FCA expectations of solo-regulated firms re SMCR

The Financial Conduct Authority has issued a statement setting out its expectations in the current crisis for solo regulated firms in relation to the Senior Managers and Certification Regime. A separate statement for dual regulated firms is available here.

Senior Managers (SMs) in solo regulated firms need to consider: 

• where the current situation might lead to emerging risks, and 
• how it affects existing risks, along with the controls used to manage them

The FCA acknowledges that firms may need to make temporary arrangements to cover absences and allocation of SM responsibilities. While there is no need to submit an updated Statement of Responsibilities (SoR) where there are temporary changes in direct response to the pandemic, the FCA warns that allocations (however temporary) need to be clearly documented internally and available on request by the regulator. Firms need to keep their SoRs, role profiles and Responsibilities Maps (where applicable) up to date on a "running commentary basis". 

Firms do not need to file a Form D to inform the FCA of temporary arrangements. However, firms with an allocated supervisor (fixed firms) still need to supply the FCA with timely detail of the changes they would normally include in updated SoRs. Firms should update their FCA supervisors of any furloughing of one or more Senior Managers by emailing or calling the FCA.

The FCA will issue a Modification by Consent to the 12 week rule. The 12 week rule allows an individual to cover for an SM without being approved where the appointment is less than 12 weeks, and the absence is temporary or reasonably unforeseen. Where temporary arrangements last longer than 12 weeks as a result of the crisis, firms can notify the FCA of their consent to the modification of the 12 week rule. An extension of up to 36 weeks may be available for such temporary arrangements. Again, any changes to SM responsibilities need to be clearly documented.

Where firms are furloughing SMs (and they are not permanently leaving their post) the manager will retain their approval during their absence and will not need to be re-approved by the FCA when they return. The firm is still responsible for ensuring the SM is fit and proper. 

The firm should reallocate the Prescribed Responsibilities of a furloughed or temporarily absent Senior Manager to another Senior Manager.  However, if the firm appoints a temporary replacement under the 12-week rule, the proposed Modification by Consent allows a firm to reallocate the Prescribed Responsibilities to the replacement, even if they are not a Senior Manager. Firms should still allocate to the most senior person responsible for that activity or area, who has sufficient authority and an appropriate level of knowledge and competence to carry out the responsibility properly. The covering manager will require access to the governance forums they need to exercise their responsibilities. 

Individuals performing required functions – eg Compliance Oversight, the money laundering reporting officer (MLRO) and the Limited Scope Function – should only be furloughed as a last resort. Where a required function applies to a firm, the firm should replace the furloughed individual until their return. If the replacement is temporary, firms can use the 12-week rule to arrange cover. FCA has also made it clear that firms need to ensure the allocation is appropriate and complies with FCA rules (for example, that an oversight role is not allocated to an executive).

The statement provides useful guidance for firms, and indicates that the FCA is seeking to be flexible and support firms where possible. It is crucial that firms keep their records up to date on a running basis and can justify their approach as these are areas that are likely to be scrutinised by the regulator once the crisis abates.