Close-up of a person's hand stamping with approved stamp on approval certificate document public paper at desk, notary or business people work from home, isolated for coronavirus COVID-19 protection

Everything you need to know about the Certification Regime

Under the Senior Managers and Certification Regime (the “SM&CR”), anyone who qualifies as a “Certification Employee” is subject to the Certification Regime.

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

  1. The Certification Functions are (1) CASS Oversight, (2) Proprietary Trader, (3) Significant Management, (4) Functions requiring qualifications, (5) Managers of certification employees, (6) Material risk takers, (7) Client-dealing, and (8) Algorithmic trading.
  2. However, a function is only a “Certification Function” to the extent that (a) it is performed by a person from an establishment in the UK, or (b) the person performing that function is dealing with a client of the firm in the UK from an overseas establishment of the firm.
  3. Nonetheless, the performance of Certification Function (6) (Material risk taker) applies without geographical limitation.
  4. A “Certification Employee” is any “employee” who has a valid ‘fit and proper’ certificate to perform a “Certification Function”.  Broadly, an “employee” is any individual who personally provides services to the firm or who is subject to the supervision, direction or control of the firm as to the manner in which those services are provided.
  5. Secondees can be “Certification Employees” (and so subject to the Certification Regime).
  6. Individuals with responsibility for a firm’s legal function will be performing a Certification Function.
  7. Acting as a non-executive director does NOT constitute the performance of a Certification Function.
  8. The Certification Regime does NOT apply to individual sole traders (but may apply to staff members of a sole trader).
  9. Although it is theoretically possible for appointed representatives to be subject to the Certification Regime, in practice most will not (as many will not satisfy the definition of “employee”).
  10. A “Certification Employee” can only perform a Certification Function if they hold a ‘fit and proper’ certificate to perform the function in question.
  11. A firm can only issue a ‘fit and proper’ certificate to a Certification Employee if it is satisfied that the individual is fit and proper to perform the Certification Function in question.
  12. ‘Fit and proper’ certificates can remain valid for a maximum of 12 months (but can be valid for less than 12 months).
  13. Firms must maintain a record of every Certification Employee who has a valid ‘fit and proper’ certificate.
  14. If an individual is adjudged not to be ‘fit and proper’ to perform their role then the firm should consider whether a breach of the Conduct Rules has also occurred (which would require FCA notification).
  15. A role change may require an individual to be subject to a refreshed ‘fit and proper’ assessment – do not assume that you can simply wait for the next annual assessment to roll around.
  16. In order to provide emergency cover, individuals can perform functions that would otherwise be Certification Functions for up to 4 weeks without holding a ‘fit and proper’ certificate. 
  17. The “emergency cover” exemption does not apply to anyone who would be performing Certification Function (4) (functions requiring qualifications).
  18. The Certification Regime does not apply to individuals who are performing a “temporary UK role” (i.e. individuals who (a) are based outside of the UK, (b) spend no more than 30 days in any 12-month period performing a function that would otherwise be a Certification Function, and (c) are appropriately supervised by either a Senior Manager or a Certification Employee).
  19. The “temporary UK role” exemption does NOT apply to (a) Material risk takers, (b) individuals giving certain types of pensions advice to retail clients, or (c) individuals giving advice on membership of Lloyds syndicates.