FCA consults over transitioning FCA firms to the Senior Managers and Certification Regime

The Financial Conduct Authority (“FCA”) published a consultation paper¹ on 12 December 2017 addressing the transitioning of the senior manager and certification regime (“SMCR”) to all FCA authorised firms. 

The FCA published draft rules² to extend SMCR to all financial services firms in July 2017. Different rules are to apply to “Core SMCR Firms”, “Enhanced SMCR Firms” and “Limited Scope Firms” under the FCA’s proposals, but the new self-certification regime and new conduct rules will apply to all firms.³ 

On timing, in its latest consultation paper, the FCA indicates that it will publish its final SMCR rules in a Policy Statement in summer 2018 and it assumes that the SMCR regime will come into force in mid-to-late 2019 for all solo regulated firms. 

For the majority of firms, the FCA is proposing to automatically convert individuals approved under the Approved Persons Regime (“APR”) to the new regime. This means the majority of firms will not need to submit applications to convert existing approved persons to Senior Managers holding senior management functions (“SMFs”). 

The self-certification regime is given a year to bed down. The conduct rules will apply to all current approved persons from when the SMCR comes into force, but those who are not currently approved persons who are in scope of the conduct rules will benefit for a year-long transitional period. 

Conversion of individuals under the APR to SMCR 

Core SMCR Firms and Limited Scope Firms 

Individuals at Core SMCR Firms and Limited Scope Firms approved under the APR will be automatically converted wherever possible to the corresponding SMF, with no further action required by firms. 

However, individuals moving from a current controlled function to a different SMF (for example a current CF1 director moving to a SMF1–Chief Executive role) will still need FCA approval and will need to submit a statement of responsibilities to the FCA. 

In addition, a person approved under the APR as a CF2 currently acting as a firms’ non-executive chair will need to apply to carry out the SMF 9 chair function, though in this case will not need to submit a statement of responsibilities. 

Enhanced SMCR Firms 

Individuals at Enhanced SMCR Firms under the APR do not benefit from the automatic conversion to the corresponding SMF. 

Enhanced SMCR Firms will have to notify the FCA who they want to assign to the relevant SMF, but they will not have to re-apply for approval if the proposed SMF can be mapped directly from the APR. 

Enhanced SMCR Firms will need to submit: 

• A “Form K”, detailing all of the approved persons to be converted to SMFs. 
• Statements of responsibilities for all of the SMFs included in the Form K. 
• A responsibilities map. 
• Prescribed forms for new or transferred individuals. 

Self-certification regime 

Firms will need to carry out the first certification of persons falling into the self-certification regime as “fit and proper” 12 months after the SMCR regime comes into force. 

There is no need to obtain regulatory references for existing employees who will continue to perform the same role under the new regime. 

Conduct rules 

The conduct rules will apply to all persons carrying out SMFs or self-certification functions from the date that the SMCR comes into force. 

Other persons within the scope of the conduct rules (i.e. employees who are not ancillary staff) will not become subject to these rules until 12 months after the SMCR regime comes into force. 

Timing 

The date that the SMCR regime comes into force will be set by HM Treasury, though the FCA indicates that it will publish its final SMCR rules in a Policy Statement in summer 2018 and assumes that the SMCR regime will come into force in mid-to-late 2019 for all solo regulated firms. The consultation paper closes for comments on 21 February 2018. 

What firms should be doing now 

• Assess if they are a “Core SMCR Firm”, “Enhanced SMCR Firm” or “Limited Scope Firms”. 
• Identify if an individual is performing or going to perform an SMF. 
• Identify if an individual will switch from a Controlled Function to a Senior Management Function. 
• Prepare documentation for Chairs. 
• Identify who is performing a certification function. 
• Put in place systems (including HR and IT systems) to ensure that: 
  • an annual fit and proper assessment is carried out for senior managers and staff performing certification functions; 
  • all staff are trained on the relevant conduct rules; 
  • disciplinary action for breaches of conduct rules are reported to the FCA as required; and 
  • relevant background checks are made for new staff, including the taking up of regulatory references. 
• Start to draft statements of responsibilities. 

Footnotes 

_{1) Consultation Paper CP17/40: Individual Accountability: Transitioning FCA firms and individuals to the Senior Managers & Certification Regime
2) Consultation Paper 17/25: Individual Accountability: Extending the Senior managers & Certification Regime
3) Please see our July 2017 OnPoint entitled “FCA Publishes Proposed Rules to Extend Senior Manager and Certification Regime to all Financial Services Firms”}