Frequently asked questions about the UK Senior Managers & Certification Regime

Written by Mayya Konovalova on Tuesday January 19, 2016

If you work in regulated financial services in the UK, you will have heard about the UK Senior Managers & Certification Regime by now.

There’s quite a lot to it, so ICA have summed up some of the key information in some FAQs.

Q1.: Which firms (and when) will be affected by the Senior Managers and Certification Regime?

A: Banking and Insurance sector: 7 March 2016; all other financial firms – during 2018 (as soon as practicable)

More detailed explanation if needed:

• Banking: The new regime will replace the current Approved Persons Regime for banks, building societies, credit unions and PRA-regulated investment firms on 7 March 2016; the certification of staff to be completed by 7 March 2017.
• Insurance: A modified and simplified version of the SM&CR will be applied to the insurance sector – Senior Insurance Management Regime (SIMR) with the same dates: 7 March 2016

Q2.: How will be the new SM&CR regime be different from the Approved Persons Regime?

A: Most significant differences are:

• focus on individual responsibility of senior management
• more stringent fit and proper test
• internal certification of all significant harm functions
• wider coverage of new Conduct Rules (all non-administrative staff)

More detailed explanation if needed:

A significant harm function refers to staff employed in the position where they could pose a risk of significant harm to the firm or any of its customers.

Q3.: What constitutes a criminal offence under the new regime? Who can potentially commit this offence?

A: A new criminal offence of reckless mismanagement is imposed in Section 36 of the Banking Reform Act (2013), and the proper name adopted for it is “an offence relating to a decision causing a financial institution to fail”. This offence can be committed only by a senior manager of a relevant financial institution.

More detailed explanation if needed:

The offence requires a senior manager to have been aware of a risk that implementing the decision may cause the failure of the bank. Further, the conduct must fall far below the standard that could reasonably be expected of a person in that position.
Ref: (http://www.legislation.gov.uk/ukpga/2013/33/section/36/enacted).

Q4.: Are the senior managers guilty until proven innocent?

A: No.

The original SM&CR proposal assumed the reverse burden of proof on senior management, rendering the managers guilty until proven innocent in case of a firm’s failure. This was replaced in October 2015 by a ‘statutory duty of responsibility’.

More detailed explanation if needed:

Senior management will continue to be under an obligation to ensure they take all the reasonable steps to prevent regulatory breaches, but the burden of proof, where an individual is being investigated for failure to perform their statutory duty of responsibility, will rest with the regulators.

Q5.: Who does the SM&CR apply to?

A: The regime consists of three elements which covers all the non-administrative staff on different levels: the Senior Managers Regime (SMR) covering senior managers, a certification regime covering all significant harm functions and conduct rules and conduct rules applicable to all staff except ancillary staff.

More detailed explanation if needed:

SM&CR Coverage visual:

Q6.: Who is covered by the Certification regime?

A: all significant harm employees below senior managers (7 + 2 functions below):
Function FCA rule reference

(1) CASS oversight SYSC 5.2.32R
(2) Benchmark submission and administration SYSC 5.2.33R
(3) Proprietary trader SYSC 5.2.34R
(4) Significant management SYSC 5.2.35R
(5) Functions requiring qualifications SYSC 5.2.39R
(6) Managers of certification employees SYSC 5.2.41R
(7) Material risk takers SYSC 5.2.42R
- Source: FCA CP15/22
Plus
[8] Customer dealing (currently CF30)
[9] Algorithmic trading.

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