In December 2017, the Financial Conduct Authority (FCA) published its second and third consultation papers on extending the Senior Managers and Certification Regime (SCMR) to solo-regulated firms.
The first of these is a 'technical' consultation on the practical implementation of the regime. The second explains the extension of the duty of responsibility to insurers and solo-regulated firms.
We have pulled out the key themes from the consultation papers to keep you fully up to speed on the changes coming. These follow our previous briefings on the roll out:
In its regional forums conducted over the summer of 2017, the FCA informed firms it was exploring ways of converting existing Approved Persons to the equivalent Senior Management Functions (SMFs). The most recent consultation paper confirms that the FCA will automatically convert the majority of approved persons at Core and Limited Permission firms into the corresponding Senior Management Functions (SMF). Statements of Responsibilities will be required for each senior manager and must be provided to the regulator on request but will not need to be submitted to the FCA in order to complete the conversion.
Enhanced Firms will be subjected to a more involved process and will need to submit a conversion form and provide supporting documentation, including a Management Responsibilities Map and Statements of Responsibilities, to transition its Approved Persons into the new regime.
Some SMFs will not, however, have a direct equivalent under the Approved Persons Regime. If a firm needs to apply for an individual to be appointed as an SMF without an equivalent under the existing regime, it can do so in advance of implementation for the approval to take effect on day one of the SMCR.
All firms will need to check the FCA's Financial Services Register after the regime start date to ensure each senior manager holds the correct approvals.
A number of current controlled functions will be removed as part of the transition including the CASS Oversight Function (CF10a), Systems and Controls Function (CF28), Significant Management Function (CF29) and Customer Function (CF30). The FCA's expectation is that the majority of individuals currently carrying out these roles will either be carrying out another controlled function which will map across to an SMF or will fall within the Certification Regime instead.
Where individuals are moving into an SMF that has a direct equivalent under the Approved Persons Regime and will therefore be converted, firms will not need to apply the new SMCR application requirements, including the criminal records checks. Where, however, the individual is moved into a 'non-mapped' SMF or will not hold the equivalent CF at the time of conversion, the SMCR requirements will apply.
The FCA intends to give firms twelve months from the date of implementation of the SMCR to certify all employees within scope of the Certification Regime as fit and proper.
The Conduct Rules will, however, apply to these individuals from day one of the new regime, meaning that firms will need to know who will be within scope in advance. Firms will need to start applying the Conduct Rules to all other staff within 12 months of implementation.
The FCA has confirmed that the rules on notifying the FCA of Conduct Rule breaches currently applicable to firms subject to the Banking Regime will be extended to solo-regulated firms. Firms that do not have any Conduct Rule breaches during a particular year will need to confirm this to the FCA each year.
The FCA has also confirmed that Appointed Representatives will remain outside the SMCR, meaning they will continue to have Approved Persons rather than senior managers.
The FCA previously proposed extending its existing guidance for firms in scope of the Banking Regime on the duty of responsibility to insurers and solo-regulated firms. It has now confirmed this approach. The guidance is set out in the FCA's Decision Procedure and Penalties Manual and the Conduct Rules in COCON. It includes guidance on demonstrating reasonable steps and taking action against senior individuals for breach of their duty of responsibility.
The FCA has confirmed it will publish its Policy Statement confirming its final approach to the extension of the SMCR and Duty of Responsibility, including the final rules, in summer 2018. While acknowledging the Treasury will ultimately decide the date for implementation, the FCA's revised estimate for solo-regulated firms is mid-to-late 2019, which is later than many expected.
In keeping with the pattern of recent FCA policy changes, these Consultation Papers confirm the FCA's intention to proceed with its proposals in the previous consultation largely unchanged. The consultations do however give firms a greater degree of certainty about how the transition process will work and what to expect in the first twelve months of the regime.
The automatic conversion process should mean a relatively straightforward transition for most solo-regulated firms, provided they have correctly identified the SMFs they require and made any required changes to their Approved Persons in advance.
This consultation process has flushed out the FCA's third major thorny issue, however. Following significant debate with the banking industry on the presumption of responsibility (which was subsequently downgraded to a duty of responsibility) and the role of Head of Legal (which remains unresolved), the FCA has indicated it has had significant feedback on the proposal that Certified Persons will not appear on the Financial Services Register. This has caused anxiety for firms that are heavily reliant on advisers who will no longer appear on any form of public registers under the current proposals. The FCA has said it is going to consider all the feedback it has received and what its next steps are going to be. We will have to wait to find out how it is going to address this problem.
Firms have until 21 February 2018 to respond to the consultation. For more information, please contact Noline Matemera on 0333 006 0734 or email Noline.Matemera@TLTsolicitors.com or Tim Needle on 0333 006 0771 or email Tim.Needle@TLTsolicitors.com. For related employment law advice please contact Stuart McBride on 0333 333 006 0329 or stuart.mcbride@TLTsolicitors.comContributor: Tim Needle
On 12 October 2018, the FCA published a Guidance Consultation (GC 18/4) on the Senior Managers and Certification Regime on statements of responsibilities (SoRs) and responsibilities maps (which apply to enhanced firms).