Senior Management Regime

By Lora Benson | Dec 12, 2016
The Senior Management Regime was effective from March 2016 for banks. However, this is due to filter through to personal investment firms (PIFs) in 2018 and will replace the existing Approved Person Regime as detailed in the Handbook.

The Senior Management Regime was effective from March 2016 for banks. However, this is due to filter through to personal investment firms (PIFs) in 2018 and will replace the existing Approved Person Regime as detailed in the Handbook. The FCA are in the process of consulting and reviewing how the regime will impact PIFs and how this will be applied. A number of firms have been contacted by the FCA asking them to complete a questionnaire as part of this consultation. This means we are waiting for final guidance on this but below is a summary of how the regime would impact PIFs as it stands at the moment - small adjustments may be applied.

Senior Managers are defined as ‘those responsible for managing one or more aspects of a firm’s affairs…. And those aspects involve a risk of serious consequences for the firms or for the business or other interest in the UK’.  ‘Managing’ in this context means ‘taking decisions or participating in the taking of decisions about how one or more aspects of the firm’s affairs should be carried on’. Usually this will include board members and executive committee members. However, it can include individuals who have ultimate responsibility and oversight of activities such as Compliance, IT, HR.

Senior Managers are subject to a ‘duty of responsibility’. This is a statutory requirement to take reasonable steps to prevent regulatory breaches in their areas of responsibility. Senior managers will need to be pre-approved by the FCA.

Senior managers will be subject to annual fit and proper assessments and assessments of their competency in the role that they are in.

It is proposed that ‘Statements of Responsibility’ (SOR) will be introduced with the aim of improving the firm’s governance. The SOR will have to include a succinct, clear description of each responsibility held by the individual. The SOR must be documented as a standalone document and not include any cross references to any other documents. This will need to be submitted along with the pre-approval application to the FCA.

Firms will also have to have a ‘Responsibility Map’ which seems to be like a comprehensive organisational chart. The document will need to show the reporting lines, who is responsible for what and who has ultimate responsibility for that job.

All senior managers will have a DBS check conducted on them, the fullest report possible.  This can be obtained by a third party. References will also have to be obtained.

Firms will have to have comprehensive documented handover procedures which can be used in the event of someone else taking over that role.

The Certification Regime will apply to individuals who are not a Senior Manager but who can cause significant harm to the firm or its customers i.e. a ‘Significant Harm Function’. People categorised in this area by the firm will not have to be pre-approved by the FCA but it will be for the firm to determine and have evidence that they are fit and proper for the role that they have and are competent. If it transpires later that the individual was not fit and proper, then the responsibility will fall on the shoulders of the senior managers i.e. they are held accountable. It is for the firm to decide what ‘fit and proper’ looks like.

Advisers would be included under this regime. Anybody who has the CF30 now should be grandfathered across to the new regime.

There will be a new set of Code of Conduct rules which will be detailed under COCON of the Handbook: -

Individual Conduct rules:

  • The firm will be responsible for ensuring their fit and properness
  • You must act with integrity
  • You must act with due skill, care and diligence
  • You must be open and cooperative with the FCA, the PRA and other regulators
  • You must pay due regard to the interests of customers and treat them fairly
  • You must observe proper standards of market conduct

Senior Management Conduct Rules:

  • You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
  • You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
  • You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively
  • You must disclose appropriately any information of which the FCA or PRA would reasonable expect to notice

The firm will be required to notify the FCA if anyone in the firm breaches the rules relevant to them. This will mean that firms will need to provide training to their staff on what the rules are and what they mean to them.

So, what do firms need to do?

Well final guidance needs to be published but firms need to be aware that they will need to start to consider whether any of their team will come under the Senior Management Regime. If there is, then discussions will need to be held to make them aware of the new rules and what it means to them once they are finalised.

At some point next year, firms will need to review their governance documents and recruitment procedures to make sure they meet the new rules.