Personal responsibility is at the heart of the Senior Managers and Certification Regime – and along with the new rules, this is something risk managers will now need to start taking seriously.
The FCA has proposed an extension to the current Senior Managers and Certification Regime, which currently only applies to banks. From a date to be announced in 2018, it will apply to all regulated firms and replace the existing Approved Persons Regime.
The regulator has said it wants a ‘proportionate’ approach with a small number of the largest/highest risk firms being subject to an ‘enhanced’ regime, while the majority will need to meet ‘core’ requirements. Some firms that do not conduct regulated business as a primary role will be designated ‘limited scope’.
But, while full details can be seen on the FCA’s website, there will be changes for all firms currently not in the regime. The regulator said it sees this as a “meaningful change in the standards of conduct we expect from those working in the industry”.
And notably, new regulation means change and a rise in risk and for risk managers, now is the time to ensure businesses, and in particular employees, are well prepared.
Senior managers – high expectations
The senior managers in question will need to be clear on their responsibilities and before they can take on the role, they will need to be registered with the FCA. They must also adhere to five broad conduct rules as follows:
- You must act with integrity
- You must act with due care, skill and diligence
- You must be open and cooperative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
There are also four further rules for senior managers:
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
- You must take reasonable steps to ensure the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
- You must take reasonable steps to ensure any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
Keeping a watchful eye on customer-facing staff
There will also be greater demands in terms of supervision of other employees.
The regulation relates to employees who are not senior mangers, but who have the potential to cause ‘significant harm’ to the firm or its customers – so typically those who are customer facing. They will not need to be approved by the FCA, but managers will need to ensure they are fit and proper to do their jobs and to certify this annually.
Sound processes are essential
Risk managers will want to ensure there is understanding of the new regulation and that quality training is provided. Processes may need tightening, such as checking there is proper reference taking, reviewing appraisal and exit procedures and having provision for a detailed handover when a senior manager leaves.
They will also want to bear in mind the comments by the FCA’s supervision director, Jonathan Davidson: “Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the regime is key to driving forward culture change in firms. This is about individuals, not just institutions.”