Objectives
To take a closer look at the impact of the SM&CR regulations to identify ‘hotspots’ that may affect how you implement the requirements of the regulations. Some test questions are set out towards the end of this post.
Outcomes
- To know the timelines and why it is important to set up a project
- To appreciate the importance of company culture and the links to the regulatory requirements
- To know what happens to people subject to the Approved Persons Regime
- To be clear about the scope of the Certification Regime
- To know what is required to issue a Certificate
- To know about the need to embed the Code of Conduct
VIDEO TRANSCRIPT
Hi, my name’s Jeff Abbott. I’m Regulatory Services Director here at 2Be Development Consultancy.
In this short video, I’d like to take a closer look at the senior managers and Certification Regime and the Code of Conduct. Not to cover the material that’s in the FCA papers, which we strongly recommend you read but more on the hot spots that we’ve uncovered working with clients and running workshops over the past few years on the subject.
What I’ve tried to do on the whiteboard behind me is capture those key points and I’ll run through those with you. I suppose the first point to look at is the date, the 9th of December, the date these regulations come into effect is not that far away. And there is a possibility that the project itself ends up to be a much bigger concern than you first imagined. There will be some companies that feel that they’re in a good place to embrace these regulations because they have all the procedures and various things expected in place. However the key here is, is it absolutely clear who is responsible for which part within the company of the processes and the procedures? Is it clearly documented are the lines of responsibility absolutely crystal clear? Will it stand up to regulatory scrutiny, should it be called for? The key thing here is not to assume that everything is actually in place but make sure that you have covered this all off to ensure that you’re in a safe place.
Many companies may wish to consider putting a project team together. It really depends on the size of your operation, the complexity of the operation but what we have found is there is a tendency to establish these projects independently of existing work streams so excluding HR, T and C or compliance leaving them to work in their own silos. It’s quite important that you engage these teams because they contain the relevant expertise to help your projects succeed.
One of the early things that you want to do is obtain a project sponsor who better than the senior manager who is going to take responsibility for the senior management regime or the Certification Regime or the Code of Conduct, an ideal candidate you would have thought.
Now looking at the regulations we know that there are various aspects that firms have a choice as to whether or not they wish to adopt. What I mean by that is that it’s only the enhanced firms that are obliged to prepare responsibility maps or hand over procedures. But we are finding that many companies wish to have those safeguards and best practice in place. So something we would encourage you to think about and depending on your circumstances decides whether it’s appropriate for your business.
Early on you want to establish how you’re going to govern these arrangements. I would suggest having a governance committee formed, a Terms of Reference established with the appropriate objectives and measures that you want to use. Think about the risks and the escalation of those risks and how those will be managed. But the other side of it is the management information that you may wish to see and the frequency of that and decide whether or not you allow or you need technology to support you with those requirements. And of course, bear in mind that any technological requirement takes quite a while to build. So the sooner you address that aspect the better.
Now the regulator has told us that this is one of the biggest cultural changes that have come to the financial services industry. They were talking about a culture where there is a personal responsibility for actions that there are clear lines of responsibility. A culture where the focus is on consumer outcomes. Now is it clear within your company what your culture is? Every company has a culture. It’s the way you do business. And the key there is the regulator expects you to understand and be able to define your culture, know the drivers of culture whether it’s the tone from the top, the leadership styles, the remuneration strategies but also to understand the values that sort of underpin that or the behaviours that support it and making sure that they are the right thing for your company and the culture you want. The key is how do you know what your culture is? How do you share that? How do you measure it? Where is your evidence to support that? You’ve got to be clear what that is. And the other side of this culture will link to other aspects of the regime, such as the competence and capability you would expect the individuals to demonstrate the behaviour supportive of your values in determining their competence.
The senior manager regime itself, as you can see from the chart, essentially the population within the approved persons will either fall within the senior management functions or the Certification Regime, or they might fall out the regime completely if you’re a non-executive director who doesn’t hold a chair position. But the key thing, therefore, the NED is that you’ll still be subject to regulatory references after December as well as fit and proper requirements as well.
The key point for me for the senior manager is that I would regard the senior manager as sandwiched between the code of conduct requirements and the requirements within the decision procedures and penalties manual. This is where you would turn to, to understand what the regulator requires to be reasonable steps in discharging your duty of responsibility. Quite clearly they expect policies and procedures in place, so should they come to investigate a particular situation the email will ask questions about where these documents are with a genuine expectation that they exist.
