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Coronavirus: FCA Senior Managers & Certification Regime

The FCA recognises that firms directly affected by coronavirus will have to keep governance arrangements under review. It recently published a statement for solo-regulated firms, setting out expectations under the Senior Managers and Certification Regime (SMCR) at this challenging time.

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Published 20 April 2020

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The FCA recognises that firms directly affected by coronavirus will have to keep governance arrangements under review and adapt as and when circumstances change due to coronavirus-related events. Senior Managers should be considering what impact the current coronavirus situation may have on emerging and existing risks, and how best to manage these.

The FCA recently published a statement for solo-regulated firms, setting out their expectations under the Senior Managers and Certification Regime (SMCR) at this challenging time. We summarise below some of the key points:

(1) Firms are not required to have a single Senior Manager responsible for their firm’s coronavirus response.

(2) As firms may need to make temporary arrangements in order to cover absences amongst Senior Managers or changing responsibilities as the pandemic evolves, the FCA has explained that it does not intend to enforce the current requirement for firms to submit updated Statements of Responsibilities, provided that:

  • the change is made to cover multiple sicknesses, or other temporary changes in responsibilities in direct response to the pandemic; and
  • the change is temporary and is expected to revert to the firm’s previous arrangements after the coronavirus pandemic has subsided.

However, any such changes (however temporary in nature) should be clearly documented internally so that there is a clear picture of who is responsible for what within a firm. Firms are not expected to notify the FCA of these temporary arrangements under Form D.

(3) The FCA reserves the right to see any such documentation if they request it, so it is important that firms keep appropriate internal records if changes are made and ensure that Statements of Responsibilities, role profiles and Responsibilities Maps (if applicable) are kept up to date.

(4) The FCA intends to issue a Modification by Consent to the 12-week rule to support firms using temporary arrangements for Senior Management Functions during the pandemic. The 12-week rule allows an individual to cover for a Senior Manager without being approved, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks. If temporary arrangements last longer than 12 weeks as a result of the crisis, firms can notify the FCA that they consent to a modification of the 12-week rule in order to extend temporary arrangements for up to 36 weeks.

(5) Firms will also be able to allocate the Prescribed Responsibilities of an absent Senior Manager to the individual who is standing in for the absent Senior Manager. However, the FCA would expect firms to allocate the Prescribed Responsibilities of the absent Senior Manager to another approved Senior Manager if possible.

(6) The FCA should be informed of any furloughed Senior Manager. Senior Managers who have been furloughed are not required to be re-approved by the FCA when they return. However, firms are still required to ensure that the Senior Manager is fit and proper

The FCA and PRA have also issued a joint statement regarding their expectations for dual-regulated firms. Key points to note are:

(1) Dual-regulated firms must allocate responsibility for identifying ‘key workers’ to the CEO (SMF1).

(2) Dual-regulated firms must also have individuals performing one of the following combinations of SMFs at all times:

  • CEO (SMF1) CFO (SMF2) and Chair of the governing body (CRR firms and Solvency II insurers);
  • Head of Overseas Branch (SMF19) (UK branches of third-country banks and insurers);
  • Small Insurer Senior Management Function (SMF25) (small, non-Solvency II insurers); or
  • Head of Small Run-Off Firms (SMF26) (small, run-off insurance firms).

Individuals performing these SMF roles and other SMFs required by the FCA (e.g. Money Laundering Reporting Officer) should only be furloughed as a last resort.

If an individual performing one of the mandatory or required SMFs referred to above becomes absent, then the firm must appoint another individual to continue performing this SMF. If the replacement is temporary, the firm can use the 12-week rule to arrange cover.

(3) If an individual performing an SMF is furloughed, they will retain their approval during their absence and will not need to be re-approved when they return unless they are permanently leaving their post.

(4) The FCA and PRA have also stated that dual-regulated firms should continue to take ‘reasonable steps’ to compete any required annual certifications of employees that are due to expire while coronavirus restrictions remain in place.

If you have any queries about your specific circumstances, our specialist Employment team are here to help.

