Senior Managers and Certification Regime | FCA Handbook

New sections were added to the SYSC Sourcebook following implementation of the Senior Managers and Certification Regime (SMCR), effective from 9th December 2019 for Insurance Intermediaries.

The SYSC Sourcebook though does not contain the full set of SMCR Rules and Guidance which are spread across several Sourcebooks.

SMCR: Introduction and Classification (SYSC 23)

This section:
(1) explains what the senior managers and certification regime is and where to find the main FCA Handbook provisions;
(2) defines which firms the regime applies to;
(3) defines the different kinds of SMCR firm;

These are all covered in the Overview but points to stress here are that :

1. The vast majority of General Insurance Intermediaries will be Core Firms and as such have an annual income from regulated activity of less than £35m per annum calculated as a 3 year rolling average.

2. Enhanced firms are not covered by this manual (the FCA estimates that there will only be about 350 such firms in the Financial Services sector)

3. Limited Scope Firms will usually be Sole Traders or firms whose main business is not regulated activity e.g. Motor Traders with permission to carry out Insurance Distribution Activity.

4. Appointed Representatives are outside the scope of SMCR.

SYSC 23.4 (Not applicable to Limited Scope firms) contains a provision requiring criminal record checks to be carried out before appointing any directors who are not otherwise Approved Persons performing Senior Management Functions. This just plugs a gap as all other directors are subject to mandatory criminal record checks under other SMCR rules (SUP 10C.10.16R)

Allocation of FCA-prescribed senior management responsibilities (SYSC 24)

Firms are required to allocate certain FCA Prescribed Responsibilities (PRs) to specific senior managers.

PRs do not apply to Limited Scope firms.

Firms must make the allocations of FCA-prescribed senior management responsibilities in such a way that it is clear who has which of these responsibilities. Some other general rules are:

1. Seniority and authority

The FCA expects that a person who has responsibility for an FCA-prescribed senior management responsibility:

(1) will generally be the most senior employee or officer responsible for managing that area (or the most senior below the chief executive); and

(2) will:
(i) be sufficiently senior and credible; and
(ii) have sufficient resources and authority;
to be able to exercise their management and oversight responsibilities effectively.

2. Executive or non-executive

For Core firms the FCA expects that normally a firm will allocate the FCA-prescribed senior management responsibilities to an SMF manager who performs executive functions for the firm.

3. Dividing and sharing a PR

Each PR should normally be held by only 1 person. Firms can only divide or share a PR in limited circumstances, where they can show that this is appropriate and justifiable.

If a firm divides or shares a PR, it will need to show why this is justified and confirm that this doesn’t leave a gap. For example, it could be justified to share a function or responsibility:
• as part of a job share
• where departing and incoming Senior Managers work together temporarily as part of a handover
• where a particular area of a firm is run by 2 Senior Managers

Where responsibilities are shared or divided, this must be clearly explained in the relevant Statements Of Responsibility (SoR). In general, where responsibilities are shared, each Senior Manager will be jointly accountable for those responsibilities.

4. Partnerships under the Senior Managers Regime

Where a partner performs a Senior Management Function, their responsibilities will need to be clearly set out in their SoR.

The FCA recognise that responsibilities within partnerships could be allocated in different ways. For example, a responsibility or function might be shared between several partners, or a more senior partner or executive-type partners could have more responsibilities than a junior partner.

Firms should explain how this works in their firm in each of the Partners SoRs. Partnerships will also need to assign the applicable PRs among their Senior Managers.

Unless there is a strong justification, the FCA would not normally expect the PRs to be divided or shared between these partners.

5. CASS Prescribed Responsibility

This PR only applies to firms subject to the CASS sourcebook.

Insurance Intermediaries will be subject to CASS 5 if they hold client monies in either:
a) A client money statutory or non-statutory trust account in accordance with CASS 5.3 or 5.4
b) A Risk Transfer account on behalf of Insurers in in accordance with CASS 5.2

Some intermediaries may not be subject to CASS 5 and hence the CASS PR may not apply. For instance if all client monies are paid directly by clients to the Insurers.