Posted: 2nd April 2019

In early March 2019, the FCA released a ‘finalised guidance’ document detailing their expectations for solo-regulated firms preparing “Statements of Responsibilities (SoR)” and “Responsibilities Maps”, both of which are requirements of the Senior Managers and Certification Regime (SM&CR).

The matter of SoRs and related maps have always been something of a sticking point in firms’ planning for SM&CR, particularly in regards to the level of detail required. Solo-regulated firms, therefore, benefit from being the third wave (or tranche) of firms to implement the SM&CR and receiving communications from the Regulator about their expectations.

The finalised Guidance includes many examples of poor and good practice in this regard, making this document required reading for any firm in this situation. It also provides questions for firms to ask themselves when preparing SoRs.

The finalised guidance presented remains largely the same as outlined in the proposed guidance, published in October last year, with a few important caveats.

Making the requirements clearer

First of all, it should be noted that the FCA wishes to highlight that their use of the terms “accountable for” and “responsible for” are interchangeable within SM&CR guidance. They also wish to make clear that the preparing of “SoRs” for senior managers is a legal requirement under the FSMA, not merely a regulatory obligation.

The regulator states that some respondents to their consultation on proposed rules were unsure of the level of detail to include in the “other responsibilities” section of their statements, as well as the criteria used to determine which responsibilities should be included. The FCA does not intend to introduce an indicative list of such responsibilities, considering the sheer scope and scale of all possible responsibilities. In the regulator’s words:

"Other responsibilities are 'any additional responsibility, not otherwise recorded in this statement, for which a candidate or senior manager is to be responsible as part of their FCA and / or PRA senior management function(s). For example, responsibilities outside the normal course of business such as those linked to high profile projects or initiatives.'"

Overall, an SoR should cover the “aspects of the affairs of the firm for which the individual is responsible”. The regulator also confirms that such a document should be a ‘living’ one that is updated whenever a senior manager’s responsibilities change. These managers will always need to remain ‘on the ball’ and ensure that if they take up a new responsibility within a business, whether by promotion or delegation, they will need to update their SoRs.

When preparing such a document, senior managers must ask themselves “Could someone who understands the type of business that we do, but not the business itself, understand what the individual senior manager is accountable for just by reading their SoR?

The statement, importantly, must reflect the manager’s actual responsibilities, not how they are discharged. They must also be practical and useable by the regulator, whichever form they take.

Updates in the finalised guidance also reiterate the fact that Prescribed Responsibilities should not be shared or divided, but where they are, documentation should clearly explain the rationale for sharing it among senior managers.

A “Responsibilities Map” is a required and critical document that will sit alongside, or perhaps even over, individual SoRs. This document will set out the responsibilities of all senior managers within the firm, as well as their management and governance arrangements to ensure that there are no gaps or overlaps.

A Responsibilities Map should adequately explain a firm’s structure and reporting lines to a layman while remaining detailed enough that the regulator can understand governance structures and responsibility for decisions.

More SM&CR news from the Regulator

Further to the guidance on responsibilities, the FCA also recently finalised their rules on the Directory, a new public register that can be used to check the details of key individuals within the financial services industry.

This Directory will include the information already available through the Financial Services (FS) Register but will also include information about individuals that are performing roles removed from public viewing on the FS Register as a result of the SM&CR.

It will include all Directors and Senior Managers, all staff certified as fit and proper by their firm and other important individuals who undertake business with clients and require a qualification to do so.

The directory is intended to be easy to access, user-friendly and, ultimately, increase individual transparency – a key tenant of the SM&CR.

Finally, in January, the FCA also released CP 19 / 4, proposing amendments to the SM&CR that are designed to provide extra clarity in some areas and help firms adjust to the SM&CR. This CP is intended to clarify the application of SM&CR to firms’ Legal functions, amend the revenue criterion for the Enhanced Regime of firms, amend the scope of the Client Dealing Function, among other proposals.

Set yourself up for success

For savvy firms, SM&CR has already been a catalyst for wider discussion around how they operate. Some of the questions that have been arising include: “Are our committees operating effectively?” “Are our internal systems and controls robust?” And “Is the board operating as intended?”

Recent speeches from the FCA have also focused on the benefits of diversity – something that the SM&CR could certainly highlight and encourage. Fostering an inclusive and diverse culture at all levels of the organisation can change the behaviour of firms for the better.

Where to next?

On the 9th December 2019, the SM&CR will be extended to cover all solo-regulated firms. That’s almost 50,000 business across the country.

The SM&CR requires an extensive re-evaluations of a business' internal operational processes and strategies, so it is not surprising that questions surrounding implementation remain, even at this late date.

The immediate priority ahead of the fast-approaching deadline is to set up a project team. Firms should agree on the strategy, people, budget and 'terms of reference' as soon as possible.

Leadership from the HR team in this is vital, as they play a pivotal role in incorporating SM&CR into day-to-day culture and practices, as well as the central role in implementing certification and the Conduct Rules.

These Conduct Rules should not be left to last. These rules will have a wide-reaching effect on almost all employees, so firms should be giving serious thought as to how they will foster a ‘conduct culture’ within their business.

Finally, be sure to look out for the FCA’s Business Plan which should be published shortly. The plan is likely to reaffirm the FCA’s focus on SM&CR and culture.

Remember, there is still time to be ready for the SM&CR. But firms need to start acting fast and contacting specialist learning and development consultants if they require assistance in guiding their people through the intricacies of the regime.

Huntswood h blue

Nindy Mellett

Senior Consultant - Regulatory & Business Assurance