What You Need to Know About the Senior Managers and Certification Regime
The Senior Managers and Certification Regime (SM&CR) replaces the Approved Persons Regime and from the 9th December 2019 applies to all authorised firms. Here, we explain what the three key parts of the regime are, what certification entails and the details of the conduct rules. This is useful reading for your CII CF1 or R01 exam preparation.
The idea behind the SM&CR is to create a culture of individual accountability within firms to help restore confidence in the financial services industry.
The SM&CR is being extended in a way that is both flexible and proportionate, with the FCA categorising solo-regulated firms across different regimes as follows:
|Limited Scope Firms||These capture those firms that are smaller in size and currently subject to a limited application of the Approved Persons Regime (such as sole traders.) These firms will be exempt from some baseline requirements and will typically have fewer SMFs.|
|Core Firms||Most firms will fall under this category and will have a baseline of SMCR requirements (pared-back version of the SMCR for banks).|
|Enhanced Firms||Large and complex firms will be subject to extra ‘enhanced’ scope requirements ie above the baseline.|
The three key parts of the SM&CR are:
The Senior Managers Regime (SMR)
- Introduction of ‘senior management functions’ to replace the existing ‘significant influence functions’
- Introduction of ‘prescribed responsibilities’ which must be allocated to SMFs
- Every SMF must complete ‘statements of responsibilities’ and have a ‘duty of responsibility’ under FSMA
- Firms will need to apply for FCA approval for those people to carry out an SMF
The Certification Regime
- Certification covers specific functions that aren’t SMFs but can have significant impact on customers, the firm and/or market integrity (e.g. CASS oversight function/mortgage and investment advisers/pension transfer specialists).
- Firms will have to certify that key employees are fit and proper to carry out ‘certification functions’.
- It is the firm’s responsibility to make individual certification decisions (but the FCA can challenge the effectiveness of a firm’s process).
- Certificates will need to be issued to individuals at least annually, confirming their ongoing fitness to carry out their role (covering qualifications, training, competence).
The Conduct Rules
- High-level rules (COCON) that apply directly to most staff
- First Tier = Individual Conduct Rules – these apply to all employees (excluding ancillary staff not carrying out regulated activities):
– You must act with integrity.
– You must act with due skill, care and diligence.
– You must be open and cooperative with the regulators.
– You must pay due regard to the interests of customers and treat them fairly.
– You must observe proper standards of market conduct.
- Second Tier = Senior Manager Conduct Rules – apply to those in SMF positions:
– You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
– You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
– You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively.
– You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
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