Senior Managers regime: What is the FCA proposing?

Financial watchdog broadens rules in bid to clean up banking sector

Financial watchdog broadens rules in bid to clean up banking sector

This will need to be approved by the FCA when it is first filled out and when there are changes to it. The FCA has been toiling with the intricate balancing act between the need, as an effective regulator, to hold individuals to account, with its responsibility as a proportionate regulator to not create an excessive burden on the industry.

The SMCR, which replaces the FCA's former Approved Persons Regime for staff working in the regulated financial services sector, was brought in in the wake of several scandals in the industry including benchmark-rigging, to reduce harm to consumers and strengthen the integrity of the financial markets.

It has also proposed a less onerous approach for Limited Scope Firms (typically sole traders or firms with limited permissions) which will have fewer Senior Management Functions.

"The FCA must also be cognisant of the fact that many asset and wealth managers have European Union or global footprints, and striking a balance between driving accountability in those who are responsible, without unduly affecting head-office staff is important".

The Financial Conduct Authority is now consulting on how to apply the regime to all institutions it oversees, including investment managers, stock exchanges and trading firms.

The government wants the rules applied across the financial sector from 2018 to cover asset managers, foreign exchange and commodities dealers, and on Wednesday the FCA and Bank of England said how they proposed to do this. This simple set of rules means that individuals must act with integrity, due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.

This focuses on the most senior people in the firm.

We wouldn't load on the SMR that would apply to an worldwide bank to a one-person firm.

Secondly, the FCA has also proposed five conduct rules that all staff at firms will fall under, which are equivalent to those it imposed on banks.

As with banks, more junior staff will have to be "certified" by the firms for fitness, skill and propriety at least annually. Well they are the people who give advice. A baseline of core requirements will apply to all regulated firms, while extra requirements under an "enhanced regime" will apply to larger and more complex firms.

For example, these firms will need to have Responsibilities Maps, Handover Procedures, and will need to make sure that there is a Senior Manager responsible for every area of their firm (Overall Responsibility).

Commenting on the proposal, Grant Lee, financial services risk and regulation partner at PwC, suggested that the FCA will have to consider how it manages its interactions with such a varied group of firms.

The consultation on the proposals runs until 3 November and the FCA will announce an implementation date when it publishes the final rules next year.

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