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Shorter Reads

Coronavirus: FCA Senior Managers & Certification Regime

The FCA recognises that firms directly affected by coronavirus will have to keep governance arrangements under review. It recently published a statement for solo-regulated firms, setting out expectations under the Senior Managers and Certification Regime (SMCR) at this challenging time.

Published 20 April 2020

Associated sectors / services

  • Employment law for employers
  • Financial regulatory
  • Financial services

Authors

The FCA recognises that firms directly affected by coronavirus will have to keep governance arrangements under review and adapt as and when circumstances change due to coronavirus-related events. Senior Managers should be considering what impact the current coronavirus situation may have on emerging and existing risks, and how best to manage these.

The FCA recently published a statement for solo-regulated firms, setting out their expectations under the Senior Managers and Certification Regime (SMCR) at this challenging time. We summarise below some of the key points:

(1) Firms are not required to have a single Senior Manager responsible for their firm’s coronavirus response.

(2) As firms may need to make temporary arrangements in order to cover absences amongst Senior Managers or changing responsibilities as the pandemic evolves, the FCA has explained that it does not intend to enforce the current requirement for firms to submit updated Statements of Responsibilities, provided that:

  • the change is made to cover multiple sicknesses, or other temporary changes in responsibilities in direct response to the pandemic; and
  • the change is temporary and is expected to revert to the firm’s previous arrangements after the coronavirus pandemic has subsided.

However, any such changes (however temporary in nature) should be clearly documented internally so that there is a clear picture of who is responsible for what within a firm. Firms are not expected to notify the FCA of these temporary arrangements under Form D.

(3) The FCA reserves the right to see any such documentation if they request it, so it is important that firms keep appropriate internal records if changes are made and ensure that Statements of Responsibilities, role profiles and Responsibilities Maps (if applicable) are kept up to date.

(4) The FCA intends to issue a Modification by Consent to the 12-week rule to support firms using temporary arrangements for Senior Management Functions during the pandemic. The 12-week rule allows an individual to cover for a Senior Manager without being approved, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks. If temporary arrangements last longer than 12 weeks as a result of the crisis, firms can notify the FCA that they consent to a modification of the 12-week rule in order to extend temporary arrangements for up to 36 weeks.

(5) Firms will also be able to allocate the Prescribed Responsibilities of an absent Senior Manager to the individual who is standing in for the absent Senior Manager. However, the FCA would expect firms to allocate the Prescribed Responsibilities of the absent Senior Manager to another approved Senior Manager if possible.

(6) The FCA should be informed of any furloughed Senior Manager. Senior Managers who have been furloughed are not required to be re-approved by the FCA when they return. However, firms are still required to ensure that the Senior Manager is fit and proper

The FCA and PRA have also issued a joint statement regarding their expectations for dual-regulated firms. Key points to note are:

(1) Dual-regulated firms must allocate responsibility for identifying ‘key workers’ to the CEO (SMF1).

(2) Dual-regulated firms must also have individuals performing one of the following combinations of SMFs at all times:

  • CEO (SMF1) CFO (SMF2) and Chair of the governing body (CRR firms and Solvency II insurers);
  • Head of Overseas Branch (SMF19) (UK branches of third-country banks and insurers);
  • Small Insurer Senior Management Function (SMF25) (small, non-Solvency II insurers); or
  • Head of Small Run-Off Firms (SMF26) (small, run-off insurance firms).

Individuals performing these SMF roles and other SMFs required by the FCA (e.g. Money Laundering Reporting Officer) should only be furloughed as a last resort.

If an individual performing one of the mandatory or required SMFs referred to above becomes absent, then the firm must appoint another individual to continue performing this SMF. If the replacement is temporary, the firm can use the 12-week rule to arrange cover.

(3) If an individual performing an SMF is furloughed, they will retain their approval during their absence and will not need to be re-approved when they return unless they are permanently leaving their post.

(4) The FCA and PRA have also stated that dual-regulated firms should continue to take ‘reasonable steps’ to compete any required annual certifications of employees that are due to expire while coronavirus restrictions remain in place.

If you have any queries about your specific circumstances, our specialist Employment team are here to help.

Associated sectors / services

  • Employment law for employers
  • Financial regulatory
  • Financial services

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