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FCA publishes 'near final' rules for its extension of the Senior Managers and Certification Regime

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05 July 2018

On 4 July 2018, the FCA published its ‘near final’ rules for the extension of the Senior Managers and the Certification Regime (SMCR), which will come into force on 9 December 2019 (subject to confirmation by HM Treasury).

For the most part, the FCA has retained its original proposals for the extension of the SMCR which it published in July 2017. We have set out below an overview of the key changes that the FCA has made to its existing proposals. We also summarise below the FCA’s separate proposals to introduce a new and more comprehensive ‘Directory’ to replace the current financial services register.

We have produced an online implementation tool which is intended to assist firms to implement the SMCR in a way which meets the FCA’s requirements and is also consistent with approaches that have already been adopted, tried and tested across the industry. Our online tool provides access to a suite of template documents and guidance notes that cover the new documents and the changes to existing documentation that will be needed in order to implement the FCA’s requirements relating to the extension of the SMCR, as well as project management tools and training materials. For further information about our online tool, please contact one of the contacts to the right.

Senior Managers Regime

The FCA has retained its existing suite of proposed Senior Management Functions for FCA-only authorised firms. However, it has given some helpful further clarification in terms of how these Senior Management Functions should be applied in practice, for example the SMF18 (Other Overall Responsibility), SMF7 (Group Entity Senior Manager) and SMF27 (Partner).

The FCA has decided to remove one of the Prescribed Responsibilities that it was proposing to require Core Firms to allocate to one of their Senior Managers, namely the Prescribed Responsibility relating to ensuring that the governing body of a Core Firm is informed of its legal and regulatory obligations. The FCA’s rationale for deciding to remove this Prescribed Responsibility is that Senior Managers will already be obliged to ensure that the business area for which they are responsible complies with relevant legal requirements and is controlled effectively under the FCA’s Senior Manager Conduct Rules.

Certification Regime

The FCA has not made any changes to its proposed suite of Significant Harm Functions for FCA-only authorised firms. However, the FCA has provided the following clarification in terms of how it expects firms to implement and operate the Certification Regime:

  • If an individual performs both a Senior Management Function and a Significant Harm Function, they will be subject to both the Senior Managers Regime and the Certification Regime.

  • The scope of the Client Dealing Significant Harm Function is broader than the CF30 role under the Approved Persons Regime. It covers anyone advising or dealing for clients, including retail and professional clients and eligible counterparties. This means that some firms may find that individuals who are not currently approved to perform the CF30 role will fall within the Client Dealing Significant Harm Function and therefore need to be certified.
  • If a partner of a firm which will fall within the scope of the SMCR does not qualify fulfil the criteria for the SMF27 (Partner) Senior Management Function, the FCA has said that it is unlikely that a partner in this position will fall within the Certification Regime on the basis that they do not meet the definition of ‘employee’ in the Financial Services and Markets Act 2000 on which the Certification Regime is based.
  • Although the Certification Regime will come into force on 9 December 2019, firms will have a 12 month ‘grace period’ within which to complete their first round of annual assessments of fitness and propriety. The FCA adopted the same approach for the banks and building societies in 2016/17.

The FCA originally proposed to extend the four week period for emergency appointments to Significant Harm Functions to 12 weeks. The FCA has decided against implementing this proposal, meaning the period will remain four weeks.

Code of Conduct

The FCA has made no substantive changes to its proposals relating to the application of the Code of Conduct to employees of FCA-only authorised firms.

Becoming an ‘Enhanced’ Firm

A number of groups comprising multiple legal entities which will fall within the scope of the SMCR have found that only a sub-set of those legal entities will qualify as Enhanced Firms, with the remainder qualifying as Core and/or Limited Scope Firms. In order to help ensure a consistent approach between legal entities within the same group, the FCA has introduced an easier process by which a Core or Limited Scope Firm can ‘opt up’ on a voluntary basis to become an Enhanced Firm, even if it does not meet the criteria for being an Enhanced Firm.

If a legal entity which is a Core of Limited Scope Firm subsequently meets one or more of the criteria for an Enhanced Firm, that legal entity will need to comply with the additional requirements that apply to Enhanced Firms. The FCA has extended the transitional period for firms that are required to become Enhanced Firms after the commencement of the SMCR, and has decided to give them 12 months (as opposed to the six months originally proposed) in order to meet the SMCR requirements for Enhanced Firms.

Proposal for a new financial services ‘Directory’

For the purposes of the SMCR, the current financial services register maintained by the FCA and the PRA only contains current information about Senior Managers. Information about individuals who fall within the Certification Regime is not captured by the register.

The loss of the financial services register under the SMCR has been a regular source of feedback for the FCA and the PRA. In response to this feedback, the FCA is proposing to introduce an online directory which will serve as a central location for the storage of information about Senior Managers and Certified Persons. The directory would be available online to customers, firms and other stakeholders.

The proposed inclusion of Certified Persons in the directory will require firms to provide the FCA with lists of their Certified Persons, which is not currently information that firms are required to routinely provide to the FCA. This information will need to be provided to the FCA in short order, with the FCA proposing to require firms to notify it of new Certified Persons and departing Certified Persons within one business day of them becoming/ceasing to be a Certified Person.

Comments on the FCA’s consultation regarding the proposed directory are due by 5 October 2018. In terms of timing, this means that it is most likely that the new directory and the requirements associated with it will come into force for firms some time in 2019.

Further information

For further information about our experience in relation to the SMCR and how we may be able to help you, please email or your usual Allen & Overy contact. ​​

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