Statement of Responsibilities & Prescribed Responsibilities Under SMCR
This week we’re going to take a look at the content of Statements of Responsibilities (SoRs), – the document outlining the accountabilities of each Senior Manager - in particular focusing on Prescribed Responsibilities and considering examples of best practice, and some pitfalls that have the potential to breach the rules. For more detail on what a SoR needs to look like, head to our recent article, What is required in a Statement of Responsibility under SMCR.
In short, there must be one document for each Senior Manager that sets out what they are accountable for, which should contain no unnecessary detail and not refer to any other document in order for the reader to gain a full understanding of the Manager’s responsibilities. Whilst the framework is clear, what do the FCA expect to see in terms of content?
The first step in creating a solid SoR is effective planning. Firms that are well prepared for the Regime will find it easier to reflect that best practice in their SoRs. Firms should be clear about which type of firm they are (Limited Scope, Core or Enhanced) as this will affect which Senior Management Functions and which Responsibilities need to be allocated. The appropriate allotment of Prescribed Responsibilities is crucial and there are potential hazards that firms should take care to avoid. For example, although PRs can be shared or divided, this shouldn’t be the norm, and if they are, a clear and justifiable explanation should be provided.
This should be set out plainly – outlining a succinct definition of the responsibility in question, plus the reasons for sharing or division in the further relevant details section. Where a responsibility is shared, this should be stated, along with details that can easily identify the sharing Senior Manager, e.g. name and IRN or job title.
The FCA continuously impresses the importance of justifying any division or share, and appropriate reasons are limited, including sharing as part of a handover, as part of a job share, or where a particular area is run by two Senior Managers. It almost certainly won’t be enough to simply state that a responsibility is shared or divided without a reason. In the case of a division, the particular responsibility of each SM should be made absolutely clear.
The Regime is all about accountability, and if the ultimate accountability isn’t clear from the SoR, then it’s possible the allocation of the PRs needs to be re-worked. For example, it may seem like an obviously good idea for the Compliance Oversight Manager and their report, the MLRO, to divide responsibility ‘d’ (‘responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime’) along the lines of their specific expertise, however, in practice the report/supervisor dynamic makes it unclear who has ultimate accountability, and any rationale would need to make clear which specific elements of the responsibility sit with each manager.
Similarly, collective responsibility - for example of all of the directors for each of the applicable PRs - is not a valid reason for sharing PRs. Whilst collective responsibility might seem like an admirable objective, this arrangement doesn’t support individual accountability, and could work to confuse the Regulator, staff and customers and prevent the proper execution of responsibilities within the firm.
Enhanced firms must make sure that every area of the firm’s business has a Senior Manager accountable for it; where there is no SMF in charge of a particular area, the most senior person responsible will need to apply for SMF 18 – Other Overall Responsibility. This is designed to prevent issues falling between the cracks. Overall Responsibilities cannot be divided, given that the Function depends on the firm’s structure, although they may be shared, where appropriate. Enhanced firms must make sure that the SoR sets out what the Senior Manager is responsible for clearly and by including detail, where appropriate. Prescribed Responsibilities cannot be allocated to someone performing the Other Overall Responsibility SMF; the only exception is the PR for CASS compliance.
The detail of each SoR should be focussed on the individual’s responsibility and the area they are accountable for, rather than on ‘job description’ style summaries. For example, a SoR that sets out the SMF17 – Money Laundering Reporting Officer’s role description (for example, for developing policies and procedures, and maintaining policy in line with regulatory obligations) rather than their accountability (for example, responsible for the oversight of the firm’s compliance with Money Laundering Regulations, which includes oversight and management of the fraud investigation and prevention department (…), would not meet the requirements.
In short, Statements of Responsibility must make the apportionment of specific responsibilities clear for someone who knows the type of business you do, but isn’t familiar with how the firm is organised.
Our Statement of Responsibilities Template provides the perfect basis to build your firm’s SoRs. For further information or clarity on any of the aspects of the Senior Managers and Certification Regime, Contact Us.