The FCA is also intending to consult on extending the deadline to 31 March 2021, for the following areas which were due to be in force by 9 December 2020. The FCA has said it intends to finalise its policy as soon as possible.

Certification of Fitness and Propriety Rule References:

Although the deadline for certification has been agreed the FCA has said that firms should continue with their programmes of work in this area and, if firms are able to certify staff earlier than 31 March 2021, they should do so. On the other hand, firms should not wait to remove staff who are not fit and proper from certified roles.

Conduct Rules:

Although Senior Managers and Certification Staff needed to have been trained and be abiding by the Conduct Rules from 9 December 2019, firms were originally given 12 months from that date to put in processes to comply with the training and conduct rules reporting requirements and to train their other staff on the Conduct Rules. It is intended that the deadline be extended to 31 March 2021.

With Conduct Rules training, the FCA has emphasised that Senior Managers must ensure that Conduct Rules training is effective, so that staff are aware of the Conduct Rules and understand how they apply to them in their jobs. The FCA will publish more guidance about its expectations on the Conduct Rules in due course.

The Directory:

With regard to submitting details of Certification Staff for the new Directory, which was originally to be in place by 9 December 2020, the FCA has said it will still publish details of certified employees of solo firms starting from 9 December 2020 on the Financial Services Register. Where firms are able to provide information on their certification staff to the FCA before March 2021, they should do so.

As the Certification Regime and reporting of Directory Persons do not apply to Benchmark Administrators there will be no delay in rules applying to them. Benchmark Administrators have until December 2021 to train non-Senior Manager staff in the Conduct Rules.

How we can help

Should you need any guidance or assistance in dealing with matters relating to compliance with FCA or related regulatory matters in general, please contact:

• Jan Hagen – jan.hagen@complyport.co.uk

Read the original release from the FCA below

https://www.fca.org.uk/news/news-stories/extension-smcr-implementation-periods-solo-regulated-firms

The post Compliance News – Extension of SM&CR Implementation Periods For Solo-Regulated Firms first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

As there have been no significant changes in the near final rules compared to the initial proposals (CP17/42) the FCA are minded that no forbearance or leniency will be given to firms who are not wholly compliant with the new rules and requirements on the implementation dates noted above. Coupled with this, the FCA have been generous with the exceedingly long lead time given to firms to implement the regulation.

The FCA’s intended outcomes for SM&CR are to prevent consumer harm and strengthen market integrity. This is intended to be achieved by increasing the accountability of senior managers, focusing on robust governance and by setting higher (if not stricter) conduct standards for staff at all levels within organisations.

Responding to calls from the industry to clarify the application of the conduct rules, the FCA has provided additional guidance and industry specific examples. Now, firms need to develop their own internal conduct risk frameworks and test them to ascertain whether they are likely to meet the FCA’s intended outcomes.

Clarifying the scope of rules for firms that conduct both regulated and unregulated business, the FCA has confirmed that the rules under SM&CR only relate to regulated activities and those functions that support regulated business, such as middle or back office functions.

Proportionality – Defining your firm’s type

Within the FCA’s near final rules, they have published a tool for individuals to assess their SM&CR firm type.  If you are a firm that is currently subject to a limited application of the Approved Persons Regime, then you will be a Limited Scope SM&CR firm.  If your firm is not and you are a firm that is not currently exempt, then you will be a Core SM&CR firm.  Although, your firm will be an Enhanced SM&CR firm if any one of the following bullet points apply:

• You are a ‘Significant IFPRU Firm’;
• You are a ‘CASS Large Firm’;
• Your firm has Assets Under Management of £50 billion or more based on a three-year rolling average (The submission date (return due date) of the first FSA038 return that takes the firm over a three-year rolling average of £50 billion assets under management);
• You are a firm with total intermediary regulated business revenue of £35 million or more per annum, calculated as a three-year rolling average (The submission date (return due date) of the first RMA-B return that takes the firm over a three-year rolling average of £35 million intermediary revenue.);
• Your firm has an annual revenue generated by regulated consumer credit lending of £100 million or more calculated as a three-year rolling average (The submission date (return due date) of the first CCR002 return that takes the firm over a three-year rolling average of £100 million consumer credit lending revenue); or
• You are a mortgage lender or administrator (that is not a bank) with 10,000 or more regulated mortgages outstanding.

First Steps?

A firm’s first steps should include an analysis of the impact of the requirements under SM&CR on the firm’s current arrangements. This would include the firm’s structure in its current form, proposed scope under SM&CR (‘Limited’, ‘Core’ or ‘Enhanced’), policies & procedures, systems & controls, reporting & management information.