And the other side of this is not to forget that if you are a senior manager that holds the prescribed responsibility. You cannot delegate that accountability. Yes, you can delegate responsibilities for dealing with those requirements but at the end of the day, you retain the accountability. One of the key things there is with a certification regime if you’re delegating the responsibility for issuing certificates to other managers in the line you have to make sure they’re competent to do so. That’s a key aspect of what’s expected.
And moving on to the Certification Regime, and now the Certification Regime only applies to employees so it doesn’t apply to non-executive directors as such. But beware, contractors because of the nature of the work that they do and depending on how their relationship is with your firm and how they are supervised may become categorised as an employee so subject to the Certification Regime, so beware of that.
There are eight certification functions. One of the things to look out for is the consequences of indirect supervision. So you may inadvertently fall into the scope of certification if you’re performing this indirect supervision function. A classic example is where there is TandC function checking the quality of an adviser’s work, depending on your circumstances and how that quality checker is supervised, you may draw into the scope of the regulations. People within the scope of the Certification Regime people that are doing this particular function.
Don’t forget about the fitness requirements. The first part the honesty integrity and reputation; to link back to things like the Code of Conduct and the values framework that you have within your company as well as doing the form A declarations that you might wish to continue doing, this additional information is relevant to assessing the honesty, integrity and reputation of an individual.
Competence and capability, now it’s very much the regulators expectation of a proportionate basis, which means that depends on the complexity of the job that the individual is doing, the seniority of the position that they hold. But nevertheless, in order to be competent, you have to gather evidence against standards of expected performance. So you have to be clear about what those standards are. You also want to make sure that you have that evidence and you may wish to consider the frequency by which you look at that evidence. We would recommend little and often rather than a window once a year where you try to gather the evidence within a short period. One word of caution, as we’ve said on here, performance management, now performance management is different to competence. What I mean by that is an individual could be competent but then set performance objectives that they fail to achieve. Now in doing that are you telling me that they are not competent, therefore they cannot receive a certificate? Beware! Because you might set up a trap that says, you failed your performance objectives or you fail to reach them, and as a consequence, we’re not prepared to issue you with a certificate to confirm your fitness, therefore you can’t do your job – it’s the consequences of what might happen.
The other thing is the regulations do allow flexibility to have you spread the issue of the certificate over the first year of the regime. Rather than have a once a year day to issue all your certificates, especially if you have hundreds of them. You might wish to issue certificates for shorter periods than a year to stage when they will renew. You might wish to tie them in with CPD for accredited bodies for instance.
The code of conduct, it’s an interesting one because the first of all is the scope. Now we know that it affects almost everybody. Apart from those performing what they call ancillary roles. But some companies are choosing to include these people in the proposed introduction of the code of conduct so everybody within the companies involved. You need to make sure you have a common understanding of what this code means. For instance, what does “You must act with integrity” mean to the different employee? The company should define quite clearly what that means from their perspective.
From a regulator’s point of view, I would always describe this as the Cape Canaveral, President Kennedy experience, where he went to inspect the premises and the number of the story is he came across the third person sweeping the floor who responded to his question, “Mr. President I’m helping put a man on the moon”. And this is the whole point, what you’re trying to do is ensure that everybody understands the code but also how their individual role contributes to the overall success of delivering the code and the consumer outcomes for the regulator.
In that regard, you have to question whether e-learning is enough. Because whilst it might help their understanding of the code does it help him get it? You may wish to consider such things as personal charters. Personal charters of individual commitments of how they’re going to deliver the code which could then be integrated with performance management. And so individuals could provide evidence of how they have committed and delivered their personal commitment to the code of conduct.
The other side of it, of course, is that with the code comes possible breaches and with possible breaches you have procedures that you need to follow, reporting that you might have to follow and also tying in with HR procedures as well.
I suppose that comes to the end of this brief talk. But don’t forget, come the 9th of December whilst you would have identified the senior managers and transferred them, identify the certification population, trained the two populations on the code of conduct. You will still be faced from the 9th of December with the possibilities of having to provide regulatory references, dealing with a new start who is a certification function, dealing with a senior manager that leaves or providing a code of conduct support for the breach that’s actually happened. So all these things mean that’s when the fun really starts and the challenges arise.
I hope you found this video useful. If you do require any further assistance please don’t hesitate to get in touch always happy to help.
Test Questions
When do the SM&CR regulations take effect for Enhanced Firms?
