• Victoria Bell

Preparing for the Senior Managers and Certification Regime


The FCA have now published the ‘near-final’ draft rules for the Senior Managers and Certification Regime (SM&CR), which currently only applies to UK banks, building societies, credit unions and branches of foreign banks operating in the UK. SM&CR is now being extended to all authorised firms. The FCA released a suite of information on the new regime in 2017 and the first half of 2018 to ensure that firms had plenty of time to prepare prior to implementation. The exact date of implementation depends on the type of firm; it will apply to FCA authorised solo-regulated firms from 9 December 2019 and to Insurers from 10 December 2018.

Briefly, the SM&CR replaces the current Approved Persons Regime. Individuals in certain roles who undertake ‘Senior Management Functions’ will need approval from their regulator/s. For affected firms, the FCA and PRA set a number of core responsibilities that firms need to ensure are undertaken by an appropriate Senior Manager.

Firms will be obliged to ensure that Senior Managers have Statements of Responsibilities, setting out areas that each individual is responsible for managing in relation to their function. Following implementation, SoRs must be submitted on approval and whenever there is a material change. Core or Limited Scope firms will not need to submit individual SoRs at the implementation date, but must have prepared the SoR in full by that date.

Those converting or applying for a Senior Manager Function need to be made aware of their duty of responsibility. Under the regime, every Senior Manager will have a statutory duty of responsibility, meaning that if a firm breaks a regulatory requirement, the Manager responsible for that area can be held accountable if they didn’t take reasonable steps to prevent it. Every Senior Manager should take the time to familiarise themselves with their responsibilities as set out in their individual Statement and with their responsibilities under the regime. It may be the case that Senior Managers wish to ensure that practices are updated to ensure satisfactory allocation of duties, team training, adequate resource allocation, that management information produced is sufficiently accurate and detailed, and importantly, that these practices are recorded.

Enhanced firms need to ensure that they have produced their Responsibilities Map – a single document setting out the firm’s management and governance arrangements. Although the final document will depend on the size and complexity of the firm, it needs to include how the Prescribed Responsibilities have been allocated, set out who has overall responsibility for the firm’s activities, business areas and management functions, details of individuals’ and committees’ reporting lines, and how any responsibilities are shared or divided between different people.

As part of the new rules, firms should ensure that they have a plan to implement the Certification Regime. This affects staff who are not performing Senior Manager Functions but who are in a role which could, if performed inadequately, cause ‘significant harm’ to the firm or its customers. Firms need to ‘certify’ that these individuals are ‘fit and proper’ to perform their roles at least once a year. The Conduct Rules in COCON will apply to these employees from the date of implementation at all firms.

Organisations should make sure they know who all of their certified staff are from day one of the regime. Employees must be able to meet the Conduct Rules straight away, but firms will have 12 months to complete their fitness and propriety assessments and get the certification paperwork in place.

Firms should also ensure that they are aware of staff affected by the Conduct Rules. The majority of staff in authorised firms will be required to comply with these Rules – the only staff not required to comply are ancillary staff, such as cleaners, receptionists etc. All staff need to be trained on Conduct Rules, and firms need to ensure this has taken place; the FCA propose giving firms 12 months from Commencement to get ready to apply the Conduct rules to their Other Conduct Rules Staff to be able to arrange the right staff training.

Transitional arrangements for solo-regulated firms

Within solo-regulated, FCA approved firms, the rules apply differently depending on the firm type. Firms are categorised as either Limited Scope, Core or Enhanced. Firms should ensure that they are clear about their category, and take note of FCA guidance which clarifies that thresholds will be calculated on a three-year rolling average basis to account for temporary fluctuations in figures and ensure that firms are not moving between Core and Enhanced regimes regularly.

The FCA paper CP17/40 is focussed on transition arrangements. The FCA have confirmed that current approved persons will automatically be transferred, for the most part. If you are unsure about transference in practice, it is important to seek advice prior to the implementation date. This automatic transition means that firms can begin work to ensure internal implementation. All firms should ensure that every converted Senior Manager has a Statement of Responsibilities prior to the Commencement date – Enhanced firms will need to submit their SoRs, and Core and Limited Scope firms must ensure that their SoRs are ready at Commencement and able to be presented to the FCA on request.

Ultimately, firms should ensure all future Senior Managers are approved by the FCA prior to starting their role.

The Conduct Rules will apply to certified staff from the first day of the new regime applying. However, firms will have 12 months to complete their fitness and propriety assessment of certified staff and get the certification paperwork in place.

Firms will not be required to obtain regulatory references for existing employees who will be performing the same role after the start of the new regime.

Insurance transitional arrangements

The rules apply differently, depending on the type of firm; Solvency II firms, Non-Directive firms, and Small run-off firms.

There are two transitional provisions for the new regime:

  • Certification staff must be identified ahead of the 10 December 2018 implementation date, but firms have 12 months from that date to complete the certification process.

  • Senior Managers and Certification staff should be identified and trained on the Conduct Rules ahead of 10 December 2018 and be ready to abide by them from this date.

Solvency II and Large Non-Directive Firms need to ensure that they are able to meet the extra requirements relating to additional Senior Management Functions,

Additional Prescribed Responsibilities, Responsibilities maps, Handover Procedures and Overall Responsibility

Dual regulated firms should ensure that they are clear about the overlap rule and whether it applies to them – where a Senior Manager is applying to perform a PRA and FCA Senior Manager Function and the function is a ‘FCA governing function’ at the same time only one application needs to be made to the PRA. The overlap rule aims to reduce the administrative burden on firms. Further information can be sought in SUP10C.9.9G of the FCA Handbook.

All firms will need to make fairly significant changes to governance documentation, internal processes and procedures, make amendments to current training material ensure the obligation to train staff in line with conduct rules are met, and ensure that required documentation is submitted. HR departments should also be aware that employment contracts and terms for certain members of staff may require amendments.

Firms should now be looking to begin introducing the changes:

  • Outline a plan for the firm – this should detail all of the requirements applicable to the firm

  • Amend policies and procedures, where required

  • Draw up new policies and procedures (e.g. handover procedures, fitness and propriety assessment)

  • Responsibilities mapping exercise, to allocate responsibilities to individuals within SM and certification regimes

  • Draw up Statements of Responsibilities

  • Ensure documentation is submitted to FCA on time

  • Annually review the fitness of senior managers

  • Ensure SMs fulfil their Statutory ‘Duty of Responsibility’ and record the reasonable steps

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