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Individual accountability: what FCA firms need to know about Senior Managers & Certification Regime extension

The Senior Managers and Certification Regime (SM & CR) currently applies to deposit takers, and it is now being extended to FCA solo-regulated firms.

This will change the way individuals working in financial services are regulated by replacing the Approved Persons Regime currently in place. The aim is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.

As part of this, the SM&CR aims to:
• Encourage a culture of staff at all levels taking personal responsibility for their actions
• Make sure firms and staff clearly understand and can demonstrate where responsibility lies

The FCA’s consultation paper (CP17/25) sets out the proposed approach to the extension of the SM&CR; a base line of requirements that will affect most firms – the elements being senior managers regime, certification regime and conduct rules.

Senior manager’s regime
The FCA rules will define which roles are senior manager functions. Take this for example:
An executive director would class as a Senior Manager, meaning they will need to be approved by the FCA before taking the role and the firm will, as before, need to be able to show the person is fit and proper for the jobs they do. This won’t apply to non-executive directors under the approved person regime.

In addition, the FCA intends to introduce additional responsibilities to senior managers known as ‘prescribed responsibilities’, which the firm would then need to allocate to a senior manager. This will include performance by the firm of its obligations under the Senior Managers Regime, including implementation and oversight for example.

Certification regime
This will cover people who aren’t Senior Managers, but whose jobs mean they could have a significant impact on customers, markets and the firm. The FCA list these roles in their rules but will not approve these people, instead expecting the firms themselves to check and confirm (certify) that the individuals are suitable to do their job. This certification will need to be completed once a year as a minimum.

Conduct rules
These are basic rules that will apply to almost every person who works in financial services with the exception of ancillary staff (such as facilities, reception, cleaning staff etc.). They include things like ‘acting with integrity’ and ‘treating customers fairly’.

Next stages
A second consultation paper will be published later in the year and will set out more technical and operational aspects on how firms can move across to the new regime. This should include details of how someone who is currently an Approved Person can transition to a Senior Manager, as well as confirming the FCA’s approach in relation to Appointed Representatives.

The consultation period closes on 3rd November 2017. Broker Network will be providing a formal response to the FCA; this will be shared with Members prior to submission.

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