The regulation affects all firms authorised under the Financial Services and Markets Act (FSMA) and regulated by the FCA, as well as European Economic Area (EEA) and third-country branches.
The FCA has implemented rules in a proportionate manner depending upon the type of firm classification.
The FCA has categorised firms into three types:
Prescribed Responsibilities (PRs) are specific responsibilities that a firm must allocate to a senior manager. The FCA has identified a ‘core’ set of Senior Management Functions that will apply to all firms, although there are some exemptions.
The SoR is a single document that every senior manager will need to have, setting out their role and responsibilities.
Under FSMA every Senior Manager will need to have a Statement of Responsibilities clearly setting out their role and their responsibilities.
Limited Scope firm – Prescribed Responsibilities (PRs) do not apply.
Core firm – There are four main PRs and two further responsibilities depending upon whether a firm is subject to Client Money and Assets (CASS) or Authorised Fund Managers (AFMs).
Enhanced firms - Will need to ensure that every activity, business area and management function has a Senior Manager with Overall Responsibility for it.
Prescribed Responsibilities for all Core and Enhanced firms are:
Additional PRs apply for Enhanced firms including:
The Certification Regime covers people who are not Senior Managers, but who have a job that means that they can have a significant impact on customers, the firm or market integrity. The FCA has confirmed eight Certification Functions which build on the existing functions in the Approved Persons regime.
These important roles can seriously affect how the firm conducts its business.
This will cover people who:
They are a category of staff that all firms under AIFMD, UCITS, IFPRU and BIPRU are already required to identify under the remuneration regime.
These firms need to consider all types of risk when identifying their Material Risk Takers. This includes prudential, operational, conduct and reputational risks. All of these Material Risk Takers will be covered by this certification function.
Applicable to all Firm types. Firms must take responsibility for validating that their Senior Managers, Non-Executive Directors and Certification individuals are fit and proper to perform their roles.
Applicable to all Firm types. Firms must request and provide a regulatory reference for both incoming and departing Senior Managers and Certified individuals. Requests from past employers should go back six years unless it is for serious misconduct, where there is no time limit.
When asked for a regulatory reference, past employers must disclose:
The Individual Conduct Rules apply to all firms and all staff (except those performing ancillary roles). The Conduct Rules are intended to improve standards of individual behaviour in financial services. In addition, there are a set of Senior Manager Conduct Rules applicable only to Senior Managers.
Firms must train relevant staff on how the Conduct Rules apply to their role. Senior managers and certification staff must be trained, and abide by the Conduct Rules from the commencement of the new regime on 9 December 2019.
Firms have 12 months from the start of the new regime to put in place processes to comply with the training and reporting requirements and to train other staff on the Conduct Rules.
Where firms take disciplinary action against a person for breaches of the Conduct Rules the FCA must be notified. If disciplinary action is against a senior manager the FCA must be notified with seven business days of concluding disciplinary action. The notification of other individuals should be made within the firm’s annual reporting.
If you would like to discuss any of the above changes please contact us.