Senior Managers and Certification Regime: solo-regulated firms

Solo-regulated firms are regulated by the FCA only. Dual-regulated firms are regulated by the FCA and the PRA.

The Bank of England and Financial Services Act 2016 extended the banking sector's Senior Managers and Certification Regime (SM&CR) to cover all FSMA authorised firms.

This extension affects almost every firm we regulate, from very small firms and those with limited permissions (including sole traders and consumer credit firms) to some of the largest global firms.

SM&CR will replace the Approved Persons Regime. We are now consulting on the SM&CR for solo-regulated firms.

We are consulting on extending the SM&CR

Tell us what you think – deadline 3 November 2017

Read and feedback on our proposals for solo-regulated firms (firms regulated by the FCA only, not the PRA).

Who it applies to

The SM&CR 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. If a firm is currently subject to the Approved Persons Regime, SM&CR will apply to it.

Key features

There are three key parts to the senior managers and certification regime:

  • the Senior Managers Regime
  • the Certification Regime
  • Conduct Rules

Our proposed Senior Managers Regime

The most senior people ('senior managers') who perform key roles ('senior management functions') will need FCA approval before starting their roles.

Our Handbook will set out which roles are senior management functions. Every senior manager will need to have a 'statement of responsibilities' that clearly says what they are responsible and accountable for.

There are some specific responsibilities that firms will need to give to their senior managers, known as 'prescribed responsibilities'. This is to make sure there is a senior manager accountable for the SM&CR and key conduct and prudential risks.

Some larger firms will also have to:

  • make a senior manager responsible for each of the firm's business functions and activities (these responsibilities are called 'overall responsibilities')
  • provide 'responsibilities maps' setting out the responsibilities of their senior managers, and their management and governance arrangements

At least once a year firms need to certify that senior managers are suitable to do their job.

Our proposed Certification Regime

The Certification Regime will apply to employees who aren't senior managers but whose role means it's possible for them to cause significant harm to the firm or its customers. These roles are called 'certification functions'.

These people won't need to be approved by us, instead firms will need to check and confirm ('certify') that they are fit and proper to perform their role at least once a year. Our Handbook will set out which roles are certification functions.

Our proposed Conduct Rules

We are proposing new, high-level standards of behaviour that will apply to almost all employees who do financial services activities in a firm. Some Conduct Rules apply to all employees, while others only apply to senior managers.

Our proposed Conduct Rules are intended to drive up standards of individual behaviour in financial services. They represent a meaningful change in the standards of conduct we expect from those working in the industry. By applying the Conduct Rules to a broad range of staff we aim to improve individual accountability and awareness of conduct issues across firms.

FSMA requires firms to train their staff so that they know how the Conduct Rules apply to them. Firms must also notify us when they've taken formal disciplinary action against a person for breaching a conduct rule.

Proportionality

We are proposing under the extended SM&CR that FCA solo-regulated firms will be broken into three categories:

  • we're proposing to apply a baseline of requirements to many FCA solo-regulated firms. This will be the 'core regime'
  • we are proposing that a small number of firms whose size, complexity and potential impact on consumers or markets warrant more attention will have extra requirements. This will be the 'enhanced regime'

In addition, we are proposing that for firms who already have exemptions under the Approved Persons Regime, we will maintain these exemptions. These firms are known as 'limited scope firms', and will typically have fewer senior management functions for example. This mirrors how the Approved Persons Regime applies to these firms at the moment.

Timeframe

The Treasury sets the timetable for implementation of the regime. We expect that the regime will commence from 2018.