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SM&CR and coronavirus: our expectations for solo-regulated firms – December 2020 update

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In April 2020, we set out our expectations to help solo-regulated firms apply the SM&CR following the exceptional circumstances arising from the coronavirus pandemic (Covid-19). We offered some additional flexibility in the application of the SM&CR rules to firms that were impacted by coronavirus. Below is our updated information.

December 2020 update

As firms have adapted to the impact of the pandemic over the past few months, our expectation is that firms’ application of the SM&CR rules returns to normal.

Firms should be aware that some of the previously available provisions will end on 7 January 2021 and that the relevant modifications by consent will end after 30 April 2021. We provide more detail below on what this means.

Senior Management responsibilities

As before, we do not require firms to have a single Senior Manager responsible for their coronavirus response. Firms should allocate these responsibilities in the way which best enables them to manage the risks they face. We have also published updated expectations for dual-regulated firms with the Prudential Regulation Authority (PRA).

Senior Managers are responsible for risks in their areas of responsibility and should consider:

  • where the current situation might lead to emerging risks
  • how it affects existing risks, along with the controls used to manage them

Statements of Responsibilities and ‘significant changes’ to Senior Manager Responsibilities

In our previous statement, we said that we would not expect a firm that needed to make temporary arrangements in direct response to the pandemic to submit updated Statements of Responsibilities (SoRs), if certain conditions were met.

This provision will end on 7 January 2021. As most firms have now adapted to the new ways of working, we now expect firms to apply the notification requirements as normal and submit a Form J when significant changes are made to SoRs.

However, we do not now expect firms to submit updated Statements of Responsibilities relating to changes made before 7 January 2021.We continue to expect that temporary arrangements carried out under the previous version of this statement to be clearly documented internally, so that everyone understands who is responsible for what. This should be available if we request it – now or in the future.

Temporary arrangements for Senior Management Functions

We previously issued a Modification by Consent to the 12-week rule to support firms using temporary arrangements during the crisis. If temporary arrangements made as a result of the pandemic lasted longer than 12 weeks, firms could notify us that they consented to an extension of the 12-week rule.

The modification by consent is still available. However, a firm cannot consent to the modification after 30 April 2021 and all modifications consented to before then will come to an end on that date. The end date means that the maximum period of extension available to firms reduces closer to 30 April 2021. For example, if a temporary replacement for a senior manager is first appointed on 1 January 2021, the allowance for a temporary replacement runs out on 30 April 2021. It makes no difference to the end date when the firm consents to the modification and whether it does this before or after the date of this statement. This means that the modification will not assist with a temporary appointment that begins after 5 February 2021.

We expect firms that consent to the modification to clearly document these responsibilities, however temporary, including on relevant Statements of Responsibilities and Responsibilities Maps (if applicable).

Under the modification, firms can allocate the Prescribed Responsibilities of the absent Senior Manager to the individual who is standing in. Usually, Prescribed Responsibilities can only be allocated to another approved Senior Manager under the 12-week rule. We expect firms to still do this, if possible. Firms should still allocate to the most senior person responsible for that activity or area, who has sufficient authority and an appropriate level of knowledge and competence to carry out the responsibility properly. The covering manager will require access to the governance forums they need to carry out their responsibilities.

Find out more information or apply for this modification by consent.

Furloughed staff

There is little change from the previous statement in relation to furloughed staff.

There may be cases where firms decide to furlough Senior Managers if they are unable to fulfil their responsibilities, eg due to illness, caring responsibilities or if they have no current practical responsibilities. Unless a furloughed Senior Manager is permanently leaving their post, the manager will retain their approval during their absence and will not need to be re-approved by the FCA when they return. The firm is still responsible for ensuring the Senior Manager is fit and proper.

If a firm is subject to the Overall Responsibility rule in SYSC 26, the responsibilities of the furloughed Senior Manager must be allocated to another Senior Manager. If the firm is relying on the 12-week rule, the replacement does not need not be a Senior Manager.

Individuals performing required functions – eg Compliance Oversight, the money laundering reporting officer (MLRO) and the Limited Scope Function – should only be furloughed as a last resort. Where a required function applies to a firm, the firm should replace the furloughed individual until their return. If the replacement is temporary, firms can use the 12-week rule to arrange cover.

Other Senior Management Functions are not ‘mandatory’ so firms have greater flexibility to furlough the individuals performing them. For instance, if a firm temporarily suspends a business service or function due to the disruption caused by coronavirus it could, in principle, furlough the Senior Manager responsible for it.

The firm should reallocate the Prescribed Responsibilities of a furloughed Senior Manager to another Senior Manager. However, if the firm appoints a temporary replacement under the 12-week rule, the Modification by Consent allows a firm to reallocate the Prescribed Responsibilities to the replacement, even if they are not a Senior Manager.

Firms need to ensure the allocation is appropriate and complies with our rules. For example, that an oversight role is not allocated to an executive.

This news item was originally published by the Financial Conduct Authority (FCA UK). For more information, please see the Source Link.

Regulator Information

Regulator Name: Financial Conduct Authority
Abbreviation: FCA
Jurisdiction: United Kingdom

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