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  • Victoria Bell

Transitioning FCA firms and individuals to the Senior Managers & Certification Regime: Important

The Financial Conduct Authority (FCA) have published a package of proposals outlining their proposed transitional arrangements for solo-regulated firms moving onto the Senior Management and Certification Regime. The FCA is seeking feedback on the proposals and aims to finalise its approach in summer 2018, with a view to commencement of the regime for solo-regulated firms in the early part of 2019. The exact date of Commencement is yet to be set by HM Treasury.

SM&CR transitioning individuals

The regime is geared towards making individuals within authorised firms more accountable for their conduct and competence, ultimately reducing harm to consumers and strengthening market integrity. SM&CR is already in place in the banking sector, and will replace the Approved Persons Regime currently in place for insurers and solo-regulated firms.

The proposals outline that the FCA aims to take a proportional approach to transition and requirements will be determined by the category of firm – whether Limited Scope, Core or Enhanced. Firms that are currently subject to a limited application of the APR are considered Limited Scope. Firms which are not Limited are Core unless one of the following applies:

  • Significant IFPRU firm

  • CASS Large firm

  • Firm has Assets Under Management of £50bn or more, at any time in the last three years.

  • Firm with total intermediary regulated business revenue of £35 million or more pa.

  • Firm with annual regulated revenue generated by consumer credit lending of £100 million or more per annum.

  • Mortgage lender (that is not a bank) with 10,000 or more regulated mortgages outstanding.

Any firm to which one of the above applies are Enhanced firms. The FCA state that for the majority of firms, the proposed approach will require little or no interaction with the FCA. Individuals at Core and Limited Scope firms who are currently approved under the APR will be automatically converted from APR functions to corresponding Senior Management Functions, wherever possible. Individuals at Enhanced firms will be converted from APR functions to Senior Management Functions subject to the submission of a conversion notification and accompanying documentation.

In short, if an individual is currently approved for their function by the FCA, and the equivalent role exists in the Senior Manager Regime, a firm will not need to apply for re-approval, as long as the individual continues to perform the function, and in the case of Enhanced firms, the conversion notifications are made on time.

The exception to this is individuals who perform the SMF9 – Chair role. The FCA currently approve a firm’s non-executive Chair under the generic CF2 function, which means that the FCA will not know whether an individual CF2 performs the Chair role, unless a firm tells them. Firms with a non-executive Chair should submit Form K, telling the FCA that they wish to convert an approved NED to the SMF9 – Chair function. Core firms will not be required to submit this individual’s Statement of Responsibilities. If Form K is not submitted for the chair, the individual’s approval will lapse at the start of the new regime. All other Non-Executive Directors at Core firms will no longer be approved by the FCA.

A number of existing approved roles will fall away at SM&CR commencement, such as CF2 – Non-Executive Director (with the exception of an SMF9, read above), CF10a – CASS Oversight Function, CF28 – Systems and Controls Function, CF29 Significant Management Function, CF30 – Customer Function. These individuals will not be automatically converted, unless they also hold an existing mapped function or apply for an additional mapped function.

Where firms have Executive Chairs in executive controlled functions, such as a CF1-Director, firms should be aware that under the SM&CR, being an Executive Chair will mean holding an additional controlled function. Where Core firms have an Executive Chair, the FCA propose to automatically convert the executive controlled function, for example CF1-Director to SMF3-Executive Director, and ask them to complete Form A to apply for the additional SMF9 Chair function.

Enhanced firms that do not wish to make any changes to their approved individuals will just need to submit Form K, SoRs and a Responsibilities Map. To apply for a new controlled function for an individual, firms will need to submit Form A, to cancel an individual approval, firms should submit Form C. Form E should be used to transfer an approved individual from one controlled function to another.

Enhanced firms will need to submit:

  • Form K, detailing all of the approved persons to be converted to SMFs at Commencement.

  • Statements of Responsibilities (SoRs) for all of the SMFs in Form K

  • A Responsibilities Map

  • Forms A and E for new or transferred individuals respectively.

If an individual is currently approved for a governing function (CF1-6) and is also performing CF28/CF29 functions, the firm will need to select all of the relevant convertible functions in Form K. Firms should ensure that the correct Senior Management Functions are selected – where there is any doubt, consult with an external expert.

If an Enhanced firm does not submit a conversion notification (Form K) it will be in breach of regulatory requirements. In such a scenario, their APR approvals will lapse and they will not have any SMR approvals. The FCA would consider regulatory action, including possible enforcement action.

If a current controlled function is not listed in the new regime, regulatory approval will not be needed and existing approvals will lapse when the new regime begins.

The package also outlines some amendments to the Fitness and Propriety questions, with the addition of the following:

  • Add text to include whether the candidate has ever been found by a judge or tribunal to have lied under oath and/or that their evidence was to be disbelieved.

  • Add a 10 year time limit to the period in which an individual has to declare if a firm in which the individual has held a position of influence has been:

  • adjudged by a court to be civilly liable for any fraud, malfeasance, wrongful trading or other misconduct

  • the subject of a judgement debt or award against the firm

  • party to any other civil proceedings which resulted in an order against the firm other than above.

  • Add a new question asking whether the candidate has ever participated in arbitration proceedings.

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