The SM&CR regime was introduced to Banks in 2016 and is being expanded to cover all regulated firms by December 2019. However the FCA lacked the legal power to impose the regime on Appointed Representatives as the legislation which introduced the regime means that it can only be rolled out to directly authorised firms.
There have been concerns about how Appointed Representatives would be affected by the regime as their network would become their “Senior Manager” on the basis that it handles members’ compliance.
To help alleviate some concerns the FCA has announced that it will create a new directory of individuals who will be required to evidence themselves as being fit and proper to undertake their role within a regulated firm – this will include Appointed Representatives.
The directory will detail where they work, what roles they hold, what type of business they are qualified to do and whether there are any regulatory sanctions or prohibitions against them.
Under SM&CR, individuals who hold a senior management function at a regulated firm can be held accountable for failings at the firm. Similar to controlled functions, Senior Manager Functions (SMF’s) will need to be approved by the FCA. Every senior manager will need to complete a statement of responsibilities explaining what they are responsible for and therefore accountable for within their business. In summary, SM&CR is rolling out the concept of individual accountability.
Meanwhile the certification element of SM&CR will mean employees whose role could potentially cause significant harm to the firm or customers will not need to be approved by the FCA. However, firms will need to check and certify that these staff are fit and proper (F&P) to perform their role at least once a year – this includes assessing honesty, financial soundness and competence (something a number of banks are still grappling with).
One of the prescribed responsibilities to be allocated to a person holding a senior management function is the responsibility for assessing the F&P standards for those people falling under the certification element of SM&CR. Nobody is going to relish taking on this responsibility unless there are robust systems, controls, policies and procedures in place to ensure that there is adequate supervision of the persons falling under the certification regime and they remain fit and proper.
So what does this all mean for Appointed Representatives?
In order to change the current scope of the SM&CR so that it covers Appointed Representatives, there would need to be a change in legislation, which is not likely to happen before the 9th December 2019. However the FCA has said it is likely to make this change in the future. Appointed Representatives and those that act as their “Senior Manager” will need to continue monitoring the ongoing situation.
As the Network will be the Senior Manager of the Appointed Representatives and therefore somebody within the Network will be individually accountable. Therefore, the Network should and hopefully will insist on monitoring robust systems and controls ensuring Appointed Representatives remain fit and proper. Appointed Representatives must expect increased supervision from the Networks.
The current arrangements whereby Appointed Representatives hold a CF1 (Director Function) of the Network will change. In the majority of situations the Appointed Representative will fall under the Certification element of SMCR.
The current CF30 (Customer function) will disappear and those currently registered under CF30 will fall under the certification element.
In the rare situations where a Network believes that somebody within the Appointed Representative holds a role that could cause significant harm to the firm or customer but currently does not hold a controlled function (CF), the Network may insist that the person now falls under the certification element.
In summary, although Appointed Representatives currently fall outside of the SM&CR, we would advise that they prepare for this to change. The change will be driven by the Network as a result of the increased accountability, especially individual accountability. As we have said, this will mean more robust systems and controls which will lead to more reporting and increased audit trails. Appointed Representatives can keep ahead of the pack by getting themselves familiar with the requirements now and thinking about how the potential impacts could impact their role later down the line.
Appointed Representatives need to endorse the change and not fight it as at some point in the near future the legislation will change and that is when the playing field could become much tougher, and all individuals holding advice giving Appointed Representatives roles will sit within the Regime.
We would encourage all Appointed Representatives to take the time now to ensure that you fully understand the impacts of SM&CR, and start planning for its impact on your role. Keep yourself ahead of the regulatory curve and don’t leave SM&CR as a job for tomorrow.
We are helping a number of firms with their SM&CR implementation, so contact us today to speak with one of our experts about how we can support you.