The FCA has launched a consultation on the process for all regulated firms to transition to the new Senior Managers and Certification Regime (SMCR). The FCA’s aim is to make the transition process as simple, clear and proportionate as possible, with different requirements depending whether a firm falls into the limited, core or enhanced category under the regime.
The Senior Managers and Certification Regime (SMCR) has been in force since March 2016 for UK banks, building societies, credit unions, PRA-designated investment firms and branches of foreign banks operating in the UK. It has already replaced the approved persons regime for individuals in these organisations. It will now be expanded to cover all regulated firms. As previously discussed, the core SMCR regime consists of three main parts: conduct rules; the senior managers regime (SMR); and the certification regime.
The intended effect of the new conduct rules is to allow the FCA to take enforcement action against a wider group of employees than under the current regime, with the rules applying to almost all employees who carry out financial service activities in a firm.
The FCA has proposed a number of core senior management functions (SMFs), almost all of which correspond with controlled functions under the approved persons regime. Other obligations include the allocation of prescribed responsibilities to one or more senior managers, the documentation of a senior manager’s responsibilities in a statement of responsibility filed with the FCA, and a duty of responsibility imposed on senior managers. This allows the FCA to take enforcement action against the manager if they did not take reasonable steps to avoid a breach by the firm in an area for which they are responsible.
Under the certification regime, individuals who are not senior managers but who meet the FCA’s criteria for certain prescribed certification functions will not require approval by the FCA, but firms will be required to assess their fitness and propriety at least once a year. The FCA intends to take a proportionate and flexible approach, with a firm’s size, complexity and potential impact on consumers dictating whether it falls into the limited, core or enhanced category, and with the precise requirements varying accordingly.
The latest development is an FCA consultation on the transition process to SMCR, known as “conversion”. This follows the July 2017 consultation paper on the substance of the extension of SMCR to all regulated firms. The FCA’s aim is to make the transition process as simple, clear and proportionate as possible.
For the majority of firms, the FCA is planning to automatically convert approved persons regime approvals to SMFs. If someone is currently approved by the FCA for their function, and the equivalent role exists in the SMR, they do not need to apply for re-approval. Individuals at core and limited-scope firms will be automatically converted from approved persons regime functions to SMFs wherever possible. Individuals at enhanced-scope firms will be converted by submitting a conversion notification (Form K) and accompanying documentation. A firm checker tool is available on page 3 of the consultation paper to remind firms whether they are categorised as limited scope, core or enhanced. The consultation also sets out several consequential amendments to the FCA Handbook to ensure that the move to SMCR is effective.
When will this take effect?
The current assumption is that the new rules will apply to FCA sole-regulated firms in mid-to-late 2019. The actual commencement dates are yet to be announced by the Treasury. The FCA will then need to set a date by which the appropriation conversion documentation will need to be submitted. Firms will need to check the updated Financial Services Register after the start of the new regime to ensure that they hold the correct approvals after automatic conversion has taken place.
The new conduct rules will apply from commencement, although the plan is to implement the certification regime gradually (the intention is to commence the requirement for firms to certify relevant employees as fit and proper for the first time 12 months after SMCR commencement). The latest consultation paper was published on 13 December 2017 and the consultation closed on 21 February 2018. A policy statement is due in the summer.