When it comes to SM&CR programmes, firms need to ensure they have senior management buy-in and include representatives from all key business areas, including legal, compliance, HR and IT.

Overview

The FCA identifies Senior Management Function (SMF) roles as the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity.  Under the SM&CR regime the FCA will continue to approve such individuals before they perform an SMF role at a firm.  The SM&CR introduces the requirement for firms to consider and produce a Statement of Responsibility (SoR); a single document that each Senior Manger must have to outline what they are responsible and accountable for.  Firms will need to submit this to the FCA when they are making a Form A application for an SMF.  Firms will also need to keep this up to date and resubmit it when there is a significant change to a Senior Managers responsibility.

Prescribed Responsibilities and the sharing of responsibilities

The FCA will publish all Prescribed Responsibilities within SYSC 24 of the FCA Handbook and each firm should review this and assign responsibilities to the relevant Senior Manager as appropriate.

In the near final rules, the FCA has provided guidance on how responsibilities can be allocated. They have paid special attention to areas that have different departments having responsibility for different parts of a process chain. In the publication, the regulator commented that responsibilities should not be shared across different ‘lines of defence’. For example, if an Executive Director has oversight of financial crime policies and procedures, the fact that compliance is involved in the process does not mean they [compliance] should have the responsibility for that area split with them.  Instead, in this instance, the role of compliance would be included in the Supplementary Information part of the Statement of Responsibilities.

When it comes to culture, the FCA has confirmed that there is no prescribed responsibility for this area. Culture is the responsibility of everyone within a firm and not of a particular individual.

Certification Regime

For employees of the firm that are not approved by the FCA for an SSMF, but whose activities have a significant impact on customers, the firm and/or market integrity under SM&CR, the firm will be required to certify such individuals on at least an annual basis.

Firms will need to consider and issue certificates to staff members whose role meets the definition of a Certification Function.  The FCA has issued guidance in terms of factors that firms should consider as part of the certification process and also detail with regard to the information that should be included with the certificates issued by the firm. The FCA highlight that if the firm does not have any individuals performing a Certification Function then the Certification Regime will not apply.

Whilst firms will have to identify staff subject to the Certification Regime when the SM&CR is implemented, firms will have 12 months from this date to complete the initial certification process.

Fitness & Propriety and Reasonable Steps

Under SM&CR firms must ensure that all staff are fit and proper to perform their roles.  It will be mandatory for firms to undertake criminal record checks for SMF roles and they should consider undertaking them if appropriate for Certification Functions.

Additionally, firms should ensure they obtain a regulatory reference for an individual who is seeking to perform an SMF.  The FCA is prescriptive about the information such a reference should include.

Conduct Rules

Conduct rules are to apply to all staff within a firm except for ancillary staff (cleaners, receptionists etc.). The conduct rules will be split into two clear tiers; Individual Conduct Rules and Senior Manager Conduct Rules.  This in essence mirrors the current regime of Principles and Code of Practice for Approved Persons.  The second tier which focuses on SMF holders is attempting to achieve the aim of reflecting that their duty is to oversee and run the firm effectively.

Firms must ensure Senior Managers and Certification Staff have been trained on the new Conduct Rules at the date of SM&CR implementation.

Firms should note that they will be required to report to the FCA when disciplinary action has been taken against a person for a breach of the Conduct Rules.  If the breach was by a Senior Manager this should be notified within seven business days.  For breaches by all other individuals these should be reported to the FCA via the new REP008 GABRIEL return.

Closing Comments

Due to the nature of the regulation when it comes to scope and territoriality, in some situations, overseas based senior managers and certified persons will be captured by SM&CR, although the FCA is continuing with its proposed approach to the territorial limitations for certified and conduct staff.  The FCA is waiting until there is clearer guidance relating to Brexit before it will give further guidance for UK branches of EEA firms.

As we make our way towards 9 December 2019, we will continue to update this article or produce additional ones as and when further information becomes available.

Firm should consider the impact SM&CR will have upon their firm and any action that they are required to take to ensure full compliance with the regime upon implementation.  If you have any questions or would like assistance in making such assessment or project planning for SM&CR, please contact us at: info@complyport.co.uk

The post FCA releases near final rules on SM&CR for FCA regulated firms. first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

The Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”) currently maintain a public Financial Services Register (“the FS Register”) of the firms they regulate and the individuals they have approved.

In July 2017, the FCA published proposals to extend the Senior Managers & Certification Regime (SM&CR) to almost all regulated firms.

Under these proposals, the FCA will only approve the most senior individuals within firms and, as a consequence, only Senior Managers will appear on the FS Register.

