FCA publishes Consultation Paper on extension of SMCR

The FCA has now published more detailed proposals on the implementation of the regime.

On 26 July 2017, the FCA published its consultation paper (CP17/25) on extending the Senior Managers and Certification Regime (SMCR) to all FCA firms.

(The consultation paper (CP 17/25) does not affect insurers, which are covered in a separate consultation (CP 17/26 - extending SMCR to insurers). Although the bulk of the consultation paper deals with the extension of SMCR, there are some changes that affect the application of SMCR to banks.

The extension of SMCR will apply to all FCA solo-regulated firms and replace the current FCA Approved Persons Regime for them. The consultation will close on 03 November 2017, with the final rules being published in a Policy Statement in Summer 2018. HM Treasury will set the date for implementation of the regime, which is expected to be “from 2018”.

The proposed new regime reflects the requirements of the Financial Services and Markets Act (FSMA) and largely echoes the arrangements which have been in place for banks since March 2016, focussing on three main components:

• Senior Managers Regime: Firms will need to identify their Senior Managers and allocate certain Prescribed Responsibilities to them, and these Senior Managers will need to be approved by the FCA.
• Certification Regime: Firms will take on (from the FCA) responsibility for assessing (and certifying on an annual basis) the fitness and propriety of their certification staff (effectively individuals capable of causing significant harm to a firm or its customers).
• Conduct Rules: All staff (other than ancillary staff, such as receptionists or security) will be subject to conduct rules and firms will need to provide training on those rules.

Key points to note are:

• The new regime is designed to be proportionate according to the size of firm, and therefore proposes applying a baseline of specific requirements to all FCA solo-regulated firms, known as the "core regime".
• There will be additional requirements that apply only to the largest and most complex firms (fewer than 1%), known as the "enhanced regime". These requirements will include additional Senior Management Functions, additional Prescribed Responsibilities, a Responsibilities Map, Handover Procedures and the requirement that there be a Senior Manager responsible for every area of the firm (Overall Responsibility).
• There will be a reduced set of requirements for a specific group of firms, known as "Limited Scope" firms. These firms include (among others) Limited Permission Consumer Credit Firms, internally managed AIFs and sole traders. These firms will have fewer Senior Management Functions.
• There is no territorial limitation on the Senior Managers Regime for UK-authorised firms, so it will apply to anyone who performs a Senior Manager role, whether they are based in the UK or overseas. The Senior Managers Regime will also extend to UK branches of foreign firms, although the proposals are slightly different for EEA and non-EEA branches.
• It is proposed that all partners in a firm will be Senior Managers under the "Partner Senior Manager Function", as is the case under the current Approved Persons Regime, provided that the partner has involvement in managing the firm and meets the definition of a Senior Manager. Silent partners or junior partners without involvement may not therefore be caught.
• There are also some additional proposals which will affect banks already subject to the SMCR. These include a new Prescribed Responsibility (a Senior Manager must ensure that the firm trains its staff in the Conduct Rules and complies with the FCA notification requirements where disciplinary action has been taken), extending the 12-week rule (allowing a person to cover without approval) to Overall Responsibilities, and applying the Partner Senior Management Function.

What you should do now:

• If you have not already done so, ensure that senior management is aware of the new regime and that you have assigned responsibility for implementation.
• Consider any key issues for your business which should be fed into the consultation process.