Head of Legal and the Other Overall Responsibility Function
The SMCR requires banks and insurers (and, following its extension in December 2019, enhanced solo-regulated firms) to ensure that responsibility for every function, activity or area of their business is allocated to a senior manager. Where an individual with ultimate responsibility for a function, activity or area is not performing another senior management function, the rules require that such individual be allocated the Other Overall Responsibility Function (SMF 18).
After the final SMCR rules for banks were published in July 2015, it was unclear to firms whether the legal function should fall within the scope of the Overall Responsibility Function, and whether the head of legal should be approved as a SMF 18. Many in the industry expressed the view that it would be inappropriate for the Senior Mangers Regime to apply to the legal function (for example because it could create a tension between the Head of Legal's ability to demonstrate compliance with the duty of responsibility and the privilege of legal advice provided to the firm).
In response, the FCA published a statement in January 2016 clarifying its intention to consult and to make its views clear. The FCA then published a discussion paper (DP16/4) which explained its rationale and invited firms to submit their arguments in favour and against the FCA's position.
In last week's consultation paper, the FCA summarised the feedback it had received to the discussion paper and has proposed excluding the Head of Legal from the requirement to be approved as a Senior Manager.
It is important to note that this does not mean that the Head of Legal would never need to be approved as a senior manager (such as head of compliance). In instances where the Head of Legal performs another senior management function, the individual would still have responsibility as a Senior Manager for that additional function and would require approval. Nevertheless, this should be a relief for most firms seeking to apply the regime, and for in-house lawyers in particular.
Changes to the certification regime
The FCA has also proposed making changes to the scope of the certification regime.
In particular, it has proposed narrowing the scope of the client-dealing function to ensure that individuals who interact with clients in an administrative capacity only are not caught by the certification regime. Individuals "who have no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill" will be excluded from the function under these proposals.
The FCA has also proposed creating a new certification function for individuals who will be performing systems and controls functions at firms where these functions do not require approval as a senior management function. This would impact core and limited scope solo-regulated firms from the date of application of the regime.
The deadline for comments on the consultation is 23 April 2019.
Please let us know if you would like to find out more about how we can help you implement the regime. We are able to offer flexible support to reflect your firm’s business needs. We can run your entire implementation project using a mix of our legal and consulting offering, provide legal advice on the key requirements and what you need to do to implement the regime, or provide template documentation to help you design and implement your own project. Let us know how we can help.
Please see a link to our note on the SMCR and a summary project plan for FCA authorised firms.
Authored by Michael Thomas and Anahita Patwardhan