Certification of Senior Managers – FCA

The current FCA guidance that states that a Senior Manager must be certified if they are performing a Certification Function that is "very different" to what they are doing as a Senior Manager, has led to mixed approaches in the market in terms of whether to certify a Senior Managers who 'does' the work of the area/function that they oversee/manage as an SMF. Recently, the FCA has clarified its expectations in relation to this issue, with the consequence that some firms may need to carry out some additional certifications and Directory registrations by 31 July 2021.

Background

Many of you will be aware of the FCA guidance in PS18/14 (page 29) which states that if a Senior Manager performs a certification function and it isn't related to their Senior Management Function (SMF) then they will also need to be certified. In, addition, the Guide for solo-regulated firms adds that a Senior Manager must be certified if they are performing a Certification Function that is "very different" to what they are doing as a Senior Manager.

This guidance has led to mixed approaches in the market where there are Senior Managers who 'do' the work of the area/function that they oversee/manage as an SMF. For example, a SMF 3/SMF 27 may be responsible for the Portfolio Management Function as a whole, but also be a portfolio manager. In this scenario, being a portfolio manager would bring the individual within the definition of the client dealing function under the Certification Regime. Using this example:

• Approach 1: many firms have taken the view that, provided that the statement of responsibility for the Senior Manager covers both their portfolio management function and portfolio manager responsibilities, then there is no need to also certify the Senior Manager as performing the client dealing function because the role is related and not "very different" to their responsibilities as a SMF.

• Approach 2: other firms, however, have taken the view that where the Senior Manager is doing the work (i.e. managing a specific portfolio) of the broader area they manage (i.e. the portfolio management function of the firm) then the individual should be separately certified for their portfolio manager role because it is sufficiently different to their SMF role and responsibilities.

FCA developments

We recently became aware that a firm of compliance consultants had published a note stating that the FCA expects all firms to follow Approach 2. In subsequent bi-lateral conversations with the FCA, the FCA has confirmed to us that its expectation is for firms to follow Approach 2 - i.e. where a Senior Manager does the work of the area that they manage, and (in that role) they meet the definition of a certification function, they should be certified for that role.

We note that this is only in relation to 'non-management certification functions' (e.g. the client dealing function, function requiring qualifications) rather than the 'management certification functions' (e.g. manager of a certified person, the significant management function or MRT function (if their responsibilities wrap up into their SMF role)) as there is existing guidance on the interaction between 'management certification functions' and SMFs.

We have asked the FCA to update its guidance via a formal FCA channel - e.g. website statement - but we have not yet heard on whether the FCA is planning to do that.

What does this mean for firms?

• For larger firms, this guidance is likely to be less relevant as there will be more layers of management meaning it is less likely that Senior Managers will be doing the work of the area they manage. For example, larger firms may have a Chief Investment Officer whose role doesn't also involve them acting as a portfolio manager. However, this will depend on the firm's structure and the allocation of SMFs within the business and so even larger firms will need to ensure they are comfortable that all Senior Managers are out of scope of the certification regime's non-management functions.

• For smaller firms, this guidance is likely to be more significant and we would suggest that, if firms have taken Approach 1 previously, such firms revisit the roles of your Senior Managers and determine whether they fall within the definition of any of the FCA's non-management certification functions. If they do fall within scope then you will need to assess them as fit and proper to perform that role (if that hasn't already been done as part of their annual Senior Manager F&P process), issue them a certificate and upload their details to the Directory via Connect.

• Deadline 31 July 2021. The FCA have confirmed that the details of any Senior Managers who should have been identified as certification staff but haven't been, must be uploaded to the FCA Directory by 31 July in order for firms to avoid the late fees. This date is different to the date (9 July) that was specified in the note from the compliance consultants.

• Senior Manager with Prescribed Responsibility (b) (responsibility for the firm's obligations under the certification regime) - given this is a clarification in scope of the certification regime we suggest the Senior Manager responsible for this is informed as they will be responsible for meeting the 31 July deadline and ensuring any relevant  procedures are updated.

We would be very happy to discuss this in more detail with you.