A simple guide to certifying staff under SM&CR

Within this blog, fscom’s Managing Director, Jamie Cooke discusses SM&CR, the revised timelines and shares a simple guide to certifying staff under the Senior Manager and Certification Regime.

SMCR Timeline

On 2nd September 2020, HM Treasury passed a statutory instrument formally extending the deadline for solo-firms (firms supervised only by the Financial Conduct Authority) to have assessed the fitness and propriety of their Certified Persons under the Senior Manager and Certification Regime. The extension runs from the original deadline on the 9th December 2020 until 31st March 2021.

In order to keep SM&CR deadlines aligned, the statutory instrument included an extension to the application of the Conduct Rules for all staff except Senior Managers and Certified Persons and the final date for submission of information on Certified Persons. 

The extension of the deadline until the 31st March 2021 was expected because the FCA stated this was their intention several weeks back and the recent announcement was more a formality.

Whilst the extension is welcomed, getting ready to file the information for Certified Persons still requires a significant amount of work and in this blog, we want to outline some of the practical steps firms should be taking to get ready for filing.

What do we need to do by the deadline?

In essence, the Certification Regime requires that firms take reasonable care to ensure that any employees performing a Certification Function have been given a certificate confirming that they are fit and proper to undertake the role. This is an important change from the previous APER (Approved Persons) regime where the FCA was responsible for approving people who held some Certified Functions. It is the shift in liability from the regulator to the firm that is the key aspect of this change.

Practically from 9th December 2020, but not later than 31st March 2020, firms must provide the FCA with information of their Certified Persons so they can be listed on the FCA Directory.

However to provide this information, the firm must first have assessed these persons as fit and proper and issued their certificate.

Identification of Certified Persons

The first step is for firms to identify employees who will be carrying out Certified Functions under SM&CR. In this context, it is important to define both an employee and the Certified Functions.

The definition of an employee is taken from 63E(9) of FSMA and notably includes any person who is under an obligation to provide services to the firm. In our view, this definition is sufficiently broad to include any person seconded to the firm and contractors.

A Certified Function is any function where it could present a “significant harm” to the firm or their customers. The FCA has prescribed in their rules, specific functions, which are:

    • CASS Operational Oversight
    • Proprietary traders
    • Significant management
    • Functions that require qualifications
    • Managers of certification employees
    • Material risk takers
    • Algorithmic traders

The list above represents a broader scope of roles than under the previous APER regime, so it is likely that the number of certified employees will be more extensive. However some firms, such as those covered by IFPRU, BIPRU, AIFMD and UCITS, should have already identified this cohort because they fall under the definition of remuneration code staff.

There is a territorial aspect to the Certification Regime that is not inherent in the Senior Manager Regime. It only applies to UK employees and/or persons who spend more than 30 days per year in the UK. The only exception being for material risk takers who will be Certified Persons irrespective of location. 

Assess their Fitness and Propriety

Having identified those certified employees, the next step is for firms to assess them as being fit and proper to carry out the Certified Function. Firms should assess the F&P against the following criteria:

    • Honesty, integrity and reputation
    • Competence
    • Financial soundness

For new starters, firms should ensure that they obtain a regulatory reference check from the previous employer. 

Certification and submit

Perhaps obvious in the title, but the final steps are to issue the certificate that the employee is competent and then submit their information to the FCA for the Directory. The window will open on 9th December 2020 so firms can start submitting the information via CONNECT up to the 31st March 2020.

The information required is general in nature such as name, role, dates and activities. For qualification roles which are customer facing firms should also include details on location, engagement methods and qualifications.

How can fscom add value to our Certification Process?

Our SMCR experts have been working with enhanced and core firms to advise them on complying with the SM&CR. We have been able to assist firms in setting up their SM&CR processes faster than an in-house project. Through our knowledge and experience, we can help design the firms processes and they can leverage our SMCR toolkit which provides guides and templates for specific aspects of SMCR such as Management Responsibilities Maps.

SM&CR also requires input from multiple teams throughout an organisation and some client solutions have involved fscom project managing the design and implementation of the processes.

If you would like to discuss where fscom can be of assistance, please contact our Head of Investments, Jamie Cooke at jamie.cooke@fscom.co.uk or contact us below.

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