High level overview

A high level summary of the new senior managers and certification regime (SMCR) and how the FCA propose to extend it to all FCA solo-regulated firms.

This summary is based on the consultation paper (CP17/25) published by the FCA on 26 July 2017. The consultation has now closed and we have submitted our response to the FCA (details available here).

On 13 December 2017, the FCA published two further consultation papers relating to FCA solo-regulated firms: (i) CP 17/40 which focuses on transitioning to the SMCR and how firms and their senior staff will move over to the new regime, and (ii) CP 17/42 on the duty of responsibility. These consultations closed on 21 February 2018.

Timing: The final rules are expected in Summer 2018 and are envisaged to apply to FCA solo-regulated firms from mid-to-late 2019.

Application: the extension of SMCR will apply to all FCA solo-regulated firms and replace the current FCA Approved Persons Regime for them.

Three main elements: the proposed new regime largely reflects the arrangements which have been in place for banks since March 2016, consisting of three main elements:

  1. Senior Managers Regime: Firms will need to identify their Senior Managers and firms in the enhanced regime will need to allocate certain Prescribed Responsibilities to them. Senior Managers will need to be approved by the FCA.
  2. Certification Regime: Firms will take on (from the FCA) responsibility for assessing (and certifying on an annual basis) the fitness and propriety of their certification staff (effectively individuals capable of causing significant harm to a firm or its customers).
  3. Conduct Rules: All staff (other than ancillary staff, such as receptionists or security) will be subject to conduct rules and firms will need to provide training on those rules.

Different requirements for different firms: the regime is designed to be proportionate to the size and nature of the firm. The requirements for each firm will depend upon which of the following three categories it falls into:

  1. Core: Most firms will be subject to the "core regime", a baseline of specific requirements applying to all FCA solo-regulated firms.
  2. Enhanced: There will be additional requirements that apply only to the largest and more complex firms (less than 1%), known as the "enhanced regime". These requirements will include additional Senior Management Functions, additional Prescribed Responsibilities, a Responsibilities Map, Handover Procedures and the requirement that there be a Senior Manager responsible for every area of the firm (Overall Responsibility) There are six criteria identifying Enhanced firms:
    • a firm that is a Significant IFPRU firm
    • a firm that is a CASS Large firm
    • firms with assets under management of £50bn or more (at any time in the previous 3 years)
    • firms with total intermediary regulated business revenue of £35m or more per annum
    • firms with annual regulated revenue generated by consumer credit lending of £100m or more, and
    • mortgage lenders with 10,000 or more regulated mortgages outstanding.
  3. Limited Scope: There will be a reduced set of requirements for a specific group of firms, known as ‘Limited Scope’ firms.  These include (among others) Limited Permission Consumer Credit Firms, sole traders and internally managed AIFs.

A recording of our recent conference call on the extension of the regime is available here.

Transitioning: The proposals for transitioning to the new regime are summarised below.

  1. Senior Managers Regime: The FCA proposes to automatically convert most of the approved persons at Core or Limited Scope firms into corresponding new Senior Management Functions. Enhanced firms will be required to submit a conversion notification (Form K) and accompanying documents.
  2. Certification Regime: Firms will need to certify relevant staff as fit and proper for the first time 12 months after commencement of the SMCR.  However, firms will need to have identified Certification Staff prior to commencement because the Conduct Rules will apply to such staff from day one.
  3. Conduct Rules: Firms will have 12 months from commencement before the Conduct Rules will apply to all other Conduct Rules staff.

The new consultation paper (CP 17/40) sets out various proposals regarding the conversion process, which include that:

  • Various existing approved roles will fall away because they will no longer require FCA approval, such as CF 29 and CF30, which will fall into the Certification Regime.
  • Non-executive Chairs (currently approved under the generic CF2) are an exception to the automatic conversion process and a Form K must be submitted to convert from approved NED status to the SMF 9 – Chair function.
  • Executive Chairs will need to hold an additional controlled function (SMF9 – Chair) and will need to submit a Form A to apply for this.  The executive controlled function (eg CF1 – Director to SMF 3 – Executive Director) will be automatically converted.
  • In-flight applications (ie those submitted but not yet determined before Commencement of SMCR) will be converted to an application for the relevant SMF at Commencement.
  • Firms may apply to vary current CFs prior to Commencement in order to achieve a smoother conversion.

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.