Tony Catt looks at the requirements of how to conduct a FIT assessment under the SM&CR regulations.
The Senior Managers and Certification regime (SM&CR) was introduced in 2015 and has been in force for banks, building societies, credit unions and PRA-designated investment firms (Relevant Authorised Persons) since March 2016.
The implementation date for solo-regulated firms is 9 December 2019, subject to commencement regulations to be made by HM Treasury. The FCA also confirms a one-year transitional period for some aspects of the regime. However, the arrangements for Senior Managers and Certification Staff (except for the certification process) must be in place by 9 December 2019, and the Conduct Rules will apply from then to all Senior Managers and Certified Staff.
The SM&CR ules will increase the importance of the application of the Fit and Proper Test for Employees and Senior Personnel. More onus will be placed on firms to undertake the tests.
The SM&CR should put an end to management passing blame or simply pleading ignorance when things have gone wrong
Firstly, firms will want to ensure that people appointed to undertake certain functions are fit and able to do the job. Firms will be setting out the Duty of Responsibility of their Senior Managers and need to be confident when allotting specific duties to individuals.
Secondly, the appointees will also want to be sure because in future they can be held personally responsible if things go wrong in their sphere of influence. The job holders will need to be vigilant to ensure that their Duties of Responsibility are reasonable and manageable.
FIT applies to:
- A firm (including an SM&CR firm);
- an applicant for Part 4A permission;
- an EEA firm or a Treaty firm that wishes to establish a branch into the United Kingdom using EEA rights or Treaty rights;
- or apply for a top-up permission;
- an approved person performing an FCA controlled function;
- a candidate for an FCA controlled function;
- a certification employee performing an FCA certification function; and
- a person whom an SMCR firm is proposing to certify to perform an FCA certification function.
The purpose of FIT is to set out and describe the criteria that:
- an SM&CR firm should consider when:
- assessing the fitness and propriety of a candidate whom the firm is proposing to put forward for approval as an FCA-approved Senior management Function (SMF) manager;
- assessing the continuing fitness and propriety of a person approved to perform the function of an FCA-approved SMF manager, including for formulating an opinion about whether there are any grounds on which the regulator could withdraw the approval given to that individual to perform that function;
- assessing the fitness and propriety of a person whom the firm is proposing to certify to perform an FCA certification function; and
- assessing the continuing fitness and propriety of a person whom the firm has certified to perform an FCA certification function; and
- the FCA will consider when assessing the fitness and propriety of a candidate for a controlled function, including a designated senior management function, and may consider when assessing the continuing fitness and propriety of approved persons.
In assessing whether a person is a fit and proper person to perform an FCA designated senior management function or an FCA certification function, an SMCR firm must have particular regard to whether that person:
- has obtained a qualification; or
- has undergone, or is undergoing, training; or
- possesses a level of competence; or
- has the personal characteristics;
required by general rules made by the FCA.
The FCA will have regard to a number of factors when assessing the fitness and propriety of a person to perform a particular controlled function.
In the FCA’s view, the most important considerations will be the person’s:
- honesty, integrity and reputation;
- competence and capability; and
- financial soundness.
In assessing fitness and propriety, the FCA will also take account of the activities of the firm for which the controlled function is or is to be performed, the permission held by that firm and the markets within which it operates.
An SM&CR firm assessing the fitness and propriety of staff being assessed under FIT should consider:
- the nature, scale and complexity of its business, the nature and range of financial services and activities undertaken in the course of that business; and
- whether the candidate or person has the knowledge, skills and experience to perform the specific role that the candidate or person is intended to perform.
An SM&CR firm is reminded that, in assessing a candidate for a position within the management body of the firm, the firm should ensure that the management body, as a collective, possesses adequate knowledge, skills and experience to understand the firm’s activities.
So under SM&CR FIT guidance is providing a basic set of considerations and some structure to firms to help with the appointment of approved persons and senior management.
It is interesting that this guidance is needed as, surely, it is the application of common sense to only appoint people into a role that they are able to perform.
Another side of this equation is that the appointees need to undertake their own due diligence to make sure that the duties that they are being allotted are manageable and reasonable.
The SM&CR should put an end to management passing blame or simply pleading ignorance when things have gone wrong. That has to be a good protection for consumers.