SMCR+ View - January 2022

We hope that 2022 has started off well for you and that you had a good break over the New Year period. January has been very busy at Simmons & Simmons but we've just managed to squeeze this in before February starts. As always your feedback is appreciated and we hope that you find this helpful.

1. Update on delayed Senior Manager applications - FCA

As we reported in our December 2021 SMCR+ View, the FCA bi-laterally confirmed with us that they were agreeing a further extension to their guidance to firms regarding delays to Senior Manager applications. We have now heard directly from the FCA that this guidance has been extended until 31 March 2022.  

By way of reminder, the FCA's guidance stated that, where an outstanding Senior Manager application has not been determined by the FCA, a candidate may perform the SMF role applied for until the FCA makes a decision provided certain conditions are met (e.g. the application is complete, adequate checks conducted, amongst others). More details are available in our November SMCR+ View.

You might also have seen in the financial press that only 79% of approved persons applications met the FCA's legal timeframes. The FCA is apparently planning to hire 100 new staff by the end of the financial year to deal with the backlogs by mid 2022, so delays might persist for some months yet...

2. PRA's inventory senior manager responsibilities

Almost minutes after we pressed send on our December 2021 SMCR+ View, the PRA published this - an inventory of references to senior manager responsibilities made in PRA publications that are not directly related to individual accountability. The spreadsheet will be updated periodically but the PRA is keen to remind firms that this is not to be treated as an exhaustive list and does not remove the need for firms to review relevant PRA publications themselves.

This inventory comes after the PRA's Evaluation of the SMCR in December 2020 where they acknowledged feedback that it would be helpful to have one list of the various senior management expectations created in respect of new/evolving risks.

Next steps? We recommend (1) working through the inventory to see what is applicable to your firm, (2) reviewing whether the responsibilities are currently covered by your Senior Managers and documented in their statements of responsibilities and the firm's management responsibilities map, and (3) remedying any gaps identified from your review at (2).

3. Head of Compliance and MLRO competency and capability - FCA

Hot off the press. On Friday last week the FCA published this page on the competency and capability of Heads of Compliance and MLROs. If you are applying for an SMF 16 / SMF 17 role now (or in the near future), or you are looking at your SMF succession planning, we suggest reading this in full, but see a summary of the key points below:

• Training: successful applicants tend to have completed relevant training courses before applying to the FCA for approval. They have done training tailored to the firm's business which is recent and up-to-date (any past training may need to have been supplemented by continuous professional development courses), and is of a sufficient quality - e.g. length and depth (intro courses are unlikely to be sufficient). We do a lot of training sessions so do get in touch if you need assistance. 

• Experience: applicants don't need to have been an MLRO / Head of Compliance before, but doing so can demonstrate that they might be suitable. Someone who has only worked in a front-line role (and in the absence of other training/experience) will often not have sufficient experience. For smaller firms it might be proportionate/appropriate for the CEO to hold these roles, but they must have relevant experience / training. 

• Third party support: The FCA say it may be helpful for firms to obtain third party support for applications and/or the ongoing running of their compliance function (now there's no reason not to use us for support on your SMF applications! Do get in touch - we have significant experience of drafting / assisting on SMF applications and have done over 50 interview prep sessions with SMF candidates). However, unsuccessful firms are those who tend to rely on third party support as the firm's only compliance resource. Compliance and MLRO candidates must still be competent themselves - i.e. able to make relevant compliance decisions for the firm, know when to seek advice, and know how to implement the advice obtained.

• Capacity: time commitment to the role must be proportionate and sufficient - part time roles have been accepted for smaller firms but those intending to perform the role for a few hours per week tend to be unsuccessful. The FCA wants to understand conflicts of interest if the applicant holds other roles internally or externally. Most successful applicants will be those working in the UK and are senior leaders (e.g. company directors). External compliance consultants tend to be unsuccessful because they do not have the incentives / authority needed to be effective.  

4. Regulatory References - FCA Round Up

The FCA has issued some genuinely helpful guidance on regulatory references ("RRs") following feedback on the challenges firms face when obtaining them. The guidance also looks like one of the FCA's attempts to improve the speed at which applications are approved.

Key points are below:

• Firms should request, and respond to requests for, RRs promptly and within 6 weeks. 6 weeks is a limit not a target (despite being guidance in SYSC 22).
• The template in SYSC 22 Annex 1 should be used and completed accurately. Failure to use the right template or sending incomplete or inaccurate information can cause delays. 
• The test is to take "reasonable steps" to obtain RRs. Firms should tell the FCA if they experience difficulties obtaining RRs from particular firms.
• Where firms haven't obtained a RR, set out the reasonable steps taken to get it to avoid application delays. 
• Individuals shouldn't be automatically rejected due to a qualification in their references. You might remember the PRA talking about there being evidence of RRs being used unnecessarily punitively in their Evaluation of the SMCR in December 2020.
• Firms shouldn't have a quota for the number of qualified RRs they will accept.

