Under the SM&CR rules, senior managers will need to take reasonable steps to prevent regulatory breaches in their areas of responsibility. What does this mean in practice?
Understanding Senior Manager Functions
The regulations define the Senior Managers Functions (SMFs), and allocates each to a relevant senior manager.
As a first step, firms must assess which SMFs apply to their operations and assign a responsible person to carry out each applicable role. All SMF’s must be pre-approved by the regulator.
The regulations also set out the specific responsibilities for each senior manager undertaking a SMF.
Some responsibilities may not be relevant to your firm; applicability will depend on the size and complexity of your operations.
But when a prescribed responsibility is assigned to a senior manager it must be documented in a Statement of Responsibilities (SoR) to demonstrate that the firm is taking the regulator’s aim of individual accountability seriously.
Every SMF will need to complete a Statement of Responsibilities – a single document that clearly sets out each SMF’s role. This document must be submitted to the regulator. Firms have an obligation to inform the FCA of any changes.
A proportionate approach
The FCA plans to introduce a two-tier system to ensure the regulations are proportionate to the size of the firm. Those classed as ‘enhanced’ firms will need to meet further requirements than those classified as ‘core’. The extra requirements include:
- the additional SMF functions;
- six additional prescribed responsibilities;
- a published a Responsibilities Map;
- clear handover procedures; and
- a position where there is a Senior Manager with responsibility for every area, activity and management function of the firm.
The FCA says the enhanced rules will only apply to the largest and most complex firms – accounting for less than 1 per cent of all regulated organisations.
A new Duty of Responsibility
The consultation paper introduces a Duty of Responsibility for SMFs. This means that if a firm breaches one of the FCA’s requirements, the SMF responsible for that area could be held accountable if reasonable steps were not taken to prevent or stop the breach. Notably, the burden of proof lies with the FCA.
The consultation paper also confirms that an SMF can hold more than one function. However, SMFs must gain approval for each function individually.
The FCA also has the power to appoint SMFs on a temporary basis, subject to conditions that it stipulates.
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