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What are Prescribed Responsibilities under the Senior Managers & Certification Regime (SM&CR
The Senior Managers and Certification Regime is due to commence on 9 December 2019 for solo-regulated firms, and on 10 December 2018 for Insurance firms. Solo-regulated firms still have just over one year to finalise preparations for transition to the new Regime. Our article this week looks at Prescribed Responsibilities – what they are, how they’ll apply to each type of firm, and what to look out for.
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Prescribed Responsibilities are an element of the Senior Managers Regime; they are specific responsibilities that a firm must give to a Senior Manager, and are designed to ensure that a senior manager is accountable for all key conduct and prudential risks at a firm. They are defined in SYSC 24 of the FCA Handbook, which includes a brief explanation for each responsibility. Limited Scope Firms and EEA Branches won’t need to apply the PRs, but they will apply to all other firms, including third country branches.
Whilst they are a component of the Senior Manager’s Regime, they are in addition to the ‘inherent responsibilities’ that are part of a Senior Manager’s role, and the two elements shouldn’t be confused. Not every Senior Manager will have additional Prescribed Responsibilities, but every individual holding a Prescribed Responsibility should be a Senior Manager.
Firms need to carefully consider who is the best person to hold each of the PRs. They should be allocated to the ‘most senior person responsible for that activity of area’, and that person should have sufficient authority and an appropriate level of knowledge and competence to carry out the responsibility properly. Due consideration should be given to whether the intended holder is the most senior person in practice. For example, if the individual holding the Money Laundering Reporting Officer Senior Management Function (who should be the individual with responsibility for overseeing the firm’s compliance with FCA rules on systems and controls against money laundering) is not, in practice, also responsible for all aspects of financial crime prevention, and / or they report to a more senior individual, the Prescribed Responsibility should be allocated to the more senior individual.
Allocating Prescribed Responsibilities to a Senior Manager won’t require the firm to seek re-approval of that individual by the FCA, but when a firm allocates a new Prescribed Responsibility to a Senior Manager following Commencement, or moves a Prescribed Responsibility from one Senior Manager to another, the Statement of Responsibilities must be updated to reflect these changes, and submitted to the FCA using Form J.
Prescribed Responsibilities should normally be held by one person, however, in limited circumstances, they can be held by more than one individual, if the firm can show that this is appropriate and justifiable:
As part of a job share
Two Senior Managers can share responsibility as part of a Handover between an incoming and an outgoing Senior Manager
Where a particular area of a firm is run by two Senior Managers
Where responsibilities are shared or divided, this must be clearly explained in the relevant Statements of Responsibility, and on the Responsibility Map for Enhanced firms.
The number of Prescribed Responsibilities to be allocated depends on the type of firm. No Prescribed Responsibilities apply to Limited Scope firms. Five Prescribed Responsibilities apply to Core firms, plus an additional responsibility for Authorised Fund Managers. Briefly, they ensure that there is accountability within each firm for:
The performance of the firm of its obligations under the SMR
The performance of the firm of its obligations under the Certification Regime
The performance of the firm of its obligations in respect of notifications and training of the Conduct Rules
Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime
Responsibility for the firm’s compliance with CASS (if applicable)
Responsibility for an AFM’s value for money assessments, independent director representation and acting in investors’ best interests (only applicable to AFMs)
Core firms should ensure that all Prescribed Responsibilities applicable to their firm are allocated. The FCA have confirmed that Core firms that do not have any Certified Staff will still need to allocate the PR for the performance of the firm of its obligations under the Certification Regime. The firm will need to identify whether there are any employees carrying out Certified Functions, and a Senior Manager should be accountable for this, even if there are no staff identified.
There are twelve Prescribed Responsibilities for Enhanced firms, plus an additional responsibility for Authorised Fund Managers:
The performance of the firm of its obligations under the SMR
The performance of the firm of its obligations under the Certification Regime
The performance of the firm of its obligations in respect of notifications and training of the Conduct Rules
Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime
Responsibility for the firm’s compliance with CASS (if applicable)
Compliance with the rules relating to the firm’s Responsibilities Map
Safeguarding and overseeing the independence and performance of the internal audit function
Safeguarding and overseeing the independence and performance of the compliance function
Safeguarding and overseeing the independence and performance of the risk function
If the firm outsources its internal audit function, taking reasonable steps to ensure that every person involved is independent from the persons who perform external audit
Developing and maintaining the firm’s business model
Managing the firm’s internal stress-tests and ensuring the accuracy and timeliness of information provided to the FCA for the purposes of stress-testing
Responsibility for an AFM’s value for money assessments, independent director representation and acting in investors’ best interests (only applicable to AFMs)
Enhanced firms will need to allocate accountability to a Senior Manager for each of the firm’s activities, business areas and management functions, for the whole of the firm (SMF 18 – Other Overall Responsibility). Prescribed Responsibilities can’t be allocated to someone performing the Other Overall Responsibility SMF, with the sole exception of the PR for CASS compliance.
Enhanced firms need to consider which of the Prescribed Responsibilities are applicable to their firm; some of the PRs will only apply if the firm is subject to certain requirements in SYSC.
For more information, and to help firms prepare for the Senior Managers and Certification Regime, we will publish a guide to the SM&CR for Solo-Regulated firms shortly. To receive notification of its release, please sign up to our Compliance Insights emails.
