The U.K. Financial Conduct Authority has published a consultation paper seeking feedback on its proposals for the extension of the Senior Managers’ Regime to benchmark administrators. The FCA’s SMR was originally implemented for banks in 2016 and was extended to all authorized investment firms in December 2019. Benchmark administrators were only obliged to become FCA-authorized by the end of 2019 pursuant to the EU Benchmark Regulation, and so were granted a one-year extension from the roll-out of the SMR. The regime is due to apply to benchmark administrators from December 7, 2020 and the FCA’s consultation paper sets out its proposals for how the SMR will apply to those firms when it comes into force. Responses to the consultation should be submitted by February 28, 2020.
Key aspects of the FCA’s proposed SMR for benchmark administrators are:
- Categorizing benchmark administrators under the SMR – all benchmark administrators will be classified as “core firms” for the purposes of the Senior Managers Regime, although a waiver process will be implemented for those that deem themselves to be “limited scope” firms; the FCA does not expect any benchmark administrators to undertake other regulated activities that would require them to be categorized as “enhanced” firms;
- Applying key Senior Manager Functions – benchmark administrators subject to the core regime could be required to allocate up to four Senior Manager Functions (namely, the Chair, Partner, CEO and Executive Director functions), although these will only apply where staff currently hold these roles; core firms will also be expected to allocate the following three Prescribed Responsibilities to senior managers: (i) performance by the firm of its obligations under the SMR; (ii) performance by the firm of its obligations in respect of notifications and training under the Conduct Rules; and (iii) responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime;
- Enabling benchmark administrators to apply for Limited Scope classification – small benchmark administrators with simple business models and large firms that principally carry on non-regulated activities, whose senior management team is far removed from the regulated activity, and which do not administrator benchmarks with a significant impact on U.K. market integrity or consumers would generally meet the threshold for a limited scope waiver;
- Applying the Conduct Rules to benchmark administrators and their employees – the Conduct Rules would be applied widely to almost all benchmark administrator employees, although most of the Rules would only apply to the regulated financial services activities of these firms; and
- Exempting other regulated firms – firms which carry out other regulated activities, most of which would already be covered by SMR, would be able to continue to operate under current rules.
The FCA is not proposing to apply the Certification Regime to benchmark administrators. The regime will be implemented via legislation making amendments to certain sections of the FCA Handbook. Until the introduction of the new rules in December 2020, the Approved Persons Regime will continue to apply to benchmark administrators.