UK: FCA Publishes Latest Policy Statement And Near Final Rules On SMCR

Last Updated: 8 August 2019
Article by Hywel Jenkins, Clive Cunningham and Emma Reid
Most Read Contributor in UK, August 2019

On 26 July, the FCA published its latest policy statement (PS19/20) on the Senior Managers and Certification Regime (SMCR), together with the near-final rules on the extension of the SMCR to most solo-regulated firms.

The FCA most recently consulted on proposed changes optimising SMCR in January this year, seeking to clarify the application of SMCR to the Legal Function, amend the intermediary revenue criterion for the Enhanced Regime, amend certain elements of the Certification Function (the scope of the Client Dealing Function and clarifying the application to systems and controls roles), together with proposing some other minor changes. (See our blog post on the consultation paper here).

Feedback on proposals consulted on

Head of Legal

The FCA noted that most respondents supported the proposal to exclude the Head of Legal from the requirement to be approved as a Senior Manager. The key challenge faced by the FCA was the potential conflict with disclosure obligations under Senior Manager Conduct Rule 4 (You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice) and the operation of the law of legal privilege.

Despite some respondents disagreeing with the proposal, the FCA has confirmed that it will implement the new proposed rule SYSC 26.4.9R as consulted on. The Head of Legal will likely fall within the Certification Regime (either as a Material Risk Taker or as a Significant Management Function (SMF)), and all in-house lawyers will be subject to the Conduct Rules. The FCA considers that the application of these elements of the regime should be sufficient to drive up standards of individual conduct. Where the Head of Legal is also performing another role which is designated as an SMF, for example as Chief Operations Officer (SMF24) or Head of Compliance (SMF16), that individual will still have responsibility as a Senior Manager for those roles.

For those banking and insurance firms already subject to the SMCR who wish to “convert” their Head of Legal from an SMF to Certification Staff as a result of this policy statement, the FCA has confirmed that there is no requirement to undertake regulatory references or to redo fit and proper assessments provided that the job carried on by such individuals does not change. The FCA has suggested that insurers may wish to consult with the PRA as to whether the Head of Legal should be treated as a Key Function Holder.

Intermediary revenue criterion for the Enhanced regime

The FCA received broad support for its proposal to amend the intermediary criterion for the Enhanced Regime. Under the amended rules, certain intermediaries which carry on the relevant activities but which do not submit section B of the Retail Mediation Activities Return (RMAR) will be required to annually self-assess and notify the FCA if they have (as a three-year rolling average) over £35m in regulated revenue from such activities. As respondents agreed that this approach is consistent with the requirements for other solo-regulated firms, the changes will be implemented as consulted on.

Amendments to the Certification Regime

The FCA confirmed that it would proceed to amend the relevant rules to exclude from the scope of the Client Dealing certification function those individuals who have no scope to choose, decide or reach a judgment on what should be done in a given situation. The FCA declined, however, to give additional examples of activities that may bring individuals into scope, stating that whether or not an individual meets the definition will depend on the firm’s business and the way responsibilities have been allocated across its staff.

The FCA also noted that it would proceed with the new proposed guidance on the application of the Certification Regime to systems and controls roles, in particular where a Senior Manager holds an SMF and also performs a systems and controls function. This guidance is only relevant to Core and Limited Scope firms, where such Senior Managers would not otherwise be allocated a Systems and Controls Senior Manager Function.

Application of Senior Manager Conduct Rule 4 to non-approved Executive Directors at Limited Scope Firms

The FCA will proceed with extending the application of Senior Manager Conduct Rule 4 to non-approved Executive Directors at Limited Scope firms, who could otherwise be completely outside of the scope of the regime. Respondents considered that this proposal promoted a consistent approach, as non-approved Non-Executive Directors would already be subject to this conduct rule.

The new Directory

In the Policy Statement, the FCA confirmed that the final rules on the new Directory (consulted on last year (CP18/19) and outlined in PS19/7) were also incorporated. Banking firms and insurers can start submitting data from September 2019, with most other firms commencing in 9 December 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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