The Certification Regime (SYSC 27) – SMCR | FCA Handbook

The section specifies FCA certification functions and gives guidance on the FCA’s certification regime.

Certification covers specific functions that aren’t Senior Management Functions, but can have a significant impact on customers, the firm and/or market integrity.

It is possible that in very small firms there will be no one in the Certification Regime if there are only a handful of senior individuals (who will be Senior Managers) supported by administrative staff.

If a sole trader has no employees, then the Certification Regime won’t apply to them.
The Certification Regime is covered in summary in the Overview. More detailed guidance follows in this section.

1. Certification Functions

The full list of Certification Functions applicable to SMCR firms is shown in SYSC Appendix 4 in the Templates section. As mentioned in the Overview though, only two are expected to be applicable to General Insurance Intermediaries:

1. Significant Management Function

2. Supervisors of Certified Functions who are not Senior Managers

The CASS Operational Oversight Function is a replacement for the previous CF10a Controlled Function. This was applicable to firms subject to CASS 1 but specifically excluded firms who were only subject to CASS 5. – See CASS 1A.1.1. (2) General Insurance Intermediaries are usually only subject to CASS 5 and as such CASS 1 does not apply and the new CASS Certification Function is similarly not expected to apply. This is confirmed by the definition of the CASS Oversight Certification Function in SYSC 27.8.1R.

Significant Management Function

The Significant Management Certification Function applies to people below Senior Managers who are responsible for business units that, because of their size, nature or impact, are considered significant by the firm.

The intention of the Significant Management Certification Function is to provide broad coverage of a firm’s main activities below the Senior Manager layer. Firms will need to decide whether a business unit is significant. The factors to consider include:

• the size and significance of the firm’s business
• the risk profile of the unit
• the unit’s contribution to the firm’s capital requirements
• its contribution to the profit and loss account
• the number of employees, Certification Functions or Senior Managers in the unit
• the number of customers served by the unit
• its group structure (if it is a member of a group
• its management structure (for example, matrix management)

A business unit isn’t limited to one that carries on commercial activities with customers and third parties or that generates revenue. A business unit can also be an internal support department (for example, human resources, operations or information technology).

Approved Persons with the Controlled Function CF29 under the pre SMCR regime will become a Significant Management Certification Function under the SM&CR.

Supervisors of Certified Functions who are not Senior Managers

This is to ensure that people who supervise certified employees are held to the same standard of accountability. It also makes sure there is a clear chain of accountability between certified employees and the Senior Manager ultimately responsible for that area as every manager above the certified employee in the same chain of responsibility will have to be certified (until the Senior Manager approved under the SMCR is reached).

2. Applicability

The Certification Regime only applies to employees of firms. This definition covers individuals seconded to the firm and contractors but doesn’t apply to Non-Executive Directors.
The definition of an employee includes anyone who personally provides, or is under an obligation to provide, services to the firm under an arrangement made between the firm and the person providing the services or another person, and is subject to (or to the right of) supervision, direction or control by the firm as to the manner in which those services are provided. This may include, for example, advisers employed by a firm on a contract basis.

A person who works for an appointed representative of a firm may fall into the certification regime. In practice, however, they may not meet the conditions for the certification regime to apply. See SYSC 27.4.2R

Partnerships and the Certification Regime

Under FSMA, the Certification Regime can only apply to employees. If a partner does not hold a SMF and does not meet the definition of ‘employee’ the Certification Regime will not apply.

Under the FCA rules, an LLP is not defined as a partnership. Given the flexibility that an LLP has in designing its internal structure, the FCA would expect the Certification Regime to apply in many cases to members of an LLP who are not Senior Managers.