Update: The FCA’s and PRA’s new Senior Managers and Certification Regime
Towards the end of 2014, two significant updates were published regarding the FCA and PRA’s new Senior Managers and Certification Regime which, when finalised, will replace the approved persons regime for banks, building societies and PRA-designated investment firms.
HM Treasury: widening the scope of the new regime
In November 2014, HM Treasury issued a consultation which briefly sets out HM Treasury’s proposed approach to extending the new regime to UK branches of overseas firms. HM Treasury has also published a draft order that will be used to give effect to this extension, and on which HM Treasury is also seeking responses.
In particular, HM Treasury has stated that:
- The PRA does not intend to designate any senior management functions for UK branches of EEA firms as primary responsibility for the prudential supervision of such firms rests with the home state regulator of its parent entity.
- The PRA expects to specify significantly fewer senior management functions for UK branches of non-EEA firms than in equivalent UK firms, and presumes that UK branches of non-EEA firms may only require one individual approved by the PRA as a senior manager.
- The PRA is unlikely to designate a large number of roles within UK branches of overseas firms as “significant harm functions” that will fall within the scope of the Certification Regime.
- The FCA expects that the implementation of the new regime in UK branches of overseas firms will be broadly aligned with the implementation of the new regime in equivalent UK firms.
It is important to note that senior managers in UK branches of overseas firms will not be affected by the new criminal offence relating to a decision which causes a financial institution to fail.
Transitional arrangements: FCA and PRA consultation
On 19 December 2014, the FCA and the PRA published a further consultation paper relating to the new Senior Managers and Certification Regime: “Strengthening accountability in banking: forms, consequential and transitional aspects”. This consultation paper sets out the proposed approaches of the FCA and the PRA to some aspects of the new regime, including:
The consultation paper sets out details as to how existing Significant Influence Function holders (SIFs) will be expected to “grandfather” to new Senior Management Functions and how firms should go about notifying the FCA and the PRA as to which individuals will be taking up new Senior Management Functions.
The FCA and the PRA are proposing to treat SIF applications made before the implementation of the new regime, but determined after the new regime has come into force, as if they had been made for the equivalent Senior Management Function under the new regime.
Statements of Responsibilities:
A Statement of Responsibilities is a statement of the affairs of a firm for which it is intended that a person who performs a Senior Management Function is (or will be) responsible. A copy of each Senior Manager’s Statement of Responsibilities must be provided to the FCA and/or the PRA. In the FCA and PRA’s initial consultation paper published in July 2014 relating to the new regime, little information was provided about what a Statement of Responsibilities should look like or what information it should contain. In this latest consultation paper, the FCA and the PRA have provided a template Statement of Responsibilities which sets out the format in which they should be presented to the FCA and/or the PRA and the information that it must contain. Although the template Statement of Responsibilities leaves firms and Senior Managers with little flexibility as to how they draft and present their Statements of Responsibilities, the introduction of a “standard form” is likely to assist many firms that are currently drafting Statements of Responsibilities for their prospective Senior Managers.
Notification of Code of Conduct breaches for Certified Persons:
It was originally proposed that firms would need to report breaches or suspected breaches of the Code of Conduct by Senior Managers to the FCA and/or the PRA within seven business days of the firm becoming aware of the matter. The PRA is now proposing that breaches or suspected breaches of the Code of Conduct by individuals falling within the Certification Regime will also need to be reported within seven business days of the firm becoming aware of the matter. If implemented, this requirement may subject firms to additional considerable time pressures when conducting internal investigations that concern the conduct of Certified Persons.
How to notify the FCA and the PRA of Code of Conduct breaches for Certified Persons:
The latest FCA and PRA consultation paper sets out the proposed forms that firms will be expected to use in order to notify the FCA and the PRA of breaches of the Code of Conduct by Senior Managers, Certified Persons and other employees who will be subject to the Code of Conduct.
Likely delay in implementation?
HM Treasury has requested responses to its consultation by 30 January 2015, while the FCA and the PRA have requested responses to their consultation by 27 February 2015. These deadlines suggest that there is likely to be a considerable delay to the proposals for the new regime being finalised and implemented; it was originally proposed by the FCA and the PRA that the finalised rules for the new regime would be published by the end of 2014. In addition, before the proposals for the new regime are finalised, we anticipate that there will be a further joint FCA and PRA consultation paper, which will set out in more detail their approaches to implementing the new Senior Managers and Certification Regime in practice in UK branches of overseas firms.
The FCA and the PRA have stated that HM Treasury is expected to announce shortly the date on which the new Senior Managers and Certification Regime will be implemented.
For a copy of Allen & Overy’s guide to the new Senior Managers and Certification Regime, please contact us.