Q. To whom do the new Senior Managers and Certification Regime’s Fit and Proper rules apply?
A. Companies will be required to gather evidence to demonstrate that anyone performing a senior manager or certification function is fit and proper.
Businesses should already have processes in place to assess the fitness, propriety, competence and capability of many of these individuals.
SMCR introduces new rules and guidance that companies must follow; however, it is based on three concepts:
• Honesty, integrity and reputation
• Financial soundness
• Competence and capability
The Financial Conduct Authority has provided a list of criteria in its handbook, which should be applied in general terms. This is not a definitive list but it does provide guidance.
SMCR has been designed to be flexible and allow companies to exercise judgement. The Fit and Proper assessment should focus on the requirements and standards of the regulatory system. We should look at the three areas above in more detail.
Companies are expected to be aware of relevant matters in determining the honesty, integrity and reputation of senior managers and certified persons.
Each Fit and Proper assessment should be considered individually. For example, a criminal conviction does not automatically mean someone would fail a Fit and Proper assessment. The company should consider the seriousness of and circumstances surrounding the offence, the explanation offered by that person, the relevance of the offence to the proposed role, the passage of time since the offence, and evidence of rehabilitation.
A business should have regard to whether that person’s reputation might have an adverse impact upon the company.
Companies should be aware of the financial soundness of existing senior managers and certified persons and keep this under review.
Financial stress presents one of the greatest risks in terms of misconduct. Financial soundness can be assessed by a combination of self-declaration and a formal credit check from an independent source. Again, discretion must be exercised.
There may be situations where more frequent reviews would be prudent, for example, where an individual has a previous history of debt problems or if the company has reason to be concerned. It may also be considered appropriate to review bank statements at periodic intervals.
Competence and capability
In assessing competence and capability of an existing senior manager or certified person, a company is expected to check that the individual:
• satisfies the FCA training and competence requirements;
• has the required experience and training; and
• has adequate time to perform the function.
Most companies are already well placed meet these new requirements.
Mark Greenwood is director of compliance services at The SimplyBiz Group