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As part of our sector-focused series, we have spoken with our in-house PSLs to outline the key legal trends to watch in Financial Services as 2019 draws to a close.
This article focuses on recent changes in the Financial Conduct Authority’s (FCA) regulations around the Senior Managers and Certification Regime (SM&CR). Additionally, the ramifications on FCA power of the August 2019 House of Commons Treasury Committee report: “The work of the Financial Conduct Authority: the perimeter of regulation”.
On 9 December 2019, the Financial Conduct Authority (FCA) is extending the Senior Managers and Certification Regime (SM&CR) to solo-regulated firms.
From this date, the SM&CR will apply to almost all firm authorised under the Financial Services and Markets Act 2000 and to branches of non-UK firms with permission to carry out regulated activities in the UK.
The FCA created the SM&CR to expand the scope of individual liability, focusing on senior management responsibility and creating a firm-wide ‘culture of accountability’ in order to reduce consumer harm and strengthen market integrity.
The SM&CR marks a fundamental shift in the FCA’s regulatory approach to individuals and compliance with the SM&CR is a top supervisory and enforcement priority for the FCA.
Most solo-regulated firms’ SM&CR preparations should be well underway. By day one of the extension, all firms are required to have identified those employees who meet the definition of one or more Certification Functions and trained their Senior managers and Certification staff in the Conduct Rules.
Among other requirements, firms will have 12 months in which to train their remaining staff in the Conduct Rules and certify their Certification staff as ‘fit and proper’.
For all SM&CR firms it is critical to embed a culture of individual engagement and accountability at all levels. Increasingly, the FCA, and indeed other international bodies like the Financial Stability Board, consider that the process of cultural change, of assessing and managing culture, and corresponding governance should be a top priority for financial services firms.
Comprehensive coverage on the extension of the SM&CR and the regulator’s expectations on developing a culture of accountability can be found in our sub-topic: Authorisation, approval and supervision > Senior Managers and Certification Regime, which includes:
Overview: Senior Managers and Certification Regime
Practice Note: Senior Managers and Certification Regime policy development and key dates
Practice Note: Practical steps FCA solo-regulated firms should take to prepare for the SM&CR extension
Practice Note: The FCA’s expectations around culture in financial services firms
Practice Note: The Directory—a public register of key individuals working in financial services
Practice Note: Application of the SM&CR to claims management companies
In August 2019, the House of Commons Treasury Committee published a report entitled “The work of the Financial Conduct Authority: the perimeter of regulation”.
In the report, the Committee argued for increased powers to be granted to the FCA following a string of scandals including the failure of London Capital and Finance and wider questions around the regulation of so called ‘mini-bonds.
In particular, the Committee recommended that:
In October 2019, the Treasury Committee published the government’s and FCA’s responses to the Committee’s report. In its response, the FCA stated that it shared the Committee’s:
However, the government does not see the case for providing a formal power for the FCA to request changes to the perimeter, arguing that ministers should decide on the perimeter of regulation.
It also said that turning data on unregulated entities over to the FCA would substantially increase the regulator's workload and so hinder its ability to supervise the nearly 60,000 financial services companies for which it already has responsibility.
Whether or not the FCA will be granted enhanced powers to enforce against consumer harms therefore remains to be seen.
For more information, see our sub-topic: Regulated activities—specified activities and investments.
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Amy is an established writer and researcher, having contributed to publications, such as The Law Society, LPM, City A.M. and Financial IT. Her role at LexisNexis UK involved leading content and thought leadership, as well as writing research reports, including "The Bellwether Report 2020, Covid-19: The next chapter" and "Are medium-sized firms the change-makers in legal?"
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