Senior Managers and Certification Regime (SMCR) (2)

YOUR COMPLIANCE MATTERS:   Senior Managers and Certification Regime (SMCR) (2);

-      Senior Manager Functions (SMFs) and

-      Statement Of Responsibilities (SoRs) 

Relevance:                    All firms.

 Action required:           Decide who are the Senior Managers and create Statements of Responsibilities

 SMCR is coming

 The implementation date is Monday 09 December 2019

 Background

Earlier this year, we issued an overview of the incoming SMCR. There are only 5 whole months after this one for firms to ensure that they have made the necessary preparations to ensure the actions necessary have been taken.

 There are 3 key parts to the SMCR:

•      the Senior Managers Regime;

•      the Certification Regime; and

•      Conduct Rules.

 This newsletter concentrates on the aspects of the Senior Managers Regime that firms must attend to.

 We will continue to issue further newsletters covering the other key parts to the SMCR over the next few months. We will also be working with individual firms, either by request or as part of our normal monitoring arrangements.

 SMCR Firm Type

 We believe that most client firms will be categorised as “Core” firms and our guidance is based on the requirements for that category.

 Remember, you can check your firm’s category using the FCA’s “Firm Checker tool”, found at https://www.fca.org.uk/decision-tree/firm-checker-tool

 Senior Manager Regime (SMR)

 The SMR will be applied using the following areas; Senior Manager Functions and Statements of Responsibilities.

 Senior Manager Functions (SMFs)

 The FCA guidance on this matter is repeated here to re-emphasise the importance of who must be approved by the FCA when the SMCR is in place:

“We call the people who hold these functions Senior Managers. They are the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity. We make particular functions SMFs so that we know who a firm’s most senior decision makers are, and to make sure firms clearly allocate responsibilities to those key individuals. Anyone who performs an SMF needs to be approved by us before they can start their role.”

 SMFs are designated as follows:

•      SMF1:       Chief Executive;

•      SMF3:       Executive Director;

•      SMF9:       Chair

•      SMF16:     Compliance Oversight (not applicable General Insurance Brokers).

•      SMF17:     Money Laundering Reporting Officer (not applicable General Insurance Brokers).

•      SMF27:     Partner

Please note the Senior Management Functions that will apply to any firm are dependent upon its permissions and activities; the above table is not firm specific.

On Implementation Day, those listed as Approved Persons in the Financial Services Register will be automatically mapped across to Senior Management Functions. The vast majority of firms will not need to submit any notification to the FCA as part of this process.

  

Current controlled function	Corresponding Senior Management Function(s)
CF1 – Director	SMF3 – Executive Director
CF3 – Chief Executive	SMF1 – Chief Executive
CF4 – Partner	SMF27 – Partner
CF10 – Compliance Oversight	SMF16 – Compliance Oversight
CF11 – Money Laundering Reporting Officer (MLRO)	SMF17 – Money Laundering Reporting Officer (MLRO)

The only exception to this is non-executive directors (NED) (CF2 under the APR). NEDs will either cease to be approved on implementation, although they will still be subject to the Conduct Rules or if they are the Chairman, will take on the SMF9 (Chairman function) which must be notified to the FCA before implementation. This is largely because an individual in this position is likely to be chairing and overseeing the performance of the role of the governing body of the firm and tends to have the decisive vote.

A new application is required for this SMF (known as a Form K). We believe, however, very few firms will have, or require, a NED ‘Chair’.

It is, therefore, imperative to ensure that you have the right people registered to the right roles before this mapping exercise takes place.

A person can hold more than one function. The responsibility for the function cannot be outsourced, but the work around it can.

Appointed Representatives (including Introducer Appointed representatives)

·          It is worth noting that the SMCR will not apply to Appointed Representatives. The FCA has clarified that ARs are “outside of scope” and the relevant legislation does not give them power to apply the SMCR to these firms.

·          ARs will continue to be subject to the existing Approved Persons Regime. They will continue to be subject to the existing Statements of Principle and Code of Practice for Approved Persons as outlined in the APER section of the FCA Handbook.

Statement of Responsibilities (SoRs)

According to the FCA, a SoR should be drafted:

·          to show clearly the responsibilities that the candidate or senior manager is to perform as part of their controlled function and how they fit in with the firm’s overall governance and management arrangements;

·          to be practical and useable by regulators;

o  the FCA consider that this would be achieved by succinct, clear descriptions of each responsibility and would not usually expect the description of each responsibility to exceed 300 words, which avoid unnecessary detail;

·          to be a self-contained document;

o  there should be one statement per senior manager per firm;

o  it must not cross refer to other documents, attachments or links.

So, the individual Statements should all fit together to evidence that there are no gaps in a firm’s control structure. Ensuring all areas are covered and getting buy-in from Senior Managers well ahead of the deadline means less chance of last-minute changes or deadline-driven decisions.

 SoR Template

 Further information and guidance available:

 https://www.fca.org.uk/publication/finalised-guidance/fg19-02.pdf

 A sample template for a SOR is attached. If you need to discuss any aspect of this newsletter, please contact us.

Senior Managers Regime – Statement of Responsibility (SOR)

Firm Name
Firm Type	Core

Senior Manager Name
Senior Manager Function SMF (1, 3, 27 or 9)	e.g. SMF3 Executive Director

Reason for production of SOR	e.g. Initial document
Date of production

Note:   The SOR does not need to be submitted to the FCA but must be available for inspection on request. SOR must be reviewed regularly and updated as needed. Previous versions of SOR must be retained for a minimum of 6 years.

Prescribed responsibilities:

Note:   the following responsibilities (apart from item z, which only applies if the firm has client money permissions) must be allocated to at least one Senior Manager (although no one individual has to take responsibility for them all). In producing the individual SOR, delete those responsibilities entirely accepted by other Senior Managers.

Handbook Reference	Prescribed responsibility	Does it apply to the firm?	Is this Prescribed Responsibility shared? If so, with whom?
a	Responsibility for the firm’s performance of its obligations under the senior managers regime	Yes	No
b	Responsibility for the firm’s performance of its obligations under the employee certification regime	Yes	No
b-1	Responsibility for the firm’s obligations for: (a) conduct rules training; and (b) conduct rules reporting.	Yes	No
d	Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime	Yes	No
z	Responsibility for the firm’s compliance with CASS (if applicable)	Yes	No

Other responsibilities:

Note:   The following is not an exhaustive list of the other responsibilities to be recorded but is included as a guide, for personalisation to each individual Senior Manager. Items specific to the firm can be added, or irrelevant items deleted, as appropriate.

Title	Details of Responsibility	Is this responsibility shared, if so with whom?
Appointed Representatives	Responsibility for the firm’s appointment and ongoing supervision of ARs and IARs
Business Continuity	Responsibility for the maintenance and testing of the firm’s BCP
Business Strategy
Complaints
Compliance
Customer Service
Data Protection
Data Security
Finance
FCA notifications (other than under b-1 above)
HR
IT
Management information
Marketing and Financial promotions
Monitoring delegated activities/Outsourcing
Record Keeping
Recruitment
Remuneration Policy
Risk Assessment
RMAR Submission
Sales Practices and Methods
General Training and Competence

 Supplementary Information:

Note;   e.g. provide additional information, as needed, for any shared responsibilities, more detail on the reason for production, if an updated version of a previous SOR.

Signed by individual
Signed by CEO or fellow Director/partner

Notes can be deleted once finalised