UK Regulators Consult Further on Extension of Individual Accountability Regime to All Financial Services Firms

The UK Financial Conduct Authority and Prudential Regulation Authority have issued further consultations on aspects of the extension of the Senior Managers and Certification Regime to all firms authorized under the Financial Services and Markets Act 2000.

The FCA has published three separate consultations, which build on its previous consultation in July 2017 and set out further proportionate proposals to account for the wide differences in the sizes and nature of firms that will be brought within the regime. In the July 2017 consultation, the FCA proposed an extended SM&CR consisting of a standard set of requirements for firms within the "core" regime, and further "enhanced" or simplified "limited scope" requirements for other firms as appropriate. The PRA has published a further consultation supplementing its July 2017 consultation on the PRA's substantive proposals for extension of the SM&CR to insurers.

The three FCA consultations deal with the following matters:

1.         Transitioning FCA solo-regulated firms (that is, those authorised and regulated by the FCA but not the PRA) and their staff to SM&CR. The consultation sets out the FCA's proposals for moving firms and their senior staff into the SM&CR, a process the FCA calls "conversion". For firms in the "core" regime and "limited scope" firms, conversion will be automatic. Pre-existing approvals under the current Approved Persons Regime will automatically be converted to Senior Management Functions. The conversion process for larger and/or more complex firms in the "enhanced" regime will require submission of a conversion notification, a statement of responsibilities and a responsibilities map. The consultation paper contains a tool for firms to check whether they fall into the core, enhanced or limited scope categories.

2.         Transitioning insurers and their staff to SM&CR. The FCA proposes automatic conversion for Small Non-Directive Firms, small run-off firms and Insurance Special Purpose Vehicles. Solvency II firms and Large NDFs will need to submit the same details as FCA solo-regulated firms in the "enhanced" regime. Transitional provisions will apply to give firms time to adapt to the new regime and associated changes to the FCA handbook and conduct necessary staff training.

3.         The duty of responsibility for insurers and FCA solo-regulated firms. The duty of responsibility allows the FCA to take enforcement action against a Senior Manager where there has been a contravention of a relevant requirement by the Senior Manager's firm, in circumstances where the Senior Manager did not take such steps as a person in their position could reasonably have been expected to take to avoid the contravention occurring or continuing. The FCA summarises some of the factors it took into account when proposing, in its July 2017 consultation, definitional changes and new guidance in its Decision Procedure and Penalties Manual to reflect the extension of the duty to insurers and FCA solo-regulated firms. Respondents are asked to consider whether any further changes might be required.

The latest consultation from the PRA builds on its July 2017 consultation, which set out the PRA's substantive proposals for extension of the SM&CR regime to insurers. It also should be read in conjunction with the PRA's earlier consultation on optimisations to the Senior Insurance Managers Regime and its October 2017 policy statement on changes to SMR forms. The PRA states that the proposals in this latest consultation should not be viewed as pre-empting its consideration of responses to the July 2017 consultation, which closed on November 3, 2017. This consultation sets out the PRA's proposals to simplify the requirements on firms, by streamlining the existing SM&CR and SIMR forms and amending Part 4A Permission forms to reduce the total number of forms from 26 to 11. The forms will no longer distinguish between firm types, so the same set of forms can be used by both banking firms and insurance firms. The PRA also sets out a proposed list of Senior Management Functions for the newly integrated regime. It proposes to renumber Senior Insurance Management Functions 21, 22 and 23, to avoid duplication in the insurer SMFs. This consultation also sets out the process for individuals transferring from an SMF at an insurance firm to a banking firm, mirroring the proposal in the July 2017 consultation for individuals approved for an SMF at an insurance firm to be treated equivalently to an individual approved for an SMF within a banking firm. Finally, the PRA is using this consultation to take the opportunity to remove gendered language from the SM&CR. The terminology changes will impact SMFs 9, 10, 11, 12, 13 and 15.

The extension of the SM&CR will take place on a date that is yet to be specified by HM Treasury, however both regulators are consulting on the assumption that the extension of SM&CR to insurers will take effect in late 2018 and that the extension to FCA solo‑regulated firms will take effect in mid to late 2019. Feedback on all consultations is invited by February 21, 2018.

View our summary of the July 2017 consultations.

View the FCA consultation on transitioning FCA solo-regulated firms and individuals (CP 17/40).

View the FCA consultation on transitioning insurers and individuals (CP 17/41).

View the FCA consultation on the duty of responsibility for insurers and FCA solo-regulated firms (CP 17/42).

View the PRA consultation on extending the SM&CR to insurers (CP 28/17).

View the PRA policy statement on changes to SMR forms (PS 24/17).