RegulationFeb 28 2019

What you need to know about complying

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What you need to know about complying

But as the deadline for SMCR draws near, it is important to remember that SMCR cannot be achieved overnight, says Linda Gibson, director of regulatory change and compliance risk at Pershing, part of BNY Mellon.

Instead, she says companies will need to ensure the responsibilities prescribed to each employee are being fulfilled on an ongoing basis, at least once a year.

Ms Gibson continues: “Firms’ senior managers and their human resource functions have a big role to play in reassuring core employees that they are in it together, through a mixture of training and integration.

“SMCR will dictate that it’s not only a record of the ultimate decision that is important, but it’s about the process by which you got there.”

I think the ongoing competence of senior managers is a difficult one to prove.Dominic Crabb

Importantly, the regime is made up of three parts: the senior managers regime, the certification regime, and the conduct rules.

Additionally, the FCA introduced three company categories:

  • Core Regime: Standard set of requirements for FCA solo regulated firms, applying to most regulated advice companies.
  • Enhanced Regime: Additional requirements for a smaller number of solo regulated, large and more complex companies.
  • Limited Scope: Reduced set of requirements to certain firms which applies to firms with limited application of the Approved Persons Regime.

Senior managers regime

Under the senior managers regime, each senior manager will be allocated a statement of responsibilities, prescribed responsibilities, and duty of responsibilities.

The FCA’s policy guide says a senior manager must be responsible for each of the business functions and activities within his or her company and must be approved by the FCA.

So, all approved senior managers will need to complete, and file with the FCA, a statement of responsibilities form, to ensure all senior managers’ responsibilities are allocated and described appropriately, says Mark Greenwood, director of compliance services at SimplyBiz Group.

He explains: “The statement of responsibility is a single document held by each senior manager and sets out what that manager is responsible and accountable for, while a senior manager’s duty of responsibilities is to prevent or report breaches in the area that they are responsible for."

The statement will need to provide a full description to explain what is within and excluded from each area and role, suggests Dominic Crabb, chief compliance officer at London & Capital.

Therefore, the wording of the statement of responsibilities is important. It has to be concise – it is not expected to exceed 300 words – and clear yet descriptive enough, which he admits has so far been challenging.

He says: “It's not a very long statement and has to be specific, so that is difficult for us."

“I think the ongoing competence of senior managers is a difficult one to prove. I think things like board audits and corporate governance audits will become more prevalent,” he adds.

There are also 12 prescribed responsibilities expected to be allocated to executives in enhanced firms, except those to be allocated to a non-executive director who does not have management responsibilities, explains Caroline Bradley, risk and regulatory director at Tenet Group.

For firms in the core regime, there are only five, she points out.

“Aside from the few FCA prescribed responsibilities, approved senior managers will need to write down the universe of areas that they are accountable for within the advisory firm – their duty of responsibilities – regardless of whether it falls into the core or enhanced category,” adds Mr Greenwood.

Certification regime

Companies will also need to identify certified persons, but this does not apply to sole traders with no other employees.

Certified persons will typically provide a customer function or functions that require qualification. But unless the person is a senior manager, they will not be registered with the FCA, explains Mr Greenwood.

For example, he says the roles that will most likely apply to certified persons include:

  • Investment advisers
  • Mortgage advisers
  • Pensions transfer specialists
  • Any other person responsible for other certified persons (for example, supervisors and, depending on the nature of their role, paraplanners).

Indeed, the certification regime applies to all employees where the FCA believes “it is possible for them to cause significant harm to the firm or customers”.

This means CF30s and CF2s will not be mapped across by the FCA on December 9, but companies must still check and certify that those employees are ‘fit and proper’ to perform their role, Mr Greenwood explains.

He adds: “'Fit and properness' is a key focus of the new regime and part of this is to ensure the relevant competence requirements are met.

“This will include an assessment of honesty, integrity and reputation; competence under the relevant terms and conditions requirements; and financial soundness.”

Also, he notes a new role has been introduced; SMF9 chair – non-executive director.

In this new function, only the chairperson needs to be registered where there are a number of non-executive directors. Otherwise, NEDs do not require registering as a senior manager, he says.

While companies will not need to take any action in relation to the mapping across exercise, as the FCA will automatically carry this out, he says “it is imperative to ensure that you have the right people registered to the right roles before this mapping exercise takes place”.

For both senior managers and certified persons within the company at the start of the regime, the company must assess and demonstrate fitness and propriety before December 9 2020, and annually thereafter, notes Mr Greenwood.

“This means companies will have to continue to hold evidence of knowledge and skills through testing, file reviews, skills assessments, ongoing CPD and key performance indicators, to name just a few of the key areas,” he says.

Conduct rules

Finally, the conduct rules apply to almost everyone in financial services, but some conduct rules only apply to senior managers.

“All firms' senior managers and certified persons must be aware of, and trained on, the new code of conduct rules that will apply specifically to their roles before implementation of the new regime,” sets out Mr Greenwood.

“These high-level principles are not too dissimilar to the current principles for approved persons, but nonetheless all relevant individuals must evidence training on these,” he adds.

While Mr Crabb says: “I think with your conduct staff – which is sort of everyone else except security and reception – although all these people are already aware they work in a financial services firm, it's really [about] the increased level of onus on them in terms of their behaviours, what it means in terms of the expectations on them more than anything else.

“We already have the obligation of training people on money laundering requirements and various areas on personal account dealings, so they already have some levels of training. So I think all it will mean is that the breadth of training and the volume will just increase.”

Indeed, to make the process as easy and smooth as possible, further guidance is expected to be published by the FCA later in the year in the lead-up to the new regime, he notes.

victoria.ticha@ft.com