How to continue meeting FCA governance requirements

This process must be completed by 9 December 2020; a consultation to extend this deadline to 31 March 2021 for firms who have been ‘significantly affected’ by Covid-19 is currently underway.  

We believe that the FCA will expect the majority of firms to be still working towards the 9 December deadline, and we would encourage firms, where possible, to aim to have these assessments completed and their Certified Persons uploaded to the directory by the original date of 9 December 2020.  

While the regulator has not yet provided, and may not provide, a definition of how a firm might have been ‘significantly affected’ by Covid-19, we would suggest that firms thoroughly consider whether the impact on their firm could be categorised as significant before extending this deadline.

The SM&CR introduced new rules and guidance which firms must follow for fit and proper assessments, but it was based on three familiar concepts – 

• Honesty, Integrity and Reputation - Firms are expected to be aware of relevant matters in determining the honesty, integrity and reputation of their Senior Managers and Certified Persons.
• Financial soundness – Firms 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.
• Competence and capability - In assessing competence and capability of an existing Senior Manager or Certified Person, a firm is expected to check that the individual satisfies the FCA training and competence requirements, has the required experience and training.  Firms are expected to collate a body of evidence to record this process.

Checking competency

When we look at competence and capability, an important area for advisers would be file reviews / advice reviews. 

We believe that the FCA will expect the majority of firms to be still working towards the 9 December deadline.

We would always recommend as good practice for firms to have regular or ad hoc checks on the quality of their advice.

We would advocate that at least 10 per cent of business written should be sampled by way of an advice check over each business year.

We would recommend that the selection of cases be sampled in such a way so as to broadly represent a spread of business and take account of different levels of risk.

The advice reviews above relate to an investment adviser but what about an investment manager? 

Ultimately, an investment manager’s role is to competently manage the firm’s investment strategy, construct asset allocation models and identify investment instruments and funds that provide consistent returns above a pre-agreed benchmark.

When we look at some of the more specific responsibilities of the investment manager role these would include -