Banks and other PRA regulated firms have had to comply with the senior managers and certification regime (SMCR) since 7 March 2016, when it replaced the approved persons regime.
The SMCR will be extended to all authorised firms, regardless of size, from early 2018 and preparing for it should be firmly on the agenda of FCA regulated firms during 2017. Affected firms will include fund managers, mortgage brokers, asset managers, private equity firms, hedge funds and consumer credit firms.
Also in the pipeline are changes to the rules on regulatory references and whistleblowing that could affect all authorised firms from 2017 or later.
Key elements of the SMCR
- FCA pre-approval required for appointment to specified senior management functions (Senior Manager) e.g. directors, heads of key business units, head of compliance and others
- Each Senior Manager must have a statement of responsibility which covers their functional responsibilities as well as prescribed regulatory responsibilities
- Senior Managers will have a statutory duty to take reasonable steps to avoid regulatory breaches in their area
- Firms must produce a governance or responsibilities map showing their overall governance and management arrangements
- Firms will become responsible for certifying, at least on an annual basis, the fitness and propriety of any other person who is a material risk taker (Certified Persons)
- New FCA conduct rules will apply to most staff
- New notification, training and record-keeping obligations will apply
Key issues to address
- Who in the firm will be a Senior Manager
- What will their allocated responsibilities be
- Training for Senior Managers
- Who will be a Certified Person
- Process for certifying the fit and proper status of Certified Persons
- Impact on remuneration arrangements
- Changes to employment contracts and policies, particularly for Senior Managers
- Impact on termination arrangements and settlement agreements
Further consultation on the detail of the new rules is expected later this year and during 2017.
Extension of whistleblowing protection
In tandem with the extension of the SMCR, the FCA is expected to issue new rules on whistleblowing, requiring firms to appoint a whistleblowers’ champion, to produce an annual report on whistleblowing, to put in place arrangements to protect whistleblowers, and to add appropriate terms to settlement agreements. The FCA’s definition of “whistleblowing” is much wider than the existing statutory definition and would extend to disclosures by non-employees about a variety of matters, including rule breaches.
Further detail is expected later this year.
New rules on regulatory references
In addition, regulated firms will become subject to new rules on regulatory references and will need to look at their policies on giving, agreeing and retaining references. Details are expected to be published very shortly.
For more information please contact Employment Partner Blair Adams or Stephen ten Hove.