What has happened?
The extension of the Financial Conduct Authority's (FCA) senior managers and certification regime (SMCR) to FCA solo-regulated firms comes into force on 9 December 2019. Firms newly entering this regime must submit their Forms K (conversion notification) and Forms O (opt-up notification), where relevant, to the FCA by 11.59pm on 24 November 2019.
What does this mean?
Most firms will have their existing approved persons regime (APR) functions automatically converted to the corresponding senior management functions (SMFs).
However, in the cases described below, enhanced firms and core firms must submit a Form K.
If a Form K is not submitted when required, the individual's approval will lapse when the new regime starts.
If they continue to perform the role without approval, they, and the firm, will be in breach of FCA rules.
Firms would have to re-apply for approval of individuals through the full SMCR application process, including mandatory criminal records checks and regulatory references.
Enhanced firms must submit a Form K conversion notification in Connect for all existing approved persons.
If the Form K is submitted for an equivalent role under the SMCR, the enhanced firm will not need to apply for re-approval from the FCA for that individual.
However, the documentation supporting the Form K must be submitted – this includes statements of responsibilities for all of the SMFs covered by the Form K and, in the case of an enhanced firm, a responsibilities map.
The FCA has produced a guide to help enhanced firms submit this form: Form K (Enhanced) guide.
For core firms, individuals will be automatically converted wherever possible, with no action required by firms.
However, some core firms have an existing non-executive Chair approved under the generic CF2, non-executive director (NED) function.
Under the SMCR, the FCA needs to know specifically if the NED performs the Chair role.
Therefore, core firms with a non-executive Chair must complete a Form K on Connect to convert those individuals to SMF9.
If a core firm has CF2s but none of these individuals perform the role of a non-executive Chair, no Form K is required.
The FCA has produced a guide to help core firms submit this form: Form K (Core with CF2) guide.
The extent of SMCR rules that apply to firms is dependent on the categorisation of the firm as an enhanced, core or limited firm.
The FCA will have contacted firms to notify them of which category it believes they fall under.
Some firms may prefer to be in a higher category, therefore, Form O can be used by limited firms to opt-up to core firm and by core firms to opt-up to enhanced firm status.
Forms O must be submitted by 24 November 2019 for the new categorisation to be effective by 9 December 2019.
What happens now?
Firms should ensure that they submit the appropriate forms, together with supporting documentation, in a timely manner.
At the start of the regime, the FCA also expects firms to check the updated financial services register to ensure the record shows that they hold the correct approvals – whether resulting from automatic conversion or the submission of a Form K.
If firms' approvals are showing as incorrect, then firms should submit the relevant regulatory forms to correct this as soon as possible.
If you need advice on the submission of FCA forms or last-minute preparation and training for the SMCR, Hogan Lovells can help.
We can offer flexible support to reflect your firm’s business needs: from running your entire implementation project using a mix of our legal and consulting offering, providing legal advice on the key requirements for you to implement, or via our SMCR Toolkit to help you implement your own project.
Please contact us for more information.
Authored Michael Thomas, Anahita Patwardhan and Yvonne Clapham