Preparing for the Senior Managers and Certification Regime

On 9 December 2019, all FCA solo-regulated firms will transition to the Senior Managers and Certification Regime. A year to prepare may seem a long time, but the SM&CR marks a substantial departure from the Approved Persons regime, and importantly shifts significant responsibility to firms to verify the fitness and propriety of staff involved in key areas. It will be important for firms to begin their preparations early to ensure they are ready for the FCA's brave new world.

The new regime is divided between three overlapping areas:

Senior Managers Regime

The Senior Manager Regime requires firms to allocate Senior Management Functions to appropriate senior leaders within their organisation. The extent of SMFs to be filled will depend on the type of organisation – Core, Enhanced or Limited – and anyone performing a SMF will need prior authorisation by the FCA, much the same as the current Approved Persons regime.

Certification Regime

The certification regime is perhaps the most radical change. It requires firms to certify that any person (other than a Senior Manager) performing a role which can have a significant impact on customers, the firm and/or market integrity, is fit and proper to perform their job. Certification must be done at least annually and should include an assessment of honesty, integrity and reputation; competence and capability; and financial soundness.

Conduct rules

The Conduct Rules apply to all firms, and constitute a new set of rules, enforceable by the FCA, setting basic standards of good personal conduct. The Rules are divided between those applicable to most employees and those applying to Senior Managers. Only those people performing purely ancillary services within the firm will fall outside of their scope entirely.

What should firms be doing to prepare?

Identify

Identify which part of the SM&CR applies to your firm. Different categories of firm are under differing obligations. Find out if your firm is an Enhanced, Core or Limited scope firm by using our simple and easy to use online tool.

Allocate

Allocate responsibilities. Once you know what type of firm you are, the SM&CR sets out which Senior Management Functions you must ensure are filled. It will be important to work out which roles correspond with the responsibilities of your existing senior leaders – and which will need to be filled.

Document

Prepare Statements of Responsibility in collaboration with your Senior Managers. Once clear on which Senior Managers will perform which roles, each Senior Manager will need a formal Statement of Responsibility – and should take ownership of it.

Certify

Firms should consider how they will go about certifying staff as fit and proper to perform their role and responsibilities. Note particularly that the FCA regards all employee conduct issues as potentially affecting fitness and propriety. It will be important for firms to ensure the new assessment is a core part of its people management process – and that HR and compliance teams to work together closely to ensure that judgments in this area are properly balanced.

The new SM&CR is much more than a box-ticking exercise. It is clear that the FCA will expect firms to hard-wire the new regime within their organisation. Training and implementation will be important, as will cultivating a culture of responsibility and respect in the workplace. Proper preparation will be essential and, as with many New Year's resolutions, there is no time like the present.

For more information about the SM&CR Regime and how to prepare, please email us.