11.09.2019

FCA policy statement on optimising the Senior Managers & Certification Regime

The FCA has published Policy Statement (PS) 19/20: Optimising the Senior Managers & Certification Regime (SMCR).

PS19/20 summarises the feedback the FCA received to Consultation Paper 19/14 and its response to the feedback, setting out changes to the SMCR.

The main changes to the existing rules discussed in the PS include:

confirming that the Head of Legal function is not required in SMR
amending the intermediary revenue criterion for the Enhanced regime
clarifying the requirements and scope of the Certification Regime
extending Senior Manager Conduct Rule 4 (SC4) to non-approved Executive Directors at Limited Scope firms

This PS also incorporates final rules on the application of the Directory of financial services workers, confirming the FCA’s final rules as consulted on and outlined in PS19/7. This means that banking firms and insurers can start submitting data on Directory persons using online system Connect or the multi-entry facility from around September 2019. All other firms can start submitting data as of 9 December 2019, following commencement of the SMCR for solo-regulated firms.

Firms, including authorised CMCs, affected by these changes will move to the new regime on 9 December 2019. Handbook references in this PS refer to the rules set out in the accompanying Instrument.

For CMCs still operating on a temporary permission on 9 December 2019, the rules will apply from the date the firm is fully authorised. The approach to these firms is set out in PS19/9 and in the final rules in the Instrument that companies this PS.

The FCA has confirmed that the Head of Legal function is not required to be approved as a Senior Manager because it was not possible to effectively apply the SMCR to these individuals due to the laws governing legal privilege. However, these individuals would still be subject to the Certification Regime and Conduct Rules. They would also be identified as a Senior Manager when performing another Senior Management Function (SMF), such as Chief Operations Officer or Compliance Oversight.

Non-Retail Mediation Activity B firms with the relevant permissions will be required to self-assess annually and notify the FCA if they have (as a 3-year rolling average) over £35m in regulated revenue from the activities undertaken using the permissions below:

retail investment activities
advising on P2P agreements (except when carried on exclusively with or for professional clients)
advising on pensions transfers & opt-outs
arranging (bringing about deals) in retail investments
home finance mediation activity
insurance mediation activity (non-investment insurance contracts)

Firms who meet the Enhanced criteria need to notify the FCA before the 9 December 2019. They will then have 1 year to implement the requirements of the Enhanced regime.

The FCA has amended the scope of the Client Dealing Function under the Certification regime to provide firms with the flexibility to exercise judgement on whether a role requires certification. An individual who has no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill is excluded from the regime. The relevant factors that firms would be required to consider in assessing individuals include whether the role:

is simple or largely automated
involved exercising discretion or judgement

For Core and Limited Scope firms, if a Senior Manager holds and SMF and also performs a Systems and Controls role, and if it differs significantly from their SMF role, they are required to be certified for Significant Management Certification Function under the Certification regime.

SC4 currently apply to Senior Manager and non-approved non-executive directors (NEDs) in UK firms. Following the changes, SC4 will also apply to the non-approved Executive Directors at Limited Scope firms.

Further information:
To read more, please follow this link:
https://www.fca.org.uk/publication/policy/ps19-20.pdf