Senior managers must be held to account

•    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.

The CP includes a flow chart on page 14 for firms to check which category they are in.

Categorisation of financial advisers/advisory firms 

Those financial advisers who are sole traders and not appointed representatives will be limited scope firms. However, it is expected that most financial advisory firms (that are not appointed representatives) will either be core firms or enhanced firms.

Those financial advisers who are sole traders and not appointed representatives will be limited scope firms

However, a firm that would normally be enhanced can seek a waiver in certain circumstances and remain a core firm.

The FCA is proposing a streamlined approval mechanism for firms that move from being core to being enhanced and vice versa. For those firms that are on the cusp of satisfying the requirements to be enhanced and could move between core and enhanced frequently, the FCA is also proposing a transitional mechanism. 

Key Points

• The FCA published its proposals to extend the Senior Managers and Certification Regime to the rest of the financial services industry.
• Most financial advisory firms will either be core firms or enhanced firms.
• Firms will need to identify those employees who personally provide services to the firm in question.

The basic elements

The basic elements for Core firms are as follows: 

Senior Managers 

•    A number of senior manager functions will apply instead of the current controlled functions including for the chairman, the chief executive, executive directors/partners, Compliance Oversight and the Money Laundering Reporting Officer.

•    All senior manager functions will contain an inherent responsibility which is an essential part of a senior manager’s role. 

•    Identified senior managers will need to file a regulatory form called a ‘Statement of Responsibilities’ wherein they will need to confirm, in writing, what they are responsible for within the firm.

•    A certain set of additional specific responsibilities (known as ‘prescribed responsibilities’) will be prescribed by the FCA and, where applicable, will need to be allocated to one or more senior managers.

•    Each senior manager will have a statutory Duty of Responsibility in relation to their areas of responsibility and this duty has statutory consequences if the FCA can prove that a senior manager did not take reasonable steps to discharge that duty.