The PRA and FCA have published their final rules on the application of the Senior Managers and Certification regimes (SMR & CR) to UK branches of non-EEA banks and PRA-designated investment firms (non-EEA branches)

http://www.bankofengland.co.uk/pra/Documents/publications/ps/2015/ps2915.pdf

http://www.fca.org.uk/your-fca/documents/policy-statements/ps15-30

The policy statements follow the FCA/PRA joint consultation in March 2015 and Feedback Statement in August 2015, when near-final rules were published. At that point, it was not possible to publish final rules since it was necessary to wait for legislation extending the regime to incoming branches. This legislation has now come into force (section 71A Financial Services and Markets Act 2000 Order) enabling the final rules to be published.

Who is affected?

The final rules will affect branches of non-UK firms that have permission to accept deposits or deal in investments as principal (where the activity is PRA regulated) in the UK. The regime will also affect most individuals working in those branches and some individuals who are based overseas but who manage the affairs of an incoming branch.

The FCA/PRA policy statements also include final versions of Supervisory Statements on Strengthening Accountability in Banking to include additional paragraphs setting out expectations of how non-EEA branches should comply with certain aspects of the new regimes. It is expected that generally all aspects of the Statements will apply to non-EEA branches in the same way that they apply to UK firms.

Changes to the rules

The changes from the near final rules are only minor and technical to improve clarity. In particular, the FCA has limited the territorial scope of ‘based in the UK’ to individuals performing significant harm functions who will be subject to the CR in non-EEA incoming branches. The test of ‘dealing with a UK client’ for such individuals has been removed. The application of the SMR to Senior Managers is unchanged.

There are also some minor amendments to forms used by firms and individuals when seeking regulatory approval for certain roles.

This brings non-EEA branches in line with EEA branches.

What next?

If your firm is affected, you will need to prepare for implementation of the SMR and CR when they come into force on 7 March 2016:

  • Grandfathering notifications for existing approved persons who will be performing SM functions must be submitted by 8 February 2016
  • Individuals under the SMR or CR must comply with the Conduct Rules from 7 March 2016
  • Firms will have until 7 March 2017 to prepare for the application of the Conduct Rules to all (other than ancillary) staff

Looking Ahead

The regulators plan to review territoriality after commencement of the new regimes to ensure all those who should be within scope are captured. It may be necessary to extend the branches’ certification rules to include some individuals based outside the UK.