9 December 2020 will mark one year since the SM&CR (Senior Managers and Certification Regime) replaced the Approved Persons Regime for solo-regulated firms. It's also the deadline for those firms to submit a list of certified individuals to the FCA. So what should firms be doing now, how does the current coronavirus pandemic affect things and what do they need to consider?
The aim of the Senior Managers and Certification Regime (SM&CR) is to 'reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence' according to the FCA.
In summary, this is what the new regime means:
- The most senior people (‘senior managers’) performing key roles need FCA approval before starting their roles.
- The Certification Regime applies to employees who aren’t senior managers but whose role means it’s possible for them to cause 'significant harm' to the firm or customers. These roles are called ‘certification functions’. These people don’t need to be approved by the FCA, but firms need to check and certify that they are fit and proper to perform their role. This has to be done at least once a year, and firms need to submit a list of their certified employees to the FCA.
For solo-regulated firms, the first deadline for submitting this information is 9 December 2020.
There are templates provided by FCA, along with tips on how to submit information.
- The FCA will list certified persons on the enhanced Financial Services Register from December 2020, so consumers and others can check the credentials of advisers and others in financial services.
- The Conduct Rules are high-level standards of behaviour that apply to almost everyone in the sector. There are also some Conduct Rules that only apply to senior managers. Firms need to make sure staff are trained in and know that the Conduct Rules apply to them, and to notify FCA when someone breaches a conduct rule.
Hopefully firms have already got to grips with the basics and are implementing the changes. But what impact might the coronavirus have on the regime?
Covid-19: what you need to think about
The FCA set out its expectations of solo-regulated firms during the Coronavirus in early April. In essence, 'temporary' changes to senior managers do not have to be reported to the FCA, but do have to be recorded by the firm.
So, your firm should be keeping detailed records of any changes to your senior management during the coronavirus. However, the FCA also said in a recent statement: 'We do not require firms to have a single senior manager responsible for their coronavirus response. Firms should allocate these responsibilities in the way which best enables them to manage the risks they face.'
That means you don't have to have one senior manager responsible, but it does mean all senior managers and certified individuals need to consider the impacts.
We spoke to Alexandra Carn, Partner, Employment, at Edwin Coe LLP for her views on what advisers need to think about, particularly in the current circumstances.
"The concept of ‘fit and proper’ has been changing over time. It has moved from primarily concerns over financial propriety and extended to areas such as breaches of post-termination restrictions and #metoo. There is a broader application, and it could apply to how your firm and staff respond to Covid-19. If the firm or staff don't follow government guidelines that could be an issue. It's about behaviour in general, and people in a social and moral context, not just financial."
Firms also need to think about what happens if they need to furlough staff.
"In novel circumstances like these, dealing with staff is difficult. The law is constantly changing, there is no precedent and government guidance is often far from clear. Even the experts don’t have all the answers. The FCA have coronavirus pages which have useful info, including who is a key worker, the SM&CR and other regulatory matters,” says Alexandra.
"If you don't know what you're doing is right, or are unsure that what you're doing is going to be considered compliant, get in touch with your regulator and get their buy-in. If difficulties arise later, you can say you consulted with your regulator. The regulator may forgive quite a lot, but they will not forgive firms who do nothing to try and ensure compliance. Similarly the courts may be forgiving where firms are fighting to survive, but not if they’ve done nothing to record and show how they tried to be compliant."
New technology and compliance
What about compliance when everyone is working from home – can technology help?
"To some extent, for example course analytics can tell you who has logged on and completed training. But sometimes firms are going back to old methods, for example when considering the need to record telephone calls when everyone is working from home. Recording a call may not be possible. What some firms are doing are ensuring that their advisers type up a detailed note, which is logged by compliance,” she says.
“New technologies will emerge as a result of new compliance requirements but also due to changing working practices. So this a good time to be looking at what new technology can do both now and in the future.”
Getting your records in order
Finally - the logistics. When should firms start to think about compliance issues under SM&CR?
"It's always better to do it sooner rather than later, but it's still some way off. But don't forget if you're making temporary changes because of the current pandemic, you do need to keep good records. When you come to submit your list of certified individuals the best way is to use the FCA Connect system and their templates, but if you need help you can go to your compliance adviser. You can also ask your designated contact at the FCA. But remember to check the FCA website, look at their templates and their 'top tips' for completing them. That's a great starting point."