This article is for firms to consider what actions they could take now, in order to be ready for the senior managers certification regime to come into force in 2018.

    Overview

    The FCA senior managers certification regime consultation paper (SMCR) is expected this month (May 2017). Following the consultation, the final paper will be published in anticipation of the new rules, which are expected to begin in mid 2018.

    The new rules will apply to all financial services firms (including mortgage firms): in particular business owners / directors / partners and senior managers within those firms.

    The SMCR is being pushed by MPs in parliament where, following years of banking and investment miss-selling, they are looking for firms to show which senior management individuals are accountable for which processes and procedures.

    The overriding requirement is that senior management within financial services firms can evidence good culture and ethics and that this is driven from the top.

    Senior management will also be expected to certify annually that individuals within the firm are fit and proper and competent to perform a controlled function.

    What firms need to do

    Paradigm believes that there are some actions that firms can take in preparation prior to the final rules.

    Prepare a firm structure chart

    Firms should ensure that they have a structure chart which clearly defines all reporting lines and senior management positions.

    Prepare a statement of responsibility (SOR)

    Firms should prepare a statement of responsibility consistent with the structure chart. The SOR should give a brief description of each SM responsibility. There should only be one SOR per firm.

    Certification

    Firms should begin by identifying staff roles that could represent risk either to the firm, to clients or both.

    We believe that most firms will have already completed this exercise, or be well on with the process as per previous guidance on the ESMA rules changes from 3rd January next year, as highlighted in recent compliance updates.

    Once the new rules have been introduced, we believe that certification will be separated into two assessment criteria:

    • A fit and proper assessment and
    • A competence assessment

    Fit and Proper (F&P) assessment

    There is also a clear expectation that annual F&P assessments should be more rigorous than the current F&P assessments. Firms should:

    • Complete a fit and proper questionnaire annually; similar to that of the FCA form A application.
    • Carry out a full annual credit check.
    • Carry out an annual reputation and integrity checks, this may include checking social media sites, such as Facebook, Linked-in, Instagram, You Tube etc.

    Competence assessment

    Competence should be assessed by following your own firm specific T&C scheme. Firms are advised to update their T&C schemes to meet the new ESMA requirements.

    Ensure individuals performing controlled function roles observe the T&C standards, job descriptions should also be reviewed as part of the annual appraisal process.

    All of the above F&P and competence assessments should be clearly documented.

    Paradigm has added to the compliance manual to allow firms to take this action now.

    Whilst awaiting the final rules, there are actions that firms may wish to take now.

    1. Prepare a firm structure chart

    Firms should ensure that they have a structure chart which clearly defines all reporting lines and senior management positions.

    2. Prepare a statement of responsibility (SOR)

    Firms should prepare a statement of responsibility consistent with the structure chart. The SOR should give a brief description of each SM responsibility. There should only be one SOR per firm.

    3. Update documents

    • Staff template, to include a declaration of honesty and integrity and can be used at the next annual review date
    • Prepare statement of responsibility
    • Update fit and proper statements.
    • Update social media policy where firms wish to use this as part of the reputation and integrity checks.
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