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FCA Consults on Extending Senior Managers & Certification Regime Deadlines

July 21, 2020

The Financial Conduct Authority (FCA) began a consultation (CP20/10) on 17 July on the extension of the deadlines by which FCA solo-regulated firms must have first assessed the fitness and propriety of their certified staff, trained staff in the Conduct Rules, and reported directory person data. The consultation follows the FCA’s announcement on 30 June 2020 that the Treasury had agreed to delay the requirement to conduct fitness and propriety assessments of their certified persons until 31 March 2021.

The Senior Managers & Certification Regime (SM&CR) was extended to solo-regulated firms on 9 December 2019, replacing the approved persons regime. It is designed to strengthen individual accountability at all levels and reduce harm to consumers in the financial services sector. Compliance with the SM&CR is being introduced in phases and so there is still time for solo-regulated firms to become fully compliant with the regime. However, the FCA began a public consultation on 17 July 2020 for a series of proposed delays that will postpone its full implementation. The consultation is set to close on 14 August 2020 and a policy statement is expected to be published on an expedited basis. Provided there is no further cause for delay, solo-regulated firms are now expected to become fully compliant by the end of March 2021.

EXTENSION FOR CERTIFICATION REGIME

The Treasury has agreed to delay the deadline by which solo-regulated firms must complete their first fitness and propriety assessments from 9 December 2020 to 31 March 2021. This postponement is being introduced to assist firms that may be struggling to meet the original deadline, given the challenges brought about by the current coronavirus (COVID-19) pandemic.

As part of the consultation, the FCA is consulting on permitting firms to issue certificates during the certification transitional period (the period ending on 31 March 2021). Certificates issued during the certification transitional period will be effective for a 12-month period from the date of issue.

Employers will need to train their managers in advance of the revised deadline so that they can understand how to recognise potential fitness and propriety issues. The postponement should not discourage firms from pursuing this training as soon as reasonably practicable.

However, the FCA has emphasised that firms should not wait to remove staff who are not fit and proper from roles for which the firm has already certified them. It is therefore important for firms to continue to monitor their certified persons.

PROPOSED EXTENSION FOR CONDUCT RULES AND DIRECTORY

The FCA is consulting on extending the current deadline for each of the following from 9 December 2020 to 31 March 2021:

  • The date the Conduct Rules come into force for staff who are not senior managers or certified persons
  • The date by which relevant employees must have received training on the Conduct Rules
  • The deadline for submission of information about directory persons

The consultation will be running alongside the parliamentary process so that any decision to extend can be implemented without undue delay. Until the consultation process concludes, firms should not automatically assume that the extensions will be implemented. In fact, the FCA envisages that the majority of firms will not need to use the proposed extensions and are encouraged to keep to the original deadline of 9 December 2020, if possible.

Conduct rules

The Conduct Rules are designed to set minimum standards of individual behaviour and improve individual accountability. They also complement the FCA’s general efforts to improve culture in the workplace. The Conduct Rules will apply to almost all employees who carry out financial services activities, or linked activities, in a firm.

While the FCA is consulting on postponing the Conduct Rules deadlines for staff who are not senior managers and certification staff, firms should not cease their implementation efforts. The proposed postponement is designed to give firms whose business has been impacted by the COVID-19 pandemic more time to embed the Conduct Rules to create lasting change.

With increased remote working, firms may need to adapt their Conduct Rules training in the short-term to ensure they can deliver such training electronically. The FCA expects to provide further guidance on Conduct Rules training in due course.

Please note the FCA is not proposing to extend deadlines for benchmark administrators who will still have until December 2021 to train non-senior manager staff in the Conduct Rules.

The Directory

The FCA intends to set up a new public register on the Financial Services Register to enable consumers, firms, and other stakeholders to find information on key individuals working in financial services (the Directory). The Directory was originally expected to go live in March 2020. However, this has been delayed due to the COVID-19 outbreak and the timing of the launch remains under review.

The original deadline for firms to submit certified and assessed persons information for the Directory was 9 December 2020. In light of the delayed requirement to assess certified persons as fit and proper, the FCA proposes to extend the deadline for submitting directory persons reporting to 31 March 2021. However, if firms are able to complete the certification in time, the FCA will still publish details of certified employees of solo-regulated firms from 9 December 2020. This information will be published on the Financial Services Register, pending the launch of the Directory.

Please note that the submission deadline for banks, building societies, credit unions, and insurance companies ended on 9 March 2020 and was not extended.

SENIOR MANAGERS

The proposed extensions mirror the FCA’s and PRA’s ongoing approach to the COVID-19 crisis. In a series of announcements in March and April 2020, the FCA and PRA confirmed that firms will have further flexibility, particularly when dealing with a shortage of staff in an attempt to reduce the burden to firms impacted by the pandemic.

The FCA published, for example, temporary arrangements for senior management functions in the form of a ‘modification by consent’ to the 12-week rule. Unapproved individuals are permitted to cover absent senior managers for up to 36 weeks, provided the firm has consented. This is designed to support firms who are having to resort to temporary arrangements during the pandemic.

Please see our detailed prior analysis for a review of the UK regulators’ expectations for SM&CR in light of the current pandemic.

CONSIDERATIONS FOR FINANCIAL SERVICES FIRMS

The onset of COVID-19 has had a widespread impact across businesses. Regulated firms have the additional challenge of fulfilling their compliance obligations at a time when a significant number of staff are working remotely, which presents practical and regulatory risks. The proposed 16-week extension is also a relatively short period given the scale of the disruption caused by the pandemic and firms should not become complacent with the additional time.

If firms continue to work remotely, SM&CR compliance processes may need to be adapted, such as the completion of fitness and propriety assessments. Managers may need to find new ways of reaching out to and supervising their reports to properly assess fitness and propriety. Individuals might be required to keep personal development records to track their competence. Annual appraisals might be completed via video link.

The FCA has also advised senior managers to consider the additional risks that COVID-19 poses to their areas of responsibility. They might find it difficult, for example, to discharge their delegation and oversight duties effectively in a remote setting, particularly at a time of potentially increased workloads and when senior managers may be stepping in (at short notice) to cover others on sick leave or furlough. Meanwhile, the conduct rules continue to require that senior managers take reasonable steps to ensure that any delegation of their responsibilities is to an appropriate person and that they oversee the discharge of their delegated responsibilities effectively. Senior managers may need additional support at this time navigating their regulatory responsibilities and firms should proactively consider refreshing guidance and/or bringing it to the attention of its senior managers once more.

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CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Chris Warren-Smith
Louise Skinner
Thomas Twitchett
Steven Lightstone