The UK's Financial Conduct Authority has published its final rules to do with the Senior Managers and Certification Regime (SM&CR) in policy statement 19/20, with commentary on financial firms' responses to Consultation Paper 19/4. There are few surprises.

All firms authorised and regulated by the FCA in accordance with the Financial Services and Markets Act 2000 will be affected by the new SM&CR rules. A firm can be classified as A Limited Scope, Core or Enhanced firm and its classification will dictate the things that it has to do. This article is aimed at Core and Limited Scope firms. A less up-to-date but more comprehensive article on the subject is to be found here.

The SM&CR is made up of the following three elements.

• The Senior Managers Regime (SMR). The regulators have to approve fewer senior individuals at a firm than they do today as part of the Approved Persons Regime.
• The Certification Regime. This requires firms to assume responsibility for assessing the fitness and propriety of individuals who could potentially harm them or their customers.
• The Conduct Rules. These are vague standards of behaviour expected of people who work in the financial sector.

The main changes to the existing rules, as discussed in the Policy Statement that contained the final rules (PS19/20), are the following.

The 'Head of Legal' function is not to be required in the SMR

• The 'Head of Legal' will be subject to the Certification Regime and Conduct Rules. He will not be identified as a senior management functionary (SMF) because the financial sector told the FCA that it was worried that such a classification would compromise legal privilege.  
• He will be an SMF only if/when performing another Senior Management Function/SMF, e.g. Compliance Oversight.
• The individual to whom the Head of Legal reports will be subject to the Certification Regime (as long as he is not performing any other SMF).

Amendments to the scope of the 'Client Dealing Function' under the Certification Regime

• The FCA has narrowed the scope of the Client Dealing Function to exclude people who have no opportunity to choose or decide what should be done in this-or-that situation and whose tasks do not require them to exercise significant skill.  
• The new definition gives firms more discretion in deciding whether a job requires certifying or not.  
• When a firm decides whether or not to classify someone as a Client Dealing Function, it has to decide whether his job is simple or largely automated, and whether it involves the exercise of discretion or judgement.
• Ultimately, this has to depend on the firm’s business and the way in which it has allocated responsibilities to various members of its staff.

The application of the Certification Regime to CF 28 Systems-and-Controls jobs

• The CF 28 Systems-and-Controls Function is included as an example of a person [the FCA frequently refers to people as though they were functions and vice versa] who performs the “Significant Management Function” under the Certification Regime.
• The FCA considered the importance of the CF 28 Systems-and-Controls job and thought that it warranted inclusion in the Certification Regime.

The application of SC4 to non-approved Executive Directors at Limited Scope firms  

• One of the Conduct Rules being introduced is the Senior Managers Conduct Rules 4 (SC4), which requires senior managers to keep the regulator abreast of matters of which it might reasonably expect notice.  
• When the rules were at their 'near-final' stage, SC4 applied to non-executive directors (NEDs) of Limited Scope firms but not to executive Directors who were potentially more involved in the running of the business.
• SC4 now applies to executive directors at Limited Scope Firms (as well as to NEDs).

Amendments to regulatory forms and the FCA rulebook

• Form H (on the notification of disciplinary action relating to Conduct Rules staff) has been changed to apply it to NEDs and to make reporting requirements clearer, while Form O Notification (changing firm status under SM&CR) has been changed to make the submission of supporting documents a clearer process.

A new directory  

PS19/20 contains final rules regarding the new Directory for Certified Staff. Firms should start submitting data about their Certified Staff to the directory on 9 December.

* Newgate Compliance is to be found at www.newgatecompliance.com and on +44 (0) 207 947 4136.