Financial Conduct Authority 

Senior managers must be held to account

  • To understand how the senior managers regime has been applied to financial advisers
  • To learn how the regime works
  • To understand what happens when the FCA gets involved
CPD
30min
Senior managers must be held to account

Earlier this month, the FCA published its proposals (in CP 17/25) to extend the Senior Managers and Certification Regime (SM&CR), in place for banks since March 2016, to the rest of the financial services industry.

The FCA stated it would “use the tools and principles from the banking regime to create consistency across financial services, but tailor them to reflect the different risks, impact and complexity of firms subject to the extension.”  

The SM&CR is intended to clarify and reinforce the governance structures that firms already have in place. The FCA believes firms’ senior managers have a crucial role in demonstrating they are accountable and responsible for delivering effective governance.

This includes taking personal responsibility and being accountable for their decisions and exercising rigorous oversight of the business areas they lead. The FCA wants all firms to develop a ‘culture of accountability’ at all levels and for senior individuals to be fully accountable for defined business activities and material risks.

The FCA stated that the main purpose of the SM&CR is not to change how firms organise themselves or to force firms to hire people to fill specific functions, noting that “how firms structure themselves is up to them, and is driven by factors such as size, best practice, as well as requirements in law and regulations”. 

Proportionality

The FCA had previously stated that the extension would be done in a way that is proportionate, taking into account the varied nature of the approximately 47,000 firms in the non-bank financial services industry, which range from consumer credit sole-traders to the largest of global asset managers.

The FCA has kept this intention proposing that “the new regime...be proportionate and flexible enough to accommodate the different business models and governance structure of firms.”

Scope of extension

All of the basic elements of the SM&CR will be implemented: namely those relating to senior managers, certification staff and conduct staff. However, the basic elements are proposed to be implemented in different ways (limited, core or enhanced) depending on the category which a firm falls into: 

•    Limited – this applies to firms who have a limited permission from the FCA: sole traders, insurance intermediaries, among others;

•    Core – this applies to all firms other than limited scope and enhanced scope firms; and 

•    Enhanced – this is expected to apply to fewer than 1 per cent of firms (approximately 470) namely:

•    ‘significant IFPRU’ firms;

•    CASS large firms;

•    firms with assets under management at any time in the previous three years of £50bn or more;

•    firms with total intermediary regulated business revenue of £35m or more per annum;

•    firms with annual regulated revenue generated by consumer credit lending of £100m or more per annum; 

•    non-bank mortgage lenders with 10,000 or more regulated mortgages outstanding; or

•    firms where, notwithstanding the tests above, the FCA has used its ‘own initiative’ powers to require the firm to be an enhanced firm or where the firm itself has applied to be an enhanced firm.

Comments

CPD
30min
  1. Under the extension of Senior Managers and Certification Regime most financial advisory firms will either be core firms or enhanced firms, true or false?

  2. It is not possible to seek a waiver under any circumstances. True or false?

  3. What must a firm do when identifying a breach of a conduct rule?

  4. What must one do for the entire business?

  5. When deciding to take action, which of the following must the FCA not need to consider:

  6. The FCA has not yet decided how it might apply the SM&CR to those financial advisors / advisory firms who are appointed representatives, true or false?

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