SMFs - Statement of Responsibilities

From 9 December 2019, every SMF will have to have an up-to-date Statement of Responsibility (SoR) on file which clearly sets out their roles and responsibilities. The FCA has issued guidance regarding how a SoR should look like. The key principles are:

• The SoRs should only state the responsibilities and accountabilities (not how they are executed)

• Each SMF must have one SoR, even if they hold multiple SM functions within the same firm

• The SoR must be self-contained (not refer to other documents) and should not exceed three pages.

• The SoR should clearly reflect: Prescribed responsibilities, Other Responsibilities and Supporting information

 

Duty of Responsibility

The extension of SM&CR introduces the new ‘Duty of Responsibility’ for Senior Managers. This enables the FCA to hold individuals directly accountable for a regulatory breach, where the FCA can evidence that the SMF(s) failed to take ‘reasonable steps’ to prevent the breach happening.

 

For further information about this duty of responsibility, the FCA has published final guidance on enforcing the Duty of Responsibility in solo regulated firms and insurers in PS18/16. This includes information on factors they will consider when assessing whether a Senior Manager has taken "reasonable steps". The guidance is available here.

 

SMFs may wish to keep records of relevant steps they take in case questions are raised; whether by their firm, auditors, insurers or the FCA.

 

SMFs - Fit and Proper Requirements

It should be noted that the fit and proper requirements do extend beyond SMFs, as the FCA expect all individuals within the firms (SMFs, CRs, NEDs and all other staff) to be of good character and competent to discharge their roles.

 

To this end, the Regulatory has provided detailed guidance about how firms should assess a person’s fitness and propriety which should include:

• Honesty, integrity and reputation,

• Competence and capability, including whether the person satisfies any relevant FCA training and competence requirements, and

• Financial soundness.

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In light of the requirements, it is expected of firms to retain additional evidence of the checks they conduct, in particular to:

• Criminal records checks (SMFs and NEDs): Firms must also undertake a criminal records check as part of each Senior Manager application for approval. This requirement also applies to NEDs who are not Senior Managers.

• Regulatory reference: firms must request a reference from Senior Manager and Certification Function candidates’ past employers – known as regulatory references. This will also apply to NEDs who aren’t Senior Managers. As a considerable change, firms are also required to provide update on references (post-issuance) where additional and relevant information comes to light.

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As a result of the new requirements, all firms should:

• Review the disciplinary procedures to ensure that any qualifying issue or incident is captured and such matters are reported on the FCA (where required).

• Review HR procedures (including recruitment procedures) to ensure that the firm can comply with the requirement to provide information on disciplinary procedures, etc where applicable, for regulatory references.

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Impact on Non-executive Directors (NEDs) - Core Firms

The SM&CR Regime does not recognise the “Non-Executive Director” to be a senior manager function (SMF) on its own, and therefore (unlike the current regime), they will not need to be approved by the FCA. Therefore, NEDs who have no other responsibilities, will fall off the FCA register.

 

However, some NEDs also act as Chair which is a recognised Senior Management Function (SMF 9) and thus, such NEDs need to be treated as a Senior Managers.

 

In addition, irrespective to whether NEDs are also SMFs, they will be subject to both the Conduct Rules and fitness and propriety requirements. This means that they will need to be assessed on their fitness and propriety (considering their honesty, integrity and reputation, their competence and capability, and their financial soundness) as well as being subject to criminal records checks and regulatory references requirements.

 

Please note, Core firms with a Non-Executive Chair (currently approved as a CF2) will need to submit Form K to convert that individual to an SMF9 (Chair) under the SM&CR.

 

The FCA has prepared guidance on the typical responsibilities of a NED (under the SM&CR regime), which we suggest all NEDs read. In brief, the role of a NED is to:

• Provide effective oversight and challenge – but not to execute,

• Help develop proposals on strategy.

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Their responsibilities include:

• Taking part in collective board and committee decisions, including voting and providing input and challenge

• Ensuring they are sufficiently and appropriately informed of the relevant matters prior to taking part in board or committee discussions and decisions.

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Before implementation on 19 December 2019, all Core and Enhanced firms should ensure:

• Their NEDs have been trained on how the Conduct Rules affect them personally

• The relevant policies and procedures are updated for ongoing fitness and propriety assessments,

• The relevant policies and procedures are in place for the request of regulatory references for

• Policies and procedures are in place for the undertaking of criminal records checks for

 

Prescribed Responsibilities (PRs)

PRs are specific responsibilities defined in SYSC 24 of the FCA Handbook which must be allocated to the relevant Senior Manager within the firm. Typically, Core firms have five prescribed responsibilities, with an additional one for authorised fund managers. The 5 relevant prescribed responsibilities are:

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