5. Consumer Duty - FCA

We hope you've managed to make it through the 243 pages of the FCA's consultation paper on the Consumer Duty by now!

We are doing a lot of work on helping clients navigate the Consumer Duty and last week we hosted a webinar on the practical implementation of it. Our guest speaker was Ian Searle, Head of Payments, Crypto and Consumer Policy at the FCA and he shared some interesting insights on how the FCA expects organisations to embrace and implement the new Consumer Duty, in particular how the higher expectation for the standard of care will translate into practical steps. There are implications for the SMCR as part of the Consumer Duty proposals and we refer back to our December 2021 SMCR+ View which has more information on these proposals. The deadline for responding to the CP is 15 February 2022.    

We are producing a summary note of the webinar. If you would like to see this or want to discuss the Consumer Duty and your implementation of it in more detail then please contact Alex Ainley (Partner) or Caroline Hunter-Yeats (Partner).

6. Financial Promotions - FCA

The FCA have published a consultation paper (CP22/2) on strengthening financial promotion ("FP") rules for high-risk investments including cryptoassets. One of the proposals from the FCA is to introduce a rule that will require firms to self‑assess whether they have the necessary competence and expertise (C&E) in an investment product or service before approving or communicating a relevant FP.

The FCA have considered the C&E requirement alongside the SMCR. There are currently no Prescribed Responsibilities (PRs) that relate to financial promotions and the FCA will consider whether they should incorporate the C&E requirement into the SMCR by introducing a new PR, for example, as part of its broader review of the SMCR in the future.

If you would like to know more about this paper please do get in touch. Crypto assets are a big feature and we point you to our Crypto View which you can see past versions of here. To sign up to Crypto View please contact Gordon Ritchie (Supervising Associate).

7. Accessing and using wholesale data - FCA

Back in March 2020 the FCA issued a Call for Input to understand how data and analytics (D&A) were being accessed in wholesale markets, the value being offered, and whether data are competitively sold and priced. They recently published their Feedback Statement (FS 22/1) where the FCA said they had found several areas where competition may not be working as effectively as it should. As such, they have announced that they will launch 2 market studies and gather further information to investigate access to wholesale data.

The SMCR angle? Well, it will definitely be of interest to those of you who are benchmark administrators and subject to the SMCR and your Senior Managers. In particular, there is an SMCR / conduct link as behaviours identified in the market may well give rise to individual firm investigation. The market study will take a holistic view of the market, but once the FCA is "under the bonnet" of the market, on occasion some enforcement follows separately (as it did in the asset management space recently).

If you would like to discuss this in more detail please contact Satyen Dhana (Partner).

8. Skilled person reviews - Q3 2021 - FCA

The FCA have disclosed that they have commissioned 3 Skilled Person (s166) Reports in Q3 2021/2022 in relation to Lot B - Governance and Individual Accountability.

Lot B (in summary) covers advice, skills and technical expertise in assessing whether firms have effective governance arrangements, and how these support an appropriate culture and/or safety and soundness. This should include (amongst other things) knowledge of relevant national, European and international regulatory requirements, standards, guidelines and industry best practice and experience and expertise in assessing governance frameworks, board effectiveness, remuneration policies and practices, Senior Managers Regime, Senior Insurance Managers Regime, Certification Regime and Approved Persons Regime, including the assessment of relevant individuals' fitness and propriety and individual accountability. More information on the categories of Skilled Person Reports can be found here.

We assist a number of clients going through the s166 process so do contact Richard Sims (Partner) if this is an area where we can support you further.

9. Final notices - FCA

The FCA have found Mr Seakens to lack fitness and propriety following his conviction for fraudulent trading and converting criminal property (money laundering). The FCA determined that he lacked integrity, honesty and reputation. Whilst under the old Approved Persons Regime, it is still relevant when considering fitness and propriety under the SMCR. You can read more here.

10. Operational Resilience - dual regulated firms and Enhanced SMCR firms

We talked about this first in March 2021's SMCR View and we are sure you're all over it, but something for your Senior Manager (often SMF 24) responsible for operational resilience to be on top of is the looming deadline for the first policy milestone of the Self-Assessment Report that is due 31 March 2022. On Thursday 27 January 2022 the FCA, PRA and Bank of England hosted a panel webinar looking at the Operational Resilience policy. The webinar covered immediate action points and some helpful examples of good and bad practices based on firms surveyed.

If you would like to discuss any points raised further, particularly for Enhanced firms in relation to the potential impact from an IFPR perspective, then please contact Alex Ainley (Partner).

11. SMCR Reviews

We have been working with a lot of firms on reviewing their implementation of the SMCR now it has been in place for many firms for a number of years and given evolving market practices and the various FCA/PRA SMCR updates. As you can see from our SMCR+ Views, this is a topic that never stands still. We prepare a detailed report in a user friendly format which can be shared with senior management (or the FCA/PRA should you want to waive privilege). 

If this is something that you might be interested in exploring the please contact Penny Miller (Partner) or Andrea Finn  (Partner) for more details.