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SYSC 23.1 Purpose

SYSC 23.1.1 G

1The purpose of this chapter is to:

  1. (1)

    explain what the senior managers and certification regime is and where to find the main FCA Handbook provisions;

  2. (2)

    define which firms the regime applies to; and

  3. (3)

    define the different kinds of SMCR firm.

SYSC 23.2 Definitions and types of firms

SYSC 23.2.1 R

1 SYSC 23 Annex 1R (Definition of SMCR firm and different types of SMCR firms) defines:

  1. (1)

    what an SMCR firm is; and

  2. (2)

    what the different types of SMCR firm are.

SYSC 23.3 Overview of the senior managers and certification regime

SYSC 23.3.1 G

1There are three main elements to the regime:

  1. (1)

    the senior managers regime;

  2. (2)

    the certification regime; and

  3. (3)

    conduct rules that apply directly to a firm’s workforce.

SYSC 23.3.2 G

1The table in SYSC 23.3.3G gives more details about each of those three elements.

SYSC 23.3.3 G

1Table: Summary of the senior managers and certification regime

Description of component of the regime

Handbook provisions

The senior managers regime: Parts that apply to all firms

Pre-approval by the FCA of senior management (the FCA Handbook calls senior management subject to pre-approval SMF managers)

SUP 10C

Firm to be satisfied that a person is fit and proper before applying for them to be approved as an SMF manager by the FCA or PRA

This requirement is in section 60A of the Act. There is guidance on it in SUP 10C.10.14G (Vetting of candidates by the firm).

Annual assessment of fitness and propriety by the SMF managers’firms

This requirement is in section 63(2A) of the Act. There is guidance and related notification obligations in SUP 10C.14.18R to SUP 10C.14.25G (Notifications about fitness, disciplinary action and breaches of COCON).

A firm should carry out criminal records checks before applying for someone to be approved as an SMF manager.

SUP 10C.10.16R (Criminal records checks and verifying fitness and properness)

A firm should ask for a regulatory reference before appointing someone to be an SMF manager, or to certain other senior management positions, and give one if asked to by another firm doing so.

SYSC 22 (Regulatory references)

Statements of responsibilities

This is a document that sets out the responsibilities that an SMF manager performs as part of their designated senior management function. It is prepared as part of the firm’s application to the FCA or PRA for them to be approved as an SMF manager. It should be updated after approval when there has been any significant change in the responsibilities of the SMF manager.

SUP 10C.11 (Statements of responsibilities).

Many of the requirements are in the Act itself but they are summarised in SUP 10C.11.

SUP 10C.11 also adds some further requirements, particularly about there being one statement of responsibilities per SMF manager per firm.

Duty of responsibility

This applies to SMF managers in all types of firm.

This is dealt with in section 66A(5) of the Act.

There is guidance on this in DEPP 6.2.9-AG to DEPP 6.2.9-FG.

The senior managers regime: Parts that apply to many firms

A firm should allocate certain specified management responsibilities among its SMF managers.

The FCA Handbook calls them FCA-prescribed senior management responsibilities.

SYSC 24 (Senior managers and certification regime: Allocation of prescribed responsibilities)

A firm should maintain a comprehensive and up-to-date document (called the management responsibilities map) that describes its management and governance arrangements.

SYSC 25 (Senior managers and certification regime: Management responsibilities maps and handover procedures and material)

A firm should ensure that, at all times, one or more of its SMF managers have overall responsibility for each of the activities, business areas and functions of the firm.

SYSC 26 (Senior managers and certification regime: Overall and local responsibility)

A firm should ensure that a person becoming an SMF manager has all the information and material that they could reasonably expect to have to perform their responsibilities.

SYSC 25.9 (Handover procedures and material)

The senior managers regime: Parts outside the Handbook

Criminal offence relating to a decision that causes a financial institution to fail

It applies to a UK SMCR banking firm but does not apply to a credit union.

It does not apply to any firm that is not a UK SMCR banking firm.

This is contained in section 36 of the Financial Services (Banking Reform) Act 2013

The certification regime

A firm should not permit an employee to carry out certain functions (certification functions) unless it has issued them with a certificate.

The certificate is only valid for a year. The firm will have to renew it if the employee is to carry on performing the function.

A firm may not issue or renew a certificate unless it is satisfied that the person is fit and proper.

Certification does not involve pre-approval by the FCA or PRA.

Most of the requirements of this regime are in sections 63E (Certification of employees by authorised persons) and 63F (Issuing of certificates) of the Act.

SYSC 27 (Senior managers and certification regime: Certification regime) describes the regime and explains which employees are covered.

A firm should ask for a regulatory reference before appointing someone to perform an FCA certification function (or a PRA equivalent) and give one if asked to by another firm doing so.

SYSC 22 (Regulatory references)

2A firm must report information to the FCA about its Directory persons, including its certification employees.

SUP 16.26 (Reporting of information about Directory persons)

Conduct rules (applies to all firms)

Rules of conduct that apply directly to a firm’s workforce other than ancillary staff.

COCON

A firm should report breaches of COCON to the FCA.

Section 64C of the Act (Requirement for authorised persons to notify regulator of disciplinary action) and SUP 15.11 (Notification of COCON breaches and disciplinary action)

A firm should:

(a) ensure that all persons subject to COCON are notified of the rules that apply to them; and

(b) take all reasonable steps to ensure that they understand how COCON applies to them

These obligations are in section 64B of the Act (Rules of conduct: responsibilities of authorised persons).

