The FCA has published a consultation paper in which it proposes to tidy up some loose ends in the Senior Managers and Certification Regime (SM&CR). Among other things, the FCA proposes to:
- exclude the legal function from the senior manager function, SMF18 (Other Overall Responsibility Function). This decision follows the FCA's Discussion Paper, DP16/4 "Overall responsibility and the legal function" and is primarily because the benefits of applying the Senior Managers Regime to Heads of Legal could be reduced substantially by legal privilege. Instead, Heads of Legal will fall under the Certification Regime, either as a Material Risk Taker or a Significant Management Function; and
- allow firms to exclude purely administrative roles from the Client Dealing Function. This exclusion follows a statement from the FCA in November 2018 that it planned to consult on the scope of the Client Dealing Function. The FCA intends to exclude individuals who have no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill. Therefore, when assessing whether a role requires certification, the FCA indicates that firms should consider whether the individual's role is simple or largely automated, and whether it involves exercising discretion or judgement.
Both these proposals indicate the FCA taking a responsive and proportionate approach following feedback from stakeholders - a trend many will hope continues in the vague Brexit future.
This consultation paper will be of interest to firms that currently fall under the SM&CR as well as solo-regulated firms coming into scope for the first time in December 2018, and EEA and third-country branches. The consultation ends on 23 April 2019. Following consideration of the feedback it receives, the FCA will publish its final rules and guidance in the third quarter of this year.
We made near-final rules on the SM&CR in July 2018 and final rules for insurers in September 2018. When consulting on these rules we identified a few areas where we need to make changes. These proposals are set out in this Consultation Paper and are intended to provide extra clarity in some areas and help firms adjust to the SM&CR. This paper also sets out proposals around how the SM&CR applies to the legal and client dealing certification function.