Senior Managers & Certification Regime: Conduct Rules Implementation

With summer just around the corner, December may feel like a long way off. But there are only seven months to go until the Senior Managers and Certification Regime (SM&CR) is rolled out to all solo-regulated firms. The Financial Conduct Authority (FCA) published finalised guidance in March to offer firms additional practical assistance and information on the preparation and production of Statements of Responsibilities (SoRs) and Responsibilities Maps, and offered a timely reminder to all affected firms of the benefits of early preparation for the incoming Regime. This week we will look at the Conduct Rules, and why firms should start preparing now.

The Conduct Rules are a new set of enforceable rules that apply to all employees (except ancillary staff) in all firms, and to all regulated and unregulated financial services activities. The Rules set basic standards of good personal conduct, against which the FCA can hold people to account. They are set out in the Handbook section ‘COCON’ and are comprised of two tiers. The Individual Conduct Rules, which will apply to all staff and Senior Manager Conduct Rules, which will apply only to Senior Managers. Rule SC4 will also apply to Non-Executive Directors who are not Senior Managers.

At the heart of the Rules is the FCA’s goal – the creation of a system that encourages personal responsibility and improves conduct at all levels. The SM&CR sets out a number of specific rules and regulatory requirements; the Conduct Rules are a set of high-level rules that will help to shape positive culture and reduce the possibility of reliance on specific regulatory requirements (or the lack of them) by firms or individuals justifying poor practice.

The implementation of the Conduct Rules will be staggered. Senior Managers and Certification Staff need to have been trained and abide by the Conduct Rules from 9th December. Firms will have 12 months from that date to train other staff on the Conduct Rules, and to put in place processes to comply with the training and reporting requirements.

Time is of the essence here because although, relatively speaking, the number of Senior Managers and Certification Staff in any one firm is likely to be low, the training provided for them in relation to the Conduct Rules needs to be detailed and specific to their roles, particularly in the case of Senior Managers, who need to be mindful of the potential consequences of the Duty of Responsibility and need to understand the impact of all relevant legal obligations, regulatory concerns and developments, and have the requisite knowledge and experience to undertake their responsibilities sufficiently.

Training needs to be tailored to tier one staff as well, particularly where there is a risk of harm to consumers, or where the role requires expertise or specific knowledge in particular aspects of regulation or legislation. Whilst this might seem more straightforward – there is only one tier, and more time in which to prepare – there are generally greater numbers of staff at this level, and although it will be possible to provide training based on ‘groups’ of roles, there are potentially a number of these different groups.

In practice, how a firm fulfils the training requirements will depend on the size and type of the firm. Regardless of whether training is purchased externally, or provided by an internal department, each firm must ensure that staff are trained adequately – and this means that they must be satisfied that the training sufficiently teaches the learner how the Conduct Rules apply to their specific role, whether a firm is required to allocate the Conduct Rules Prescribed Responsibility or not (Limited Firms do not need to allocate this PR).

Whether external trainers and generic packages are used to support Conduct Rules training, the material must include bespoke elements that links the Rules to the jobs, duties and responsibilities of the staff being trained. Solo-regulated firms can purchase our Conduct Rules training here.

#SeniorManagersandCertificationRegime #FCA #SoR #StatementofResponsibility #ResponsibilitiesMap #ConductRules #COCON