Shearman & Sterling LLP | FinReg | Financial Conduct Authority Consults on Extending Senior Managers & Certification Regime to All FCA Regulated Firms and Both UK Regulators Consult on its Extension to Insurers
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  • Financial Conduct Authority Consults on Extending Senior Managers & Certification Regime to All FCA Regulated Firms and Both UK Regulators Consult on its Extension to Insurers
    The Financial Conduct Authority has published a consultation paper on its proposed rule changes to implement the extension of the Senior Managers & Certification Regime (SM&CR) to all firms that are authorized under the Financial Services and Markets Act 2000 and solo-regulated by the FCA. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime, which will be replaced when the extended application of SM&CR takes effect.

    Given that the extension of SM&CR will capture a very wide range of firms, the FCA has tailored the principles and tools used for the banking regime to fit the different risks, impact and complexity of the firms that will be affected by the extended SM&CR. The rules proposed by the FCA comprise (i) a "core regime" consisting of a standard set of requirements that will apply to all FCA solo-regulated firms; (ii) an "enhanced regime" which will apply extra requirements to the very small number of solo-regulated firms whose size, complexity and potential impact on consumers warrant more attention; and (iii) a reduced set of requirements which will apply to firms the FCA has categorized as "limited scope" firms.

    The core regime, the enhanced regime and the regime for limited scope firms will all contain tailored versions of the individual components of SM&CR, namely: (a) the Senior Managers Regime, comprising FCA pre-approval of senior managers, statements of responsibility and a duty of responsibility that will hold senior managers accountable for failures to take "reasonable steps" to avoid a breach; (b) the Certification Regime, which will require employers to conduct at least annual fitness and propriety assessments of employees that are captured by the regime; and (c) Conduct Rules, which consist of high level standards to be complied with by almost all employees.

    Additionally, the FCA and the PRA have each published consultations in connection with extending the SM&CR to employees of insurance firms and reinsurance firms, who are currently covered by the PRA's Senior Insurance Managers Regime and an adapted version of the FCA's Approved Persons Regime.

    The FCA and PRA proposals will extend the SM&CR to Solvency II insurers (i.e. UK Solvency II firms, the Society of Lloyd's and Lloyd's managing agents, third country (re)insurance branches) and insurance special purpose vehicles. SM&CR will also be extended to insurers outside the scope of the Solvency II Directive (Non-Directive firms or NDFs), approved persons and most other staff within those firms. The PRA defines a small NDF as a firm where the value of assets for all the regulated activities it carries out is £25,000,000 or less. NDFs exceeding this threshold qualify as "large" NDFs.

    Comments on all consultations are invited by November 3, 2017. The FCA will consider all responses and publish a Policy Statement and final rules for solo-regulated firms in 2018. The PRA and FCA will also publish final policy on the extended SM&CR for insurers. It is intended that the extension of SM&CR will take effect in 2018.

    View the FCA consultation paper on solo-regulated firms (FCA CP 17/25).

    View the FCA consultation paper on extension to insurers (FCA CP 17/26).

    View the PRA consultation paper on extension of SM&CR to insurers (PRA CP 14/17).