Statement of Responsibilities - Key Components and Practical Steps for Allocating Prescribed Responsibilities
In Part 3 of our ongoing Individual Accountability Framework (IAF) Series, we consider the key components of the Statement of Responsibilities (SoR) that regulated financial services providers (RFSPs) who are in-scope of the Senior Executive Accountability Regime (SEAR) are required to prepare for each of their Pre-Approved Controlled Function (PCF) role holders. We set also out the practical steps for in-scope RFSPs to follow when allocating the Prescribed Responsibilities.
By way of brief overview, the SoR will be a concise, standalone document that clearly details the Inherent Responsibilities of the PCF role holder, together with any Prescribed Responsibilities and any Other Responsibilities assigned and allocated to that PCF role.
Appendix 3 of Annex 2 to the Consultation Paper 153 (Draft Guidance on the IAF) (Draft IAF Guidance) provides a template SoR. Although the Central Bank has indicated that this will be enhanced following the consultation process, the template provides a useful indication for in-scope RFSPs of the information that will be required in the SoR.
1. What is an "Inherent" Responsibility?
Each PCF role has "core" responsibilities that are intrinsic to that particular PCF role. They are referred to as Inherent Responsibilities and include the management and oversight of key risks.
Schedule 1 of the draft SEAR Regulations (replicated in Table 5 of Appendix 2 of the Draft IAF Guidance) sets out the Inherent Responsibilities for each PCF role. For example, the Inherent Responsibility of the role of Head of Compliance (PCF-12) is overall responsibility for managing the operation of the compliance function and reporting directly to the Board on compliance matters.
2. What is a "Prescribed" Responsibility?
The Prescribed Responsibilities are the responsibilities which each in-scope RFSP is required to allocate to each PCF role holder to ensure that the key conduct risks and key prudential risks are appropriately allocated within the in-scope RFSP.
Schedule 2 of the draft SEAR Regulations (as replicated in Table 6 of Appendix 2 of the Draft IAF Guidance) sets out the Prescribed Responsibilities that must be assigned. For example, it includes assigning the responsibility for the firm's performance of its obligations under SEAR (PR1) and allocating responsibility for embedding the conduct standards throughout the firm (PR3).
General Prescribed Responsibilities which apply to all in-scope RFSPs can be distinguished from those that will apply to particular in-scope RFSPs such as credit institutions, insurance undertakings, low impact in-scope MiFID investment firms and incoming third country branches. In-scope RFSPs should review Schedule 2 of the draft SEAR Regulations to consider which Prescribed Responsibilities they should be allocating to each of their PCF roles.
3. What Responsibilities Fall Under the "Other Responsibilities" Category?
The Other Responsibilities category relates to any other material business areas, activities or management functions that are within the remit of each individual PCF holder, but are not captured by the Inherent or Prescribed Responsibilities.
This is almost like a "catch-all" category and requires each in-scope RFSP determine what Other Responsibilities that are not captured by the Inherent and Prescribed Responsibilities are to be allocated to a PCF role holder. This category may not be applicable to all in-scope RFSPs.
4. Practically Speaking, How do we Allocate Prescribed Responsibilities?
The following step-plan should be read in conjunction with Part 2 of our IAF Series SEAR: Where do we start? 8 Step Employment Law Project Plan.
- Step 1: Review the relevant and appropriate list of Prescribed Responsibilities set out in Schedule 2 of the draft SEAR Regulations (as replicated in Appendix 2 of the Draft IAF Guidance).
- Step 2: Document which PCF role holder is currently responsible for each of the Prescribed Responsibilities.
- Step 3: Consider if there are any Prescribed Responsibilities that are not currently within the remit of any PCF role, and are, therefore, left to be allocated to an appropriate PCF role holder. In-scope RFSPs should ensure a consistent and coherent approach to the allocation of Prescribed Responsibilities. They should also consider the nature of the Prescribed Responsibilities being allocated to ensure that, for example, non-executive responsibilities are allocated to Non-Executive Directors.
- Step 4: Consider if the Prescribed Responsibilities that are currently within the remit of each PCF role holder (as set out in Step 2) are, as per the as per the Draft IAF Guidance, within the remit of the "most senior individual" who has responsibility for the relevant area and who has the appropriate authority, taking into account the governance structures of the firm. If that is not the case, consider which PCF role should be allocated such Prescribed Responsibilities. Any changes here to an employee's existing role or responsibilities will require careful engagement with the relevant employee.
- Step 5: In allocating Prescribed Responsibilities, in-scope RFSPs must review and consider whether there are multiple Prescribed Responsibilities allocated to any one PCF role. The Draft IAF Guidance notes that each Prescribed Responsibility is significant so in-scope RFSPs must ensure that individuals have sufficient capacity and resources to carry out the allocated responsibility.
- Step 6: Consider if any of the Prescribed Responsibilities are currently (as identified by Step 2) being shared or split between two or more PCF roles. This is not permitted (except in the case of job sharing) and so, the in-scope RFSP will need to determine which PCF role holder will be allocated which Prescribed Responsibilities. Again, any changes here to an employee's existing role or responsibilities will require careful consideration.
- Step 7: Consider if any PCF role holders job share and ensure that each job sharing PCF role holder understands that both individuals will have full accountability for the relevant responsibility.
- Step 8: As part of finalising the SoR for each PCF role, each in-scope RFSP will need to agree the Prescribed Responsibilities with each PCF role holder. Engaging with each PCF to agree its SoR is likely to be the most time-consuming step in the process, particularly where discrepancies lie between PCF holders' current responsibilities and the Prescribed Responsibilities that the in-scope RFSP seeks to allocated to them. For that reason, we recommend starting this process as early as possible and obtaining legal advice on the process.
Keep an eye out for our next insight as part of this IAF Series which will be published in the coming days.
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.