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 4 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.
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