Consultation on transitioning to the Senior Managers Regime – 18/1
8th January 2018
On 13 December 2017, the Financial Conduct Authority (FCA) issued a Consultation Paper providing guidance on how firms and individuals will transition from the Approved Persons Regime to the Senior Managers and Certification Regime (SMCR). Consultation Paper CP17/40 also sheds further light on the implementation of the new Prescribed Responsibility in relation to the Conduct Rules.
This consultation paper follows the publication of Consultation Papers CP 17/25 and 17/26 which contained the rules for the extension of the SMCR to all Financial Services and Markets Act (FSMA) authorised firms, including investment firms, asset managers, insurers and consumer credit firms.
Implementation of the Senior Managers Regime (SMR)
Similar to the approach to Banking firms, firms affected by the SMCR extension will not have to apply for re-approval of their current existing approved individuals’ roles, whose roles move across into the SMCR. In order to ensure that the move to the new regime is as straightforward as possible, firms are urged to identify whether any changes to their existing approvals will be required ahead of commencement.
As an exception to the above, Core firms with a non-executive Chair will be required to submit a Form K (Conversion Notification), notifying the FCA of their wish to convert an approved Non-Executive Director to the SMF9 function which is the Chair Function. In any case a Form K is not submitted for the Chair, the approval will expire at the start of the new regime.
Solvency II firms, large Non-Directive firms (NDFs) and Enhanced firms will must submit Statements of Responsibilities and a Management Responsibilities Map alongside completed Forms K in order to convert existing approved individuals to new Senior Management Functions. In instances where information that was originally submitted is amended, Firms must submit an updated Form K.
Every converted Senior Manager at a small NDF, a small run-off firms, a Core or Limited Scope firm must have a Statement of Responsibility, however they are not required to be submitted to the FCA at conversion. Firms will simply be required to prepared a Senior Manager’s Statement of Responsibilities to the FCA on request.
Certain existing approved roles in insurers, Core and Limited Scope firms will not automatically be converted at commencement of the new regime which will result in existing approvals expiring. The reason being that these roles will no longer require approval by the FCA, however, some of these roles will fall into the Certification Regime.
Implementation of the Certification Regime
The FCA will gradually implement the rules for Certification, enabling Firms to become used to the application of the new regime. Whilst firms must identify Certified staff from day one under the SMCR, they will be granted a one year period in order to complete fitness and propriety assessments.
The application of the Conduct Rules
The Conduct Rules in COCON will apply to Senior Managers and Certified staff from the date of the commencement of the SMR at all firms. Firms will be required to identify all of their Certified staff from day one of the regime. These staff must meet the Conduct Rules straight away, however firms will have 12 months to complete their fitness and propriety assessments and ensure all appropriate certification paperwork has been completed.
Training for ‘Other Conduct Rules staff’ may take longer, therefore the FCA proposes to give Core, Enhanced and Limited Scope firms 12 months from commencement to apply the Conduct Rules to these staff. ‘Other Conduct Rules staff’ are staff who are subject to the Conduct Rules in COCON but who do not hold a Senior Management Function or a Certification Function.
New prescribed Responsibility for Conduct Rules
Prescribed Responsibilities were proposed in CP17/25 for ‘performance by the firm of its obligations in respect of notifications and training of the Conduct Rules.’ Firms must allocate this responsibility to a SMF, who will ensure that the firm meets its obligations relating to the Conduct Rules.
The Prescribed Responsibilities apply to all firms under the proposed extension of the SMCR, however the FCA has confirmed that it proposes to also implement this new requirement for banking firms before the commencement of the extended SMCR. The allocation of this new Prescribed Responsibility will require those firms to amend their existing Statements of Responsibilities, Management Responsibilities Maps and to submit a Form J –‘Significant changes to an approved person’s responsibilities’, through the existing channels.
Proposed Controlled Function to Senior Management Function Transition
The table below maps the current controlled function across to the corresponding Senior Management Function:
|Current controlled function||Corresponding Senior Management Function(s)|
|CF1 – Director||SMF3 – Executive Director|
|CF2 – Non-Executive Director||SMF9 – Chair|
|CF3 – Chief Executive||SMF1 – Chief Executive
SMF19 – Head of Third Country Branch
|CF4 – Partner||SMF3 – Executive Director
SMF27 – Partner
|CF5 – Director of Unincorporated Association||SMF3 – Executive Director|
|CF6 – Small Friendly Society Function||SMF3 – Executive Director|
|CF8 – Apportionment and Oversight Function||SMF29 – Limited Scope|
|CF10 – Compliance Oversight||SMF16 – Compliance Oversight|
|CF11 – Money Laundering Reporting Officer (MLRO)||SMF17 – Money Laundering Reporting Officer (MLRO)|
|CF29 – Significant Management Function||SMF21 – EEA Branch Senior Management Function|
Timing and next steps
Firms have until 21 February 2018 to respond to the latest Consultation Paper. The FCA has confirmed that it will publish its rules, and final approach to transition and conversion, in a Policy Statement in summer 2018.
Our Compliance Team remain abreast of regulatory developments concerning the transition to the Senior Managers Regime and are happy to advise firms on the new requirements. Book a consultation with us today to discuss your needs.
© CPA Audit LLP 2020.