Important FCA and PRA Coronavirus Update for SM&CR

Below is some important messaging from the FCA and PRA for Dual and Solo Firms that offers significant flexibility to SM&CR requirements. We at Trailight have curated the most important points below and included the links to source announcements for completeness.

Key Points for Dual Firms:

In normal circumstances, the 12-week rule provides enough flexibility for firms to deal with temporary or unexpected SMF absences. The FCA and PRA are currently gathering evidence on whether the 12-week rule is likely to give dual-regulated firms enough flexibility to deal with temporary absences of SMF’s as a result of coronavirus.

However, if firms cannot reallocate an absent SMFs PRs among their remaining SMFs due to reasons relating to coronavirus, they can temporarily allocate them to the individual who is acting up as interim SMF under the 12-week rule, even if they are, at the time, unapproved as an SMF.

An unapproved individual acting up as an SMF under the 12-week rule will not have a SoR (unless the firm applies for them to be permanently approved as that SMF). So it is essential that firms ensure that their records (Responsibilities Maps, role profiles et.c.) keep a clear ‘running commentary’ of any temporary allocation of PRs to unapproved individuals during this period.

The FCA and PRA do not require or expect firms to designate a single SMF to be responsible for all aspects of their response to coronavirus. While it is important for firms to have a clear framework allocating responsibilities to various SMFs for different aspects of their response to coronavirus, the FCA and PRA do not generally prescribe a ‘one-size-fits-all’ approach.

Dual-regulated firms must have individuals performing one of the following combinations of SMFs at all times:

  • CEO (SMF1) CFO (SMF2) and Chair of the governing body (CRR firms and Solvency II insurers)
  • Head of Overseas Branch (SMF19) (UK branches of third-country banks and insurers)
  • Small Insurer Senior Management Function (SMF25) (small, non-Solvency II insurers)
  • Head of Small-Run-Off Firms (SMF26) (small, run-off insurance firms)

Individuals performing these SMF and other SMFs required by the FCA (e.g. Compliance Oversight (SMF16), Money Laundering Reporting Officer (MLRO) (SMF17), and the Limited Scope Function (SMF29)) should only be furloughed as a measure of last resort.

Firms should continue to take reasonable steps to complete any annual certification of employees that are due to expire while coronavirus restrictions are in place.

Key Points for Solo Firms:

The FCA and PRA want to minimise the burden to firms at this time, so do not intend to enforce the requirement on firms to submit updated Statements of Responsibilities (SoRs), if the change:

  • is made to cover multiple sicknesses, or other temporary changes in responsibilities in direct response to the pandemic, and
  • is temporary and expected to revert to the firm’s previous arrangements

Firms’ internal records should aim to keep a ‘running commentary’ of their Senior Manager population and their responsibilities during this period. This includes keeping Statements of Responsibilities, role profiles and Responsibilities Maps (if applicable) up to date.

The 12-week rule allows an individual to cover for a Senior Manager without being approved, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks. If temporary arrangements last longer than 12-weeks as a result of the crisis, firms can notify that they consent to a modification of the 12-week rule. In these cases, temporary arrangements can be extended up to 36 weeks.

In their statement on key workers in financial services, they stated that individuals captured by the Senior Managers Regime may considered to be key workers. However, there may be cases where firms decide to furlough Senior Managers if they are unable to fulfil their responsibilities, for example, 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.

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 proposed Modification by Consent allows a firm to reallocate the Prescribed Responsibilities to the replacement, even if they are not a Senior Manager.