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FCA near final rules for SM&CR, including a new register for financial services professionals

  • United Kingdom
  • Employment law
  • Financial services and markets regulation
  • Insurance and reinsurance
  • Financial institutions - Insurance market
  • Financial institutions - Senior Managers and Certification Regime

06-07-2018

The FCA has published near final rules to extend the SM&CR to FCA solo regulated firms and insurers, given guidance to insurers and solo regulated firms about the Duty of Responsibility and launched a consultation about a new register of financial services professionals. See our separate briefing in relation to the near-final rules for insurers.

Jonathan Davidson of the FCA says:

“We’ve listened to feedback from firms and consumers about the importance of being able to check the status of financial services staff. Introducing the Directory will make it easier for people to be confident they can find the right people to deal with.”

“The Senior Managers and Certification Regime sets clear standards for the conduct that consumers and regulators expect from all financial services staff. These standards of behaviour are central to the FCA’s priority of promoting healthy cultures in firms.”

FCA solo regulated firms

HM Treasury has announced that the SM&CR will come into force for FCA solo regulated firms on 9 December 2019. The FCA states in the Policy Statement that it is assuming that firms will need to undertake fitness and propriety assessments for certification staff within 12 months of this date, i.e. by 8 December 2019.

Key changes announced by the FCA following consultation are:

  • the removal of the Prescribed Responsibility (that was only proposed to apply to Core Firms) to inform the governing body of their legal and regulatory obligations
  • a simplified process for firms to inform the FCA if they wish to voluntarily apply a higher regime tier (e.g. a complex Core Firm that wishes to comply with the Enhanced regime)
  • three of the criteria for determining whether a firm is Enhanced have been changed to smooth single year anomalies. The revised criteria now apply the Enhanced regime to:
    • Significant IFPRU firms
    • Large CASS firms
    • firms with assets under management of £50bn or more calculated as a three year rolling average
    • firms with current total intermediary regulated business revenue of £35m or more per annum calculated as a three year rolling average
    • firms with annual revenue generated by regulated consumer credit lending of £100m or calculated as a three year rolling average (special rules will apply for firms that don’t yet have data covering three complete years)
    • mortgage lenders and administrators (that are not banks) with 10,000 or more regulated mortgages outstanding. This will bring a number of mortgage administrators who would previously have been Core firms within the scope of the Enhanced regime.
  • lengthening of the time period from 6 to 12 months for a firm to implement the Enhanced tier, once they have met relevant criteria

The FCA confirms that its rules are near-final, as these are subject to commencement regulations to be made by HM Treasury. It does not expect to make any significant changes to the near-final rules: “We believe that holding individuals to account is a key component of effective regulation. The Senior Managers and Certification Regime (SM&CR) currently applies to banking firms and, following the Bank of England and Financial Services Act 2016, is now being extended to FCA solo-regulated firms.”

Read PS18/14 “Extending the Senior Managers and Certification Regime to FCA firms – Feedback to CP17/25 and CP17/40, and near-final rules”

Insurers

The Senior Managers and Certification Regime (SM&CR) currently applies to deposit takers and, following the Bank of England and Financial Services Act 2016, is now being extended to insurers.

There is no change to the date previously announced of10 December 2018 for implementation of the SMCR for insurers, although transitional provisions will apply.

Read PS18/15 “Extending the Senior Managers & Certification Regime to insurers – Feedback to CP17/26 and CP17/41 and near-final rules”

For further details see our separate briefing

Final Guidance on the Duty of Responsibility for insurers and FCA solo regulated firms

The FCA does not intend to make any further changes to the Guidance in its Handbook about the Duty of Responsibility beyond definitional changes.

Under the Duty of Responsibility, enforcement action can be taken against Senior Managers if:

  • there was a contravention of a relevant requirement by the Senior Manager’s firm
  • at the time of the contravention or during any part of it, the Senior Manager was responsible for the management of any of the firm’s activities in relation to which the contravention occurred
  • the Senior Manager did not take such steps as a person in their position could reasonably have been expected to take to avoid the contravention occurring or continuing

The burden of proof for all these elements lies in on the FCA.

Read PS18/16 “The Duty of Responsibility for insurers and FCA solo-regulated firms”

Introducing the directory

The FCA is consulting on a new Directory of financial services professionals. The closing date is 5 October 2018.

The directory will include information available through the Financial Services Register, as well as information about a wider group of individuals. It is proposed that the new Directory would include details of Senior Managers, PRA Certification Staff, FCA Certification Staff and Approved Representatives. This would mean inclusion in the Directory of individuals whom the FCA does not approve such as financial advisers, traders, portfolio managers and additional directors.

CP18/19 sets out the FCA’s proposals for how it plans to do this following commencement of the SM&CR. The FCA is seeking feedback on:

  • which individuals to include on the Directory
  • what information we should publish about each person
  • when firms need to submit and update information about their employees

The FCA’s stated aim is to help protect consumers and firms by making it easier to check whether individuals work for an authorised firm.

There had been speculation about whether introducing a public directory would mean that firms would need to carry out criminal records checks for Certification Staff. However, in its Policy Statement on the near final rules for extending the SMCR to FCA solo regulated firms, the FCA has stated that it does not intend to require firms to undertake criminal records checks on certification staff (such checks are mandatory for Senior Managers) as it would be disproportionate to impose such burden given the large number of certification staff but firms may choose to do so if they wish.

Read CP18/19 “Introducing the Directory”

Read the FCA press release

Changes affecting banking firms already subject to the SM&CR regime

The FCA has confirmed following consultation that it will introduce a new Prescribed Responsibility for training of the firm’s staff on the Conduct Rules. Firms will be required to allocate the new Prescribed Responsibility to a Senior Manager effective from 1 November 2018. Relevant updated forms will be available for submission from the first half of September. Firms must submit relevant documentation by 1 November 2018.

How can Eversheds Sutherland help?

Our SMCR Toolkit for authorised firms falling under the extended regime, has been designed by a combination of our consultants, financial services lawyers and HR professionals and is packed with helpful material so that you can meet regulatory expectations cost effectively. For more information on our SMCR Toolkit, click here.

For more information contact

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