Extension of the Senior Managers and Certification Regime to all Financial Services and Markets Act authorised persons

In October 2015, HM Treasury issued a policy statement setting out the Government’s proposals to extend the Senior Managers and Certification (SM&CR) regime to all sectors of the financial services industry including insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.

It is intended that implementation of the newly extended regime should come into operation during 2018. The changes are being implemented via the Bank of England and Financial Services Act 2016 (the Act) which has now received Royal Assent. The relevant provisions will be brought into force on dates to be specified by HM Treasury in regulations.

The key features of the regime will be as applied to the banking sector. The policy statement and Act also set out a number of reforms to the SM&CR:

• reverse burden of proof:
  • the reverse burden of proof which would have come into force on 07 March 2016 will not come into force
  • a new statutory duty of responsibility will be applied consistently to all senior managers across the financial services industry
  • regulators will only be able to take action if the firm has contravened regulatory requirements and the breach occurred in the part of the business for which the senior manager was responsible and the regulators can show that the individual failed to take the steps that it is reasonable for a person in that position to take to prevent a regulatory breach from occurring
• the Act also provides for the regulators to be able to make Rules of Conduct applying to non-executive directors (NEDs)
• removal of obligation to report breaches of rules of conduct to regulators: the obligation to report all known or suspected breaches of rules of conduct by any employees subject to those rules to the regulators will not come into force on 07 March 2016 and will be removed by the Act
• variation of time limits on senior managers approvals will be allowed (as for conditions)
• the existing powers of the regulators to make transitional provisions in their rules will be extended to deal with changes to the rules on controlled functions, and
• firms will be required to provide information to both the PRA and the FCA on any significant change in an approved person's responsibilities where the application to approve that person was granted by both regulators.