Senior Managers & Certification Regime

7th April 2020

FCA sets out expectations for SM&CR amid Coronavirus (Covid-19)

The Financial Conduct Authority (FCA) has set out its expectations to assist solo-regulated firms apply the Senior Managers & Certification Regime (SM&CR) requirements amid the Coronavirus (Covid-19) pandemic.

In a lengthy statement, the regulator said that it recognised that firms directly affected by Coronavirus will need to keep their governance arrangements under review and make appropriate changes as circumstances alter.  Helpfully, the FCA said that it does not require firms to have a single Senior Manager responsible for their coronavirus response and that they should instead allocate these responsibilities in the way which best enables them to manage the risks they face.

Members may access a full copy of the document by clicking here.

A summary of the changes are shown below:

Senior Management responsibilities

Senior Managers are responsible for risks in their areas of responsibility and should be considering:

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

Statements of Responsibilities and ‘significant changes’ to Senior Manager Responsibilities

Firms may need to make temporary arrangements to cover absences or change Senior Manager responsibilities in direct response to the pandemic.

  • In order to minimise the burden to firms at this time, the FCA does not intend to enforce the requirement on firms to submit updated Statements of Responsibilities (SoRs), if the change is temporary and expected to revert to the firm’s previous arrangements

The FCA expects allocations (however temporary) to be clearly documented internally, so that everyone understands who is responsible for what.

Firms should update their FCA supervisors of any furloughing of one or more Senior Managers by emailing or calling the regulator.

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 during the crisis.

The 12-week rule 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.  If 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 these cases, temporary arrangements can be extended up to 36 weeks.

Nevertheless, the FCA expects firms to clearly document these responsibilities, however temporary, including on relevant Statements of Responsibilities and Responsibilities Maps (if applicable).

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.

Notifications about temporary arrangements

The FCA 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. This allocation (however temporary) should be clearly documented internally, so that everyone understands who is responsible for what.

In particular, the management Responsibilities Map (if a firm is required to have one) should reflect the responsibilities of non-Senior Managers with temporary responsibilities taken on under the 12-week rule.

Furloughed staff

Unless a furloughed Senior Manager is permanently leaving their post, the manager will retain their approval during their absence and will not need to be re-approved by the FCA when they return. The firm is still responsible for ensuring the Senior Manager is fit and proper.

Reallocating Prescribed Responsibilities

The firm should reallocate the Prescribed Responsibilities 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.