SMCR View - November 2020

1. Directory Persons

After a lot of noise, the Directory has been something of a damp squib so far. For many solo-regulated firms it has been a slight afterthought and firms are now grappling with the idea of adding relevant people to the Directory. To help firms with this, we've published a Top 10 Things to know about the Directory - available here. For dual regulated firms, information on Directory Persons is already online (as of 23 Nov 2020). If you're interested in seeing how it looks (which is so far different to the FCA's original proposals), you can choose any dual-regulated firm's page on the FS register here and you can find Directory Persons on the 'individuals' section of a relevant firm's page (you're able to search for a specific role by using the filters available).

2. Non-financial misconduct

• Earlier this month the FCA issued final notices to three individuals stopping them from working in financial services having been found not to be fit and proper (F&P) (lack of integrity and reputation) after being convicted of serious non-financial offences. Interestingly, these were all published on the same day and all related to non-financial misconduct outside the workplace. While we don't think these are enormously helpful in terms of assessing where the FCA sets the bar on such matters (as these were serious examples of misconduct and criminal offences) they're worth reading as a statement of the FCA's views on what it expects of individuals in regulated firms. A full brief on this can be found here.
• On Friday last week the High Court overturned the Ryan Beckwith misconduct appeal (he had been previously been found to have breached SRA principles 2 and 6 after spending the night with a junior colleague in 2016). It is interesting to follow given the parallels that can be drawn with the FCA/PRA and the conduct rules -- particularly the notions that "popular outcry is not proof that a particular set of events gives rise to any matter falling within a regulator's remit", and that a regulatory obligation to act with integrity "does not require professional people to be paragons of virtue". We've written a more detailed insight piece on this available here.

3. COVID-19 and Senior Manager responsibility for working arrangements and work related travel

We're nearly at the end of the current English lockdown and re-entering the 3-tier system. You will recall that the FCA updated guidance on workplace arrangements at the start of the new national lockdown and reiterated their recommendation that the CEO (SMF 1) (or, if no CEO, the next most relevant person in the senior management team) of the firm is accountable for ensuring adequate process for following and adhering to government guidance. It will be important to keep this under review as the guidance (and restrictions) develop.

4. Senior Manager applications

You will already know that the FCA have a statutory deadline for approving Senior Managers within 3 months (remembering that the 'clock' stops if the FCA ask further questions/call the Senior Manager for interview and only restarts once the FCA have the required information). We've heard from firms that there have been significant delays in the FCA approving Senior Managers and that the FCA appears to be ignoring its statutory deadline in a number of cases (we understand that this is a combination of (1) there originally being a backlog following the 9 Dec 2019 implementation date, and (2) the original backlog issue being compounded by the COVID-19 pandemic). We've also heard from some firms that the approvals are very delayed including some taking up to 180-365 days to approve Senior Managers (!). Clearly this presents issues for firms who are relying on the 12 week rule/have hired someone into a role that they will not be approved to do, due to the regulators own delays. We're are speaking with the FCA on this topic and will keep you updated.

5. FCA speech on the Business of social purpose

This speech by Jonathan Davidson at the FCA last week, reiterates that culture remains a focus for the FCA. One of the interesting parts of the speech is the FCA's summary that the main barrier to firms having purposeful, healthy cultures is fear (eg fear of being blamed for doing the right thing if it goes wrong (particularly by the regulators)), and the elevated importance of financial KPIs) which only has negative consequences (e.g. bureaucracy, lack of empowerment of mid-management, box-ticking mindset etc). In the context of SMCR, the FCA said that leaders are not just responsible for their own decisions but also for being "proactive about the behaviour and competence of those they lead". The FCA reiterates that fitness and propriety assessments and conduct rule training are not check box exercises and that every person is expected to fully understand what acting with due care, skill and diligence means in their role, which links to our previous article on the FCA's guidance on positive and negative indicators associated with F&P/Conduct Rule processes.