On 29 November 2019, the FCA published a consultation paper (CP 19/31) on how to apply the Senior Managers Regime (SMR) to benchmark administrators. The SMR will come into force for benchmark administrators that do not undertake any other regulated activities on 7 December 2020. In CP 19/31, the FCA explains its proposals to:
- not apply the Certification Regime to benchmark administrators, since the EU Benchmarks Regulation (BMR) contains requirements on administrators to ensure employees are fit and proper;
- categorise benchmark administrators under the SMR as ‘Core’ firms initially, with the option of subsequent waivers. This waiver process will provide a clear route for firms that are subject to the Annex II regime under the BMR to move to Limited Scope classification if they can demonstrate that they have met the relevant tests;
- require Core firms to allocate up to four Senior Manager Functions (SMFs), which will be the four Governing Functions, namely the CEO (SMF1), Executive Directors (SMF3), Partner (SMF27) and Chair (SMF9), depending on the firm’s governance structure. Senior Managers carrying out these functions will require the FCA’s approval, but firms will not be required to change their existing governance structure or to hire new staff to fill the relevant SMFs. Firms will not be required to allocate the two Required Functions: Compliance Oversight (SMF16) or Money Laundering Reporting Officer (SMF17);
- require Core firms to allocate three Prescribed Responsibilities:
• (a) performance by the firm of its obligations under the SMR, including implementation and oversight;
• (b-1) performance by the firm of its obligations in respect of notifications and training of the Conduct Rules; and
• (d) responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime;
- require Limited Scope firms to allocate the Limited Scope Function (SMF29) to the most appropriate person at the firm;
- require them to apply the Conduct Rules to almost all their employees.
Benchmark administrators that wish to use the existing waiver process to apply to move from Core to Limited Scope will be required to demonstrate that complying with the Core regime would be unduly burdensome or would otherwise not achieve the rules’ purpose. In outline, the FCA’s view is that the waiver option would generally be met by:
- small benchmark administrators with simple business models whose organisational structure would not support applying the Core regime; and
- large firms which principally carry on non-regulated activities, whose senior management team is far removed from the regulated activity, and which do not administer benchmarks that have a significant impact on UK market integrity or UK consumers.
Also, after 9 December 2019, the Approved Persons Regime will no longer apply to firms authorised under the Financial Services and Markets Act 2000, and will only apply to Appointed Representatives. In CP19/31 the FCA proposes some consequential changes to its rules to make this clear.
The deadline for comments on CP19/31 is 28 February 2020.
A fuller briefing note of this consultation paper will follow.