Senior Managers and Certification Regime: FCA expectations of solo-regulated firms

On 3 April, the FCA published a statement setting out its expectations of solo-regulated firms in relation to the Senior Managers and Certification Regime ('SM&CR') in light of COVID-19

06 April 2020

This article was written by Natalie Lim.

The FCA has previously provided guidance on SM&CR on its webpage providing information for firms on COVID-19 response. In particular, firms are not required to have a single senior manager responsible for their COVID-19 response. Firms should instead allocate these responsibilities in a way best enables them to manage the risks they face.

In summary:

Senior management responsibilities

Senior managers should consider where the current situation might lead to emerging risks, how it affects existing risks, and controls used to manage them.

Statements of responsibilities and significant changes to senior manager responsibilities

The FCA has confirmed that it does not intend to enforce the requirement on firms to submit updated Statements of Responsibilities, provided that:

  • The change is made to cover multiple sicknesses, or other short-term changes in responsibilities in direct response to the COVID-19 pandemic
  • The change is temporary and expected to revert to the firm’s previous arrangements. 

Nonetheless, the regulator expects allocations (however temporary) to be clearly documented internally and made available on request (now or in the future). Such internal records should aim to keep a 'running commentary' of their Senior Manager population and their responsibilities during this period, which includes keeping Statements of Responsibilities, role profiles and Responsibilities Maps (if applicable) up to date. 

Temporary arrangements for senior management functions

The FCA intends to issue a modification by consent to the 12-week rule to support firms using temporary arrangements. Where these arrangements last longer than 12 weeks as a result of the crisis, firms can extend them up to 36 weeks by notifying the FCA that they consent to a modification of the 12-week rule. Under the modification, firms will also be able to allocate the prescribed responsibilities of the absent senior manager to the individual who is standing in for the absent senior manager. Firms are expected to clearly document these responsibilities as set out in the previous paragraph. 

Furloughed staff

The regulator has confirmed, in its statement on key workers in financial services, that individuals captured by the Senior Managers Regime may be considered key workers. However, it recognises that there may be cases where firms decide to furlough senior managers if they are unable to fulfil their responsibilities or if they have no current practical responsibilities.

Unless a furloughed senior manager is permanently leaving their post, they will retain their approval during their absence and will not need FCA re-approval when they return. 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.

Reallocating prescribed responsibilities

Firms should allocate prescribed responsibilities of a furloughed senior manager to another senior manager. Individuals performing required functions (e.g. Compliance Oversight, Money Laundering Reporting Officer (MLRO) and the Limited Scope function) should only be furloughed as a last resort. Where a required function applies to a firm, it should replace the furloughed individual until their return. If the replacement is temporary, the firm may use the 12-week rule to arrange cover.

Read the statement here.

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