The FCA has now issued two statements on the SM&CR outlining its expectation for firms during the Covid-19 pandemic, writes Chris Davies, who takes a brief run through the current regulatory climate
The FCA and Prudential Regulatory Authority (PRA) have released a joint statement for dual regulated firms outlining its expectation for firms during the Covid-19 pandemic. The FCA have also released a statement on solo regulations showcasing a flexible approach.
Here, though, I will cover the FCA statement on expectations for solo-regulated firms:
1. Senior Management Responsibilities:
In relation to risk responsibilities, senior managers should now consider:
- Where the current situation might lead to emerging risks
- How it effects existing risks along with controls used to manage them
2. Statements of Responsibilities and ‘significant changes' to Senior Manager responsibilities:
The FCA is concerned with senior manager absences or change in senior manager responsibilities due to the pandemic. The good news is the FCA is adopting a flexible approach here and does not intend to enforce the requirement to submit updated Statements of Responsibilities (SoRs) if the change:
- Covers multiple sicknesses, temporary changes in responsibilities due to the pandemic
- Is expected to revert to the firm's previous arrangements and are temporary
What does not change is the requirement for documenting allocations of responsibility (including temporary) to ensure all are aware of everyone's responsibilities. It is also deemed good practice for firms to keep a record (running commentary) of the senior manager roles and responsibilities, something SYSC 2.1 requires already. Be clear on where responsibilities lie and business affairs are monitored. Finally, firms should update the FCA on any SMs who are furloughed through this pandemic.
3. Temporary arrangements for Senior Manager Functions:
- Firms can notify the FCA if they need to modify the 12 week rule if temporary arrangements last longer than 12 weeks to a maximum of 36 weeks. The rule originally allowed an individual to cover a senior manager without being approved where the absence is temporary/reasonably unforeseen and the appointment is under 12 weeks
- Temporary roles and responsibilities still need to be documented
- Prescribed Responsibilities can be allocated to the individual taking the temporary role (rather than only to another approved senior manager)
- Firms should still allocate a role to the most senior individual available
4. Furloughed staff:
The FCA issued a key workers in financial services statement, which stated individuals captured by the senior mangers regime may be considered key workers. It now recognises that some senior managers may be furloughed if unable to fulfil responsibilities (due to illness, caring for others or have no current practical responsibilities):
- A furloughed senior manager will retain their approval (unless permanently exiting) and does not require re-approval by the FCA upon return
- The firm is still responsible for the senior manager's fit and proper status
- If SYSC 26 (overall responsibility rule) applies, the firm should re-allocate responsibilities to another senior manager
- Prescribed responsibilites should also be re-allocated to another senior manager
- Required functions (SMF16 Compliance SMF17 Anti Money Laundering) should be furloughed as a ‘last resort'. If replaced and temporary the firm can use the 12-week rule to arrange cover. Firms should ensure that any allocation is appropriate and complies with FCA rules (e.g. an oversight role cannot be allocated to an executive)
- It is important to note that other senior manager functions are not mandatory and thus firms have flexibility to furlough individuals performing them
So, it is imperative firms keep their eye on the compliance ball during this pandemic and indeed know that the FCA are building in flexibility to ensure firms have the best opportunity to continue to comply and compete.
Chris Davies is founder and director at Model Office
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