Following its consultations on the extension of the Senior Managers and Certification Regime (SMCR) to insurers and solo regulated firms in November, the Financial Conduct Authority (FCA) has published three more consultation papers on the transitioning to the SMCR and the duty of responsibility on 13 December 2017.
One consultation paper sets out details of the proposed Duty of Responsibility for insurers and FCA-solo regulated firms. The proposals reflect most of the current Decision Procedure and Penalties Manual (DEPP) and Handbook guidance for banks. The second and third Consultation Papers (CPs) cover the detailed proposals for all types of FCA solo-regulated firms and insurers and the transitional arrangements for them to be covered under the proposed extension to the regime, including transitional provisions to give firms time adapt to the new regime.
Policy statements are to be expected in summer 2018 and the FCA suggests that the new rules are envisaged to apply to insurers from late 2018 and to other firms from mid-to late 2019. We anticipate that solo-regulated firms will be pleased to have more time to prepare for implementation given the competing demands of MiFID2 and Brexit.
Key points to note for FCA solo-regulated firms
- The FCA proposes to automatically “convert” all individuals at Core firms (except NED chairs for whom a separate process applies) and Limited Scope firms from existing Approved Person Regime functions to corresponding Senior Management Functions. For the conversion process only, the CP proposes not to require firms to file Statements of Responsibility with the FCA - although the FCA may ask for these at any time on request.
- For individuals at Enhanced Firms, the FCA proposes to convert them from Approved Person Regime functions to Senior Management Functions subject to the submission of a conversion notification and accompanying documentation (known as a (new) Form K - the proposed cut-off date for submission is one week before commencement of the regime).
Key points to note for all firms
- There are helpful tables in the CP which illustrate “conversion mapping” and firms should consider their current Approved Person population and level of approvals. Broadly, the Approved Person Regime will continue to apply in full up until the start of the new regime and the FCA will deal with applications in this way right up until commencement. The FCA suggests that firms plan their recruitment activities during the transitional period accordingly.
- In a similar way to the banking regime, the Treasury intends to commence the requirement on firms to certify relevant employees as fit and proper for the first time 12 months after the start of SMCR. However, firms will need to know who all of their certified staff are on day one of the regime. This is because those employees must meet the Conduct Rules straight away, but firms will have 12 months to complete fitness and propriety assessments and get certification paperwork in place.
- FCA will continue to consider feedback from firms as regards the removal of certain people from the Financial Services Register and the concerns raised - it will consider next steps as part of preparations to implement the regime.
- Firms are also expected to have 12 months from commencement to get ready to apply the Conduct Rules to “Other Conduct Rules Staff” (again, this is the same as for the banking regime).
- The FCA proposes to apply without changes (besides definitional changes) the guidance on DEPP 6 on the application of the duty of responsibility to all Senior Managers.
Specific points for insurers
- Conversion of existing senior insurance management functions will be simple for small firms and insurance special purpose vehicles (ISPVs) - they don’t need to take any action if there is no change anticipated to existing roles.
- Solvency II firms and large NDFs will need to submit a Form K (mapping conversion) supported by the Statement of Responsibilities and Responsibilities map to “convert” their senior managers. Failure to do so, will mean a firm has no senior managers and is in breach of the FCA rules. In addition, it will have to apply from scratch (criminal records, regulatory references) to get its senior managers approved. Submission of the Form K can be done in advance for all the relevant senior managers but won’t take effect until the SMCR comes in. If a senior management role cannot be mapped across, then a different application using Form E must be made.
- “In-flight” applications - those which have not been completed by the time the SMCR commences, are subject to specific requirements, reflecting the fact that both regulators and firms need to conduct business as usual.
Links to the CPs can be found here
The consultation closes on 21 February 2018 and we would welcome any comments you might have. For solo-regulated firms, please contact Andrea Finn or Penny Miller. In respect of insurers or insurance brokers, please contact Pollyanna Deane. Otherwise do please contact your usual contact at Simmons & Simmons LLP. A more detailed analysis of the Consultation Papers will follow.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.