Senior Managers and Certification Regime: solo-regulated firms

The Senior Managers and Certification Regime (SM&CR) replaced the Approved Persons Regime (APR) for solo-regulated firms from 9 December 2019. The regime aims to reduce harm to consumers and strengthen market integrity. It sets a new standard of personal conduct for everyone working in financial services.

Extension of SM&CR implementation periods for solo-regulated firms: The Treasury has agreed that the deadline for firms to assess the fitness and propriety of their Certified Persons will be delayed until 31 March 2021. We also propose to extend the deadline for the following requirements from 9 December 2020 to 31 March 2021:

  • • the date the Conduct Rules come into force, for staff who aren't Senior Managers or Certified Persons
  • • the date by which relevant employees must have received training on the Conduct Rules
  • • the deadline for submission of information about Directory Persons to the FS Register

Find out more about the extension.

Who it applies to

This extension affected almost every solo-regulated firm, from very small firms (including sole traders and limited permission consumer credit firms) to some of the largest global firms.

It also applies to branches of non-UK firms with permission to carry out regulated activities.

Guide for solo-regulated firms

The SM&CR Guide for solo-regulated firms is a summary of our final rules and guidance on SM&CR. It gives an overview of how the SM&CR works.

The Guide was last updated in July 2019. In this update, we included:

  • Information on claims management companies
  • An explanation of the policy relating to the Head of Legal role
  • An update to the definition of client dealing
  • An explanation of the status of partnerships
  • An update to the section on territoriality
  • Clarification of the definition of oil market participants and energy market participants that fall within the Limited Scope category
  • Clarification on thresholds for Enhanced firms (relating to the reporting process)

Guidance on Statements of Responsibilities and responsibilities maps

We published guidance to help solo firms with producing Statements of Responsibilities and (for enhanced firms) responsibilities maps. This guidance explains the purpose of these documents and contains questions for firms to consider. It also contains some examples.

Although aimed at solo firms, it may also be of interest to banks and insurers.

How the SM&CR applies

For solo-regulated firms, there are 3 categories under the SM&CR:

  • Limited Scope: these firms will be exempt from some baseline requirements and will typically have fewer Senior Management Functions. Firms that already have exemptions under the Approved Persons Regime will be Limited Scope.
  • Core: firms in this tier will have to comply with the baseline requirements.
  • Enhanced: this will apply to a small number of firms whose size, complexity and potential impact on consumers or markets warrant more attention. These firms will have extra requirements.

Your SM&CR categorisation

You are responsible for determining which category you fall into, based on the rules. It is important to make sure you are correctly categorised, as your category determines how the SM&CR applies to you. You can find out which category of the regime your firm belongs to by reading the SM&CR Guide for solo-regulated firms, particularly section 2, and our Handbook.

Applications in progress at Commencement of the SM&CR

  • Core and Limited Scope firms - we have automatically converted Approved Persons Regime applications in progress at Commencement to applications for the relevant SMF. You needed to send a Statement of Responsibilities for your application to your Case Officer by 16 December 2019. If a Case Officer had not been assigned to your application, you should have sent us the Statement of Responsibilities by responding to the acknowledgement email you received when you submitted the application. The paper Statement of Responsibilities is found here.
  • Enhanced firms – we have converted Approved Persons Regime applications in progress at Commencement to applications for the relevant SMF, as long as these applications were included in your Form K.

The 3 key parts of the SM&CR

The Conduct Rules

The Conduct Rules set minimum standards of individual behaviour in financial services. By applying the Conduct Rules to a broad range of staff, we aim to improve individual accountability and awareness of personal conduct issues across firms.

The Conduct Rules will apply to almost all employees who carry out financial services activities, or linked activities, in a firm. Some Conduct Rules apply to all employees, while others only apply to Senior Managers.

For more information, read section 11 of the SM&CR Guide for solo-regulated firms (PDF).

You can also listen to our Podcast on Conduct Rules for practical tips.

The Senior Managers Regime

The most senior people ('Senior Managers') who perform key roles ('Senior Management Functions') will need our approval before starting their roles.

Every Senior Manager will need to have a 'Statement of Responsibilities' that clearly says what they are responsible and accountable for. Our Guidance on Statements of Responsibilities and responsibilities maps can help you prepare these documents.

For more information, read section 4 of the SM&CR Guide for solo-regulated firms (PDF).

If you were required to submit a Form A for functions required under the new regime, this had to be done by 11.59pm on 8 December 2019. Please note Authorisations has a 90-day statutory period to determine applications, as such, depending when you submitted the application, it wouldn't have been determined by commencement of the new regime. As long as you submitted applications for required functions by the deadline, the FCA won’t take any further action.

The Certification Regime

This applies to employees whose role means it's possible for them to cause significant harm to the firm, its customers or the market more generally. These roles are called 'Certification Functions'.

These people won't need to be approved by us. Instead, firms will need to check and certify that they are fit and proper to perform their role at least once a year. 

For more information, read section 9 of the SM&CR Guide for solo-regulated firms (PDF). 

You can also listen to our Podcast on the Certification Regime, which covers the practical steps firms need to take.

Ongoing requirements for firms

The Certification Regime and Fitness and Propriety Checks

  • Make sure that you understand which of the Certification Functions apply to your firm. (Limited Scope firms may not have any Certification Functions.)
  • Identify the individuals within your firm that need to be certified on an annual basis.
  • Ensure that the annual fitness and propriety checks for Certification staff and Senior Managers fit into your firm’s existing HR and other processes.

Regulatory References and Criminal Records Checks

  • Assess how the Criminal Records Checks and Regulatory Reference requirements fit into your firm’s existing recruitment processes.
  • Ensure that your firm has the appropriate processes to obtain Criminal Records Checks for new Senior Managers and confirm your firm is registered with the DBS, Disclosure Scotland or Access NI (as relevant).
  • Ensure that your firms has the appropriate processes to obtain and provide regulatory references (see pages 41-42 of SM&CR Guide for solo-regulated firms (PDF) for more information).

Conduct Rules

Make sure that you:

  • Can identify your firm’s ancillary staff (i.e. those to whom the Conduct Rules do not apply).
  • Understand the Conduct Rules training and reporting requirements for Senior Managers and all other staff.
  • Consider how staff will be made aware and trained so that they understand how the conduct rules apply to them in their roles.

Other considerations

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.

One further point to consider 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’.

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.

Individuals outside the scope of certification

Only individuals who meet the criteria for one or more of the Certification Functions 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.