What Conduct Rules training is required under SM&CR?
With next week marking one year until the roll-out of the Senior Managers and Certification Regime to solo-regulated firms, all affected firms should now have a clear plan for the introduction of the Regime into their firms. The Regime, which aims to improve the culture of financial services firms by ensuring accountability from the top down, replaces the Approved Persons Regime and introduces specific responsibilities for Senior Managers and for staff subject to the Certification Regime.
Firms will have different transitional arrangements depending on their size and type of business; the Financial Conduct Authority categorises firms as either Limited Scope, Core or Enhanced. The category a firm falls into will impact on how they should be preparing. Whilst larger firms have additional conversion activities to complete that won’t apply to Limited Scope and Core firms, smaller firms still need to ensure that they meet the applicable transitional arrangements, including the training requirements.
Senior Managers and Certification Staff will need to have been trained on and abide by the Conduct Rules from the start of the new Regime, meaning that in practice, firms should be well underway with plans to train these staff. Firms will then have 12 months to put in place processes to comply with the reporting requirements, and to train their other staff on the Conduct Rules.
The Conduct Rules apply to all firms, including branches. In practice, they enforce rules that ‘set basic standards of good personal conduct’, against which the FCA can hold people to account, and it is a requirement of the Financial Services and Markets Act that firms train relevant staff on how Conduct Rules apply to their role. In practice this means that all employees subject to the rules need to receive training on how the rules apply to them, their roles, and how the rules should influence their activities. For Core and Enhanced firms, a Senior Manager is required to be allocated the Prescribed Responsibility for training of the Conduct Rules. The Rules apply to both a firm’s regulated and unregulated financial services activities, including any related ancillary activities (i.e. an activity carried on in connection with a regulated activity).
The rules apply to staff directly. The first tier of individual conduct rules apply to all staff (including Senior Managers, all Certified Functions and all Non-Executive Directors who are not Senior Managers, as well as non-ancillary staff) in a financial services firm who are not ancillary staff (reception staff, reprographics staff, facilities management, postroom staff, etc), and the second tier also applies to Senior Managers.
The Conduct Rules can be found in the COCON chapter of the Handbook, and COCON 2.3 provides some guidance on what is expected by the FCA in relation to training: ‘Suitable training should always ensure that those who are subject to the rules in COCON have an awareness and broad understanding of all of the rules in COCON, and that they also have a deeper understanding of the practice application of the specific rules which are relevant to their work.’
The guidance also highlights the need to tailor the training to roles, particularly where the risk of harm is clear or where the role requires comprehensive knowledge of specific aspects of regulation, legislation, or of customer treatment. For example, fair treatment of vulnerable customers, and provides the following example: ‘for individuals who deal directly with customers rule 4 (‘You must pay due regard to the interests of customers and treat them fairly’) may apply in various circumstances which makes additional training appropriate for such individuals.’
There are a number of ways to fulfil training requirements depending on the size and type of the firm, their business, and numbers of staff. Larger firms may wish to work with external providers to build training schemes, or may benefit from bespoke training built by internal training departments. Where firms look to work with external providers, they should select a provider that has significant experience with the FCA and is able to provide employees with all of the information they will need to know about how the Conduct Rules will impact on their role.
Although smaller firms – likely to be Limited Scope firms – do not have to allocate a Prescribed Responsibility to a Senior Manager for training of the Conduct Rules, they must still ensure that staff are trained adequately on how the Rules will apply to them. They should ensure that training is relevant and covers all aspects of the Conduct Rules, taking into account the particular responsibilities of Senior Managers, Certified staff, and other staff subject to the Conduct Rules, and that the training takes into account the application of the rules to their own work and duties.