The FCA has created three new classifications of firms: ‘Enhanced Firms’ which, will be subject to requirements more akin to the banking SM&CR rules; ‘Core Firms’ (the majority) who will be subject to baseline requirements, and firms who already have exemptions under the Approved Persons Regime will be  ‘Limited Scope Firms’.

All firms will continue to be responsible for assessing the fitness and propriety of their employees and ‘certifying’ certain individuals who are not Senior Managers, but whose jobs mean they can still have a significant impact on customers, firms and market integrity.

However, the new rules would mean that individuals holding the controlled functions CF10A (CASS operational oversight function) for Core and Limited Scope firms, CF28 (Systems and Controls Function), CF29 (Significant Management Function), and CF30 (Customer Function) would not appear on the FS Register once the new SM&CR is implemented.

In response to these proposals, the FCA received substantial feedback on the public value of the FCA maintaining a central public record of certification employees and other important individuals in firms regulated by the FCA, including non-executive directors, financial advisers, traders and portfolio managers.

As a result of this feedback, the FCA will consult by summer 2018 on policy proposals to address this feedback.

In addition, the FCA plans to issue an update ‘shortly’ on its work to improve the usability of the FS Register, which incorporates feedback from the Work and Pensions Select Committee.

The post SM&CR: FCA to consult on proposals to make information available on a wider range of individuals at authorised firms first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

The FCA is consulting on its package of proposals on how firms and individuals will move to the Senior Managers and Certification Regime (“SMCR”) in late 2018 for Insurers and in mid-to-late 2019 for solo-regulated firms (to be announced and set by HM Treasury). The aim of this new regime is to make individuals more accountable for their conduct and competence.

The FCA has previously consulted on extending the SMCR to almost all regulated firms. However, given the differences in the size and nature of firms covered by the extension, it is now proposing proportionate approaches for different types of firms.

For the majority of FCA regulated firms, the FCA is proposing to automatically convert individuals from the Approved Persons Regime to the SMCR. This means the majority of firms will not need to submit applications to convert Approved Persons to Senior Managers. Instead, the FCA are expecting firms to focus on embedding the cultural changes the new regime introduces and making sure staff know what they need to do.

They’re also consulting on extending the ‘Duty of Responsibility’ (currently applying only to Senior Managers of banks) to insurers and firms solely regulated by the FCA; under which, Senior Managers are responsible and accountable for the business areas they lead.

The FCA can take action against the Senior Manager responsible where their firm has contravened an FCA requirement in their part of the business. To do this, the FCA must show that the Senior Manager did not take reasonable steps to avoid the breach occurring or continuing.

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. Extending the Senior Managers and Certification Regime will drive forward culture change in financial services firms.

‘This next set of our proposals outline our plans for a smooth transition to the new regime, which is simple, clear and proportionate. Indeed, the vast majority of firms will not need to submit applications to convert existing Approved Persons to Senior Managers.’

The FCA is also considering what effect the move to the SMCR will have on the Financial Services Register.

The post FCA proposing to automatically convert individuals from the Approved Persons Regime to the Senior Managers and Certification Regime first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

It is to be made clear to all authorised firms and their staff that the FCA expects good conduct in all financial markets and activities, not just those covered by regulatory rules and principles.

The proposals in CP17/37 follow several high-profile cases of serious misconduct in unregulated wholesale financial markets by individuals working at authorised firms, and the development of a number of new codes of conduct to cover some of those activities and raise standards.

The CP17/37 proposals will also be relevant to a wider group of firms as the FCA is currently consulting on extending its Senior Managers and Certification Regime (SMCR) to all authorised firms when HM Treasury sets the implementation date (likely to be in the second half of 2018). The SMCR does not apply to firms which are not authorised under the Financial Services and Markets Act 2000.

Limited Scope Firms will typically have fewer Senior Management Functions than firms in the core SMCR, maintaining the exemption for firms which already have exemptions under the current Approved Persons Regime.

The FCA are concerned that failure of authorised firms and their staff to meet appropriate standards of conduct in unregulated markets may harm broader confidence in the operation of regulated financial markets.

All authorised firms are therefore invited to comment on the FCA proposal to extend the application of FCA Principle 5 – A firm must observe proper standards of market conduct – to unregulated activities.

The FCA have advised they may take enforcement action in cases of serious and egregious misconduct leading to harm or potential harm, particularly where they consider the firm or individual has not adhered to the SMCR rules and/or FCA-recognised industry codes of conduct that, in their view, set out proper standards of market conduct for unregulated markets and activities.

The post FCA CP17/37 Industry Codes of Conduct and Discussion on Principle 5 Market Conduct first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .