FCA consultation on extending SMCR implementation deadlines

On 17 July 2020 the FCA issued a press release on the Consultation Paper 20/10 (covering proposed changes to the FCA's rules following the extension to the fitness and propriety assessment deadline for solo-regulated firms in relation to their certification staff).

Recap

The FCA and Treasury have agreed to extend the deadline by which firms must have assessed their Certified Staff as fit and proper (F&P) from 9 December 2020 to 31 March 2021.

In order to keep the SMCR deadlines consistent, the FCA is consulting on extending the deadline from 9 December 2020 to 31 March 2021 for the following:

• the date the Conduct Rules come into force for Conduct Rules Staff and therefore the date they must have received appropriate training (ie not Senior Managers and Certified Staff, who are already subject to the rules); and
• the deadline for submission of information about Directory Persons to the Register.

The FCA is also consulting on changing the FCA rules so that they reference the new deadline for assessing Certified Staff as F&P.

Further detail

A. Purpose of the changes and the FCA's expectation of firms

• To reduce the burden to firms affected by the pandemic and give firms who have been significantly affected by the COVID-19 time to make the changes they need. The FCA use the words "significant" and "exceptional" throughout their literature which should guide firms on whether to take advantage of this or not.

• Examples provided in CP 20/10 of where firms may need to rely on this extension are where:

  • resources (individuals and financial) have been diverted to dealing with coronavirus-related challenges (ie supporting customers and maintaining their operational and financial resilience);
  • managers and key personnel have been furloughed, thus impacting the availability of decision makers and the delivery of new systems and processes to support implementation;
  • training providers have postponed training courses; and
  • plans for Conduct Rules training and culture change programmes have been impacted.

• The FCA expressly state that they believe most firms will not need to use the extension and will be able to meet the original deadlines. Therefore, if firms are able to certify staff, provide conduct rule training and submit information about Directory Persons earlier than 31 March 2021 they should do so provided it does not compromise the quality of such assessments / training. We expect there will be some regulatory scrutiny if firms rely on the extension without having a robust, COVID-19 related rationale for relying on it.

B. CP 20/10

• The Treasury will lay a Statutory Instrument (SI) before Parliament to delay the deadline to the Certification Regime until 31 March 2021.

• Certification

  • Firms can issue a certificate during the certification transitional period (ie before 31 March 2021) so that on 1 April 2021 all certificates have been issued allowing all Certification Staff to continue their roles.
  • Certificates issued before 31 March 2021 are valid for a twelve-month period starting from the date of issue. However a certificate issued before 31 March 2020 will not be effective.
  • For firms wanting to issue certificates for new starters before 31 March 2020 the requirement to obtain a regulatory reference will apply.

• Conduct Rules

  • Firms who rely on the extension must ensure that training is tailored and so a one-size fits all approach will not sufficient. For asset managers, our SMCR E-Training Academy and SMCR Solution products offer differentiated training which is tailored to individual role types within a typical asset management firm. The SMCR Solution also features tracking and monitoring functionality for the certification process. Please get in touch for a free demo.

  • As mentioned above, the deadline for firms to complete Conduct Rule breach reporting will not change. Firms need to make an annual notification (using a REP008 (or Form H)) in October about Conduct Rule breaches covering the period up to 31 August of the relevant year. This means that:

    • For Certification Staff currently subject to the Conduct Rules the first REP008 form will be submitted in October 2020 covering the period 9 Dec 2019 to 31 August 2020.

    • For Conduct Rule staff the first REP008 submitted to the FCA that will include them will be submitted in October 2021 and will either cover the period:

      • 9 December 2020 to 31 August 2021 (if the application of the Conduct Rules to Conduct Rules Staff is not extended to 31 Match 2021); or
      • 1 April 2021 to 31 August 2021 (if the extension is granted and the Conduct Rules are only applicable to Conduct Rules staff from 31 March 2021).

  • The FCA have said that the quality of firm's training should not be compromised by the pandemic.

• The Directory (now referred to as the FS Register)

  • The FCA will still publish details of Directory Persons (ie which includes Certified Staff) from 9 December 2020.
  • The FCA will issue further guidance for firms wishing to use the multiple-entry template to submit information on their Directory Persons. We will update you once further guidance is released.
  • The FCA are exploring how to manage high reporting volumes (for example providing landing slots to firms).

C. Senior Managers

• Senior Managers and Certified Staff are already subject to the Conduct Rules and that the FCA will hold them accountable for any misconduct arising during and after the pandemic.

• Although not specifically drawn out in the Consultation Paper, we remind firms that Senior Managers are also subject to an annual fitness and propriety assessment. The changes being made by the FCA are only relevant to Certification Staff and so firms must be mindful of the fact that they will still need to conduct this annual assessment of their Senior Managers. This means, that for Senior Managers who:

  • Grandfathered over from the Approved Persons Regime to their current Senior Management Function role, their annual F&P assessment should be completed by 9 December 2020 (this is the point where such individuals became Senior Managers and were, under the new regime, arguably first considered fit and proper).

  • Became Senior Mangers after 9 December 2019 will arguably only need to be assessed as fit and proper by the date on which an individual was approved by the FCA. (There is an argument that is could be from the anniversary of the date the firm submitted the Senior Manager application to the FCA but we think that given the position isn't clear, this may present some risk for firms given that there are a number of SMFs whose approval still remains outstanding even though their applications have been submitted some time ago.) In addition, from a practical perspective most firms will want to assess all Senior Managers (and certification staff) together in accordance with the firms' annual appraisal cycle and should work towards aligning these processes (noting that any time period shouldn't mean that any one individual goes over the annual period for the F&P assessment).

• The FCA specifically state that accountable Senior Managers must ensure that:

  • all Certified Staff are F&P and firms should not wait to remove staff who are not F&P from certified roles; and
  • Conduct Rules training is effective - staff must be aware of them and understand how they apply to their jobs.

D. Next steps

• The FCA is asking for comments on the consultation by 14 August 2020. These can be provided by email, letter or online.
• The FCA will be providing further guidance on their expectations of Senior Managers.
• The FCA plan to publish a policy statement on this ahead of the 9 December 2020 deadline.