Firms subject to Senior Managers and Certification Regimes (SMCR) are obligated to capture, assess, and report breaches of Conduct Rules by individuals who are in scope of the rules. Holding individuals to account is a core concept of the new regime.
The first reporting window for in scope firms to notify the Financial Conduct Authority of any Conduct Rule breaches opened on 1 September 2016 and closes on 31 October 2016. Below we provide a reminder of the key requirements to help ensure your firm is ready to comply.
- This initial annual report only covers Certified Persons, with the conduct of other Conduct Rules staff being included from 7 March 2017, once the rules apply to them.
- The reporting period for this year covers 7 March 2016 to 31 August 2016. Future reporting periods will be for 12 months between September and the end of August the following year.
- Submissions should include notification of any disciplinary action taken against conduct rules staff which included a breach of the Conduct Rules.
- Notifications should be made using the newly created Form H. Within this form firms should include personal details of any individual who has breached the Conduct Rules, the basis for determining the breach and details of any disciplinary sanctions.
- Reporting is mandatory for all firms subject to SMCR even where there have been no breaches of the Conduct Rules during the period. Where there are no breaches, firms should use Form H to declare a 'nil return'.
In addition to this annual report, the regulator should be notified within seven business days if firms become aware that an individual carrying out a Senior Manager Function may have breached the Conduct Rules.
Firms will also need to adhere to general regulatory obligations to appropriately disclose anything of which the regulators would reasonably expect notice. This may include reporting significant breaches of the Conduct Rules ahead of the annual report.
Are you ready?
Ensuring that effective mechanisms to identify, assess and record breaches of the Conduct Rules are in place should be high on the list of regulatory priorities. Whilst this initial reporting return only captures Certified Persons, as of 7 March 2017 it will also cover the much larger pool of Conduct Rules staff.
Firms should ensure that they take this opportunity to assess whether they have the appropriate systems and controls in place to identify and mitigate potential breaches of the Conduct Rules and to be able to accurately report breaches where they occur. This may include:
- Providing tailored Conduct Rules training to all staff subject to the rules, to ensure they understand how the rules apply and what behaviour would constitute a breach of the rules.
- Linking HR disciplinary processes with Compliance regulatory reporting to consider whether an individual's actions constitute a breach of the Conduct Rules.
- Establishing robust governance processes to discuss, challenge and validate the annual report of disciplinary action and breaches of the Conduct Rules.
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.