RegulationMar 30 2023

FCA launches senior managers review

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FCA launches senior managers review

The Financial Conduct Authority has launched a review into the Senior Managers and Certification Regime (SMCR) and is seeking views on potential improvements to the regime.

In a discussion paper, published today (March 30), the City watchdog said it is inviting stakeholders to answer questions to assist it in identifying potential enhancements to the SMCR regime.

In December 2022, the government announced, as part of the Edinburgh Reforms, that HM Treasury, the FCA and Prudential Regulation Authority, would commence reviews on the SMCR in the first quarter of 2023.

Following this, the FCA and PRA have published a joint paper, alongside the Treasury which has launched a call for evidence to look at the legislative framework of the regime.

The FCA said its paper should be read alongside the Treasury’s publication to understand the full scope of the legislation and regulatory requirements it is inviting views on. 

Feedback needed

As set out in regulation, firms must provide the regulators with certain information on senior manager functions by completing the relevant application forms. 

In some cases, for example in higher-impact firms, or where supervisors wish to explore issues, the regulators may ask to interview the candidate.

Additionally, senior managers need to be approved for their roles before they start to perform them, but the regulators also have the power to approve a senior manager subject to conditions, or for a limited time only. 

For example, time-limited approval may apply where a firm needs to appoint a candidate on an interim basis while seeking a permanent candidate for a particular function.

The FCA said it recognises concerns have been raised by firms over delays in the senior manager approval process.

It said these delays were mainly due to a large increase in applications following the extension of the SMCR to all solo-regulated firms. 

“Both the FCA and the PRA have already taken action to address these delays, and such work will continue while this review is underway,” it said.

“This includes increasing capacity and capability within their authorisations functions, transforming the application experience, system improvements and improved communications and engagement with firms.”

While these changes have taken time to have full effect, the FCA said there have been significant improvements and reductions in delays already both at the FCA and the PRA with a substantial reduction in the number of total open applications and those over three months. 

However, the regulators remain open to suggestions on what further changes and improvements could be made to make processes and rules more efficient, while ensuring the process remains robust and fit for purpose.

Firms and candidates for SMFs need to undertake a criminal record check as part of the process.

Criminal records checks are not mandatory for certification functions and the regulator asked to what extent stakeholders agree that the process for obtaining criminal records and notifying these to the regulators is effective in supporting the aims of the SMCR.

Additionally, when a senior manager leaves an SMF role, the individual replacing them in performing that role must be approved by the regulators to perform the role. 

In the meantime, any responsibilities of the previous senior manager held must be allocated to a different person.

The SMCR gives some flexibility on this and allows someone to cover for a senior manager without being approved, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks.

However, the regulator is inviting views and suggestions on how the 12-week rule can be improved.

There were a total of 22 questions from the regulator and it has asked for feedback by June 1, 2023.

Review welcome

Last week, FTAdviser reported that the review was scheduled to come out before the end of Q1 2023. 

This open review may in turn help those advisers who have found themselves stuck between a regulatory rock and a legal hard place when the business for which they work has refused to certify or re-certify them since the SMCR came in.

One adviser, known to FTAdviser as Adviser A, said they were left in a difficult position with no recourse but to take legal action, after selling the business to a successor who refused to certify them to continue working through their phased retirement.

The adviser who now owns the business did not provide reasoning for why Adviser A would not be certified, and has left the former owner with no recourse but to take it to the courts - a costly option, as reported previously.

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