SMCR View: December 2020

COVID-19 and whistleblowing

Some of you may have seen the CityAM report where the FCA have reportedly received 47 whistle-blower reports on COVID-19 related conduct in the 6 months prior to 30 September (i.e. 2 per week). These apparently covered a range of topics such as a lack of PPE, non-compliance with social distancing, deliberately miscategorising individuals as "key workers" and lack of business continuity planning. Given the FCA/PRA's guidance that the SMF 1 (CEO) (or other Senior Manager if a firm does not have a CEO) takes responsibility for ensuring there is an adequate process for following and adhering to government guidance, this is clearly something for them and other Senior Management to be mindful of as the vaccination programme expands and firms look to staff returning to the office - issues to consider include individuals who cannot be vaccinated (e.g. pregnant/breastfeeding workers) and those who object to vaccination on 'conscientious' grounds.

Certification on starting role or after probation period

Some of you will be members of AIMA (the Alternative Investment Management Association), but for those that are not or have not seen this, AIMA recently asked members of the SMCR Core Group and Working Group whether firms were certifying new joiners on Day/Week 1, or waiting until the individual had passed their probation period. Feedback was pretty consistent that certification should be on Day/Week 1. However, we have seen some (but not many) examples where firms wait until the end of an individual probation period, but these tend to be very junior individuals and the systems/controls put in place to ensure that they are not performing a certification function until the date that they are certified by the firm are rigorous (e.g. not sending advice to clients in their own name, enhanced supervision by managers and Compliance, additional training on the limits of their uncertified role etc).

Delayed SM applications

Following our emails with Peter Ewing, the FCA have publicly stated (in the recent FCA Regulation Round Up email and on their Approved Persons page) that it is taking longer for Senior Manager applications to be determined. Apparently in the last 4 months of 2019 they received c. 6,000 Senior Manager and SIF applications which was more than they received in the entire of the preceding 8 months, which goes some way to explaining why there have been noticeable delays! Separately Peter Ewing said that in the short-term there is no further guidance for firms, but we will continue to push for this. In the meantime, the FCA have said they are increasing resources, but that for the next few months delays may continue.

Getting applications approved

The FCA have provided some (not particularly ground breaking) pointers for firms to ensure applications progress as quickly as possible:

• check the application is completed in full before submitting;\
• complete the DBS criminal record check before submission;\
• conduct all appropriate due diligence (e.g. regulatory references) before submitting a Candidate's application and include details in the application; and\
• respond promptly and fully if contacted about the application.

F&P assessments

The FCA have provided further examples of good F&P implementation. A lot of the examples are similar to what we have heard from the FCA before (see here). However, this guidance is interesting because the FCA clearly differentiate between good practice for all firms and good practice for larger firms which previously they had not done. For example, F&P panels to assess marginal cases were previously provided as an example of general good practice, whereas in this new guidance the FCA state this is an additional consideration for larger firms. There is no clear line in the sand regarding what "larger firms" mean, but (at a minimum) all Enhanced / dual-regulated firms should take note. Some points we found particularly interesting include:

• The Senior Manager with PR(b) (responsibility for the performance of the firm's obligations under the certification regime) should not delegate oversight entirely to HR or Compliance. We often see Compliance/HR overseeing the process rather than the Senior Manager and so firms should consider the relevant Senior Manager's level of oversight carefully.\
• (In larger firms) First line management should own the F&P assessment process. This plays into the FCA's guidance that F&P assessments must not be a check box exercise.\
• (In larger firms) Firms should look to formalise capability frameworks and job descriptions to help managers make consistent/thorough F&P assessments. Often firms do not have up-to-date job descriptions in place so this might be quite a change.

Directory

The FS Register is now displaying Directory Persons data for solo-regulated firms (as of 14 December 2020) who have submitted their information ahead of the 31 March 2021 deadline. For those of you who haven't submitted your information yet, we have a note here on the 10 Things to Know about the Directory.

Conduct training video

The FCA have a new 90 second video on conduct rule training. Again, it reiterates the importance of interactive training with realistic and challenging scenarios which bring to life real questions relating to people's jobs. Helpfully our SMCR Academy provides exactly these types of scenarios in an easy to use e-learning package. See the resources section for more details.

Corporate Governance update

Meanwhile on the corporate governance front the Financial Reporting Council (FRC) continues its twin focus on both companies and asset managers/owners having a purpose and culture aligned with maintaining trust, acting with integrity and achieving long term sustainable success. The Asset Management Taskforce strongly endorsed adoption of the Stewardship Code and stewardship across all asset classes (see our thoughts here). The FRC issued a grumpy end of term report to corporate Britain saying it was disappointed by the overall adoption of the Governance Code, commenting that many purpose statements were only marketing slogans and expecting better reporting in future on culture with "increased focus on assessing and monitoring culture, including consideration of methods and metrics used...". But, if you are looking for a benchmark (an unregulated one) for your purpose statement try matching this mission of the Church Commissioners for England: "to safeguard the integrity of creation and to sustain and renew the life of the earth".

Transforming your Culture

We are delighted that Dame Inga Beale will be speaking at a Simmons event on 24 February 2021 as part of our regular programme of events focussed on Culture. Please let us know if you would like to receive an invitation to this event in the New Year.