FCA AND PRA PROVIDE FLEXIBILITY ON SENIOR MANAGERS & CERTIFICATION REGIME FOR DUAL REGULATED FIRMS IN RESPONSE TO THE COVID-19 PANDEMIC
On Friday 3rd April, the FCA and PRA issued a joint statement outlining their expectations of dual regulated firms regarding the Senior Managers and Certification Regime (SM&CR), and how a firm’s governance procedures may be impacted by coronavirus (Covid-19).
It is clear the FCA and PRA are keen to provide flexibility to dual regulated firms during these uncertain times, and have provided updates in six key areas of SM&CR, a summary of which are below:
Notifications about changes to Senior Manager responsibilities
Firms are still obligated to update and resubmit a Statements of Responsibilities (SoRs) if there are ‘significant changes’ to Senior Management Functions (SMFs) as a result of coronavirus issues. However, as the FCA and PRA are keen for firms to prioritise their resources appropriately, these should be resubmitted at the earliest practical point given the circumstances, and it is understood that firms may take longer than usual to submit these revised SoRs.
Temporary Arrangements for Senior Management Functions (SMFs)
The current FCA’s and PRA’s rules allow individuals to perform SMF’s without prior approval for up to a 12-week period in a consecutive one-year period, as long that the SMF vacancy within the firm is either temporary and/or reasonably unforeseen.
While this ’12-week rule’ provides enough flexibility for firms under normal circumstances, the FCA and PRA are currently gathering evidence and reviewing if the 12-week rule is an appropriate amount of time to allow firms to respond adequately to temporary SMF vacancies caused by Covid-19. If it is ultimately deemed inefficient, additional measures will be considered.
Notifications about temporary arrangements
Under normal circumstances, the FCA and PRA expects that when a SMF becomes temporarily vacant, the Prescribed Responsibilities of that SMF should be re-allocated to existing SMFs in the firm, until such time a permanent replacement is found.
While this practice is still the FCAs and PRAs preference, for firms who are unable to re-allocate the PRs among the remaining SMFs, they are temporarily able to allocate them to an individual acting as an interim SMF under the 12-week rule, even if the individual is not a currently approved SMF. Firms should also update their PRA and/or FCA supervisors of any temporary allocation of prescribed responsibilities to unapproved individuals by emailing or calling.
Allocating responsibility for coordinating firms’ responses to coronavirus among SMFs
The FCA and PRA do not expect firms to designate a single SMF to be responsible for all aspects of the response to Covid-19. While the identification of ‘key workers’ should solely be allocated to the CEO (SMF1), even where a firm has a SMF24 – Chief Operations (to which aspects of their response to Covid-19 may naturally sit with this SMF), it is understood that various other aspects of the firms response will likely sit with other SMFs within the firm.
Further to this, the PRA is keen for firms to consider how they may respond to unexpected changes in current contingency plans i.e. contingencies upon contingencies.
Furloughing Senior Management Functions
The FCA and PRA rules require that dual-regulated firms must have individuals in place performing the required and mandatory SMFs applicable to their firm (these mandatory SMFs vary by firm). These may include, but are not limited to, CEO (SMF1), CFO (SMF2), Head of Overseas Branch (SMF19), Compliance Oversight (SMF16) and Money laundering Reporting Officer (SMF17).
While other SMFs are not ‘mandatory’ under current rules (e.g. Chief Operations (SMF24)), the FCA and PRA are keen to stress that firms should think carefully about the risk and unintended consequences of furloughing these non-mandatory SMFs. If any SMFs are furloughed during this period as a consequence of Covid-19, firms are required to update their PRA and FCA supervisors.
Certification Requirements for dual regulated firms
Firms should still take reasonable steps to complete any annual certifications of employees that may be required while Covid-19 restrictions are in place, however, the FCA and PRA understand that certain amendments and adjustments to processes and polices may be required given the current circumstances.
To read the full statement by the FCA and PRA, please visit: https://www.bankofengland.co.uk/prudential-regulation/publication/2020/smcr-and-covid-19-pra-and-fca-expectations-of-firms