Everthing you need to know about SM&CR

The Senior Managers Regime is the aspect of the Senior Managers and Certification Regime (the “SM&CR”) which applies to executives who truly have responsibility for running a firm.

If you have responsibility for SM&CR within your firm, here’s what you need to know…

• A function is a senior management function if:

1. the function will require the person performing it to be responsible for managing one or more aspects of the firm’s affairs (related to a regulated activity), and
2. those aspects involve, or might involve, a risk of serious consequences for the firm or for business or other interests in the United Kingdom.[1]

• The list of senior management functions includes:[2]

• Governing functions do not apply to a sole trader with no employees.[3]
• SMF 18 (other overall responsibility) does not apply to core or limited scope firms.[4]
• The FCA does not expect a non-executive director ever to act as SMF 18 (other overall responsibility).[5]
• A firm’s legal function does not come under SMF 24 (Chief operations).[6]
• The head of the legal function is not acting as SMF 18 (Other overall responsibility) or SMF 22 (Other local responsibility).[7]
• Partners whose only regulated activities are incidental to their professional services, in a firm whose principal purpose is to carry on non-regulated activities, do not need to be approved as a Senior Manager.[8]
• Partners who play no part in the management of the firm are unlikely to be performing the SMF 27 Partners function.[9]
• Firms must take reasonable care to ensure that no individual performs a senior management function unless that person has been approved by the FCA.[10]  If this requirement is breached, both the firm and the individual can be subject to censure by the FCA.[11]
• Firms must be satisfied that a candidate for approval for a senior manager position is fit and proper to perform the relevant role BEFORE lodging an application with the FCA.  In most cases, this will require the firm to perform criminal records checks[12] and obtain regulatory references[13] before making an application.
• Applications for FCA approval must be made by the firm itself, and not by the individual seeking approval.[14]  Applications should be made on “Form A” and should be accompanied by the candidate’s initial Statement of Responsibilities[15] as well as any handover materials[16].
• The FCA will not grant an approval unless it is satisfied that a candidate for a Senior Manager position is fit and proper to perform the role in question.[17]  In particular, the FCA expects a firm to ensure that a person performing a senior management function has sufficient expertise and authority to perform that functional effectively.[18]
• FCA Senior Manager approvals can be conditional and/or time-limited in scope.[19]
• The FCA aims to process applications for approval to act as a Senior Manager within 3 months of the receipt of a properly completed application.[20]
• If an existing Senior Manager is to perform additional Senior Manager functions, the firm must obtain FCA approval for the individual to perform those additional functions before he/she begins the new role.
• If a Senior Manager joins a different firm, it will be necessary to apply for FCA approval again, even if the individual is performing the same senior management function(s).
• If a firm appoints an individual to perform a function that would otherwise be a senior management function, it will not qualify as such if:
  • the appointment is to provide cover for a Senior Manager who absence is temporary or reasonably unforeseen, and
  • the appointment is for less than 12 weeks in a consecutive 12-month period.[21]
• Prescribed Responsibilities must be allocated to a senior manager (but they cannot be allocated to someone providing emergency cover under the ’12-week rule’).[22]
• If a Senior Manager is absent for more than 12 weeks, the firm must notify the FCA (using Form D) within 7 business days of the end of the 12-week period.  It must also notify the FCA (again using Form D) within 7 business days of the Senior Manager’s return.
• If a Senior Manager is absent for more than 12 weeks, the firm should consider whether any aspects of his/her ‘fit and proper’ assessment should be refreshed.
• All Senior Managers are subject to the “Duty of Responsibility”.  Put simply, this means that all Senior Managers must do that which is reasonable to ensure that no regulatory breach occurs with respect to the area of the business for which they have responsibility.

• In addition to the “individual conduct rules”, all Senior Manager are also subject to the “senior manager conduct rules”:[23]

• Every Senior Manager must have a Statement of Responsibilities (“SoR”).  An SoR is a single document which sets out a Senior Manager’s responsibilities.  SoRs must be kept up-to-date and firms should retain all past copies of a Senior Manager’s SoR for record-keeping purposes.
• If there is any “significant change” in the responsibilities of a Senior Manager, the firm must provide the FCA with a revised Statement of Responsibilities.[24]
• In cases of temporary absence (e.g sick leave or parental leave), if the firm is keeping the same role open for a Senior Manager, FCA approval for the Senior Manager will continue.  As such, a fresh approval will not be required on the return of the Senior Manager.  However, the firm should consider whether it should issue a revised Statement of Responsibilities for the Senior Manager in question.[25]
• At least annually, firms must consider whether there are any grounds on which the FCA could withdraw the approval of a Senior Manager and, if so, notify the FCA of those grounds.[26]
• More generally, if a firm becomes aware of information which may impact the fitness and propriety of a Senior Manager (including breaches of the Conduct Rules), it must inform the FCA.[27]
• If a firm takes disciplinary action against a Senior Manager, the firm must notify the FCA.[28]
• Senior Managers who leave a firm will automatically cease to perform Senior Management Functions on behalf of the firm.[29]
• A firm must notify the FCA no later than 10 business days after a Senior Manager permanently ceases to perform a Senior Management function for the firm.[30]

[1] SUP10C.3.11G

[2] SUP10C.4.3R

[3] SUP10C.4A.2G

[4] SUP10C.7.1-1G

[5] SUP10C.5A.1G and SUP10C.7.4G

[6] SUP10C.6B.2R(6)

[7] SUP10C.7.6R

[8] SUP10C.5.20G

[9] SUP 10C.5.18G(3)

[10] SUP10C.10.3G

[11] SUP10C.10.4G

[12] SUP10C.10.16R

[13] SUP10C.16.2G

[14] SUP10C.10.5G

[15] SUP10C.10.11G

[16] SUP10C.10.13G

[17] SUP10C.10.31G

[18] SUP10C.6A.2G and SUP10C.6B.1G

[19] SUP10C.12.1G

[20] SUP10C.10.25G

[21] SUP10C3.13R

[22] SUP10C3.17G(2)

[23] COCON 2.1

[24] SUP10C14.17G(1)

[25] SUP10C.14.5HG2

[26] SUP10C.14.24.G and FSMA section 63(2A)

[27] SUP10C14.18R

[28] SUP10C.14.24.G and FSMA section 64C

[29] SUP10C.14.11G(1)

[30] SUP10C.14.5R