The Senior Managers and Certification Regime: What senior managers should expect

April 1, 2019

As the name suggests, the role of a Senior Manger will be pivotal to your business once the regime comes into force in late 2019. But who will be a Senior Manager and what will change for you if you become one?

Will you be a Senior Manager?

Having a senior role or the title Manager won’t necessarily mean you are a Senior Manager. Senior Managers are the most senior people with the greatest potential to cause harm or impact on market integrity. There won’t be many of them in your firm – even the largest retail banks have less than 40.

The FCA has identified certain Senior Management Functions. Not all firms will require all of these – that depends on its size, complexity and the regulated activities it carries out. Anyone who holds such a Senior Management Function will require pre-approval from the regulator before performing this role.

The regime introduces new ‘Prescribed Responsibilities’ that must be given to Senior Managers. These have been identified by the FCA to ensure that there is a Senior Manager who is accountable for all key risks.

What your firm will be doing to get the Senior Manager team in place

  1. Identifying individuals who will hold Senior Manager Functions (SMFs)
  2. Allocating prescribed responsibilities that are relevant to the firm’s activities to those SMF’s
  3. Identifying overall responsibilities of senior individuals for any other activities, functions or business areas
  4. Identifying problem areas, for example:
  • Concerns about obtaining FCA approval for any individuals
  • Do they need to restructure/reallocate responsibilities?
  • Are there any reluctant candidates or do they need to manage those disappointed not to be allocated an SMF?

New paperwork to sign

Senior Managers will have a ‘Statement of Responsibilities’ which sets out what they are responsible and accountable for. This is submitted to the FCA and must be kept up to date.

You are likely to be asked to sign an updated employment contract. The SMCR does not override the general principle that if your contract doesn’t expressly permit a change in your role, responsibilities etc your agreement is required. Be warned that refusing to agree to your Statement of Responsibilities will mean you can’t perform the Senior Manager role and could be a fair reason to dismiss you.

Financial incentives were not the norm to secure agreement in the banking sector unless as a result of the SMCR the individual had a significantly enhanced role and responsibilities.

Duty of Responsibility 

Senior Managers must comply with additional Conduct Rules as well as those applicable to most staff. They also have a duty of responsibility - this means that if a firm breaches one of the regulator’s requirements, the Senior Manager responsible for that area could be held accountable if they did not take ‘reasonable steps’ to prevent or stop the breach. Sanctions include fines or being barred.

Training

The FCA has imposed specific training obligations. One to One session with advisers and possibly paid for independent legal advice to ensure you understand your responsibilities may be offered for Senior Managers.

Reputation 

If you breach a Conduct Rule this will need to be reported to the FCA. Any concerns about your fitness and propriety will need to be recorded on the new style regulatory reference – the days of the agreed reference hiding a multitude of sins are over!

It is important that if you are a Senior Manager you:

  1. Understand the scope of your responsibilities
  2. Know the conduct rules
  3. Are questioning and challenging
  4. Oversee line reports proactively
  5. Always follow up on queries and issues
  6. Understand the business you are responsible for and the regulatory requirements applicable to it
  7. Keep appropriate records to demonstrate reasonable steps have been taken
  8. Check that the firm has insurance policies which are adequate to cover you and are fit for purpose.

Joanna Chatterton is partner of Fox Williams LLP specialising in employment law for financial services businesses and partnerships. 

This article first appeared in the AltFi special report, March 2019.


Related pages:

Experts on the human side of enterprise more

Senior Managers & Certification Regime more

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Joanna Chatterton
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Direct dial: +44 (0)20 7614 2617
jkchatterton@foxwilliams.com

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