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FCA Update – The Legal Function under the Senior Managers Regime

FCA Update – The Legal Function under the Senior Managers Regime
  • United Kingdom
  • Consulting
  • Employment law
  • Financial services


The FCA announced on Wednesday 27 January 2016 that it intends to consult on the pros and cons of capturing individuals with overall responsibility for a regulated firm’s legal function within the new Senior Managers Regime (the regime). The announcement comes shortly before the date on which the regime is due to commence (7 March 2016) and could have the effect of bringing lawyers at regulated firms within the scope of the new regime.

The FCA’s announcement is stated to be in response to uncertainty within the regulated community about whether individuals with overall responsibility for a firm’s legal function are required to hold a Senior Management Function (SMF) under the regime. This uncertainty has arisen due to a lack of clear guidance from the FCA in its final rules and previous consultation papers.

The FCA published final rules in July 2015 (see CP 15/22 Strengthening accountability in banking). At that time, the FCA made clear that an individual with ‘overall responsibility’ or ‘ultimate responsibility under the governing body’ for a particular business activity or function would require pre-approval as a SMF holder. The FCA provided an indicative but non-exhaustive list of areas of responsibility that firms would need to cover. This did not include overall responsibility for the legal function.

The FCA has said that it will consult the industry regarding “the pros and cons” of capturing senior lawyers within the regime. However, it seems likely that the FCA will impose a requirement that individuals with ultimate responsibility for the legal function must hold the overall responsibility SMF (unless that individual’s role happens to be covered by another specific SMF in the firm).

The FCA has not yet announced when the consultation paper will be published, but early indications suggest that a number of major financial institutions have already decided to make formal representations to the FCA during the consultation process. Since there will not be time to consult properly before the regime comes into force, the FCA has confirmed that firms need not change their approach in the interim where they have made a decision in good faith, on the basis of the FCA’s published rules and other communications, about whether or not the individual in question requires approval.

Once the consultation is complete, the FCA will provide information on any transitional measures that may be needed in order for a firm to adjust its position.

Read the FCA announcement: Clarifying our supervisory intentions: overall responsibility for the legal function under the Senior Managers Regime