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FCA and PRA signal that life is returning to normal under the SM&CR

On 18 December 2020, the FCA and PRA published updated statements on the impact of Coronavirus and their expectations of firms subject to the Senior Managers and Certifications Regime (the “SM&CR”).  One statement applies to firms subject to the Approved Persons Regime.  A second statement applies to FCA solo-regulated firms.  The final statement applies to dual-regulated firms.

All of the statements address three broad areas:

  1. “Significant” changes to Senior Manager Responsibilities;
  2. The application of the “12-week rule” – which allows firm to provide emergency cover; and
  3. The approach to furloughing staff.

The basic message is that the FCA is beginning to unwind the special measures it put in place during the summer of 2020 to provide firms with extra flexibility as a result of the Coronavirus pandemic.  A summary of the statements is provided below.

Approved Persons Regime

  • The FCA temporarily allowed an individual to cover for an Approved Person without being approved for 36 weeks (instead of the usual 12 weeks).
  • This will come to an end on 30 April 2021, at which point firms will have to revert back to the 12-week rule.
  • From 7 January 2021, firms will be required to once again notify the FCA of these changes via Form D.
  • Approved persons who have been furloughed during the pandemic will not need to be re-approved by the FCA when they return to work.
  • The principal firm is still responsible for ensuring that the Approved Person in an Appointed Representative is fit and proper to perform his/her role.
  • From 7 January 2021, firms will be required to once again notify the FCA of these changes via Form D.

FCA solo-regulated firms

  • The FCA previously indicated that firms which were required to make temporary arrangements in direct response to the pandemic did not need to submit updated SoRs (although clear internal documentation was required).
  • This flexibility will cease on 7 January 2021, at which point firms should notify the FCA of any significant changes made to SoRs using Form J.
  • The FCA allowed an individual to cover for a Senior Manager without FCA approval for 36 weeks, instead of the normal 12 weeks.
  • This will come to an end on 30 April 2021, at which point firms will have to revert back to the 12-week rule.
  • A Senior Manager who is furloughed will retain his/her approval and not need to be re-approved by the FCA, unless he/she is permanently leaving post.
  • Individual performing required functions (e.g. Compliance Oversight, MLRO) should only be furloughed as a last resort.

Dual-regulated firms (FCA and PRA)

  • The FCA and PRA previously indicated that firms which were required to make temporary arrangements in direct response to the pandemic were expected to resubmit relevant SoRs as soon as reasonably practicable.
  • This flexibility will cease on 7 January 2021, at which point firms should notify the FCA of any significant changes made to SoRs using Form J.
  • The FCA and the PRA have found no evidence that the existing 12-week rule is not sufficient for dual-regulated firms.  As such, they do not propose to introduce any additional measures in this area.
  • As part of the additional flexibility shown in response to the pandemic, firms were allowed to allocate Prescribed Responsibilities to Senior Managers who, in reliance on the 12-week rule, were not approved by the FCA.  This additional flexibility will end on 7 January 2021.

A Senior Manager who is furloughed will retain his/her approval and not need to be re-approved by the FCA, unless he/she is permanently leaving post.  However, firms will be required to:

 

  • Ensure that the furloughed SMF remains fit and proper on his/her return
  • Reallocate the responsibilities of the furloughed SMF
  • Clearly document the reallocation of responsibilities within SoRs, MRMs and internal documents.

 

Firms should “think carefully about the risks and unintended consequences” of furloughing ANY Senior Manager.  However, firms should only furlough the following (mandatory) Senior Management Functions as a last resort:

  • CEO (SMF1)
  • CFO (SMF2)
  • Chair (SMF9)
  • Head of Overseas Branch (SMF19)
  • Small Insurer SMF (SMF25)
  • Head of Small Run-Off Firm (SMF 26)
  • Compliance Oversight (SMF16)
  • MLRO (SMF 17)

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