Additional considerations for solo-regulated firms

Read detailed information on some of the most common questions asked by solo-regulated firms converting to SMCR.

You can also watch on-demand our webinar in which our panel answers firms’ questions about preparing for and implementing SM&CR.

Firms applying for Authorisation

Firms submitting an application for authorisation prior to 9 December 2019 should continue to submit APR Controlled Function applications. At commencement of the new regime, these will be automatically mapped to the corresponding Senior Management Functions. Your Case Officer may request additional information in relation to these Approved Persons applications, for example Statements of Responsibilities.

Regulatory references and criminal records checks for applications before commencement

The rules regarding regulatory references only come into force at commencement of SM&CR on 9 December 2019; regulatory references do not need to be submitted for Approved Persons applications submitted before then. See page 58 of the SM&CR Guide for Solo-Regulated Firms.

Whether or not you need to complete criminal record checks will depend on the Approved Person form used. There is no requirement to complete criminal record checks on the existing APR Form A, but there is on the SM&CR Form A which will be available from 9 September 2019.

Individuals outside the scope of certification

Only individuals who meet the criteria for one or more of the certification functions that we have defined come within the Certification Regime. However, if firms want to extend similar fit and proper assessments to individuals who are outside the Certification Regime on a voluntary basis, they can of course do so.

Payment services and e-money firms

SM&CR applies to firms that are authorised under Part IV of the Financial Services and Markets Act (FSMA). Firms that we regulate only under other legislation, such as the Payment Services Regulations or the Electronic Money Regulations, are not subject to SM&CR. This includes firms such as e-money institutions and Payment Initiation Service Providers.

Delegating Senior Management responsibility

Senior managers can delegate to others – this is a necessity in larger firms. However, this does not reduce their accountability for what they delegate. Senior Managers should ensure that any delegation is reasonable in itself, that the individuals to whom they have delegated are appropriate, for example with suitable skills, and they should retain an appropriate level of oversight (see DEPP 6.2.9E for guidance on what we consider to be reasonable steps in terms of delegation).

CEOs and Chairs

The CEO of a firm can also be the Chair, unless there is another rule that forbids it (for example, under SYSC 4.3A.2, the chair of a common platform firm’s management body cannot also be the CEO). In general, SM&CR itself does not introduce new governance requirements.

Governing bodies and Senior Management Functions

SMFs are not restricted to members of the governing body. In Core firms, many holders of SMFs will in practice be members of the governing body. However, Compliance Oversight (SMF16) and MLRO (SMF17) are examples of functions that will often be held by individuals who are not. For Core firms, we will automatically convert the existing holders of the equivalent controlled functions to the SM&CR.

Compliance Oversight and MLRO functions

In solo-regulated firms, the SM&CR does not introduce any new requirements for firms to create a Compliance Oversight function or an MLRO function. The rules about which types of firm are required to have these functions remain the same as under the APR. Approval to hold an SMF is required only where the function exists in the firm.

The Senior Managers Regime (introduced for dual-regulated insurers in December 2018), requires all insurers to have someone approved to hold the Compliance Oversight function. 

Opting up to include key individuals

Some firms have considered opting up to the Enhanced regime in order to include key individuals in the scope of the Senior Managers Regime, for example, individuals in a parent company. A decision to opt up is a matter for the firm and the FCA doesn’t provide any guidance on when firms might want to do this. Some firms may believe that, on balance, there are advantages to being in the Enhanced regime. One point to consider in this situation is that the SMF3 executive director function extends beyond members of the governing body to include ‘a person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of that body are accustomed to act’.