A. 31 December 2019
B. 9 December 2019
C. 16 December 2019
D. 01 January 2020
Which firms are mandated to prepare responsibilities maps?
A. All firms
B. Both Enhanced and Core Firms
C. Enhanced Firms only
D. Core Firms only
Which best describes company culture?
A. The way we respond to customers
B. The way we get business done around here
C. The values we exhibit
D. The behaviours we adopt
Where might an existing approved person not end up?
A. As a non-FCA approved NED
B. As a Certification Function
C. As both an SMF and Certification Function
D. As a non-FCA approved NED holding a chair position
A non-FCA approved NED working for a core firm is still subject to
A. Regulatory References only
B. FIT and proper checks only
C. Both Regulatory References and FIT and proper checks
D. None as they are no longer approved by the FCA
Which of the following statements is not true?
A. The Certification Regime applies to employees only
B. Contractors can be classified as employees in defined circumstances
C. NEDs are not within scope of the Certification Regime
D. Supervisors of Certification Functions are only in scope of the Certification Regime if they provide supervision directly
The Approved Persons Regime for Core Firms
A. Will run alongside the new regulations
B. Be replaced by the new regulations
C. Be phased out over the next 18 months
D. End on 09 December 2020
The FCA, in future, will only approve
A. .All Senior Management Function appointments
B. All Senior Management Function and NED appointments
C. All Senior Management Functions and selected Certification Functions
D. No one as it will be up to each individual firm
Which component is not part of a Fit and Proper Check?
A. Financial Soundness
B. Competence and Capability
C. Treating Customers Fairly
D. Honesty, Integrity and Reputation
How frequently must a Fit and Proper check be undertaken?
A. It is a one-off event
B. Every 2 years
C. Every time an employee changes Certification Function
D. Every Year
Which one of the following roles is not deemed to be an ancillary role by the FCA?
A. Receptionist
B. Maintenance Worker
C. Claims Administrator
D. Security Guard
The regulations start for Enhance Firms on 09 December 2019. How long do you have to issue your first Certificate for each employee?
A. One year
B. One year from your chosen opt in date
C. Any time up to 6 weeks before 09 December 2020
D. 31 December 2020
Test Question Answers
When do the SM&CR regulations take effect for Enhanced Firms?
A.31 December 2019
B. 9 December 2019
C. 16 December 2019
D. 01 January 2020
Which firms are mandated to prepare responsibilities maps?
A. All firms
B. Both Enhanced and Core Firms
C. Enhanced Firms only
D. Core Firms only
Which best describes company culture?
A. The way we respond to customers
B. The way we get business done around here
C. The values we exhibit
D. The behaviours we adopt
Where might an existing approved person not end up?
A. As a non-FCA approved NED
B. As a Certification Function
C. As both an SMF and Certification Function
D. As a non-FCA approved NED holding a chair position
A non-FCA approved NED working for a core firm is still subject to
A. Regulatory References only
B. FIT and proper checks only
C. Both Regulatory References and FIT and proper checks
D. None as they are no longer approved by the FCA
Which of the following statements is not true?
A. The Certification Regime applies to employees only
B. Contractors can be classified as employees in defined circumstances
C. NEDs are not within scope of the Certification Regime
D. Supervisors of Certification Functions are only in scope of the Certification Regime if they provide supervision directly
The Approved Persons Regime for Core Firms
A. Will run alongside the new regulations
B. Be replaced by the new regulations
C. Be phased out over the next 18 months
D. End on 09 December 2020
The FCA, in future, will only approve
A. All Senior Management Function appointments
B. All Senior Management Function and NED appointments
C. All Senior Management Functions and selected Certification Functions
D. No one as it will be up to each individual firm
Which component is not part of a Fit and Proper Check?
A. Financial Soundness
B. Competence and Capability
C. Treating Customers Fairly
D. Honesty, Integrity and Reputation
How frequently must a Fit and Proper check be undertaken?
A. It is a one-off event
B. Every 2 years
C. Every time an employee changes Certification Function
D. Every Year
Which one of the following roles is not deemed to be an ancillary role by the FCA?
A. Receptionist
B. Maintenance Worker
C. Claims Administrator
D. Security Guard
The regulations start for Enhance Firms on 09 December 2019. How long do you have to issue your first Certificate for each employee?
A. One year
B. One year from your chosen opt in date
C. Any time up to 6 weeks before 09 December 2020
D. 31 December 2020
