“A function is a “senior management function”, in relation to the carrying on of a regulated activity by an authorised person, if (a) the function will require the person performing it to be responsible for managing one or more aspects of the authorised person’s affairs, so far as relating to the activity, and (b) those aspects involve, or might involve, a risk of serious consequences for the authorised person, or for business or other interests in the UK”.
At a high level, the Senior Managers Regime is designed to enable the FCA to easily identify those individuals who are truly responsible for running a business, with a view to holding them accountable for their actions.
All Senior Managers must be approved by the FCA before they commence their role. In practice, this leaves firms with two basic options when recruiting Senior Managers:
- onboard the new recruit but have that individual work under the supervision of a senior manager until FCA approval is obtained; or
- delay the individual’s start date until FCA approval is received (this is the FCA’s preferred option).
A Statement of Responsibilities must be submitted with the approval application. Certain information relating to all Senior Managers will appear on the FCA Register. Once approved, a senior manager must be certified annually as being fit and proper to perform his/her role. Any disciplinary action against a Senior Manager must be notified to the FCA within 7 days.
Senior managers and your business
The Senior Managers and Certification Regime (SM&CR) was extended in December 2019 to include solo-regulated firms. In order to understand the Senior Managers Regime, solo-regulated firms must first be classified into one of the three categories listed below. Firms should use the decision tree in SYSC 23, Annex 1 to establish which category they fall under. We’ve also published our guide to the categories, which can also help to establish which one applies to your firm:
- Core – firms will have to comply with baseline requirements.
- Enhanced – this will apply to those firms depending on the size, complexity and potential impact on consumers/markets which warrant more attention. These firms will have extra requirements to comply with.
- Limited Scope – these firms will be exempt from the baseline requirements and will generally have fewer Senior Management Functions (“SMFs”).
Once a firm knows their category they should then use Annex 1 of SUP 10C to see which Senior Management Functions (SMFs) are relevant to them. SMFs vary depending on which category a firm is. Section 59(1) of the Financial Services and Markets Act 2000 (FSMA) states that a person who is performing a “controlled function” in relation to a regulated activity must be approved by the appropriate regulator.
With respect to FCA solo-regulated firms which are subject to the SM&CR, this means that any individual performing an “FCA-designated senior management function” must be approved by the FCA before taking up his or her position.