Introduction
The SM&CR will apply to all firms across the financial services sector from December 2019 in some shape or form and will replace the existing Approved Persons Regime. This means that you need to start preparing and implementing the internal and external changes now.
Firm Classification
The FCA has classified firms into three categories: Enhanced firms – they will be subject to all of the SMCR requirements; Core firms (this is where the majority of the firms will fall) theywill be subject to a silver standard and will need to implement most of the SMCR requirements and Limited Scope firms who will be subject to a “SM&CR-lite” approach.
Your firm will need to determine which of the above three categories you will fall into, which will then dictate the requirements you will need to meet.
Senior Management Functions
A Senior Management Function (SMF) is a new type of controlled function under FSMA (Financial Services and Markets Act 2000) which will replace the existing CF roles. The people who hold these functions will be known as Senior Managers and in most cases, the existing CF role holders will be automatically migrated by the FCA to their equivalent SMF roles (Core and Limited Scope Firms).
Every Senior Manager will have a Duty of Responsibility under FSMA. This means that if a firm breaches one of the FCArequirements, the Senior Manager responsible for that area could be held accountable if they didn’t take reasonable steps to prevent or stop the breach.
Certification
Certification covers specific functions that aren’t Senior Management Functions, but can have a significant impact on customers, the firm and/or market integrity. The FCA will not approve these indivdiuals. Instead these individuals will need to be identified and approved by the firm who will need to check and confirm (certify) at least once a year that these people are still suitable to do their job.
Conduct Rules
Conduct Rules apply to staff directly and are intended to improve standards of individual behaviour in financial services from the top down and the bottom up. The Conduct Rules are broken down into two tiers. The first is a general set of rules that applies to most employees and Senior Managers. The second tier of rules only apply to Senior Managers.
First Tier – Individual Conduct Rules
1. You must act with integrity
2. You must act with due care, skill and diligence
3. You must be open and cooperative with the FCA, the PRA and other regulators
4. You must pay due regard to the interests of customers and treat them fairly
5. You must observe proper standards of market conduct
Second Tier – Senior Manager Conduct Rules
SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
Breaches of conduct rules will need to be reported to the FCA.
Mo has a particular specialism in FCA regulation and has worked with a broad range of financial services organisations. He has provided advice across the regulatory spectrum including the implementation of the Senior Managers and Certification regime, General Data Protection Regulation as well as guiding firms through the FCA regulatory approval process and associated notifications.
Mo holds a Law Degree, a Masters in Law as well as the respected Diploma in Governance, Risk and Compliance from the International Compliance Association.