The regulator said it wanted firms to develop a “culture of accountability” at all levels and for senior individuals to be fully accountable for defined business activities and material risks.
The regulator is proposing applying three key elements (the core regime) to every firm. These are the Senior Managers Regime, Certification Regime and Conduct Rules.
It has also proposed a less onerous approach for Limited Scope Firms (typically sole traders or firms with limited permissions) which will have fewer Senior Management Functions. This mirrors how the Approved Persons Regime applies to these firms at the moment.
If a firm currently only needs to have some controlled functions approved by the regulator then that will continue under the proposed new regime.
How these elements will work in practice
Senior Managers Regime
This focuses on the most senior people in the firm. The rules will define which roles are ‘Senior Management Functions’ depending on the type of firm involved. Anyone who holds a Senior Management Function needs to be approved by the regulator before they start their role, the same as under the Approved Persons Regime. Firms also need to make sure that Senior Managers are suitable to do their jobs.
Every Senior Manager will need to have a document that says what they are responsible and accountable for a Statement of Responsibilities. Firms need to give us this statement when a senior manager applies to be approved, and whenever there’s a major change to their responsibilities. This is a requirement under legislation.
Every Senior Manager will also have a Duty of Responsibility – which means if something goes wrong in an area that they are responsible for, we will consider whether they took ‘reasonable steps’ to stop this from happening. This is also a requirement under legislation.
We also propose some new responsibilities that firms will need to give their Senior Managers (Prescribed Responsibilities). This won’t apply to some firms (such as sole traders or firms with limited permissions, and EEA branches), and more responsibilities will apply to bigger firms.
This covers people who aren’t Senior Managers, but whose jobs mean they can have a big impact on customers, markets or the firm. We will say what these roles are in our rules. We won’t approve these people, but firms will need to check and confirm (‘certify’) that they are suitable to do their job at least once a year. This is a requirement under legislation.
These are basic rules that will apply to almost every person who works in financial services. They are about improving the behaviour of all staff in financial services firms.
There are nine conduct rules, five which apply to all individuals and four which apply to Senior Managers.
Individual Conduct Rules
- You must act with integrity
- You must act with due care, skill and diligence
- You must be open and cooperative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
Senior Manager Conduct Rules
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
- 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
- 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
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
The FCA has also proposed extra requirements that will only apply to the largest and most complex firms (fewer than 1% of firms regulated by the FCA).
For example, these firms will need to have Responsibilities Maps, Handover Procedures, and will need to make sure that there is a Senior Manager responsible for every area of their firm (Overall Responsibility).
The consultation on the proposals runs until 3 November and the FCA will announce an implementation date when it publishes the final rules next year.