Shearman & Sterling LLP | FinReg | UK Regulators Publish Guidance on Senior Managers and Certification Regime for Dual-Regulated Firms in Response to COVID-19
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  • UK Regulators Publish Guidance on Senior Managers and Certification Regime for Dual-Regulated Firms in Response to COVID-19

    The U.K. Financial Conduct Authority and Prudential Regulation Authority have published joint guidance for dual-regulated firms on adherence to the Senior Managers and Certification Regime in light of COVID-19. The U.K. regulators intend to be flexible in enforcing SM&CR requirements given the disruption to personnel and operations triggered by the pandemic. The FCA has issued separate guidance for solo-regulated firms subject to the SM&CR.

    The guidance for dual-regulated firms focuses in particular on the following aspects of the regime:
    • Notifications about changes to Senior Manager responsibilities: under normal circumstances, firms are expected to update their SM&CR Statements of Responsibilities when there is a “significant change” to the individuals performing Senior Management Functions; the FCA and PRA now expect firms to do so only as soon as reasonably practicable and accept that this may take longer than usual;
    • Temporary arrangements for Senior Management Functions: the FCA and PRA are considering whether to extend the “12-week rule”, which allows an individual to perform a Senior Management Function for up to 12 weeks in a consecutive one-year period without approval;
    • Notifications about temporary arrangements: firms will be allowed to reallocate an absent individual’s Senior Management Function to an individual undertaking an interim Senior Management Function under the 12-week rule (i.e. without approval); however, firms should keep a running commentary of any temporary allocations to such unapproved persons and notify the FCA and PRA via email or telephone;
    • Allocation of responsibility for coordinating responses to coronavirus: firms are not expected to have a single “coronavirus” function with responsibility for all aspects of the firm’s COVID-19 response; however, the CEO should take responsibility for identifying key workers and firms should consider contingency plans for reallocating responsibilities in the event of absent Senior Managers;
    • Furloughing Senior Management Functions: firms should ensure that certain Senior Management Functions (namely the CEO (SMF1), CFO (SMF2), Chair of the Governing Body, Head of Overseas Branch (SMF19), Small Insurer (SMF25) and Head of Small Run-Off Firms (SMF26)) continue to operate where those functions are relevant to a firm, and individuals carrying out those functions should only be furloughed as a last resort; individuals should be appointed to replace those unable to carry out these functions where necessary. Individuals carrying out other, “non-mandatory” functions may be furloughed but firms should carefully consider the risks and unintended consequences of doing so. Firms should update the FCA and PRA on furloughed individuals who conduct Senior Management Functions via email or telephone and should document any reallocation of furloughed responsibilities in Statements of Responsibilities, Management Responsibility Maps and internal documents;
    • Certification of fit and proper employees: firms should continue to assess whether staff are fit and proper to conduct their functions, although the FCA and PRA accept that standard certification processes and policies may need to be adjusted.

    View the FCA and PRA's Guidance for dual-regulated firms on SM&CR under COVID-19.

    Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

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