A Senior Manager can be liable under section 66A(5) of the Financial Services and Markets Act 2000 where:
- there has been (or continues to be) a contravention of a relevant requirement by the Senior Manager’s firm; and
- at the time of the contravention, the Senior Manager was responsible for the management of any of the firm’s activities in relation to which the contravention occurred; and
- the Senior Manager did not take such steps as a person in their position could reasonably be expected to take to avoid the contravention by the firm occurring (or continuing).
This is usually known as the obligation to take ‘reasonable steps’.
‘Resaonable steps’ are the steps that a competent Senior Manager would have taken:
- At the relevant time;
- In the specific individual’s position;
- With the individual’s role and responsibilities; and
- In all the circumstances.
When determining whether or not a Senior Manager has taken ‘reasonably steps’ to avoid a breach of regulation, the FCA will have consider a wide range of circumstances. We set out those factors, and the practical steps to take, below:
- Make sure that you have a clear, comprehensive and up-to-date Statement of Responsibilities.
- Consider the information that you need in order to assess the risks inherent in any in any given situation, as compared to the information that you required in order to assess those risks. Take steps to eliminate any gaps.
- Keep records relating to your consideration of that information.
- Keep records of the decisions you made and the rationale behind those decisions.
- All other things being equal, the more complex the nature of the firm, the higher the standard to which you will be held.
- Ensure that you obtain the MI and the reporting required to discharge your legal obligations.
- Ensure that you remain up-to-date with industry and regulatory developments more generally.
- Ensure that you have the MI and reporting you need to properly manage the area for which you are responsible. Take notes of relevant meetings. Agree and follow-up on action points.
- Ensure that you are aware of wider regulatory obligations, either through specific training or obtaining relevant internal/external assistance/advice.
- Consider the approach of the firm to onboarding, fit and proper testing and performance review.
- Review the records of the individual(s) to which delegation is proposed to ensure appropriateness of delgate.
- Ensure that any delegation is accompanied by clear job descriptions and reporting lines.
- Establish appropriate management framework of delegate. Keep minutes of meetings, action points etc.
- Establish clear job descriptions and organisation structure for the area of the business for which you are responsible.
- Establish clear process for assessing the fitness and propriety of staff members working in the area of the business for which you have responsibility.
- On appointment, review firm’s governance, operational and risk management arrangements with respect to the part of the business for which you have responsibility.
- Consider whether this facilitates effective management of the part of the business for which you have responsibility and how to close gaps (if any). What processes may be defective? What processes need to be implemented? What MI/reporting is necessary? What issues currently exist and how can they be dealt with? What issues may arise in the future given identified process deficiencies?
- Implement and monitor handover procedures, irrespective of the firm’s SMCR category (strictly speaking, handover procedures are only required for enhanced firms – however, they are generally regarded as good practice for ALL firms).
- Establish process for regular review of handover procedures with reports so as to ensure that they remain up-to-date in the event of unexpected absence.
- Implement and monitor handover procedures, irrespective of the firm’s SMCR category (strictly speaking, handover procedures are only required for enhanced firms – however, they are generally regarded as good practice for ALL firms).
- Establish process for regular review of handover procedures with reports so as to ensure that they remain up-to-date in the event of unexpected absence.
Whether the Senior Manager failed to take reasonable steps to understand and inform themselves about the firm’s activities for which they were responsible, including, but not limited to, whether they:
- Review the MI/reporting provided in relation to the area for which you are responsible and consider against the MI/reporting which is necessary to ensure regulatory compliance. Devise and implement and plan to close any gaps.
- Ensure that MI/reporting is provided in sufficient details and sufficiently frequently so as to facilitate an understanding of existing regulatory issues. Ally this with appropriate internal/external advice/assistance as necessary.
- Consider and document the circumstances in which it may be necessary to seek independent advice. Maintain evidence of when such advice is sought, the advice given and the conclusions reached.
- Consider the risks (if any) involved in an expansion/restructuring of the business, particularly as it may impact the area of the business for which you have responsibility. Document decisions taken as well as your input into those decisions.
- Do not simply remain silent!
- Establish governance processes which identify what concepts such as “highly profitable”, “unusual” and “significant influence” mean in the context of the area of the business for which you have responsibility.
- Consider and implement the MI/reporting necessary to monitor these risks.
- Periodically review all processes and MI/reporting in this area so as to ensure continue relevance and utility.
- Consider the impact (if any) of the decision on the area of the business for which you have responsibility. Ensure that you have the MI/reporting and advice (whether internal or external) necessary to fully understand and appreciate the impact.
- Ensure that you input into the decision making process. Document that input as well as the decision ultimately reached.
- Do not simply remain silent!
- Document your awareness of, and compliance with, the various policies that impact the area of the business for which you are responsible.
- If it is appropriate to deviate from those policies, document why this was the case.
- Implement and monitor handover procedures, irrespective of the firm’s SMCR category (strictly speaking, handover procedures are only required for enhanced firms – however, they are generally regarded as good practice for ALL firms).
- Ensure that adequate handovers are conducted in a timely manner on the event of an individual assuming a new relevant role.
- Establish process for regular review of handover procedures with reports so as to ensure that they remain up-to-date in the event of unexpected absence.
Review the systems and control relevant to the area of the business for which you have responsibility. Consider what other systems and controls (if any) are necessary in order to ensure regulatory compliance. Document all decisions and action points. Implement action points in a timely manner.
