SMCR+ View - March 2022

1. Delayed Senior Manager applications - FCA

We note that the current bi-lateral guidance issued by the FCA relating to delayed Senior Manager applications (which we spoke about in January's SMCR+ View) expires today (31 March 2022). We have spoken directly with the FCA who have stated that they are not extending the statement's deadline again given they have made good progress in addressing the backlog of SMF applications. If firms experience Senior Manager application delays and they raise any issues concerning their ability to meet the FCA requirements, the FCA have told us that firms should discuss the matter with their usual supervisory contact.

If you'd like to discuss this topic further then please get in touch with myself or Penny Miller (Partner).

2. Temporary Permissions Regime (TPR) applications - FCA

We have had a number of queries from firms relating to their TPR applications and which SMF application forms to use as, in the absence of specific FCA guidance, it has not been clear. We reached out to the FCA regarding this issue and they have confirmed that the following is permitted.

• For individuals who do not already hold an SMF role for the TPR firm/branch, a Long-Form A must be submitted.
• For individuals who already hold a SMF role, a Short-Form A can be submitted if they are going to hold an additional SMF role post-TPR (e.g. the existing SMF 17 (MLRO) is going to also hold the SMF 16 (Compliance Officer) role post-TPR).
• For individuals who already hold a SMF role and are going to transition from that SMF role to a different SMF role the firm can submit a Form E (e.g. transition from an SMF 21 (EEA Branch Senior Manager function) to an SMF 19 (Head of Third country Branch)).

This intel will be welcome for many as the Short-Form A and Form E have less extensive requirements - e.g. there is a significantly shorter fitness and propriety section and no employment history section, amongst other things.

3. Long-term absences - FCA

In our June 2021 SMCR+ View we highlighted the regulators' updated guidance around long-term absences of Senior Managers (longer than 12 weeks). We have had a number of clients try to submit a Form D informing the FCA of long-term absences via Connect. However, the Form D on Connect does not have the same entry as in the 'paper' form available at SUP10C, Annex 6R - i.e. Connect is missing 2.09: 'Notification of absence / return from absence'.

We have notified the FCA of this inconsistency and they have said that they are looking to release an update to correct this in the near future. In the meantime, where firms need to make notifications, the FCA have confirmed that they should send the 'paper' Form D to the FCA's general email address: firm.queries@fca.org.uk.

4. Non-financial misconduct

Non-financial misconduct continues to be a challenge for firms and many of the instances we've seen the FCA deal with have been particularly egregious thus do little to help firms navigate more nuanced waters. It is therefore helpful to look for examples of how non-financial misconduct is treated elsewhere...cue example...

This month Atrium was fined £1.05m by the Lloyd's Enforcement Board. The proceedings against Atrium were brought as a result of several instances of misconduct that took place over several years, which, in Lloyd's view, precipitated a culture tolerating unacceptable conduct involving discrimination, harassment and bullying. This included conduct on annual "boys' nights out" as was widely reported in the press following publication of the fine. Atrium management also failed to address the misconduct appropriately or protect other employees, and it failed to report the misconduct to Lloyd's.

A couple of interesting things to take away with you: (1) this is, of course, a Lloyds Enforcement Board decision and not a FCA/PRA decision so it could be that there is more to come from the FCA/PRA's perspective but it is interesting in showing the direction of travel for regulators here, (2) this is an example of how senior managers should not be turning a blind eye / condoning certain behaviours and the potential ramifications if they do, and (3) it is interesting that part of the decision was that Lloyd's took issue with the firm's decision to enter into a settlement with Employee A rather than dismiss them. This decision formed part of Lloyd's finding of misconduct by the firm. We think the FCA may take an interest in decisions such as this if it considers that the approach reflects negatively on the culture of the firm or the way in which the senior managers discharge their obligations and relevant prescribed responsibilities.

If you would like to receive our client note on this please let Olly Jones (Partner) or myself know.

5. Senior Executive Accountability Regime (SEAR) - January 2023

Our Irish regulatory team has been advising clients on preparations for the new individual accountability framework, expected to be in place by January 2023. The framework will include the SEAR, which is modelled on the SMCR and which will apply initially to banks and certain investment firms, and new conduct standards which will apply to all regulated financial services providers. We are also developing a SEAR toolkit, based on the SMCR toolkit, to assist Irish entities in complying with the new requirements.

If this is something that you'd like to know more about please contact Derek Lawlor (Partner) who'd be delighted to assist.

6. Diversity & Inclusion (D&I) Toolkit

D&I is at the very top of the regulatory agenda and we are all awaiting the FCA's next update following their joint Discussion Paper with the PRA last hear (we discussed it in more detail in our July 2.0 SMCR+ View). In the meantime, however, we have just launched our new D&I Toolkit which provides practical guidance notes, template policies and other tools to support organisations in implementing and progressing diversity and inclusion initiatives.

If you would like to know more please contact Fiona Bolton (Partner), Lauren Dickinson (Supervising Associate), or Jayshree Patel (Associate) for more information on this.