On 23 January 2019, the FCA published Consultation Paper 19/4 (CP19/4), ‘Optimising the Senior Managers & Certification Regime (SM&CR) and feedback to DP16/4 – Overall responsibility and the legal function’. CP19/4 should be read by firms subject to the banking SM&CR; insurers; FCA solo-regulated firms authorised under FSMA; and EEA and third country branches.

The SM&CR was introduced for banking firms in 2016 and insurers in December 2018. It will apply to solo-regulated firms from December 2019. Near final rules for the SM&CR were produced in July 2018 and final rules for insurers in September 2018. When consulting on these rules, the FCA identified areas where change may be required. CP19/4 sets out the proposed changes to help firms adjust to the SM&CR.

The core proposals of CP19/4 are set out in chapters 3 – 5, which concern: clarifying the application of the SM&CR to the Legal Function; amending the intermediary revenue criterion for the Enhanced regime; and amendments to the Certification Regime, respectively.

Chapter 3 of CP19/4 includes feedback to Discussion Paper 16/4 (DP16/4). 33 responses were received to DP16/4 on the application of the legal function to the SM&CR, and these are summarised in chapter 3.

Table 1 of CP19/4 provides a high level summary of the proposals being consulted on and those firms affected. The key proposals within CP19/4 are:

  • following DP16/4 in September 2016, the FCA proposes to exclude the Legal Function from the Overall Responsibility Requirement;
  • in PS18/14, the FCA explained that it would propose rules bringing intermediaries with regulated revenue of more than £35m that do not complete RMA-B into scope of the Enhanced regime. In CP19/4, the FCA proposes to implement a notification requirement to bring these firms into scope;
  • the FCA proposes to amend the scope of the Client Dealing Function in the Certification Regime to allow firms to exclude purely administrative roles that involve ‘taking part in’ investment activities;
  • the FCA proposes to ensure that the Certification Regime applies to individuals performing roles that were Systems and Controls functions under the Approved Persons Regime, but which are no longer approved under the SM&CR;
  • the FCA proposes to apply Senior Manager Conduct Rule 4 (SC4), in COCON 2.2 of its Handbook, to non-approved executive directors at Limited Scope firms to ensure that executive and non-executive directors at these firms are subject to equivalent requirements. SC4 requires relevant individuals to disclose appropriately any information of which the FCA would reasonably expect notice;
  • the FCA proposes to make a number of minor changes to its regulatory forms to ensure they are consistent with FCA rules.

The deadline for responses to CP19/4 is 23 April 2019. The response form can be found here.

A client briefing note on CP19/4 will be published shortly.