This post summarises the steps which core and limited scope and enhanced firms are likely to have to take in order to adhere to the regime. To promote internal discussion and planning around these changes, we summarise a few of the steps which will be required relative to SMCR.
Although only senior managers have to evidence their compliance with the SMCR, virtually every member of staff within a financial services firm has to have had their professional competence certified, CPD assessed and their conduct evaluated at least annually. Again, this should be documented and reported on to the FCA.
Who does this apply to?
So banks have had to meet these standards for the past couple of years but now the rules have been extended to cover almost all Financial Services Firms from Insurers to IFA’s, essentially it will apply to all FSMA authorised firms. It also applies to branches of non-UK firms with permission to carry out regulated activities in the UK.
The FCA have created three new classifications to allow the requirements to be applied in line with potential risk. Enhanced which, will have expected to meet requirements that are similar to the banking SM&CR rules; Core (which applies to the majority) and Limited Scope who will have a lighter set of requirements. The regime applies per legal entity so if you have more than one legal entity in your firm then you need to apply the regime to each one, again adding complexity and admin so you may want to consider a system like ours.
What are the requirements?
We have summarised these below
Enhanced Firms have 17 SMF’s; 12 Prescribed Responsibilities and some additional Overall Responsibilities. Full details are in Chapter 7 of the FCA paper itself.
Core Firms have 6 SMF’s to report on which comprise of 4 Governing Functions namely Chief Executive; Executive Director; Partner; Chair and 2 Required Functions; Compliance Oversight and Money Laundering Reporting Officer. There are also 5 Prescribed Responsibilities that must be given to Senior Managers and an additional responsibility for Authorised Fund Managers if relevant– remember to duplicate this for each legal entity!
Limited Firms have 3 SMF’s, SMF 29, Limited Scope Function; SMF16, Compliance Oversight; SMF 17, Money Laundering Officer. The Governing Functions will depend on specific permissions and activities and the FCA direct you to their handbook to read about these. No Prescribed Responsibilities apply to Limited Scope firms.
Implementation of the SMCR rules – your action points:
- Identify appropriate business functions and business areas across all entities that are within the regime as relevant authorised persons. This includes identifying the FCA’s 27 categories of activity are already allocated
- Identify current Significant Influence Function (SIF) holders of relevant entities and consider how they will be grandfathered over into new roles under the new regime. Confirm these are suitable.
- Identify any territorial scope issues relating to the location of key personnel and teams.
- Review current organisational charts and reporting lines for all impacted entities to collaborate in analysis of which individuals will have total responsibility for key functions by reporting to the Board and which individuals are senior but do not require to be approved as Senior Managers within the key business area function. In complex groups review reporting lines out of the UK or into the UK and to group entities. Roles that have dual responsibility actually carry 100% responsibility each.
- If reporting lines and organisational charts are not fully up to date or detailed, update to ensure they reflect the status before overlaying the new SMCR regime requirements.
- Identify who will perform FCA SMFs (regardless structure of business).
- Identify applicable responsibilities and functions for every Senior Manager.
- Assess and map application of SMFs to business model.
- Propose relevant re-organisation of structure to meet requirements relative to allocation of responsibility, where necessary.
- Consult and agree with individual employees on the relevant responsibilities.
- ( If necessary) restructure business areas reporting to Senior Managers in order to reach agreement relative to Statements of Responsibilities.
- Draft template Statements of Responsibilities for different Senior Managers, where possible based upon existing job descriptions or any model statements provided by guidance from the regulators or elsewhere to follow requirements.
- Ensure Statements of Responsibilities take into consideration collective decision-making and delegation where appropriate.
- Implement reorganisation and change of reporting lines as required.
- Establish processes for recruitment of Senior Managers which ensure that fitness and propriety, training and other issues have been taken into account ahead of time.
- Establish processes for annual assessment of Senior Managers.
- Possible recruitment for flexible, multi-availability with capacity, temporary compliance consultants to manage processes, including project management.
- Educate Senior Managers on their responsibilities and processes and establishing processes for Senior Managers in regard to delegation.
- Formulate plan for engagement with FCA in relation to approval process.
- Draft forms for submission to FCA for approval.
For Enhanced Firms only:
- Write out firm management responsibilities map. In complex groups ensure that this takes proper account of relationships with other group entities for business silos.
- Ensure that there is a Senior Manager with responsibility in every activity, business area and management function in the firm.
- Ensure Statement of Responsibilities dovetailed holistically across all Senior Managers in addition to working at an individual level, ensuring that there are no gaps in or duplications of responsibilities.
- Review and/or implement policy for handover procedures, laying out what information a new Senior Manager will have to hand when replacing a predecessor.
If you are a UK authorised firm, Compliance Consultant specialise in UK Regulatory Financial Services Governance Risk & Compliance, and can assist your firm in the preparations for the SM&CR. Just search Google for “Compliance Consultants, London” and look for our tag on Google Maps (we’re usually # 1).
We can assist in your governance monitoring and general compliance and risk management for an inexpensive solution and help you create the reports and responses you may need in differing situations. Call today!
Other blog posts on SMCR
Senior Managers & Certification Regime https://wp.me/p7OMfd-2mj
SMCR: Client dealing function CF30 https://wp.me/p7OMfd-2n4
Head of Legal https://wp.me/p7OMfd-2mm
Systems & Controls https://wp.me/p7OMfd-2nb
SMCR: Intermediary revenue criteria for the enhanced tier https://wp.me/p7OMfd-2n7
SMCR: Limited Scope Firms https://wp.me/p7OMfd-2nd
Lee Werrell Chartered FCSI
0207 097 1434