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Coronavirus - Flexibility on SMCR - UK

  • United Kingdom
  • Coronavirus - Regulatory issues
  • Employment law
  • Financial services

07-04-2020

The FCA and the PRA have issued a joint statement aimed at dual-regulated firms in an attempt to introduce some flexibility in connection with the senior managers and certification regime (SMCR) during the current COVID-19 pandemic.

Responding to coronavirus - updating statements of responsibilities

The regulators note that problems may arise with regard to the requirement under the SMCR to update and re-submit a statement of responsibilities (SoR) where there are significant changes to a senior manager’s responsibilities. Significant changes may be required where senior managers suffer sickness or ‘other temporary situations’ due to COVID-19. In such a case, the regulators expect firms to re-submit relevant SoRs as soon as reasonably practicable in the circumstances. The regulators understand that this may take longer than usual.

The 12-week rule

The regulators are currently gathering evidence on the 12-week rule to determine whether the rule as it stands will give dual-regulated firms sufficient flexibility to deal with senior manager absences due to COVID-19. Additional measures will be proposed if the regulators consider the 12-week rule is insufficient in these circumstances.

Where a firm cannot reallocate an absent (due to COVID-19) senior manager’s prescribed responsibilities (PRs) among remaining senior managers the regulators state that these PRs can be temporarily allocated to the individual who is acting interim senior manager under the 12-week rule even if they are unapproved as a senior manager.

Responsibility for co-ordinating firms’ responses to COVID-19

The regulators also set out their approach on allocating responsibility for coordinating firms’ responses to COVID-19 among senior managers. The regulators do not expect firms to designate a single senior manager to be responsible for all aspects of their COVID-19 response.

An exception to this general position is in relation to the identification of ‘key workers’ which should be allocated to the CEO (SMF1): . Separately, the FCA has advised firms which employees should not be expected to come into work or meet face-to-face:  .

Given the potential for SMFs to be absent due to COVID-19 the PRA encourages firms to consider how they might respond.

Furloughing

With regard to furloughing, dual regulated firms must have certain mandatory senior manager functions (SMFs) at all times. These SMFs are:

  • SMF1 – CEO, SMF2 – CFO and Chair of the governing body (CRR firms and Solvency II insurers)
  • SMF19 – Head of Overseas Branch (UK branches of third-country banks and insurers)
  • SMF25 – Small Insurer SMF (small, non-Solvency II insurers)
  • SMF26 – Head of Small Run-Off Firms (small run-off insurance firms)

Senior managers performing these functions and other FCA-required functions (e.g. SMF16 – Compliance Oversight, SMF17 – money laundering reporting officer and SMF29 – Limited Scope Function) should only be furloughed as a matter of last resort.

If one of these individuals becomes absent, the firm must appoint individual(s) to continue performing those SMFs. Other SMFs are not mandatory and so firms have greater flexibility to furlough those individuals. However, the regulators warn that firms should think carefully about the risks.

Unless a furloughed senior manager is permanently leaving their post, they will not need to be re-approved when they return and so firms do not need to submit a Form C or Form J – but firms must ensure that furloughed senior managers remain fit and proper on their return; reallocate the responsibilities of furloughed senior managers; and clearly show the reallocation of responsibilities of any furloughed senior managers in SoRs, Management Responsibilities Maps and internal documents.

Certification

Dual regulated firms should continue to take reasonable steps to complete any annual certification although it may be necessary to adjust standard processes and policies. However, certified staff who are not fit and proper should not be re-certified.

Read the regulators’ statement

 

For more information please contact

Paul Fontes

Partner

+44 207 919 4655

paulfontes@eversheds-sutherland.com

 

Sophie White

Partner

+44 207 919 0717

sophiewhite@eversheds-sutherland.com

 

Simon Collins

MD of FS Regulatory Compliance, Konexo

+44 207 919 0725

simoncollins@konexoglobal.com