FCA outlines proposals to extend the Senior Managers and Certification Regime to all financial services firms

26 Jul 2017 03:04 PM

In October 2015, HM Treasury announced its intention to extend the Senior Managers and Certification Regime (SM&CR) to all sectors of the financial services industry.

The Financial Conduct Authority (FCA) yesterday published proposals to extend the SM&CR to almost all regulated firms. The new regime will essentially replace the Approved Persons Regime.

The aim of the new regime is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. As part of this, the SM&CR aims to:

  • encourage a culture of staff at all levels taking personal responsibility for their actions.
  • make sure firms and staff clearly understand and can demonstrate where responsibility lies.

The FCA proposes three parts to the SM&CR:

  1. Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. This simple set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.
  2. The responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.
  3. Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.

Jonathan Davidson, Executive Director of Supervision- Retail and Authorisations at the FCA, said:

“Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms.

“This is about individuals, not just institutions. The new Conduct Rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with.  The regime will also ensure that Senior Managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”

The FCA is committed to ensuring that the regime is proportionate according to the size of the firm, and therefore proposes applying a baseline of specific requirements to all regulated firms, called the “core regime”. For the largest and most complex firms (fewer than 1% of regulated firms) the FCA proposes some extra requirements, under the “enhanced regime”.

Insurers currently apply a revised version of the FCA’s Approved Persons Regime and the Prudential Regulation Authority’s Senior Insurance Managers Regime. The FCA proposes to build on this framework and introduce all elements of the Senior Managers and Certification Regime to insurers.

Notes to editors

  1. CP17/25: Individual accountability - extending the Senior Managers and Certification Regime
  2. CP17/26: Individual accountability - extending the Senior Managers and Certification Regime to insurers
  3. The SM&CR does not apply to firms who are not authorised under the Financial Services and Markets Act.
  4. The proposals do not affect Approved Persons of Appointed Representatives of firms. We intend to confirm our approach to the SM&CR for Appointed Representatives in a follow-up Consultation Paper. Principal firms, including the Senior Managers of principal firms, remain fully responsible for ensuring that their Appointed Representatives and networks comply with our rules.
  5. The FCA proposes maintaining the exemption for firms who already have exemptions under the Approved Persons Regime. These firms will be in a category called ‘Limited Scope Firms’, and will typically have fewer Senior Management Functions than firms in the core regime. This mirrors how the Approved Persons Regime applies to these firms at the moment.
  6. HM Treasury will set the implementation date for the extended regime.  The expectation is that implementation will be from 2018.
  7. The extra requirements for the largest and most complex firms includes Responsibilities Maps, Handover Procedures, and will need to make sure that there is a Senior Manager responsible for every area of their firm (‘Overall Responsibility’).
  8. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  9. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  10. Find out more information about the FCA.