Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 35 Extending the SM&CR to all FCA firms The key concepts underlying the extension of SM&CR, particularly how it applies to asset managers that will be designated as either “Core” or “Enhanced” firms can be seen in the placemat on the previous page. The aims of extending the SM&CR to asset managers, in keeping with banks, credit institutions and insurers already subject to the regime, are to reduce harm to consumers and strengthen market integrity by creating a system that enables both firms and regulators to hold people to account. These aims can be further broken down, as the regulator seeks to: • Encourage staff to take personal responsibility for their actions. • Improve conduct at all levels. • And make sure firms and staff clearly understand and can demonstrate who does what. Asset managers will be subject to the new regime from 9 December 2019, though the FCA has caveated the application date with the explanation that the rules in Policy Statement 18/4 remain near-final as they may be amended by subsequent Handbook changes, for example those relating to the UK’s exit from the EU, or SM&CR optimisations. Additionally, they are subject to commencement regulations to be made by HM Treasury. Based on a 9 December 2019 start date, the FCA has advised that transitional arrangements will also apply. While firms will need to identify their Certification Staff at the start of the new regime, they will have 12 months from the commencement date to complete the initial certification process. Additionally, while Senior Managers and Certification Staff will need to have been identified and trained and will need to abide by the Conduct Rules by 9 December 2019, firms will have a further 12 months to train their other staff on the Conduct Rules (see adjacent placemat for examples of the types of staff who are excluded from the Conduct Rules). In publishing its Policy Statement PS18/14 (Extending the SM&CR to FCA firms — Feedback to CP17/25 and CP17/40, and near-final rules), on 4 July 2018, the FCA has not made any material changes to the proposals that they previously consulted on in July last year. 6 Changes that the FCA has flagged in PS18/14 include: • Removal of the Prescribed Responsibility (that only applied to Core firms) to inform the governing body of their legal and regulatory obligations. • Provided an easy process for firms to tell the FCA they wish to voluntarily apply a higher regime tier (Form O). • Amended three of the Enhanced criteria to smooth single year anomalies. • And lengthened the time period from 6 to 12 months for a firm to implement the Enhanced tier, once it has met relevant criteria. In respect of questions raised about potential group application of the regime, the FCA has confirmed that SM&CR applies on a legal entity-basis rather than to groups. This is a requirement set out in the Financial Services and Markets Act 2000 and, as such, the FCA does not have discretion to take a group wide approach to applying the SM&CR (as suggested by a number of respondents to the earlier consultation). Firms may opt-up into the Enhanced tier so that groups can take a consistent approach across different entities, using the new Form O, but the FCA advises that where firms do opt- up, they will have to comply with all relevant Enhanced tier rules (see adjacent placemat for key differences between Core and Enhanced firms). Firms won’t be able to choose some elements of the regime and not others. Once the Form O is submitted, firms will have three months to comply with all the relevant rules. A number of respondents also suggested to the FCA that an additional “Culture” Prescribed Responsibility be created. However, in its feedback, the FCA explains this was not necessary as it considers every individual in a firm to be accountable for the firm’s culture, from the governing body down. Also, all Senior Managers have a particular role to play in driving an appropriate culture and should take accountability for their actions, shaping the firm’s culture by taking accountability for their own behaviour and taking reasonable steps to manage the behaviour of those in their area of responsibility. Culture will also be reinforced by applying the Conduct Rules throughout every level of a firm.