Senior Manager Certification Regime

The Senior Manager and Certifications Regime (SMCR) was introduced to Banks with effect from 7 March 2016 and is due to be applied to other financial service firms in 2018. A consultation paper outlining the rules was due to be released by the FCA in March 2017, was delayed to June 2017, and has now been confirmed for 9 December 2019.

SMCR looks to replace the current Approved Persons Regime and aims to hold individuals accountable through the clear allocation of responsibilities. Failure to take reasonable steps could lead to criminal sanctions being imposed.

The SMCR consists of a three tier structure:

1) Senior Manager Regime

Senior Managers are required to be approved by the FCA. These will typically consist of your Executive and certain Non-Executive Directors, control functions with compliance oversight (Risk, Compliance, Internal Audit and currently General Counsel), staff with overall responsibility for certain functions and, in some instances overseas staff with an influence on a UK committee.

Senior Managers need to be allocated responsibilities in 3 ways; 1) through the allocation of FCA prescribed “Senior Management Functions” (SMF’s) 2) through the allocation of FCA “Prescribed Responsibilities” and 3) through the allocation of “Overall Responsibilities”. All three of these responsibilities need to be shown, along with individual’s names and basic details, in what is called a “Responsibilities Map”. This is a single document describing the firm’s management and governance. In addition to the Responsibilities Map, Senior Managers are required to produce a Statement of Responsibilities (SOR), which they need to attest to, as part of the application.

Senior Managers that are already Approved Persons will be eligible for “Grandfathering”, provided they are an Approved Person for the function they are due to perform as a Senior Manager.

Finally, all Senior Managers will need to be annually assessed by the business as “Fit and Proper”. This is done by assessing each individual’s 1) Honesty, integrity and reputation 2) Competence and Capability and 3) Financial Soundness

2) Certification Regime

Certified Persons (CP’s) will be those that are seen to be material risk takers, proprietary traders, staff who require qualifications to perform their role, those with significant management functions, managers of certification employees and certain other significant influence functions that aren’t covered by the SMR.

These individuals won’t be required to be FCA approved; however, they are required to be certified by the business for the function/s they are to perform, on an annual basis.
Certification of individuals requires the business to annually assess whether they are “Fit and Proper” in the same way they do for Senior Managers.

3) Code of Conduct

The new Code of Conduct (CoC) rules will look to replace the “Statements of Principle” for Approved Persons, but will be extended to cover a larger group of individuals through a tiered approach.

The purpose of these new conduct rules is intended to help shape the culture of firms and promote positive behaviours. Of course, they are also there to act as a deterrentfor any misconduct.

There are two tiers to the CoC rules; Tier 1 will apply to all staff, with the exception of any ancillary staff. It should be noted however that we are seeing a number of firms looking to roll these Tier 1 CoC rules out to all staff on the basis that the exclusion of some can create an increased administrative burden and, the rules themselves aren’t unreasonable, so you’d expect all staff to adhere to them as part of general good practice. The Tier 2 rules apply only to Senior Managers. The FCA will include its rules in a new Code of Conduct sourcebook (C-Con).

If you aren’t already, you need to start thinking about:

• Your firm’s responsibilities map (compulsory for Enhanced Firms)
• Who requires individual statements of responsibility and what those will look like
• Identifying who the SMF holders will be
• Identifying who your Certified Persons may be
• Identifying who of those can be Grandfathered
• Allocating all three categories of responsibilities/functions to individuals
• Determining how you are going to assess individuals as fit and proper
• Your Senior Manager applications to the FCA
• What process you are going to put in place to certify staff
• What adjustments you might need to make to your Governance/Decision making framework
• What adjustments you may need to make to Board Committee TOR’s and composition
• Whether any enhancements are required to the Office of Chairman, RemCo etc.
• What training is going to be required
• The impact on your insurances
• How you intend dealing with the handover requirements
• How you intend dealing with references
• Whether you need to make changes to employment contracts, settlement agreements etc.
• Your appraisal system, job descriptions, disciplinary policy, whistleblowing policy etc.
• Record Keeping

On the basis that SMCR has a high dependence on Human Resources,BenchAbility is currently working with clients, project managing the implementation of SMCR alongside their HR, Legal and Compliance teams. We are well positioned to help you with all of the above.

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