Financial Conduct Authority and Prudential Regulation Authority propose significant streamlining of the Senior Managers and Certification Regime

The Certification Regime would be withdrawn in its entirety, alongside the regulatory reference requirement for previously certified staff. There would, therefore, no longer be the requirements to certify staff on appointment nor on an annual basis. However, firms would still need to ensure that staff are competent and suitable under, for instance, the rules in the FCA’s Systems and Controls sourcebook and the Training and Competence rules. The Individual Conduct Rules would continue to apply.

The PRA proposes to impose on banks and insurers an ongoing responsibility to take reasonable steps to assess the integrity, honesty and other personal characteristics of former certification staff on recruitment and where there is a need to revisit this.

Various SMF roles would no longer require pre-approval by the regulator(s). Instead, firms would only need to notify them of the appointment.

For enhanced and dual-regulated firms, the following SMFs:

• 5 (Head of Internal Audit),

• 10 (Chair of the Risk Committee),

• 11 (Chair of the Audit Committee),

• 12 (Chair of the Remuneration Committee),

• 13 (Chair of the Nomination Committee),

• 14 (Senior Independent Director) and

• 15 (Chair of the With-Profits Committee) would only need to be notified.

The PRA would also make further roles notified, such as SMFs:

• 6 (Head of Key Business Area),

• 20 (Chief Actuary) and

• 20a (With-Profits Actuary).

This would not absolve firms of the need to vet candidates for these functions. The firm in question must be satisfied that the relevant individual is fit and proper to perform the role, including by undertaking the requisite criminal records checks and obtaining regulatory references. SMFs who are notified will still be subject to Senior Management Conduct Rules and the Duty of Responsibility.

Notifications can be sent to the applicable regulator up to three months before the individual’s start date.

Both regulators propose extending the current "12-week rule" to 18 weeks. This would allow firms greater flexibility when dealing with temporary absences or unexpected departures from senior management positions.

The FCA proposes to replace the “reasonably unforeseen” test (which is difficult to apply in practice) with a new “reasonable use” standard based on guidance introduced as part of the Phase 1 reforms. A key component of this is that the temporary cover rules should be used “reasonably and infrequently”, rather than as a means of avoiding the need for any regulatory approvals or otherwise as a result of poor planning.

The phase 2 reforms provide that firms would no longer be required to submit revised statements of responsibilities or management responsibilities maps after a significant change. Instead, they would need to keep these up-to-date internally and to provide them to the regulators on request. There are also expectations around retention of superseded versions.

Both regulators also propose to remove some of the senior manager prescribed responsibilities.

The Conduct Rules training duty will be replaced by a responsibility to notify staff of the rules that apply and the consequences of breach. For staff who are not SMFs, only a final written warning or dismissal associated with a Conduct Rule breach would be reportable.

The FCA proposes to narrow SMF 7 for solo-regulated firms, with pre-approval only being required where the group role corresponds to a UK pre-approved function (such as that of a CEO) and the individual exercises significant influence over the firm’s activities.

The PRA proposes to separate SMF 7 into an approved role (SMF 7 Approved Group Entity Senior Manager) and a new notified SMF 7a (Notified Group Entity Senior Manager). An individual who performs a group-level role and exercises significant influence would need to be pre-approved if their group role corresponds to certain PRA or FCA pre-approved functions.

The FCA is proposing further increases to the qualification thresholds that move firms into the Enhanced regime. For example, the threshold would rise from £65 billion to £100 billion of assets under management for asset managers.