Under the Approved Persons Regime, it has proven very difficult for the regulator to hold senior individuals to account in the aftermath of the financial crisis. As a result, the PRA and FCA were granted additional supervisory and enforcement powers to enable them to better hold senior individuals to account for issues that arise on their watch. In fact, the regulators can prosecute individuals for ‘taking decisions that cause a firm to fail’. The new regime is called the Senior Managers and Certification Regime and the deadline for banks, building societies, credit unions and PRA-regulated investment firms to comply was 7 March 2016.
There has been growing uncertainty as to whether an individual in charge of a firm’s legal function requires approval under the SMR. The FCA has responded by announcing a forthcoming consultation paper seeking views on this matter. In the interim, firms that have made a decision in good faith about whether or not an individual with a legal function should be included need not change their approach.
The FCA has now also confirmed that it will be consulting on the extension of the regime to all FSMA authorised firms during Q2 of 2017.
What does it mean for me?
Whilst the new regime initially applies to only certain firms, it was no surprise to hear that the rest of the financial services industry will be brought in line with the new regime by 2018. While details of what the regime will look like for other financial services firms may take some time to be finalised, firms would be well advised to get ahead of the game, and consider how their current internal governance processes stack up against the requirements.
For anyone running a financial services firm and who has approved person responsibilities, the implications of non-compliance are severe. So understanding the regulator’s expectations and what this means in practice for your firm is key. Things to consider include:
- Who are your approved persons and what are their core responsibilities?
- Are these properly documented and can you articulate these clearly to the regulator?
- Do your governance arrangements align with the new regime?
If you need any help with these requirements, Bovill can help. For example, we can assist you with your project, undertake a health check of your current processes and documentation, provide training on senior management responsibility, as well as offering practical tips to achieve compliance.