The FCA has published a statement that is intended to clarify its supervisory intentions concerning whether an individual in charge of a firm’s legal function requires approval under the Senior Managers’ Regime (SMR).
Last summer the FCA made final rules for the new individual accountability regime and in its commentary on the new Handbook text it highlighted in a consultation paper the importance of identifying those individuals who have ‘overall responsibility’ for activities, functions or areas of the business and ensuring that they are pre-approved for senior management functions (SMFs).
However, it has come to the FCA’s attention that there is significant uncertainty in the market regarding one particular area for which an individual might have overall responsibility: a firm’s legal function. Whilst the FCA had not included such a role in its indicative list of business activities and functions, responsibility for the management of the legal function was not excluded. The FCA states that it took the view that many firms would need to identify the role as an overall responsibility SMF when allocating senior management responsibilities if it was not covered by another specific SMF in the firm.
In its statement the FCA states that it plans to issue a consultation paper seeking views on the pros and cons of capturing individuals with overall responsibility for the legal function within the SMR. However, the FCA recognises that there will not be insufficient time to consult on this properly before the SMR comes into force and that it is important to clarify its expectations in the meantime.
The FCA recognises that some firms may not be in a position to make a decision, with full certainty, about whether or not they need approval for the individual in charge of their legal function. With this in mind, the FCA states that: “any firm that has sought to make a decision in good faith about whether or not the individual in question requires approval, on the basis of the published rules and our other communications, should not need to change their approach in the interim.” The FCA then adds: “Once our consultation is complete, we will seek to ensure that it is entirely clear what is required in this area – and we will provide information on any transitional measures that may be needed for firms to adjust their arrangements.”
View Clarifying our supervisory intentions: overall responsibility for the legal function under the Senior Managers’ Regime, 27 January 2016