August 17 – Nailed down

BY IN Article, FCA On 16th August 2017

After great deliberation, the FCA is now consulting on “Individual Accountability: Extending the Senior Managers and Certification Regime to all firms”.  This new regime will replace the existing Approved Persons regime and moves us from the reality of consumer detriment to the concept of “consumer harm”.

It sets out a core regime with a standard set of requirements for all firms, an Enhanced Regime with extra requirements for the largest and most complex firms (intermediary firms with turnover greater than £35m p.a.) and reduced requirements for sole traders, who will be known as Limited Scope Firms. We are likely to get final rules in early 2018, to be implemented by the end of that year.

The core proposals comprise the Senior Managers Regime; a Certification Regime; and Conduct Rules.

Senior Managers are “the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity” and they still need FCA approval. Extra Senior Management Functions will apply to firms under the enhanced regime. Under the new regime, every Senior Manager will have to have a Statement of Responsibilities. This is a document setting out their role and what they are responsible for. Firms will be required to submit this to the FCA when they apply for Senior Manager approval. It must also be kept updated and resubmitted whenever there is a significant change to the responsibilities.

It is proposed that anyone performing a ‘Senior Management Function’ or ‘Certification Function’ is fit and proper for their role. Firms will need to assess individuals at least annually, having regard to any general FCA rules concerning qualifications, training, competence and personal characteristics. The FCA proposes new evidence requirements, in relation to criminal records checks (Disclosure and Barring Service) and regulatory references.

The paper sets out two tiers of conduct rules, firstly individual commitments for most employees and Senior Managers. That you must act with integrity; with due care, skill and diligence; be open and cooperative with regulators; pay due regard to the interests of customers and treat them fairly; and observe proper standards of market conduct.

The second set of rules applies to Senior Managers who must take reasonable steps to ensure that the business of the firm is controlled effectively; take reasonable steps to ensure that the firm complies with the relevant requirements and standards of the regulatory system; any delegation of responsibilities is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively; and that they disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

The proposals also introduce the new Certification Regime, which for employees who are not Senior Managers but whose jobs “mean they can have a big impact on customers, the firm and/or market integrity.” This will include all investment and mortgage advisers, but not pure protection advisers. Firms will need to certify these individuals themselves, which means checking and confirming that they are ‘fit and proper’ to carry out the function. The firm will issue a certificate to be renewed at least annually. The individuals will not appear on the FCA Register or require FCA approval.

Current plans exclude Appointed Representative firms and their employees, but we are promised another consultation before the year end.

At the same time more thought will have been given to how firms and advisers might be listed on the FCA website, to replace the existing register. These are critical changes which we will return to regularly in coming months.

Robert Sinclair
August 2017


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