New Guidance for Fitness and Propriety Assessments and Conduct Rules Training under the FCA’s SM&CR

September 17, 2020 by Marianne Cooney, Martin Lovick


On 26 July 2020, the FCA updated its SM&CR webpage for solo-regulated firms, with new guidance on Fitness and Propriety (”F&P”) assessments and Conduct Rules training. The revised webpage highlights good and poor practices, labelling positive and negative indicators, relating to a firm’s F&P assessments and their implementation of the Conduct Rules training. 

It should also be noted that the FCA has declared its intention to extend the deadline for the second phase of SM&CR implementation. Subject to consultation, the following requirements must now be undertaken by 31 March 2021, as opposed to the original deadline of 9 December 2020:

-    Completion of the first assessment of F&P of Certified Persons;
-    Extension of the application of the Conduct Rules from the current Senior Managers, Certification Staff and non-SMF Directors to all staff (except ancillary);
-    Submission of information about Directory Persons to the Financial Services Register.


What are the FCA’s expectations in relation to the Fit and Proper assessments?

The FCA make it clear in the new guidance that firms must be able to demonstrate regularity, thoroughness and consistency in their assessments of Senior Managers and Certification Staff. Firms are permitted to interpret some of the indicators in a proportionate way but are expected to consider the intention behind these pointers.

In light of this guidance, we encourage firms to:

  • Consider how to ensure that their F&P assessments for all Senior Manager Functions (“SMF”) and Certification Staff, are robust and recognise where relevant individuals may require further improvement. The FCA warns against implementing a “rubber-stamp” approach that circumvents a meaningful evaluation of the individual being reviewed. Rather, the expectation is that firms recognise where individuals do not meet the requirements expected of them and implement remedial action, such as development plans to ensure that the individual remains fit and proper to conduct their role(s).  
  • Implement specific targets and guidelines for each role undertaken, with individuals empowered to understand their continued regulatory responsibilities and expectations.
  • Ensure that the firm’s HR/ appraisal process informs the F&P assessments and vice-versa. The FCA has voiced that a firm may fall short if they assess an individual’s F&P merely through an appraisal process that was established ahead of the regime being implemented, and where it has not been adapted to reflect the requirements of SM&CR.  
  • Assess whether the managers of staff subject to the F&P assessment are appropriately trained so that they can adequately understand what is expected of them and their staff. 
  • That the SMF(s) with the Prescribed Responsibility for ‘ensuring the Firm implements its Senior Manager and Certification requirements’, oversees the certification and F&P process to ensure that all regulatory provisions are adhered to, with any breaches reported. This element of oversight should not simply be delegated to the firm’s HR/ Compliance departments. 
  • Consider setting up F&P panels which include Senior Managers, to consider and adjudicate on marginal cases (i.e. where F&P is not certain).
  • Establish internal procedures so that the firm can identify which of its staff perform certification roles on a continual basis. 
  • Organise their record-keeping processes effectively, so that regulatory references are provided promptly and provide the necessary detail ahead of a former member of staff performing a relevant role at their new firm. 
     

What is new in the FCA’s guidance about Conduct Rules training?

Again, through supplying positive and negative indicators on different aspects of training, the FCA has provided some important messages to firms. Thus, the FCA encourages firms to:

  • Provide Conduct Rules training to relevant staff members as part of the on-boarding process, and then reinforced at regular intervals. 
  • Train using both tailored and interactive scenarios, so that a firm’s specific business operations are understood in the context of the overall regime. 
  • Ascertain that their Conduct Rules training reflects how the rules apply to each employee’s role in practice, with reference to firm specific breach examples, in comparison to those that impact the entire industry, such as fraud breaches.
  • Address the Conduct Rules as an evolutionary step in regulatory development rather than presenting the new requirements as prevailing. 
  • Monitor the effectiveness of Conduct Rules training to ensure that staff demonstrate they understand their regulatory obligations.
  • Demonstrate that the Conduct Rules training is aligned with staff behaviour, as demonstrated through the F&P process and/ or any relevant appraisal processes.
  • Ensure that the relevant SMF with the prescribed responsibility for ‘performance by the Firm of its obligations in respect of Conduct Rules Training’ has appropriate oversight of the content of the training, with managers of relevant departments endorsing the delivery of the training, versus delegating this requirement of the regime to the firm’s HR or Compliance departments. 
     

ACA Recommendations

These updates serve as a reminder to firms to review their overall implementation of SM&CR as we approach the first anniversary of the new regime. In particular, we would underline the importance of the Prescribed Responsibilities and the need for relevant SMF(s) to implement, understand and continually monitor the responsibilities they have been allocated. 

Firms should take note of the new guidance and consider in the light of their own SM&CR implementation plans, as the FCA continues to evolve our understanding of its various obligations. Although the guidance is not in itself earth-shattering, it highlights that culture remains at the forefront of the Regulator’s priorities, and that the SM&CR obligations should not be undertaken lightly.

For further information on this alert, please speak to Marianne Cooney, Martin Lovick or your usual ACA Consultant.

 

How we help

Contact us or call +44 (0)20 7042 0500 to learn more about how we can help you address these regulatory requirements with our:

  • Practical suite of SM&CR solutions, designed to help firms and individuals review and maintain compliance against regulatory requirements and expectations. Our SM&CR services include post-implementation assurance reviews of your firm's current framework and ongoing assistance with employee assessments and training.
  • Live and interactive training courses, conducted virtually by a professional trainer, including:
     
    • Understanding the Conduct Rules: designed to help individuals understand their expectations under the Conduct Rules and prepare to meet obligations ahead of the deadline.
    • Senior Management Obligations under the SM&CR: designed to assist Senior Managers to have a full understanding of what they need to do to meet their obligations and achieve compliance with the requirements of the Senior Managers and Certification Regime (SM&CR).

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