One of the last pieces of the SM&CR jigsaw has been put in place with today’s publication of FCA’s Policy Statement PS19/20.
The PS gives us FCA’s near-final rules on the extension of the SM&CR to solo-regulated (i.e. FCA-only) firms, including claims management companies. It also provides the final rules on the new Directory of individuals working in financial services.
You should take time to study the document if you are involved with one of the following:
• a bank, or insurer that is also subject to PRA’s Senior Managers Regime (SMR)
• a solo-regulated firm authorised under FSMA (excluding benchmark administrators)
• a claims management company (CMC)
• an EEA, or third-country branch
The main changes to the FCA’s existing rules discussed in the PS include:
• confirming that the Head of Legal function is not required in SMR
• amending the intermediary revenue criterion for the Enhanced regime
• clarifying the requirements and scope of the Certification Regime (CR) to systems and controls roles
• extending Senior Manager Conduct Rule 4 (SC4) to non-approved Executive Directors at Limited Scope firms
The PS also incorporates final rules on the application of the Directory of financial services workers. This means that banking firms and insurers can start submitting data on Directory persons using Connect, or the multi-entry facility, from around September 2019.
All other firms can start submitting data as of 9 December 2019, following commencement of the SM&CR for solo-regulated firms.
Firms, including authorised CMCs, affected by these changes will move to the new regime on 9 December 2019. For CMCs still operating on a temporary permission on 9 December 2019, the rules will apply from the date the firm is fully authorised.
CR roles clarification relates to:
1) Amending the scope of the Client Dealing Function to exclude an individual who has no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill. The amended rule has been drafted in a way that provides firms with the flexibility to exercise judgment on whether a role requires certification. The relevant factors that firms will be required to consider in assessing individuals include whether the role:
• is simple or largely automated
• involves exercising discretion or judgment
The FCA states:
“While we gave some examples in the CP, it is not possible for us to give an exhaustive list of all the ways an individual could be considered to be undertaking client dealing activities within the published definition. This will depend on the firm’s business and the way responsibilities have been allocated across its staff. This is equally true for paraplanners who may be required to exercise judgement on behalf of clients.”
2) Clarifying the positioning of Systems and Controls roles within the CR. This applies only to Core and Limited Scope Firms (Enhanced firms are required to have a S&C SMF). Given the importance of Systems and Control roles, FCA considers that they merit inclusion in the Certification Regime as a Significant Management Certification Function. No new rule changes are proposed in this area, but new guidance will help to ensure that firms assess the fitness and propriety of individuals performing S&C roles.
SYSC has been redrafted so that the current CF28 – Systems and Controls Function is included as an example of a person who performs a Significant Management Certification Function. The FCA will NOT be introducing a new S&C function within the CR.
If a Senior Manager Function holder in an Enhanced firm also performs a Systems and Controls role, they may need to be Certified for the Systems and Controls part of their role if it differs significantly from their SMF role.
Amending the intermediary revenue criterion for the Enhanced regime
This relates to the question posed in the previous CP:
“Do you agree with our proposed notification requirement for relevant intermediaries that do not submit RMA-B and our approach to the period before commencement? If not, please explain why.”
Some firms that FCA intended to be in scope of the intermediary revenue criteria (which are not changed) were not caught by the near-final rules. So, FCA proposed to make some changes to Non-Retail Mediation Activity (RMA) B firms to bring them into scope of the criteria.
Non-RMA B firms with the relevant permissions will be required to self-assess annually and notify FCA if they have (as a 3-year rolling average) over £35m in regulated revenue from the activities undertaken using the permissions below:
• retail investment activities
• advising on P2P agreements (except when carried on exclusively with or for professional clients)
• advising on pensions transfers & opt-outs
• arranging (bringing about deals) in retail investments
• home finance mediation activity
• insurance mediation activity (non-investment insurance contracts)
Firms that notify FCA that they meet the Enhanced criterion before the 9 December 2019 will then have 1 year to implement the requirements of the Enhanced regime. Once a firm no longer meets these criterion, it must notify FCA of this, and the Enhanced regime will cease to apply from 1 year after the date of the notification.
As part of their self-assessment, if a firm determines they breach the Enhanced threshold, they should contact FCA. If a firm has breached the Enhanced threshold on or before 1 August 2019 and it has notified FCA before 9 December 2019, they will be informed once their category has been updated that they need to submit a Form K converting their APR functions to SMFs.
If a firm breaches the threshold on or before 1 August 2019 and they did not notify FCA until after 9 December 2019, they will have 12 months to move into the Enhanced regime and their APR functions will automatically convert at commencement (at the time of commencement, they will still be categorised as Core).
If the firm breaches the threshold after 1 August 2019, they will have 12 months to move into the Enhanced regime and so at commencement their APR functions will be automatically converted to SMFs.
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