SM&CR and CASS: The unstoppable force meets the immovable object

11 November 2019

SMCR and CASS: the unstoppable force meets the immovable object

With SM&CR fast approaching, it’s important to make sure you’ve thought about your client assets arrangements and whether you need to make any changes. There may not be a direct transition of responsibility for CASS so you need to understand how your firm will be affected under SMCR and factor it in to your responsibility mapping.

Understanding your firm type under SM&CR – and what it means for CASS

The extension of the Senior Management and Certification Regime to solo regulated firms has been on the horizon for a while. Most firms will have identified which categorisation they will have under the new regime. As such, firms should already be working through their SMCR planning. Part of this is considering which type of SMCR firm they will be:

  • Core Regime: This is a baseline requirement which will apply to almost every firm.
  • Enhanced Regime: As well as the Core Regime requirements, the Enhanced Regime will apply an additional set of requirements to larger firms whose size, complexity and potential impact on customers warrants more attention. All CASS large firms – that is, those with more than £1bn client money or more than £100bn custody assets – will be enhanced firms. 
  • Limited Scope Regime: The Limited Scope Regime is a ‘light touch’ version of the rules. Whilst accountability is still at the foundation of the Limited Scope Regime, it requires less of certain firms due to the nature of the financial services that they offer, for example Limited Scope Firms do not need to allocate Prescribed Responsibilities (explained further below).

From a CASS perspective, because all CASS Large firms will be subject to the Enhanced Regime, it is important that these firms understand the additional requirements they’re subject to. CASS medium firms that are likely to move to CASS large categorisation in the next 12 months should also take this opportunity to start planning for the Enhanced Regime. In fact, CASS medium firms can ‘opt up’ and adopt the Enhanced Regime early in preparation for an expected CASS reclassification.

CASS responsibilities in the SM&CR – what happens to the CF10a

Under the Approved Person’s Regime CASS medium and large firms must have someone in the CF10a controlled function who is responsible for CASS operational oversight. However, under SM&CR this is changing. Instead of one individual being approved by the regulator as the CF10a, the role and its responsibilities will be split between a Senior Manager Prescribed Responsibility, and a Certification Function.

Senior Manager Prescribed Responsibility for CASS

A new concept that is brought about by the Senior Managers Regime is the introduction of Prescribed Responsibilities, known as PRs. These PRs are specific responsibilities, defined in SYSC 24 of the FCA Handbook, each of which must be allocated to a Senior Manager of Core and Enhanced firms. They are prescribed directly by the FCA and are in addition to the inherent responsibilities that are an essential part of the Senior Manager’s role. The PRs cover several areas, including CASS, to ensure a Senior Manager is accountable for key areas of conduct and prudential risk.

The Prescribed Responsibility for CASS is PR Z and must be given to the individual who is ultimately responsible within the firm for compliance with the CASS rules.  But to add complexity, this could be reflected in different senior management functions.

In Enhanced Regime firms, it is possible that the individual with PR Z will have no other Senior Manager responsibilities due to the firm’s size, governance structure and allocation of responsibilities and duties. If that is the case, the Senior Manager will be appointed as an SMF 18 – ‘Other Overall Responsibility’. Enhanced Regime firms should be aware that an SMF 18 can only be assigned PR Z, they can’t hold any other PR. If they do need to hold another PR alongside PR Z, that will need to be done under another SMF (for example, SMF 16, the Compliance function). This allows for flexibility and accuracy for when firms are mapping their responsibility lines, particularly CASS responsibility lines. It’s worth noting that SMF 18 is not applicable to Core firms, so those firms will need to have a different SMF allocated with PR Z

Certification Function and CASS

It is recognised that in reality, the person who has ultimate responsibility for CASS may not be responsible for the day to day oversight or operations of the CASS rules. If this day-to-day oversight has been delegated to someone else, then the delegate will fall into the certification regime as the certified individual responsible for the CASS Operational Oversight Function.

For many firms, this function equates to the CF10a role seen under the approved persons regime. As well as having this certified individual, firms will still need to have an individual in a relevant SMF responsible for PR Z.  In this case, the firm (and the individuals themselves) must be able to clearly define the respective responsibilities of the Senior Manager and the Certified Individual.

In some firms, the Senior Manager allocated PR Z will also have responsibility for the day to day operational oversight of CASS. In this instance the Senior Manager would not need to be certified as well as holding a relevant SMF.

Don’t forget the current rules, they’re not redundant just yet

Firms should remember that until the SM&CR comes into force on 9th December 2019, the Approved Person regime is still in force. Firms should not get caught in thinking that a CF10a is not needed in the run up to SM&CR implementation. Whether it’s because of a new authorisation application, or because an existing CF10a is departing the firm between now and the SM&CR implementation date, firms still need to have the appropriate individuals in place to perform controlled functions. Equally, firms should not let said individual perform a controlled function role before they have been approved by the regulator, even if that role will be subsumed by the certification regime in the near future.

Next steps – allocating CASS responsibility under SMCR

The key actions for firms are:

  • Decide who is the SMF with ultimate responsibility for CASS
  • Decide whether that individual will hold any other prescribed responsibilities and which SMF they will hold
  • Decide whether that individual is also responsible for the day-to-day operational oversight, if so ensure this is clearly shown in any responsibility mapping
  • If not, decide who will need to be a certified individual with responsibility for operational oversight and, again, ensure this is clearly shown in responsibility mapping documents
  • For some larger firms, there may be multiple certified individuals with CASS oversight responsibilities and if that’s the case, careful mapping of roles and responsibilities will be needed; and
  • Keep compliant with the current rules.

As we head towards December and beyond, get in touch if you need any help or advice, with CASS responsibilities or any other element of SM&CR.

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