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Senior Managers and Certification Regime – Spreading the net wider

02 February 2017

The Senior Managers and Certification Regime (SMCR) is a regime which governs the appointment and conduct of senior and key personnel at impacted firms. For banks, building societies and PRA-authorised investment firms, the SMCR was introduced and has been in force since early last year. However, the Bank of England and Financial Services Act 2016 provides for an extension of the SMCR to all regulated firms. Although the detail of that extension is yet to be confirmed, the FCA will consult during 2017 and HM Treasury has indicated that the regime should apply to this extended group from 2018.


Private equity firms and asset managers that have banks and similar institutions in their portfolios are likely to already be familiar with the SMCR. However, such private equity and asset management firms should be aware that if they are regulated firms they will now become subject to the SMCR themselves. Private equity firms who have not yet needed to engage with the SMCR should be aware that this regime may apply to them or to entities within their portfolios.


We expect that the extended regime will be similar to the regime currently in place for banks, building societies and PRA-authorised investment firms. As such, private equity firms should begin their internal dialogue on the allocation of responsibilities under the SMCR now in order to address any changes that they need to make in order to comply.


For FCA-authorised private equity and asset management firms, the former approved persons regime (APR) will be replaced by the SMCR. We would expect that those individuals who are already approved under the APR should be capable of being 'grandfathered' to equivalent Senior Management Functions (SMF) under the new regime (but we will need to see the proposed draft rules to be sure of the process). All new hires, promotions and changes in function or role involving SMFs will be subject to FCA approval.


The implementation date for the extended regime has not yet been announced, and there is still time to prepare. However, firms will need to ensure they are ready before the regime is implemented. This may take time. Issues that a firm will need to grapple with include:

 

  • analysing its governance structure to determine whether this is clear and whether there are any deficiencies;
  • assessing whether its governance structure is capable of being simplified;
  • determining who has responsibility for different elements of the firm's business and key responsibilities, and whether the allocation of responsibilities is appropriate;
  • identifying personnel who are likely to come within scope of the SMCR; and
  • evaluating existing internal fitness and propriety processes applicable to such persons.

 

The implementation of the new regime will also give rise to a number of issues that will require attention from the perspective of employment law. The regime imposes regulatory requirements that will affect a wide population of staff in a more intensive manner than is the case under the current regime. You will need to consider how best to ensure that you can meet your requirements under the SMCR, whilst also minimising the risk of employment liabilities. Particular areas of focus may include the following:

 

  • The take-on of new staff, including Senior Managers. This will include consideration of the most appropriate means of updating Statements of Responsibility and the wider Responsibility Map, together with a strategy for dealing with candidates for Senior Manager roles who want to negotiate the scope of their Statement of Responsibility.
  • The establishment of appropriate procedures to ensure that the wider population of staff remain appropriately trained and supervised, and to identify and address suspicions of behaviour that could give rise to an obligation to notify the regulator.
  • The establishment of appropriate procedures for addressing any regulatory notifications required at the end of an individual's appointment for a role (including in circumstances of dismissal).
  • How to deal with requests for references for personnel who have moved on.


You can find our detailed guidance – The Senior Managers and Certification Regime: An Introduction for Private Equity Firms, and details of how we can help here.


Please contact a member of our private equity, regulatory or employment teams who will be happy to discuss specific issues and advice or support you in preparing your firm for the road ahead.

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