Following on from the consultation papers published in the summer regarding the extension of the Senior Managers and Certification regime (see our client alert: here), the FCA have published proposals on how firms and individuals (including insurers) will transition to the extended Senior Managers and Certification Regime (SMCR). In addition, the FCA has published two Consultation papers on the duty of responsibility and also on Industry Codes of Conduct.

Key points:

• It is likely now that implementation of the extension of SMCR will apply firstly to insurance firms, in late 2018
• For other firms, implementation is likely to be in mid-to-late 2019
• Other than for Enhanced firms, the FCA is proposing to automatically transfer existing approved persons into Senior Management Functions
• Enhanced firms will need to make specific applications for individuals to be approved as Senior Managers
• The Duty of Responsibility will extend to all SMFs in the extended regime
• The FCA is seeking feedback on its approach to supervising conduct, and its suggestion that it publicly recognise appropriate industry codes of practice

Consultation paper (CP17/40) on the transitional arrangements for solo regulated firms SMCR

View the consultation paper.

Who is affected by these changes?

All FCA solo regulated firms, as well as EEA and third country branches (not insurers, these firms should read CP17/41).

Conversion of individuals from the APR to the SMCR:

The FCA want to make the transition from the Approved Persons Regime (APR) to the SMCR as simple, clear and proportionate as possible. The FCA proposes to

• Automatically convert most of the existing approved persons at Core and Limited Scope firms into the corresponding new Senior Management Functions (SMF). A table in the CP (at page 16) sets out which roles will automatically transfer.
• The CP also includes proposals for dealing with new and in-flight applications by Core and Limited Scope firms.
• Although statements of responsibility will not be required on the conversion, firms must have statements available for the FCA on request.
• Enhanced firms will need to submit a conversion notification (Form K) and accompanying documents (statements of responsibilities and responsibilities map).

Certified Staff

Individuals who are not SMFs but who fall under the Certification Regime instead will need to have been identified by the start of the regime, and will be required to comply with Conduct Rules from this date. However, firms will have 12 months thereafter in which to certify them as ‘fit and proper’.

Conduct Rules

Firms will be given 12 months from the implementation date to train all staff (other than SMFs and CFs) covered by the Conduct Rule regime.

Changes for banking firms

The CP also makes clear that the FCA are proposing to introduce the new Prescribed Responsibility for training staff in Conduct Rules before the implementation of the extended regime, and firms will therefore be required to amend existing statements of responsibility, Responsibility Maps and notify the FCA accordingly.

Appointed Representatives (ARs)

The extension of the SMCR does not affect Approved Persons (APs) working at ARs. Principal firms will remain responsible for their ARs.

The Financial Services (FS) Register

The FCA proposed in CP17/25 and CP17/26 that for firms subject to SMCR, only details of people holding SMFs will remain on the register, with employees in Certification Functions (CFs) therefore no longer appearing on the register. This is being reviewed by the FCA as concerns have been raised regarding the impact of this on individuals currently holding CFs.

When will this be implemented?

The new rules will be implemented once the Treasury sets the dates. The FCA presumes that the rules will apply to insurers in late 2018 and solo-regulated firms in mid-to-late 2019. The actual commencement dates will be announced and set by the Treasury in due course.

Consultation paper CP17/41 on transitioning insurers and individuals to the SMCR

View the consultation paper.

Who is affected by these changes?

Solvency II firms, Non-Directive firms or NDFs, small run-off firms.

Transition arrangements

As firms are of different sizes and nature, the FCA does not find it appropriate to move individuals into the SMCR in the same way for all insurers. The FCA propose to:

• automatically convert most of the APs at the small NDFs, small run-off firms and ISPVs into the corresponding new Senior Management Functions (SMFs);
• allow Solvency II firms and larger NDFs to submit a conversion notification (Form K) and accompanying documents.

Certified Staff

Individuals who are not SMFs but who fall under the Certification Regime instead will need to have been identified by the start of the regime, and will be required to comply with Conduct Rules from this date. However, firms will have 12 months thereafter in which to certify them as ‘fit and proper’.

Conduct Rules

Firms will be given 12 months from the implementation date to train all staff (other than SMFs and CFs) covered by the Conduct Rule regime.

Consultation Paper CP17/42 – The Duty of Responsibility for insurers and FCA solo-regulated firms

View the consultation paper.

Who is affected by this paper?

Insurers, FCA solo-regulated firms and the senior management of both.

This consultation paper focuses on the extension of the ‘Duty of Responsibility’ to Senior Managers in all firms covered by the extension of SMCR. The FCA has produced guidance on the duty, and seeks feedback from firms affected by the extension.

Responses to these three consultation papers are due by 21 February 2018.

Consultation Paper CP17/37 – Consultation Paper on Industry Codes of Conduct and Discussion Paper on FCA Principle 5

https://www.fca.org.uk/publication/consultation/cp17-37.pdf

Who is affected by this paper?

All authorised firms, including those already subject to SMCR.

What does the paper say?

The FCA is proposing:

• a “general approach” to supervising and enforcing SMCR rules for unregulated markets and activities, including those covered by industry-written codes of conduct.
• to publicly recognise particular industry codes that set out proper

In addition, it is seeking comments on extending the application of FCA Principle for Businesses 5 regarding proper market conduct.

Responses to this paper should be sent by 5 February 2018

What should you do now?

Firms who wish to comment on the various consultation papers should take the opportunity to do so, as past experience has shown that it is possible to inform and shape the Final Rules through consultation responses.

Separately, firms should still be considering who is caught internally by the regime requirements, and which roles will transfer automatically (or on application) to SMFs. Governance structures and reporting lines will need to be considered in light of the extension of the regime and of the duty of responsibility for SMFs.

To discuss how Kemp Little can help you implement these changes, please see our note or contact a member of our SMCR team:

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