The Senior Management & Certification Regime - What does this mean for the credit industry?

Consumer credit lending and debt collection is a difficult art with the balance between compliance and commercial interests becoming ever more difficult to manage. Historically, Senior Managers tended to be more commercially minded, after all the fundamental

priority of the business is the need to stay profitable.

The Approved Persons regime was designed to encourage, or perhaps the correct word is force, Senior Managers to take compliance matters more seriously. It implemented a system whereby Senior Managers were personally accountable for the actions of the firm via a system of fines or removal of approval. While discredited in other industries, this regime undoubtedly worked in ours, certainly for the debt purchase and collection industry for whom the regime only started when firms received full permissions from the FCA.

However, the Banking Reform Act 2013 was passed to improve professional standards and

accountability within the UK banking industry. The rules make it easier for firms and

regulators to be clear about who is responsible for what. Clear individual accountability

should focus minds, drive up standards, and make firms easier to run and to supervise. It

also holds individuals working at all levels within relevant firms to appropriate standards

of conduct.

It currently does not apply to the consumer credit sector but to banks, investment banks,

building societies, etc.

As of 2018 the relevant section of The Bank of England and Financial Services Act 2016

will be fully implemented by the FCA. This essentially means the Senior Management and

Certification Regime will apply to all firms regulated by the FCA, including consumer credit

firms.

So what does this mean for you?

Senior Management Regime

The Senior Managers Regime focuses on the most senior individuals in firms who hold key

roles or have overall responsibility for whole areas of relevant firms. You must create a

statement of responsibility for each manager which sets out the areas for which they are

accountable, produce a firm responsibilities map which sets out all of the Senior Manager’s

responsibilities and obtain approval from the FCA for each Senior Manager.

Certification Regime

This regime applies to ‘material risk-takers’. Material risk takers are staff who pose a risk

of significant harm to the firm or any of its customers regardless of seniority within the

firm. For example, those providing investment advice to customers are currently expected

to be certificated. We await the results of the ongoing FCA consultation to see which

categories of staff this will impact in our firms although we won’t be provided with a list of

roles which must be included. But what does certification actually mean?

You may need to have in place procedures to assess the fitness and propriety of staff

members before allowing them to undertake the role which may impact customers. Staff

should be expected to be certificated by your firm once they have demonstrated sufficient

knowledge. This demonstration can be, say, an exam after the induction course. However,

there are many other ways to identify a person’s knowledge and competence than a

standalone exam, such as formative assessments which take place during the induction

sessions.

All staff which fall under this regime may need to be re-assessed annually.

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