The Senior Managers Regime – All Change or Business as usual?
In October 2015 the Government announced that it would extend the Senior Managers regime to include all FCA regulated firms. It is expected that this will be introduced for the Consumer Credit sector some time in 2018.
The Senior Managers regime was originally introduced to improve standards in the banking sector. It was designed to address criticism of the prevailing Approved Persons regime. The Parliamentary Commission on Banking Standards had said that under the Approved Person Regime it proved difficult to hold individual senior managers accountable for misconduct. The Senior Managers regime places a statutory duty upon senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility.
So what will this mean in practical terms?
The existing ‘Controlled Functions’ will be replaced by ‘Senior Management Functions’. To hold a designated Senior Management Function individuals will require pre-approval from the FCA. Senior Managers will be required to have detailed ‘Statements of Responsibility’ identifying the areas of the business they are responsible for.
For critical roles not included in the Senior Management Functions there will be a Certification Regime. These roles will not be subject to prior approval from the FCA. Instead firms will be required to self-certify the fitness and propriety of individuals. Firms must be able to evidence that they have completed this certification annually.
The FCA will replace the existing ‘Statements of Principle’ with ‘Rules of Conduct’. These will apply to Senior Managers, Certified Persons and other employees. Firms will need to ensure that individuals are fully aware of the Rules and their responsibilities under the new regime. The FCA will expect to see evidence that appropriate support is given. Initial training and refresher training will be an important part of this support.
For many smaller firms the Senior Managers Regime may make little difference to the actual structure of the business. However the required Statements of Responsibility, self-certifications and training support are likely to be something new for firms to consider.
Much of the detail is still to be finalized and exactly how much the Senior Managers Regime will affect Consumer Credit Firms is uncertain. With the regulatory landscape now being rooted in principles, changes to ‘advice’ are interpreted and developed in practice, with ‘best’ emerging from the efforts of more proactive and innovative firms. The firms that stay out of the FCA spotlight and benefit from competitive advantage, will be those who embrace the Senior Managers Regime in a positive and collaborative way.