The Certification Regime applies to staff, except SMF’s, who hold positions where they could pose a risk of significant harm to the markets, the firm or its customers.
The FCA will not approve these people, but firms will need to check and confirm at least once a year that these individuals are suitable to do their jobs.
Examples of roles that could cause significant harm, as listed in the consultation paper, include:
- significant management functions;
- proprietary traders;
- CASS Oversight;
- client dealing function;
- supervisors of Certified Functions but not SMF’s;
- material risk takers; and
- algorithmic trading.
Please note, this is not an exhaustive list. When considering whether an employee or business unit is a certified function, firms will need to decide whether a business unit is ‘significant’. Factors for firms to consider include:
- the size and significance of the firm’s business in the UK;
- the risk profile of the unit;
- the unit’s use of the firm’s capital;
- its contribution to the profit and loss account;
- the number of employees, Certification Functions or Senior Managers in the unit; and
- the number of customers in the unit
If one employee takes on more than one certification function, they must be certified as fit and proper for each role they undertake.
Firms must introduce an annual self-certification scheme to ensure all individuals are fit and proper to carry out their duties. If they are satisfied, they must issue a certificate to the employee. If the firm concludes that an employee is not fit and proper to perform a function, it must give them notice in writing. Firms will need to consult the FCA FIT Handbook to arrive at the correct judgement. It is expected that firms should be able to put in place a single process for certifying each employee who falls within the remit of the regime, such as adding the checks to annual appraisals.
Further evidence requirements
The consultation paper details further evidence requirements for firms when assessing SMF’s, Certification Functions or Non-Executive Directors. This includes conducting criminal records checks.
Where a candidate has spent considerable amount of time working or living outside of the UK, firms should consider undertaking an equivalent check with the appropriate overseas regulatory body.
Additionally, in line with the recommendations of the Fair and Effective Markets Review, firms are required to request a regulatory reference from SMF and Certification Function candidates past employers. This will also apply to NEDs, who aren’t Senior Managers.
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