Extending the SMCR to FCA-only authorised firms: Our insights
27 July 2017
Yesterday the FCA published its much-anticipated consultation paper on the extension of the Senior Managers and Certification Regime (SMCR) to FCA-only authorised firms. We have set out below our initial thoughts on and insights into the FCA’s proposals, which we hope that you will find useful.
Online implementation tool: Very shortly we will be launching our online SMCR implementation tool, Individual Accountability 2 Manager. This will allow you to scope and implement the SMCR in a way which meets the FCA’s requirements and which is consistent with approaches that have already been adopted, tried and tested across the industry. Our tool gives you a suite of template documents that cover the new documents and the changes to existing documentation that will be needed in order to implement the SMCR, as well as project management tools and training materials.
Our guide to the SMCR: We will be publishing a guide detailing the requirements of the SMCR, which will include insights and guidance based on our extensive experience from advising banks and building societies on their implementation of the SMCR, as well as post-implementation issues that have arisen.
A&O seminar: We will be hosting a seminar at our London offices in September 2017. This seminar will not only cover the FCA’s proposals for the extension of the SMCR, but will also provide insights and guidance on how firms should go about implementing the SMCR.
To find out more about our online tool, receive a copy of our SMCR guide and/or to register for the our SMCR seminar in September please click here or contact your usual Allen & Overy contact.
We established our Senior Managers and Certification Regime Working Group in 2014 when the FCA first announced its plans for the SMCR for banks and building societies. Our Working Group includes members of our employment and regulatory (contentious and non-contentious) practices. Members of our Working Group have advised a significant number of banks and building societies in relation to the implementation of the SMCR, and have already been instructed by a number of FCA-only authorised firms to advise them in relation to the extension of the SMCR.
Should you have any questions, or if you would like to arrange a meeting with us to discuss the SMCR, please do not hesitate to contact SMCR_Enquiries@AllenOvery.com or your usual Allen & Overy contact.
Our initial thoughts and insights on the FCA’s proposals
A familiar structure
As we had anticipated, the FCA is proposing to adopt the same structure for the SMCR as it used for banks and building societies:
Senior Managers Regime: The FCA will require FCA-only authorised firms to appoint Senior Managers who will be assigned certain responsibilities that have been prescribed by the FCA. These functions and responsibilities will need to be documented in formal documents which are filed with the FCA, known as Statements of Responsibilities.
Certification Regime: Only Senior Managers will require approval by the FCA. Other individuals within FCA-only authorised firms who meet the FCA’s criteria for one or more of eight prescribed Certification Functions (which have already been adopted by banks and building societies) will not require approval by the FCA. Rather, firms will be required to assess the fitness and propriety of these individuals on at least an annual basis. Banks and building societies we advised in relation to the SMCR found that implementing the Certification Regime took more time than they had anticipated, due to the amount of new processes and procedures that need to be designed, implemented and embedded.
A new Code of Conduct: The FCA will replace its Statement of Principles for Approved Persons (or ‘APER’) with the Code of Conduct that currently applies to individuals working in banks and building societies. The Code of Conduct will apply to almost all employees working within FCA-only authorised firms and will apply to regulated and unregulated activities. Interestingly this application is narrower than the application of the Code of Conduct to employees within banks and building societies (where the Code of Conduct applies to everything an employee does on behalf of their bank or building society).
The FCA’s proposal to adopt a structure for the SMCR which is similar to the one which it applied to the banks and building societies means that FCA-only authorised firms are likely to face many of the same issues and challenges as the banks and building societies did when they implemented the SMCR in 2015/16. We advised a number of banks and building societies in relation to their implementation projects. As a result, we are familiar with the issues and challenges that FCA-only authorised firms will face, as well as how these issues and challenges can be dealt with in practice.
The FCA has been careful not to simply impose its SMCR designed for the banks and building societies on FCA-only authorised firms. In particular, we are pleased to see that the FCA has reflected points raised by the industry about proportionality on board when designing its proposals for the extension of the SMCR. For example, the FCA is proposing to have three ‘categories’ of firm for the purposes of the SMCR, which will determine the specific SMCR requirements that your firm will need to comply with:
Limited scope firms: Firms that are only required to have a limited application of the current approved persons regime. These firms will be permitted to adopt a lighter touch approach to the SMCR than ‘core’ and ‘enhanced’ firms. In particular, these firms will be required to appoint fewer Senior Managers and allocate fewer responsibilities than ‘core’ or ‘enhanced’ firms.
Core firms: Firms that apply the current approved persons regime in full but do not qualify as an ‘enhanced firm’. These firms will be required to adopt the baseline SMCR requirements set out by the FCA which are similar to (but slightly lighter touch than) the SMCR requirements that apply to banks and building societies.
Enhanced firms: A small proportion of FCA-only authorised firms that will be subject to additional SMCR requirements set by the FCA (namely requirements relating to handovers between Senior Managers, maintaining Management Responsibilities Maps and ensuring that a Senior Manager is responsible for every aspect of their UK business). The SMCR that will apply to enhanced firms is more aligned with the requirements that apply to banks and building societies. Whether a firm is an ‘enhanced firm’ for SMCR purposes will depend on a set of criteria published by the FCA, including whether their assets under management are/have been £50 billion or more at any time in the previous three years, or if they are classified as a CASS Large Firm.
What is going to change?
A question you will be asked within your firm is ‘How do the FCA’s proposals differ from the current approved persons regime?’ and ‘What is going to change?’. In the table below, we highlight some key changes between the current approved persons regime and the FCA’s new SMCR proposals:
Current Significant Influence Function holders (SIFs)
Current approved persons (other than SIFs)
All other employees (except those performing ancillary functions, e.g. cleaners, receptionists)
HM Treasury has not yet announced the implementation date for the extension of the SMCR to FCA-only authorised firms. We understand that HM Treasury was originally proposing a March 2018 implementation date, but given that the FCA will not publish its final rules relating to the extension of the SMCR until 2018, we think it is most likely that implementation will not be until later in 2018 at the earliest. The FCA is also likely to take a phased approach to implementing the SMCR.
The prospect of a late 2018 implementation date should not lead firms to delay starting their implementation projects. We believe that it is unlikely that any fundamental changes will be made to the proposals set out in the FCA’s consultation paper published yesterday. We would encourage firms to commence their implementation projects sooner rather than later, as opposed to waiting for the FCA to publish its final rules next year. Our experience is that the banks and building societies we advised that started their implementation projects at an early stage tended to have a much easier journey towards implementation, and avoided a last minute rush.
For further information about our experience in relation to the SMCR and how we may be able to help you, please email SMCR_Enquiries@AllenOvery.com or your usual Allen & Overy contact.
- Visit the SMCR Microsite here