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SM&CR and Coronavirus – The FCA’s Expectations of Solo-Regulated Firms

The FCA has published its expectations to help solo-regulated firms apply SM&CR. The Senior Managers and Certification Regime (SM&CR) came into effect for FCA solo-regulated firms late last year, on 9 December. The regulator states that it does not require firms to have a single Senior Manager responsible for their coronavirus response and firms should instead allocate these responsibilities in the way which best allows them to manage the risks they face.

What are a Senior Manager’s responsibilities?

According to the FCA, Senior Managers are responsible for risks in their areas of responsibility. As such, they should consider:

  • where the current situation might lead to emerging risks, and
  • how it affects existing risks, along with the controls used to manage them

The FCA also states that it anticipates that some firms may need to make temporary arrangements to cover absences or change Senior Manager responsibilities as a result of the pandemic.

It does not intend to enforce the requirement on firms to submit updated Statements of Responsibilities (SoRs), if the change:

  • is made to cover multiple sicknesses, or other temporary changes in responsibilities in direct response to the pandemic, and
  • is temporary and expected to revert to the firm’s previous arrangements

This is to reduce the burden on firms at this time.

However, any allocations, even if temporary, must be documented internally so that those within the firm are clear on who is responsible for what. Such documentation must be available if the FCA requests it, either now or in the future. A firm’s internal documentation should be kept up to date, including SoRs, role profiles and Responsibilities Maps (Enhanced firms only).

Firms are not expected to notify the FCA of these temporary changes under Form D. However, it states, “Fixed firms should nevertheless supply the FCA with timely detail of the changes they would normally include in updated SoRs. Firms should update their FCA supervisors of any furloughing of one or more Senior Managers by emailing or calling us.”

The FCA intends to issue a Modification by Consent to the 12-week rule to support firms using temporary arrangements during the crisis.

This 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. Where 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 such cases, temporary arrangements can be extended up to 36 weeks.

Again, firms are required to document these responsibilities – even if they are temporary – on SoRs and Responsibilities Maps.

Firms will also be able to allocate the Prescribed Responsibilities (PRs) of the absent Senior Manager to the individual who is standing in for the absent Senior Manager. Usually these can only be allocated to another approved Senior Manager and, if possible, firms are still expected to do this.

The FCA states that, “Firms should still allocate to the most senior person responsible for that activity or area, who has sufficient authority and an appropriate level of knowledge and competence to carry out the responsibility properly. The covering manager will require access to the governance forums they need to exercise their responsibilities.”

The regulator does not expect firms to submit the updated SoRs of the absent Senior Manager or of Senior Managers who take on the responsibilities of the absent manager, but these must still be documented internally.

The FCA has previously stated that some individuals captured by the Senior Managers Regime may considered to be key workers. There may be cases where firms decide to furlough Senior Managers if they are unable to fulfil their responsibilities due to illness, caring responsibilities or if they have no current practical responsibilities, for example.

The Senior Manager in question will retain their approval during their absence and will not need to be re-approved by the FCA when they return (providing that they haven’t permanently left their post). The firm retains responsibility for ensuring the Senior Manager remains fit and proper for the role.

The FCA explains that, “if a firm is subject to the Overall Responsibility rule in SYSC 26, the responsibilities of the furloughed Senior Manager must be allocated to another Senior Manager. If the firm is relying on the 12-week rule, the replacement does not need not be a Senior Manager.”

Regarding Prescribed Responsibilities, firms should reallocate those of a furloughed Senior Manager to another Senior Manager. However, if the firm appoints a temporary replacement under the 12-week rule, the proposed Modification by Consent allows a firm to reallocate the Prescribed Responsibilities to the replacement, even if they are not a Senior Manager.

Individuals performing required functions should only be furloughed as a last resort. These would include, Compliance Oversight, money laundering reporting officer (MLRO) and the Limited Scope Function. However, if a firm does this and the function applies to their firm, they should replace the furloughed individual until their return. For temporary replacements, firms can arrange cover using the 12-week rule. Firms must ensure that the allocation is appropriate and complies with FCA rules.

As other Senior Management Functions are not ‘mandatory’ firms will have greater flexibility to furlough the individuals performing them. If a firm temporarily suspends a business service or function due to the disruption caused by coronavirus it could furlough the Senior Manager responsible for it.

The coronavirus situation changes day by day, so its important for firms to keep up to date.

Don’t forget that RWA is able to help. If you need any support, please get in touch with your RWA business manager or contact us via the helpdesk on 01604 709509 or helpdesk@rwagroup.co.uk.

The FCA has a section dedicated to coronavirus on its website  click here to access it.

For the latest government guidance, go here: https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public

About the author

Ash Patel
MANAGING DIRECTOR

Ash is managing director at RWA. He has over 15 years’ experience in the legal and compliance field and ten years’ in broker sales and leadership roles in national and global insurance firms.

He is highly skilled in the application of risk-based regulation, working closely with businesses at executive and board level to develop commercially viable, compliant systems and controls. Ash is adept in providing solutions-based interpretations of the FCA’s technical standards and facilitating the transfer of compliance skills and education needed for businesses to self-manage their own compliance and training needs.