The Financial Conduct Authority (FCA) has recently published its final guidance on statements of responsibilities, responsibilities maps, and its policy statement on the new FCA directory for financial services workers, ahead of the extension of the Senior Managers and Certification Regime to all FCA solo-regulated firms from 9 December 2019. This is part of the FCA’s plan to increase accountability in the financial services industry.
The Senior Managers & Certification Regime (SMCR) is being extended to all FCA solo-regulated firms from 9 December 2019. The SMCR will apply in accordance with a tier system (limited, core, or enhanced). Firms may wish to use the checker tool to establish in which tier they will fall.
The FCA’s final guidance provides firms with self-assessment questions and examples of good and poor practices, proportionate to whether a firm is a core, enhanced, or limited scope firm under the SMCR. The guidance is intended to be applied in a risk-based way, considering also the size, nature, and complexity of a firm in deciding whether an example of good or poor practice is appropriate to it. Further, the FCA has set out in its policy statement final rules on the new directory of financial services workers (the Directory), which will include individuals performing roles that will no longer be made public on the FS Register following the extension of the SMCR.
The senior managers regime is designed to ensure that persons who perform senior management functions obtain FCA approval before starting their roles. Senior managers will be required to provide a statement of responsibilities (SoR) stating what they are accountable for and enhanced firms will also be required to provide a responsibilities map.
Statement of Responsibilities
The SoR sets out the role(s) and responsibilities for which a senior manager has ultimate accountability. The FCA guidance stipulates that the SoR should be focussed on accountability, rather than the job profile. To this effect, the FCA has created a set of prescribed responsibilities that can be allocated to senior managers.
The FCA’s guidance contains different self-assessment questions for the relevant sections of the SoR that depend on the firm’s tier classification. For example, the “prescribed responsibilities” and “overall responsibilities” sections would not apply to limited scope firms. Only enhanced firms will be subject to the "overall responsibility" requirement, meaning that they will need to ensure that every activity, business area, and management function has a senior manager with overall responsibility for it. This is to prevent unclear allocation of responsibilities that could result in gaps.
The FCA guidance provides example SoRs based on three case studies that reflect the firm’s tier classification. The example SoRs focus on “senior management functions,” “prescribed responsibilities,” and “other responsibilities” (as applicable). Tailored guidance has been provided for CEOs, partners, chairs, compliance officers, and executive directors to allow SORs to be prepared that reflect regulator expectations.
Examples of good and poor practices are included in the guidance to ensure SoRs are drafted to a high standard. For example, the guidance stipulates that where a responsibility is shared, the rationale for sharing should be explained. A distinction is drawn between shared and divided responsibilities and if such allocations exist, firms should ensure the division of accountability is clear. The guidance also comments on the allocation of prescribed responsibilities, requiring that the role of an individual must be well suited to the prescribed responsibility for which the senior manager will be accountable. Firms should take care not to use language such as “including but not limited to,” which may imply that some areas of responsibility have not been documented.
The responsibilities map encourages enhanced firms to assess accountability across the whole firm and not just specific individuals. It provides an overview of how the firm is managed and governed. The FCA guidance recommends a mixture of graphics and text in order to make the map clear to understand. It also provides example responsibilities maps that are helpful indicators of the layout that should be adopted. Each element of the map should be represented clearly using diagrams and tables. The responsibilities map will require careful drafting in order to effectively portray the distribution of accountability across the firm. If a firm is part of a group, this must be reflected in the map, including reference to key group level individuals.
When formulating responsibilities maps, it is recommended that firms consider, among other things, whether
The certification regime applies to all employees who hold positions where they could pose a risk of significant harm to the firm or any of its customers. Unlike senior managers, employees performing certification functions will not be subject to FCA approval and firms will instead be responsible for the annual assessment and certification of their fitness and propriety. Firms will have to engage tools and processes that allow them to assess an individual’s honesty and integrity, competence, capability, and financial soundness. Compliance, HR, and legal departments will need to work more closely together to ensure all relevant issues are captured and taken into account. Regulators are placing increased focus on personal conduct and culture, and firms will need to ensure that appropriate attention is given to these issues when assessing fitness and propriety, and when investigating concerns or complaints.
The Directory is expected to go live in March 2020 and be available free of charge. It will include individuals performing certification roles and other important roles in regulated firms following the extension of the SMCR. While the FS Register will continue, it will contain fewer individuals. The FS Register only includes persons who are approved by the FCA or PRA, and so persons appearing on the FS Register as approved persons under the current approved person regime will not appear on the FS Register if they become certified persons under the SMCR. This was considered by many to leave a significant gap, and the register was introduced by the FCA in response to substantial feedback that it received on the public value of it maintaining a central public record of certified persons.
The Directory is intended to increase the level of public confidence in the financial sector and will allow consumers to access information relating to a larger number of financial services employees. It will enable consumers to check that individuals they deal with in regulated firms have been certified as fit and proper, and to more easily detect individuals who have been banned from the FCA. The Directory will also make public information on additional roles, such as those providing mortgage advice, for the first time. The information to be displayed on the directory is extensive, and details to be made available to the public include the employee’s role, location, any regulatory sanctions imposed on them.
Further details are set out in the FCA’s policy statement.
In-scope organizations should ensure that they are prepared to implement all steps required in relation to their firm in advance of the SMCR going live. In particular, they should have regard to the guidance issued by the FCA to ensure that their systems, documentation, and practices meet with regulatory expectations. Firms should also put in place training to ensure all staff who will be affected by the requirements of the SMCR are aware of its impact, in particular, on individual and collective accountability.
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