The FCA anticipates that fewer than 1% of firms will fall into this category, primarily due to their size, complexity or systemic importance.
Criteria for categorisation as an Enhanced Firm
Enhanced firms are those that meet any of the following criteria:
- Firms that are significant investment (IFPRU) firms.
- Firms that are large CASS firms.
- Firms with assets under management of £50 billion or more (at any time in the last three years calculated as a three-year rolling average).
- Firms with total intermediary regulated business revenue of £35 million per annum or more (calculated on a three-year rolling average basis).
- Firms with annual regulated revenue generated by regulated consumer lending of £100 million or more per annum (calculated on a three-year rolling average basis).
- Non-bank mortgage lenders and administrators with 10,000 or more regulated mortgages outstanding.
However, it is worth noting that UK branches of overseas firms will not be subject to the enhanced regime, even if they satisfy the criteria.
It is also possible for the FCA to impose enhanced firm requirements on certain firm which do not technically satisfy the enhanced firm criteria. However, the FCA expects that this will very much the exception to the rule, rather than the rule itself.
Additional requirements applicable to Enhanced Firms
The additional requirements that apply to enhanced firms are set out below:
Additional senior management functions
Additional senior management functions exist in relation to enhanced firms. The table below summarises the situation:
| SMF number | SMF role | Banks | Limited scope | Core | Enhanced | EAA branch | Non-EAA branch |
|---|---|---|---|---|---|---|---|
|
1 |
Chief Executive Function |
X |
|
X |
X |
|
|
|
2 |
Chief Finance Officer Function |
X |
|
X |
X |
|
|
|
3 |
Executive Director |
X |
|
X |
X |
|
X |
|
4 |
Chief Risk Officer Function |
X |
|
|
X |
|
|
|
5 |
Head of Internal Audit Function |
X |
|
|
X |
|
|
|
6 |
Head of Key Business Area |
X |
|
|
Insurers Only |
|
|
|
7 |
Group Entity Senior Manager |
X |
|
|
X |
|
|
|
8 |
Credit Union Senior Manager |
X |
|
|
|
|
|
|
9 |
Chair of the Governing Body Function |
X |
|
X |
X |
|
|
|
10 |
Chair of the risk committee function |
X |
|
|
X |
|
|
|
11 |
Chair of the audit committee function |
X |
|
|
X |
|
|
|
12 |
Chair of the remuneration committee function |
X |
|
|
X |
|
|
|
13 |
Chair of the nominations committee |
X |
|
|
X |
|
|
|
14 |
Senior independant director function |
X |
|
|
X |
|
|
|
15 |
Chair of the with-profits committee function |
|
|
|
|
|
|
|
16 |
Compliance Oversight |
X |
X |
X |
X |
|
X |
|
17 |
Money Laundering Reporting Officer (MLRO) |
X |
X |
X |
X |
X |
X |
|
18 |
Other overall responsibilites |
X |
|
|
|
|
|
|
19 |
Head of Third Country Branch function |
|
|
|
|
|
X |
|
20 |
Head of Actuarial |
|
|
Insurers only |
Insurers only |
|
|
|
21 |
EAA Branch Senior Manager |
|
|
|
|
X |
|
|
22 |
Other Local Responsibilty |
|
|
|
|
|
X |
|
23b |
Conduct risk oversight (Lloyd's) |
|
|
|
|
|
|
|
24 |
Chief Operations function |
|
|
|
X |
|
|
|
27 |
Partner |
|
|
X |
X |
|
|
|
29 |
Limited Scope Function |
|
X |
|
|
|
|
- Red text = FCA governing function
- Green text = FCA required function
- Orange text = Systems and control function
- Blue text = other high-level management function
Additional prescribed responsibilities
Additional “Prescribed Responsibilities” exist for enhanced firms, as summarised on the table below:
| PR Ref | PR Description | Limited Scope | Core | Enhanced | Authorised fund manager | EAA Branch | Non-EAA Branch | Common allocation | Notes |
|---|---|---|---|---|---|---|---|---|---|
|
(a) |
Performance by the firm of its obligations under the Senior Managers regime, including implementation and oversight. |
|
X |
X |
|
|
X |
SMF 1 |
Not SMF 18 |
|
(b) |
Performance by the firm of its obligations under the Certification Ragime. |
|
X |
X |
|
|
X |
SMF 16 |
Not SMF 18 |
|
(b1) |
Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules. |
|
X |
X |
|
|
X |
SMF 16 |
Not SMF 18 |
|
(c) |
Compliance with the rules relating to the firm's Responsibilities Map |
|
|
X |
|
|
|
SMF1, SMF9 |
|
|
(d) |
Responsibility for the firm's policies and procedures for countering the risk that the firm might be used to further financial crime. |
|
X |
X |
|
|
X |
SMF16, SMF17 |
Not SMF18 |
|
(f) |
Policies and procedures for induction, training and development of the governing body. |
|
|
|
|
|
|
|
|
|
(g) |
Policies and procedures for induction, training and development of the SMF managers and key function holders. |
|
|
|
|
|
|
|
|
|
(j) |
Safeguarding and overseeing the independence and performance of the internal audit function (in accordance with SYSC 6.2) |
|
|
X |
|
|
|
SMF10, SMF11 |
Non-exec senior manager preferred |
|
(j2) |