There is guidance in COCON 2.3 (Firms: Training and breaches).

SYSC 23.3.4 G

1The PRA has requirements corresponding to the senior managers and certification regime that apply to PRA-authorised persons. The FCA and PRAs’ regimes are designed to work together and complement each other. A PRA-authorised person will therefore need to consider the PRA’s requirements to get a complete picture of the requirements that apply to it (and its workforce) in the area covered by the senior managers and certification regime and the requirements in the Act on which it is based.

SYSC 23 Annex 1 Definition of SMCR firm and different types of SMCR firms

1Part One: Flow diagram and other basic provisions

1.1

R

The flow diagram in SYSC 23 Annex 1 1.2R defines:

(1)

an SMCR firm; and

(2)

the different categories of SMCR firm.

1.2

R

Flow diagram: Types of SMCR firm

SYSC_23_ann_01_20181210.png

Note to the decision tree

The categorisation in this decision tree is subject to SYSC 23 Annex 1 2.1R.

Part Two: Changing category

2.1

R

If a firm is subject to a requirement that it must comply with the rules in the FCA Handbook applicable to one of the categories of SMCR firm set out in this Annex, it is to be treated as falling into that category of SMCR firm for all purposes.

Part Three: Definition of exempt firm

3.1

R

This part defines an exempt firm for the purposes of the flow diagram in Part One of this Annex.

3.2

R

An overseas firm is an exempt firm if it:

(1)

does not have; and

(2)

does not have an appointed representative that has;

an establishment in the United Kingdom.

3.3

R

An incoming EEA firm that is an EEA pure reinsurer is an exempt firm.

33.4

R

An incoming ECA provider acting as such is an exempt firm.

Part Four: Definition of banking sector

4.1

R

A firm is in the banking sector for the purposes of the flow diagram in Part One of this Annex if the firm meets the conditions in SYSC 23 Annex 1 4.2R, SYSC 23 Annex 1 4.4R or SYSC 23 Annex 1 4.6R.

4.2

R

A firm is in the banking sector for the purposes of the flow diagram in Part One of this Annex if it is an institution that meets the following conditions:

(1)

it is incorporated in, or formed under the law of any part of, the United Kingdom;

(2)

it is not an institution authorised under the Act to carry on the regulated activity of effecting contracts of insurance or carrying out contracts of insurance; and

(3)

it meets one of the following conditions:

(a)

its Part 4A permission includes accepting deposits; or :

(b)

it meets all the following conditions:

(i)

the institution is an investment firm;

(ii)

its Part 4A permission covers dealing in investments as principal; and

(iii)

when carried on by it, that activity is a PRA-regulated activity.

4.3

R

An SMCR banking firm in SYSC 23 Annex 1 4.2R is a UK SMCR banking firm.

4.4

R

A firm is also in the banking sector for the purposes of the flow diagram in Part One of this Annex if it is a non-UK institution other than an incoming firm that meets the following conditions:

(1)

it has a branch in the United Kingdom;

(2)

it is not an institution authorised under the Act to carry on the regulated activity of effecting contracts of insurance or carrying out contracts of insurance; and

(3)

it meets one of the following conditions:

(a)

it is a credit institution which has a Part 4A permission that includes accepting deposits; or

(b)

it meets all the following conditions:

(i)

the institution is an investment firm;

(ii)

its Part 4A permission covers dealing in investments as principal; and

(iii)

when carried on by it, that activity is a PRA-regulated activity.

4.5

R

An SMCR banking firm in SYSC 23 Annex 1 4.4R is a third-country SMCR banking firm.

4.6

R

A firm is also in the banking sector for the purposes of the flow diagram in Part One of this Annex if it is an incoming EEA firm or incoming Treaty firm that meets the following conditions:

(1)

it has a branch in the United Kingdom;

(2)

it is not an institution authorised under the Act to carry on the regulated activity of effecting contracts of insurance or carrying out contracts of insurance; and

(3)

it meets one of the following conditions:

(a)

it is a credit institution which has a permission under Part 4A, Schedule 3 or Schedule 4 of the Act that includes accepting deposits; or

(b)

it meets all the following conditions:

(i)

the institution is an investment firm;

(ii)

it has a permission under Part 4A, Schedule 3 or Schedule 4 of the Act that covers dealing in investments as principal; and

(iii)

when carried on by it, that activity is a PRA-regulated activity.

4.7

R

An SMCR banking firm in SYSC 23 Annex 1 4.6R is an EEA SMCR banking firm.

Part Five: Definition of insurance sector

5.1

R

A firm is in the insurance sector for the purposes of the flow diagram in Part One of this Annex if the firm is:

(1)

a Solvency II firm (including a large non-directive insurer); or

(2)

a small non-directive insurer.

5.2

R

(1)

A firm from which the Solvency II rules (as defined by the part of the PRA Rulebook described in this paragraph (1)) are disapplied by chapter 2 of the Solvency II Firms: Transitional Measures part of the PRA Rulebook is in the insurance sector for the purposes of the flow diagram in Part One of this Annex.

(2)

A firm defined as a small run-off firm in the Glossary part of the PRA Rulebook is in the insurance sector for the purposes of the flow diagram in Part One of this Annex.