes to replace the Approved Persons Regime with a new Senior Managers & Certification Regime.
To help you navigate the changing regulatory landscape we have summarised the proposals.
Almost every FCA regulated firm offering financial services (except insurers, who are covered in a separate consultation, (and those within the original SMR such as banks) is affected – in particular any firm currently subject to the Approved Persons Regime.
The new regime aims to reduce harm to consumers and strengthen market integrity by raising the standards of conduct for everyone who works in financial services, and by making senior people in firms more responsible and accountable for their actions.
The "core regime" consisting of a baseline of requirements will apply to every firm (except for those defined as "Limited Scope" firms).
The core regime consists of:
Senior Managers Regime
Senior Managers are a smaller category of persons than currently fall within the Approved Persons Regime. Senior Management Functions (SMF), designed to capture the most senior people performing key roles within a firm, are defined by FCA rules. Anyone carrying out an SMF will be a Senior Manager and will need approval by the FCA. Firms will also be responsible for annually assessing the fitness and propriety of Senior Managers to perform their roles.
Firms will be required to allocate Prescribed Responsibilities to their Senior Managers. Each Senior Manager will need a Statement of Responsibilities setting out what they are responsible and accountable for.
All Senior Managers will have a "duty of responsibility", meaning that if something goes wrong in an area they are responsible for they can be held accountable. In determining whether to take action, the FCA will consider whether the Senior Manager took reasonable steps to prevent or stop the breach.
Certain roles that are not SMFs but which could cause significant harm to customers, the market or the firm will be "Certification Functions". People carrying out these functions will fall within the Certification Regime. This will capture many of the people currently falling within the Approved Persons Regime. They will no longer require FCA approval; instead, firms will be responsible for annually certifying that they are fit and proper to perform their role.
Basic rules of conduct will apply to almost every employee working in financial services, with the aim of improving the behaviour of all staff. Firms will need to train staff on the application of these rules and notify the FCA if disciplinary action has been taken for breach of a rule.
An "enhanced regime" will apply to the largest and most complex firms. They will also need to have in place Responsibilities Maps, Handover Procedures and will be required to make sure there is a Senior Manager in place for every area of their firm.
The FCA's consultation is open until 3 November 2017. Once the feedback has been analysed, final rules will be published in 2018. The new regime will not come into effect until the final rules have been published and a date is set for them to commence.
At TLT, we have been advising on the Senior Managers & Certification Regime as it applies to the banking sector since its proposal, and have continued to do so following its commencement in March 2016.
There are significant similarities between the regime for the banking sector and the regime as it will apply to all FCA firms. We are therefore well placed to advise your business on preparing for implementation of the new regime.
We will be following up this summary with further insight on the new regime and will be hosting senior management briefings and implementation workshops to guide you through the process. If you would like to register your interest to attend one of our events please fill in the form below.
In the meantime, please get in touch with Noline Matemera, Partner in Financial Services Disputes and Investigations, or Stuart McBride, Partner in Employment, to discuss how we can best assist your business.
Contributor: Amy Whiting
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.