Fitness and propriety investigations: practical considerations
Both individuals and firms in the financial sector are significantly affected by the regime. All involved need a thorough understanding of the new regime.
The Senior Managers Regime applies to all individuals exercising a senior management function (SMF). In many cases, non-executive directors will also be covered, for example if they chair any committee directly relevant to a firm’s safety or soundness.
Senior managers need to examine carefully the scope of the responsibilities allocated to them by the firm and to refuse to accept anything that is outside their actual responsibility or expertise. Where a presumption of responsibility was initially proposed, the Government has instead decided to introduce a statutory duty on senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility – the so-called “duty of responsibility”. They also face criminal liability if they recklessly make a decision (or fail to prevent a decision) that leads to the failure of a bank.
Mid-level employees are subject to the Certification Regime under which it is the responsibility of their firm to certify that they are fit and proper on an on-going basis. An assessment by the firm that an individual is not fit and proper could have very serious implications for the individual from an employment and regulatory perspective.
The new conduct rules will be applicable to a much greater number of individuals working in financial services than under the current regime and are broader in scope.
Firms should consider the the allocation of responsibilities amongst senior managers and assess the areas of responsibility falling within the certification process.
It is important that firms fairly assess the responsibilities of their employees and that the exact extent of their remit is acknowledged and clearly defined so that an individual is not allocated responsibilities outside the scope of their duties, either in their individual statement of responsibility or the firm’s overall responsibilities map.
Together these documents should make clear who is responsible for what, and ensure individual accountability.
The FCA is monitoring carefully how firms implement the new regime and it will ultimately impact on their regulatory risk in the future. Support functions such as HR and IT departments, as well as Compliance and Risk must address legal and operational issues including ensuring that appropriate policies and training are in place.
Firms need to identify individuals within the scope of the regime and ensure their employment documentation, governance structure and resources are appropriate.
With a financial services team drawn from our regulatory, commercial, employment and criminal departments we are able to assess holistically the needs of our clients.
We have worked with a number of regulated firms on regulatory issues and are familiar with working with the FCA. We are able to assist with the drafting of relevant documents, including individual statements of responsibility and the firm's overall responsibilities map. We are here to help with training needs and the amendment of policy materials.
For individuals we can advise on how to negotiate the ambit of their responsibilities, what the regime requires in terms of the discharge of their duties and conduct, and what they can do to protect themselves, particularly if they have grounds for concern about their personal position and potential exposure.
We regularly deal with financial regulators and act for clients in cases involving disciplinary and enforcement action.
Summer 2018: FCA Policy Statement on Extension of the SMR and Certification Regime to all FSMA authorised firms.
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