FCA Sets Out it’s Views on Compliance Officer and Money Laundering Reporting Officer Roles in Authorised Firms

Authorised and registered firms must have heads of compliance and Money Laundering Reporting Officers (MLROs). These firms are required to have an FCA-approved Senior Management Function (SMF) holder to carry out these roles (per the FCA Handbook’s entries for SMF16 and SMF17).  However, there is more to this than simply selecting and appointing individuals to fill these roles.

Recently the FCA set out its thoughts on what firms should be considering when looking to make these important compliance appointments in “Heads of compliance and MLRO applicant competency and capability”.  Firms are reminded that individuals appointed to these roles should be both suitably competent and capable of effectively performing them.  For this reason, firms must give careful consideration to how their SMF16 and SMF17 candidates can fully demonstrate these attributes.

The FCA has shared some examples which set out what, in its experience, tends to assist in the successful approval for both of these roles.

Compliance Officer & MLRO – Training

Most successful applicants will have “completed relevant training courses before applying […] for approval.” On the other hand, those “who intend to complete necessary courses after approval” are less likely to be accepted. More specifically, applicants are expected to have:

  • “Attended training courses tailored or relevant to the type of business the firm they propose to work for.”
  • “Attended recent and up-to-date training to provide relevant knowledge of the current regulatory rules and expectations.”
    • If training has not been completed recently, the FCA ““may ask if the candidate has supplemented their training with recent continuous professional development (CPD) courses.”
  • “Attended training courses with sufficient length and depth to gain knowledge to carry out the role.”
    • Here, the regulator notes that “Very short ‘introductory’ training courses, alone, do not provide sufficient coverage or depth to be useful for a head of compliance or MLRO, even in the smallest firms.”

Whilst the FCA does not endorse specific courses or training providers, it points out that courses with an examination or assessment component tend to better demonstrate that an applicant has secured relevant knowledge.

Experience Required for SMF16 and SMF17

Individuals from diverse professional backgrounds and varying levels of seniority can capably serve as heads of compliance or MLROs. Direct previous experience in these roles is not necessary for a successful application—nor is it a guarantee of automatic FCA approval. The regulator notes that:

  • Individual applicants do not need to have held head of compliance and MLRO positions before to be successful. Successful applicants may have held more junior compliance roles in the past, such as compliance manager or deputy MLRO.
  • Previously holding the same or similar approved positions is a good demonstration that someone may be suitable for these roles but does not mean an applicant will be automatically approved.
  • “Successful applications for heads of compliance and MLROs have a range of backgrounds and experience, including in compliance and legal teams, lawyers, accountants, and consultants.”
    • However, the FCA notes: “The experience of an applicant who has only previously worked in a front-line role (and in the absence of other training or experience) is often insufficient to demonstrate that they have the necessary skills and knowledge to establish and operate a compliance function.”

The FCA also accepts that “it may be appropriate and proportionate” for owners or chief executives of small firms to double up as the firm’s head of compliance or MLRO. That said, they “still expect those individuals to have relevant training and experience to ensure their business will comply with the relevant rules and regulations for their firm.”

Third-Party Support

The FCA acknowledges that applicant firms may have varying degrees of external compliance support; external advisors like compliance consultants can help with both FCA applications and the ongoing running of a firm’s compliance function. Whilst it is not a mandatory requirement, the regulator notes that such an arrangement “may be a helpful addition to the firm’s own in-house arrangements.”

With or without external support, the individual who will be accountable for the compliance officer and MLRO function will need to demonstrate that they have “sufficient knowledge and experience themselves to make relevant compliance decisions for the business.”

Capacity

The FCA expects that, whether the role is carried out full-time or part-time, the time allocated to the role must be “proportionate and sufficient”. Additionally, where the appointees for these roles may have another role internally or externally, the FCA will look closely at possible conflicts of interest. Another area subject to scrutiny is the physical location of the head of compliance and/or MLRO applicant.  Here, the FCA notes that “Successful applicants tend to be those working from the firm’s principal place of business in the UK.”

Finally, having taken account of all of the above, even where a firm is confident that their chosen candidates have sufficient experience and training, the regulator may still request an interview to test this and to assess competence and capability.

How Complyport can help

Complyport’s team of specialist compliance consultants provide ongoing bespoke and tailored support to clients in a wide range of sectors. We use our extensive knowledge of financial services regulation, governance and risk in various jurisdictions to alleviate our clients’ compliance burden so that they can focus on what they do best.

Our team can assist FCA regulated firms in ensuring they have expert third-party support, providing the compliance officers and MLROs of firms with knowledgeable trusted advisors who can answer day to day compliance & regulatory queries, advise on compliance best practice, assist in daily compliance tasks and help firms meet the requirements of new and changing regulation.

Working with training partners, such as the London Governance and Compliance Academy (LGCA), Complyport can outline suggested training courses that leaders in compliance and financial crime can attend themselves or sent their teams on to upskill.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

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Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

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