In March 2016, a new regulatory framework came into force with the aim of increasing individual accountability within relevant authorised firms, namely: banks, building societies, credit unions, and PRA designated investment firms.

One of the objectives of the framework, known as the Senior Managers and Certification Regime (SM&CR), is to require individuals working within those firms to take greater personal responsibility for their actions and for this to be clearly documented, which in turn should make it easier for both firms, and regulators (such as the Financial Conduct Authority and the Prudential Regulation Authority), to hold individuals to account.

To access our commentary to date on the SM&CR, please click here.

While the majority of the SM&CR is already in place, on Tuesday 7 March 2017 additional requirements related to key aspects of the regime will take effect, which we have outlined below.

Certification Regime

The Certification Regime applies to all 'material risk-takers'. What constitutes a 'material risk taker' is a matter for each regulated business, but this exercise should have been completed, with individuals identified by 7 March 2016. Firms will be required to assess those individuals as 'fit and proper' to undertake their controlled function by no later than 7 March 2017.

Action Points:

  • Organisations, and particularly individuals within the organisation who have responsibility to assess the fitness and propriety of 'material risk-takers' should become familiar with the factors which are to be taken into account when assessing whether an individual is in fact 'fit and proper' to act.
  • Organisations should also note that procedures should be put in place to address the requirement to re-assess certified staff members' fitness and propriety on an ongoing basis with an annual audit report on the relevant criteria and further, each individual's continuing suitability in that role.

Regulatory References

As part of the SM&CR, firms are required to assess the 'fitness and propriety' of candidates applying for positions which carry controlled functions. In order to assist firms with this assessment, rules governing regulatory references will come into effect on 7 March 2017, which includes a mandatory form of standard reference. This reference must set out the information to be provided by one firm to another in relation to the individual, for example, whether any disciplinary action was taken against that individual in respect of a matter which might call into question the 'fitness and propriety' of the individual to perform a controlled function.

The new rules governing regulatory references are intended to assist firms in the assessment of an individual's fitness and propriety in the context of carrying out controlled functions.

Action points:

  • Organisations should review and refresh their processes for dealing with employment reference requests to ensure that all mandatory information, as required by the rules, will be included within a reference being prepared and issued.
  • It is essential that managers, legal advisers and the HR team are aware of the changed rules when asked to provide, or when seeking a reference.

Conduct Rules

Conduct Rules were implemented on 7 March 2016 in relation to Senior Managers and staff to whom the Certification Regime applies (please see 'Certification Regime' below).

From 7 March 2017, certain Conduct Rules will be applied to almost all members of staff (save for certain ancillary staff).

Action point:

  • Organisations should ensure the contractual and policy documentation is reviewed and updated, where necessary, to encompass these rules on a continuing basis.