Understanding the Senior Managers Regime

With less than a month to go until the arrival of the Senior Managers and Certification Regime (SM&CR), a series of Insight articles over the coming weeks will cover each of the core elements of the new regime. There are three main areas that make up SM&CR, which are:

  1. The Senior Managers Regime
  2. The Certification Regime
  3. The Conduct Rules

Who are Senior Managers?

Senior Managers will be the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity if they do not perform their duties appropriately.

What are Senior Management Functions (SMFs)?

A Senior Management Function (SMF) is a new type of controlled function under the Financial Services and Markets Act 2000 (FSMA). Existing Controlled Functions will be automatically mapped across to the relevant Senior Manager Function.

SMFs are intended to inform the FCA who a firm’s most senior decision makers are, and to make sure firms clearly allocate responsibilities to those key individuals.

Anyone who performs a Senior Management Function needs to be approved by the FCA before they take up the role.

What is meant by the Duty of Responsibility?

Under SM&CR, the Duty of Responsibility is introduced and it means that if a firm breaches one of the FCA requirements, the Senior Manager responsible for that area could be held accountable if they didn’t take reasonable steps to prevent or stop the breach. The FCA must be able to prove that the Senior Manager did not take the steps a person in their position could reasonably be expected to take to avoid the breach occurring.

In these situations, the regulator will look at all of the circumstances of the case, including:

  • the severity of the breach
  • the individual’s position
  • the individual’s responsibilities
  • the need to use their enforcement powers effectively and proportionately

The criteria applied when enforcing the Duty of Responsibility is set out in the Decision Procedure and Penalties Manual (DEPP).

Fitness and Propriety

Under SM&CR, the FCA requires firms to ensure that those carrying out SMFs are fit and proper for their position. Fitness and propriety assessments must be carried out annually and will consider an individual’s honesty, integrity and reputation; competence and capability; and financial soundness.

What are Prescribed Responsibilities (PRs)?

These are specific responsibilities that firms must give to Senior Managers. PRs are defined in SYSC 24 of the FCA’s Handbook, and are in addition to the responsibilities that form the essential part of the Senior Manager’s role. PRs are intended to ensure that Senior Managers are accountable for key conduct and prudential risks.

Firms should consider which Senior Manager is best placed to hold the Prescribed Responsibilities – typically the Senior Manager who in practice is the most senior and competent in the activity or specialism in question.

PRs should generally be held by one person, but they can be shared in limited circumstances, where it is appropriate and justified. Examples of this might be job-sharing, handover periods or where a particular area of a firm is run by two Senior Managers. Where a responsibility is shared, this must be clearly explained in the Statements of Responsibilities (SoRs) and on Responsibilities Maps (for Enhanced Firms only).

Giving a Senior Manager a Prescribed Responsibility will not require re-approval from the FCA, but if a firm moves the PR to another Senior Manager the relevant SoRs should be updated and submitted to the regulator.

Statements of Responsibilities (SoRs)

Senior Managers are required to have Statements of Responsibilities (SoRs). This is a document that sets out their role and what they are responsible and accountable for. SoRs should be succinct, self-contained documents. They are not intended to be job descriptions, so should not focus on skills and competencies.

As we can see, the Senior Managers Regime introduces a number of additional requirements. It is about ensuring that the most senior individuals in a firm, those with the most potential to cause harm, are kept accountable. However, the new regime doesn’t require firms to change their governance structure or to hire new people to fill certain roles.

If you need any help with SM&CR or feel you’re not prepared for the new regime, please contact helpdesk@rwagroup.co.uk to find out more about our SM&CR Helpline service.

About the author

Lisa joined RWA in 2014 as an e-Learning Assistant, designing training material for the Aviva Development Zone learning platform.

Her role as Professional Standards Manager involves the creation and review of e-learning content as well as providing proofreading, copywriting and standards support across the business.

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