AIMA responds to FCA consultation on transitioning firms and individuals to SMCR

Published: 19 February 2018

On 19 February 2018, AIMA responded to the FCA’s Consultation Paper CP17/40, ‘Individual Accountability: Transitioning FCA firms and individuals to the Senior Managers & Certification Regime’ (SMCR).

The FCA’s consultation proposes to automatically convert of the majority of individuals in existing controlled functions (CF) to the equivalent Senior Management Function (SMF) role under the extended SMCR. This will apply for the majority of firms subject to the extended regime (Core SMCR firms). However, where an existing CF will not have an equivalent SMF role under the extended SMCR, individuals in those CF roles will have their FCA approval lapse, unless the firm lodges a Form A to appoint the individual to SMF under the extended SMCR – e.g. a firm decides an individual with existing CF30 Customer Function approval will be designated as an SMF3 Executive Director under the extended SMCR. CF individuals will otherwise likely be captured by one or more of the Certification Functions. Larger, more complex firms (Enhanced SMCR firms) will need to lodge conversion notifications and accompanying documents with the FCA.

While Treasury is yet to confirm the final timeframe for the new rules to commence, for the purposes of this consultation, the FCA assumed that the rules will apply to insurers in late 2018, and to solo-regulated firms in mid-to-late 2019. The FCA has also confirmed that the Treasury intends to commence the requirement for firms to certify relevant employees as fit and proper for the first time 12 months after the start of the main SMCR (according to this timeframe, in mid-to-late 2020). However, firms would still need to have identified their certified staff from commencement, as those employees must meet the Conduct Rules from day one of the regime. For all other staff who are not senior managers or certified staff, the FCA is proposing to apply the conduct rules 12 months after commencement, to enable sufficient time for firms to roll out training.

In our response, we expressed broad support for the FCA’s proposed approach. However, we have highlighted a number of specific areas for the FCA to consider further in finalising the transitional arrangements. In particular, we have raised the need to ensure clarity in the treatment of existing CF4 partners in the transition to the extended SMCR, in circumstances where certain partners will not meet the definition of a ‘senior manager’ under the extended SMCR (s59ZA of the Financial Services and Markets Act 2000). In those circumstances, it appears that firms will need to act to ensure the approval for those individuals lapses upon commencement of the extended regime, rather than the individuals being automatically converted to the equivalent SMF. Instead, those partners will likely be captured by one or more of the Certification Functions, requiring the firm, rather than the FCA, to approve the fitness and propriety of those partners. We have asked the FCA to ensure clarity and consistency in the treatment of these individuals. If members have any questions, please contact Adele Rentsch or Adam Jacobs-Dean.