The FCA published its consultation paper (CP 17/25) on the extension of the Senior Managers & Certification Regime (SMCR) in July 2017.
The most significant aspects of the proposed rules set out in CP 17/25 were that there will be three levels to the regime: the Senior Managers Regime, the Certification Regime and Conduct Rules
Senior Managers Regime
- Individuals holding senior management functions must be approved by the FCA (this is the same as the current Approved Persons Regime). This group of individuals will be significantly smaller than the number of approved persons
- Senior managers will need to have a 'Statement of Responsibilities'
- Senior managers will have a 'Duty of Responsibility', so that they are personally responsible for things that go wrong in their area. The FCA will be looking for senior managers to take 'reasonable steps' to ensure things don't go wrong
- Those who are not senior managers, but their roles have an impact on clients, markets or the firm, will have to comply with the certification regime
- Firms will be responsible for annually certifying that these members of staff are qualified and competent to carry out their roles
- Certification roles will include the
- Significant management functions (currently CF29)
- Proprietary traders (also currently CF29)
- CASS oversight (currently CF10a)
- Functions subject to qualification requirements (in the Training & Competence Sourcebook)
- Client dealing function (currently CF30 – expanded to any person dealing with clients, including advising on investments, dealing as agent or principal, acting as investment manager and all associated functions)
- Anyone who supervises or manages a certified function but isn't a senior manager
- Material risk takers (same definition as for remuneration code staff in AIFMD, UCITS, IFPRU and BIPRU)
- Algorithmic trading functions
- FCA rules that almost all individuals working in financial services must comply with, designed to improve standards of behaviour
This consultation closed on 3 November 2017, and the final rules are expected to be published in a policy statement during summer 2018.
Following this, in December 2017, the FCA published a second consultation paper (CP 17/40) on the transition of firms and individuals to SMCR.
For core and limited scope firms, the FCA is expecting to automatically convert the majority of approved persons at core and limited scope firms into new senior manager functions. Roles that will automatically convert are roles where an equivalent role exists within the SMCR regime. The exception to this is where a non-executive director role is transitioning to the chair role.
Enhanced firms will be required to submit a Form K (a conversion notification), along with accompanying documentation.
The implementation date for SMCR has not yet been confirmed, although it is expected to be during 2019. HM Treasury will confirm the implementation date in due course. Following this, the FCA will announce the date when enhanced firms and any relevant core firms will be required to have submitted Form K applications in respect of their senior managers. The deadline for Form K applications is likely to be one week prior to the regime implementation date, although firms are advised to send their forms in much sooner than this.
Firms will be required to check the Financial Services Register following the start of the new regime to confirm that the approval information for senior managers is correct. Firms are advised to diarise to carry out these checks following implementation.
For certified staff, firms will have a year to confirm their staff are fit and proper to carry out their roles (even if those staff members were already in these roles prior to implementation of the regime or were previously approved persons). Bear in mind, though, that certified staff must comply with the FCA conduct rules immediately from the commencement date.
Other staff, who are not certified staff or senior managers, will have 12 months from the commencement date to comply with the conduct rules.
CP 17/40 closed on 21 February 2018 and, again, the final rules in the FCA policy statement will be published in the summer of 2018.
Firms that are still waiting to commence their implementation projects are advised to review the final rules in detail when published in the summer, and begin preparing for implementation in earnest at that time. Steps can be taken now to determine gaps and anticipated work that will need to be undertaken.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.