Providing an effective non-conflicted internal audit and overseeing the performance of the internal audit function if the firm outsources its internal audit to an external 3rd party. |
|
|
X |
|
|
|
|
|
|
(j3) |
If the firm outsources its internal audit function, taking reasonable steps to make sure that every person involved in the performance of the service is independent from the persons who perform external audit, including:
|
|
|
X |
|
|
|
SMF2, SMF3 |
|
|
(k) |
Safeguarding and overseeing the independence and performance of the compliance function (in accordance with SYSC 6.1) |
|
|
X |
|
|
|
SMF9, SMF10 |
Non-exec senior manager preferred |
|
(l) |
Safeguarding and overseeing the independence and performance of the risk function (in accordance with SYSC 7.1.21R & SYSC 7.1.22R). |
|
|
X |
|
|
|
SMF9, SMF10 |
Non-exec senior manager preferred |
|
(m) |
Development and implementation of the remuneration policies and practices (where applicable under SYSC 19D). |
|
|
|
|
|
|
|
|
|
(n) |
Whistleblowers' champion (where applicable) |
|
|
|
|
|
|
|
|
|
(s) |
Managing the firm's internal stress tests and ensuring the accuracy and timeliness of information provided to the FCA for stress testing. |
|
|
X |
|
|
|
SMF4 |
|
|
(t) |
Developing and maintaining the firm's business model. |
|
|
X |
|
|
|
SMF1, SMF3, SMF9 |
|
|
(z) |
Responsibility for the firm's compliance with CASS (if applicable). |
X |
X |
X |
|
|
X |
|
|
|
(aa) |
Responsibility for management of the firm's risk management processes in the UK. |
|
|
|
|
|
X |
|
|
|
(ee) |
Responsibility for the escalation of correspondence from the PRA, FCA and other regulators in respect of the firm to the governing body and/or the management body of the firm or, where appropriate, of the parent undertaking or holding company of the firm's group. |
|
|
|
|
|
X |
|
|
|
(ff) |
Responsibility for the firm's compliance with the UK regulatory system applicable to the firm. |
|
|
|
|
|
X |
|
|
|
(za) |
[Authorised Fund Managers only] Responsibility for an AFM's value for money assessments, independent director representation and acting in investors' best interests. This PR only applies to AFMs. For more details, see CP17/18, MS15/2.3 - Assessment Management Market Study: Final Report and PS18/8. |
X |
X |
X |
X |
|
X |
SMF9 |
|
Overall responsibilities
Enhanced firms must ensure that a Senior Manager has ‘overall responsibility’ for every activity, business area and management function of the firm. This is to make sure that there is a clear allocation of responsibilities for the entire firm. To this end, each enhanced firm will need to identify all of its activities, business areas and management functions and then identify the most senior individual with overall responsibility for that activity, area or function. If that person is not already a Senior Manager, he or she will have to be approved as an SMF 19 (Other overall responsibility).
In order to assist, the FCA provides a non-exhaustive list of business activities and functions of an SMCR firm in SYSC 25, Annex 1. The individual with overall responsibility does not need to have day-to-day management control of the particular function. However, that person does need to have sufficient authority over the function as he/she will have primary responsibility for briefing the board about the particular area for which ‘overall responsibility’ has been allocated.
‘Overall responsibilities’ cannot be divided. However, where appropriate, they can be shared. Management responsibilities map As identified in SYSC 25, a management responsibilities map (an “MRM”) is a single document which sets out the firm’s management and governance arrangements. They are a ‘living document’ which must be kept up-to-date. However, the FCA does not need to be notified of any changes. Put simply, MRMs enable the FCA to identify, at a glance, the relevant individual they should speak to about a particular issue.
MRMs should also identify:
- how Prescribed Responsibilities have been allocated;
- individuals with ‘overall responsibility’;
- individual and committee reporting lines; and
- the manner in which responsibilities are shared or divided between individuals.
There is no FCA-approved template for a Management Responsibilities Map, but an example can be found here. In practice, MRMs are a useful tool for the firm as they enable it to identify gaps (if any) that exist between the Statements of Responsibilities of individual Senior Managers. Handovers Enhanced firms are required to have handover procedures in place. They are also required to implement a policy detailing how they comply with the FCA’s requirements regarding handovers. Whilst, strictly speaking, handover procedures are only required for enhanced firms, it is generally regarded as a good practice for all firms to implement handover procedures.
