Extension of Senior Managers Regime and Certification Regime

Firms should be aware that on 15 October HM Treasury issued a policy paper advising that:

  • the Government considers it appropriate to extend  the Senior Managers Regime (SMR) and the Certification Regime (CR) to all financial firms  and
  • to replace the ‘presumption of responsibility’ for senior managers with a ‘duty of responsibility’ i.e. the burden will be upon the regulators to prove that a senior manager has failed to take reasonable steps to prevent regulatory breaches in their area of responsibility.

The Treasury paper advises that the extended regime should come into operation ‘during 2018’.

Those requiring further information on the SMR and the CR can refer to e.g. CP15/22 and PS15/21 (note that CP15/31 includes amendments to the then proposed rules).

By way of background, the principle of ‘accountability’ will be strengthened next year (7 March) when the Senior Managers Regime and the Certification Regime come into being.  The regimes will be applicable to every ‘relevant authorised person’ which, in its simplest form, is either:

  • a firm with permission to accept deposits or
  • an investment firm that has permission for dealing in investments as principal and when carried on by it that activity is a PRA-regulated activity.

Each senior manager will have a ‘statement of responsibilities’ (SUP 10C.11) which must be consistent with the firm’s ‘management responsibilities map’ which is required under SYSC 4.5.9. The regime operates on a ‘presumption of responsibility’ i.e. where a firm incurs a regulatory breach the relevant senior manager can be fined unless they satisfy the FCA that they took reasonable steps to avoid the breach.  The CR will apply to individuals that do not fall under the SMR but whose roles are deemed capable of causing ‘significant harm’ to the firm or its customers; the Handbook refers to ‘FCA-specified significant-harm functions’ – see table in SYSC 5.2.30.  Such employees will not be able to undertake any of these functions unless the firm has issued the individual with a ‘certificate’ – which will be valid for 12 months – stating that it is satisfied that said individual is fit and proper to perform the function.

Under this new framework the code of conduct as enshrined in APER will cease to apply to employees of relevant authorised persons and instead a new code of conduct (COCON) will apply.  The new code will apply to both those subject to the SMR (SUP 10C – the table in SUP 10C.4.3 specifies the FCA-designated senior management functions) and those subject to the CR (SYSC 5.2). COCON will not be restricted to only approved persons e.g. it will capture those with significant responsibility for a ‘significant business unit’.  Note that from 7 March 2017 COCON will be extended to apply to virtually any employee of a relevant authorised person.  The only exceptions will be those employees who perform functions listed in COCON 1.1.2(2) such as ‘audio visual technicians’ or ‘vending machine staff’ etc.

For the avoidance of doubt APER (“approved perons”), and not COCON, will for now continue to apply for other firms.

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