The FCA has published its “near final” rules on extending the Senior Managers and Certification Regime (SMCR) to all FCA solo-regulated firms and insurers.
The rules have been published in conjunction with:
- an FCA Guide for solo-regulated firms on the regime
- a PRA policy statement and a guide on the extension of SMCR to insurers
- FCA Final Guidance on the duty of responsibility, and
- an FCA Consultation on the proposal to introduce a new public register for checking the details of key individuals working in financial services.
You can find links to the documents at the end of this article.
Headline points to note for FCA solo-regulated firms:
FCA rules and guidance on extending the Senior Managers and Certification Regime (SMCR) to all FCA solo-regulated firms
- SMCR will apply to FCA solo-regulated firms from 09 December 2019.
- The rules are described as “near final”. They are subject to commencement regulations to be made by HM Treasury (and may be subject to change in connection with subsequent handbook amendments, Brexit developments and/or “SMCR optimisation”) but the FCA do not expect to make any significant changes.
- In large part the FCA is implementing the proposals as consulted on. The approach is still based on legal entities and senior managers will need a statement of responsibility for each senior manager function they hold at each such firm.
- The few changes are generally positive for firms - they include:
- the removal of the Prescribed Responsibility (which applied to Core Firms only) to inform the governing body of their legal and regulatory obligations - a helpful development
- the introduction of an easy process for firms who wish to voluntarily apply for a higher regime tier (eg from Core tier to Enhanced tier, and
- a change, reflecting consultation feedback, to the approach to calculating whether firms should be enhanced firms, to smooth out the impact of in-year anomalies by assessing over a rolling average of three years (eg firms with Assets Under Management of >£50bn, firms with current total intermediary regulated business revenue of >£35m, firms with annual revenue generated by regulated consumer credit lending >£100m and mortgage lenders with >10,000 regulated mortgages, in each case calculated as a three year rolling average).
- Unhelpfully, there continues to be a lack of prescriptive guidance on the extent to which partners will fall within the Senior Management function.
- The FCA also does not intend to issue prescriptive guidance on the assessment of fitness and propriety on the basis that it considers firms best placed to decide how their internal employee assessments should be carried out.
- The FCA has issued a Guide for solo regulated firms on the regime more generally which provides practical guidance and includes confirmation that:
- the FCA will contact firms ahead of implementation to confirm the FCA’s indicative assessment of the firm’s tier status, and
- firms will have to identify and train Senior Managers and Certified staff by 09 December 2019, but will have a transitional 12 month period to complete their initial certification process and train all other staff.
FCA Final Guidance on the duty of responsibility
- The proposed extension of the SMCR to insurers and FCA solo-regulated firms includes the statutory duty of responsibility in respect of senior managers under FSMA as already in place for dual-regulated firms. That statutory duty is the same for those solo-regulated firms to be brought within scope of the regime in December 2019. It empowers the FCA to take action against a Senior Manager where there was misconduct in a firm’s activities for which that Senior Manager was responsible and the FCA can prove that the Senior Manager did not take reasonable steps to avoid the misconduct occurring or continuing.
- The FCA proposed in CP17/42 in December 2017 to apply its existing guidance on the duty of responsibility and reasonable steps for dual-regulated firms (found in DEPP 6.2.9_A and the following section of the FCA Handbook) to all other firms with only definitional amendments since it did not consider that any further changes to that guidance were required for solo-regulated firms.
- The FCA has now confirmed in PS18/16 published on 04 July 2018, following consultation, that no changes besides definitional amendments are required. In response to a limited number of concerns raised in feedback, PS 18/16 does briefly address what steps are ‘reasonable’ for the purposes of duty of responsibility but firms should look to the existing DEPP guidance when considering the duty of responsibility and reasonable steps on the part of their senior managers.
- The FCA considers that these are sufficiently flexibly drafted to be applicable to firms of all sizes and not a disproportionate burden given that all that is required of the firm is that it takes reasonable steps to avoid misconduct.
- Failure to comply may result in FCA action. The burden of proof lies with the FCA, so it is for the FCA to prove that the Senior Manager did not take reasonable steps.
Extension to insurers
Our commentary on the PRA and FCA Policy Statements on the extension of SMCR to insurers can be found here.
FCA Consultation on the proposal to introduce a new public register for checking the details of key individuals working in financial services.
The FCA is separately consulting on a proposal to introduce a new public register for checking the details of key individuals working in financial services. Our detailed note on the consultation and next steps can be found here.
We will be publishing further commentary in due course. We have also developed a toolkit to help firms progress implementation of SMCR in a cost effective way. Please click here to find out more.
The FCA and PRA published multiple documents in relation to the extension of SMCR. Please find links to those document below.
1. PS18/14 - Extending the Senior Managers & Certification Regime to FCA firms - Feedback to CP17/25 and CP17/40, and near-final rules
2. PS18/15 - Extending the Senior Managers & Certification Regime to insurers - Feedback to CP17/26 and CP17/41 and near-final rules
3. PS18/16 - Final Guidance: the Duty of Responsibility for insurers and FCA solo-regulated firms
4. CP18/19 - Introducing the Directory
5. SMCR - Guide for FCA solo-regulated firms
1. PS 15/18 - Strengthening individual accountability in insurance: Extension of the SM&CR to insurers”
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.