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UK: The FCA and the PRA have released near final rules on the Senior Managers and Certification Regime

On 4 July 2018, the FCA and the PRA released near final rules on the extension of the Senior Managers and Certification Regime (SMCR). While the majority of the rules remain the same, the regulators have made a few changes and have also provided a significant amount of extra guidance to firms who will be subject to regime. Please see a summary below of some of the key points to note for different firm types.

Key Points for Insurers

The FCA and PRA have each released near final rules on the extension of the SMCR to Insurers. In general, there do not seem to be any significant changes made since the draft proposals. The only exception to this is the narrowing of the scope of the certification regime for small non-directive firms, where the certification regime will now encompass only members of the governing body (other than PRA/FCA approved persons or non-executive directors) rather than include all members of the governing body and all employees who report directly to the governing body.

As part of this release, each of the regulators has introduced useful guidance and clarifications on their requirements.

  • The FCA has released an update on the question of whether the head of the legal function would need to be approved as a senior manager as part of the other overall responsibility requirement. This is an issue which the FCA had released a paper on in September 2016, but it has not yet released any finalised guidance. The FCA has indicated that firms can continue with their current approach pending the release of these rules. This suggests that if firms do not otherwise need to have the head of the legal function approved as they do not perform any other function, no approval is currently required.
  • The FCA has provided further clarifications on the other overall responsibility requirement. It has confirmed that the application of the requirement is intended to be the exception rather than the norm and it is intended to apply only where a person has overall responsibility and does not hold a different senior management function.
  • The FCA and the PRA have confirmed that they have different views as to whether a prescribed responsibility can be split. The PRA does not permit this, while the FCA does seem to allow this in some circumstances as long as it is appropriate and justifiable.
  • The FCA has released some helpful guidance on the nature of the fitness and propriety checks required for certification function holders. The checks required will depend on the particular role and the FCA has indicated that it is possible that a junior certification staff member (e.g. a junior client adviser) may be certified as fit and proper on the basis that they are appropriately supervised.

The FCA has also released a guide for insurers to the SMCR.

The relevant policy statements are available for firms at the following links: PRA and FCA.

The FCA has also released a policy statement on the duty of responsibility.

Please see a link to our current note on the draft rules for insurers. Click here.

We will shortly be releasing updated versions of this note to reflect the final rules—please let us know if you would like to have a copy sent directly to you by emailing Anahita Patwardhan.

Key Points for FCA-authorised firms

The FCA has confirmed that the date of the application of the regime to these firms is 9 December 2019. Some of the rules will apply 12 months after this (including the application of the conduct rules to employees who are not certification staff).

The proposals have not changed significantly since last year, but the FCA has made some minor changes to the requirements.

  • The FCA has deleted the prescribed responsibility to inform the governing body of their legal and regulatory obligations which was originally intended to apply for core firms.
  • Since the introduction of the draft rules, we have received a number of questions from firms on moving between the core and enhanced categories due to changes to their business. Firms should note that the FCA has made several changes to the rules in this area to make the requirements less onerous to firms which are close to the relevant thresholds.
    • The FCA has changed some of the quantitative criteria for enhanced firms, to avoid firms falling within scope due to a temporary increase in their figures in one year. Firms may fall within the enhanced firm category if they have assets under management or revenues exceeding certain thresholds. These are now to be calculated on a three year rolling average basis to reduce the impact of any fluctuations within particular years.
    • Firms which do cross the enhanced threshold will now have a transitional period of 12 months (rather than the 6 months initially proposed) to comply with the rules applicable to enhanced firms once they have met the relevant criteria.
    • The FCA has also introduced an easy process for firms to notify the FCA if they wish to voluntarily apply a higher regime tier.
  • The FCA has made changes to some of the original draft forms which were consulted on.
  • The FCA has provided a number of clarifications to the various rules, including on how firms should map existing controlled functions to senior management functions.

The FCA has also released a guide for firms to the SMCR and a firm-checker tool to help firms identify the category which they fall within.

The relevant policy statement is available for firms on the FCA website. The FCA has also released a policy statement on the duty of responsibility.

Please see a link to our current note on the draft rules for FCA-authorised firms. Click here.

We will shortly be releasing updated versions of this to reflect the final rules—please let us know if you would like to have a copy sent directly to you by emailing Anahita Patwardhan.