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FCA and PRA Senior Managers and Certification Regime: An update

Over the past few months there have been a number of developments in relation to the new FCA and PRA Senior Managers and Certification Regime. 

Commencement date announced

HM Treasury has announced the commencement date for the new FCA and PRA Senior Managers and Certification Regime:

  • The new rules will come into force on 7 March 2016 (for both UK institutions and UK branches of overseas firms).
  • Firms will need to notify the FCA/PRA of the names of their senior staff who will be Senior Managers under the new regime by 8 February 2016.

Provided that the "grace period" for the Certification Regime and the Code of Conduct remains the same as was stated in the FCA and PRA Consultation Paper which was published in July 2014, this will mean that firms will be required to:

  • certify individuals falling within the Certification Regime as fit and proper no later than 7 March 2017; and
  • train all other staff in relation to the Code of Conduct by 7 March 2017.

This is more time than we and others in the industry were expecting HM Treasury to give firms to implement the new regime. It is likely that this extended timetable may be due to considerable pushback that has been received by HM Treasury and the regulators from financial institutions to the original implementation timetable (which proposed that the new regime would come into effect Q3/4 this year).

"Near final" rules published

Both regulators have published their "near final" rules for the new Senior Managers and Certification Regime. We understand that the regulators are intending to publish their final rules over the summer.

Application to UK branches of overseas firms

The FCA and the PRA have announced their proposed approaches to applying the new Senior Managers and Certification Regime to UK branches of overseas firms.

The regulators' proposals are quite complex and will apply to firms in different ways, but they essentially amount to a scaled-back version of the Senior Managers and Certification Regime, as it applies to UK firms.

Guidance relating to the Presumption of Responsibility

One of the key elements of the new Senior Managers Regime is the introduction of the Presumption of Responsibility. This is a reversal of the burden of proof which will mean that if a regulatory breach is identified within a Senior Manager's area of responsibilities, that Senior Manager will have to prove to the regulators that they took reasonable steps to prevent, stop or mitigate the regulatory breach in question. If a Senior Manager cannot do so, they face the risk of having FCA or PRA enforcement action taken against them personally.

The FCA and the PRA have both published guidance that sets out the factors they will consider when assessing whether a Senior Manager has rebutted the Presumption of Responsibility. 

This guidance includes factors such as the complexity and size of a business area, how a Senior Manager has responded to risks and incidents and delegation of responsibilities. Firms will need to help their Senior Managers to interpret this guidance, which reinforces the high standards that Senior Managers will be held to under the new regime. 
For further information the new FCA and PRA Senior Managers and Certification Regime site can be viewed here.
Legal and Regulatory Risk Note
United Kingdom