What are the practical implications of the Senior Managers & Certification Regime for individuals working within adviser firms? Compliance Consultant Tony Catt gives a practical take on the details you need to know
As we all know, the Senior Managers & Certification Regime (SM&CR) came into force on 9th December 2019 for all UK financial services firms. That much is straightforward but what does the regime mean for practitioners? What are the details you need to look out for? Here is a summary of some of the implications which firms are likely to find useful as a reminder or as an alert to take appropriate action where needed.
Compliance oversight and mlro functions
In solo-regulated firms, the SM&CR does not introduce any new requirements for firms to create a Compliance Oversight function or a Money Laundering Reporting Officer (MLRO) function. The rules about which types of firm are required to have these functions remain the same as under the Approved Persons Regime (APR). Approval to hold a Senior Management Function (SMF) is required only where the function exists in the firm.
The first thing that many people will notice is the disappearance of all the CF30 advisers from the FCA register. Only Senior Managers, such as directors, compliance officers, MLROs still appear on the register. What my not be so widely known is that the Certification Regime does not apply to Appointed Representatives. So, any CF30 advisers linked to an Appointed Representative firm do still appear on the registers as CF30s under the principal firm. I had to call the FCA to clarify that point!
So, having disappeared from the register, all advisers will appear as Directory Persons when their firms have input their details on the Connect system. However, the directory is not yet published and is unlikely to be published until much later this year. For many months, it will not be possible to search for advisers on any system. I have actually input some people onto the directory. This is quite simple on the Connect system. But weirdly, after the application is acknowledged, there is no further action at this time as the directory is not currently published.
When you go into “Directory Person” you have the choice to add or amend or end date directory persons. It is important to remember that once a directory person has been added, their information needs to be kept up to date.
The “directory person” details start with their FCA Individual Reference Number (IRN). If the person does not have one, on first registration, then one is generated by the system. This will apply to mortgage advisers and customer-facing administration staff who will be put onto the directory in future.
There is a list showing the duties that can be applied to the directory person. This covers administration and advising and also a box to tick if the person is a supervisor of another directory person. There is also a box to tick if the person is performing any functions that require qualifications and ticking that box leads to a further menu where all the qualification held by that person can be ticked.
In the future, it will be possible to see what a person is supposed to be doing and also to check whether they are qualified. That will be a lot more useful than just seeing whether somebody appears on the register.
The certification regime and fitness and propriety checks
Now that the decision to appoint and regulate advisers has been devolved back to firms, it is important that firms are able to undertake the necessary due diligence on their personnel.
• You need to identify the individuals within your firm who need to be certified on an annual basis.
• Ensure that the annual fitness and propriety checks for Certification staff and Senior Managers fit into your firm’s existing HR and other processes.
Regulatory references and criminal records checks
• Assess how the Criminal Records Checks and Regulatory Reference requirements fit into your firm’s existing recruitment processes
• Ensure that your firm has the appropriate processes to obtain Criminal Records Checks for new Senior Managers and confirm your firm is registered with the DBS, Disclosure Scotland or Access NI (as relevant)
• Ensure that your firm has the appropriate processes to obtain and provide regulatory references (see pages 40-41 of SM&CR Guide for solo-regulated firms (PDF) for more information)
Conduct rules training
My first reaction to seeing this was to think that surely everybody knows the conduct rules! However, it seems with the expanding directory and the regimentation of duties and responsibilities, there are more people who need to understand and apply the conduct rules to their daily routines.
There are 5 rules listed that apply to all personnel and a further 4 that apply to senior managers as you will see below. I should add that there are some quite good training courses available to enable everybody to understand the conduct rules and their effects.
First tier – individual conduct rules
1. You must act with integrity
2. You must act with due care, skill and diligence
3. You must be open and cooperative with the FCA, the PRA and other regulators
4. You must pay due regard to the interests of customers and treat them fairly
5. You must observe proper standards of market conduct
Second tier – senior manager conduct rules
• SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
• SC2. 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
• SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
• SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
They still come down to basic honesty and the professional performance of your duties to provide a good service to clients. It is bizarre that even after the RDR and MiFID II, the regulators still feel the need to remind and enforce the message to the financial services industry to Treat Customers Fairly.
The FCA is very keen for the Senior Managers & Certification Regime to have a positive effect on financial services firms to enable them to provide better quality services to customers.
Once again, I wonder whether this should have been undertaken on a more joined up process. Originally, the FCA was going to get rid of the register and only stepped back from that plan when various people highlighted the error of their ways during the consultation process. It seems unbelievable that the FCA did not understand the importance of the register to consumers. In which case, why did it bother to collate the register in the first place?
As it is, we will have a gap of several months between the advisers disappearing from the register to re-appearing on the directory. The good news is that the directory will give far more focussed information on the individuals and should provide some really useful detail for consumers about their current or prospective advisers.
The Connect system for adding directories can be used on an individual basis or by uploading spreadsheets of personnel. It must be good for firms of all sizes. Since the onus will be on firms to keep the directory information up to date. I wonder whether it will ever be entirely accurate and maintained. It will probably need some high profile companies to fall foul of the regulators and be fined for all firms to take their responsibilities serious and magic up the capacity to give this issue the attention that it will need in future.
About Tony Catt
Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers.
[email protected] or call 07899 847338.