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SYSC 4.7 Senior management responsibilities for UK relevant authorised persons: allocation of responsibilities1

Application

SYSC 4.7.1R

This section applies to UK relevant authorised persons 3..

SYSC 4.7.2R

There is no territorial limitation on the application of this section.

SYSC 4.7.3R

This section is not limited to regulated activities or other specific types of activities.

Purpose of this section

SYSC 4.7.4G

The purpose of this section is to ensure, together with the equivalent PRA requirements, that an SMF manager is responsible and accountable for every area of a firm's activities.

Allocation of FCA-prescribed senior management responsibilities

SYSC 4.7.5R
  1. (1)

    A firm must allocate each of the FCA-prescribed senior management responsibilities in Part 1 of the table in SYSC 4.7.7R to one or more SMF managers of the firm.

  2. (2)

    Except as described in (3), a firm must allocate each of the FCA-prescribed senior management responsibilities in Part 2 of the table in SYSC 4.7.7R to one or more SMF managers of the firm.

  3. (3)

    Paragraph (2) does not apply to:

    1. (a)

      a firm that is a small CRR firm as defined in the part of the PRA's rulebook called “Allocation of responsibilities”; or

    2. (b)

      a credit union.

  4. (4)

    If an FCA-prescribed senior management responsibility in Part 3 of the table in SYSC 4.7.7R applies to a firm as described in column (2) of that Part, the firm must allocate that FCA-prescribed senior management responsibility to one or more SMF managers of the firm.

  5. (5)

    A firm may not allocate an FCA-prescribed senior management responsibility to an SMF manager who is only approved to perform the other overall responsibility function for that firm, subject to (6).

  6. (6)

    A firm may allocate the FCA-prescribed senior management responsibility in row (11) of the table in SYSC 4.7.7R (functions in relation to CASS) to an SMF manager who is only approved to perform the other overall responsibility function.

  7. (7)

    A firm must make the allocations of FCA-prescribed senior management responsibilities in this rule in such a way that it is clear who has which of those responsibilities.

SYSC 4.7.6R
SYSC 4.7.7R

Table: FCA-prescribed senior management responsibilities

FCA-prescribed senior management responsibility

Explanation

Equivalent PRA-prescribed senior management responsibility

Part One (applies to all firms)

(1) Responsibility for the firm's performance of its obligations under the senior management regime

The senior management regime means the requirements of the regulatory system applying to relevant authorised persons insofar as they relate to SMF managers performing designated senior management functions, including SUP 10C (FCA senior management regime for approved persons in relevant authorised persons).

This responsibility includes:

(1) compliance with conditions and time limits on approval;

(2) compliance with the requirements about the statements of responsibilities (but not the allocation of responsibilities recorded in them);

and

(3) compliance by the firm with its obligations under section 60A of the Act (Vetting of candidates by relevant authorised

persons).

PRA-prescribed senior management responsibility 4.1(1)

(2) Responsibility for the firm's performance of its obligations under the employee certification regime

The employee certification regime means the requirements of sections 63E and 63F of the Act (Certification of employees) and all other requirements of the regulatory system about the matters dealt with in those sections, including SYSC 5.2 (Certification Regime) and the corresponding PRA requirements.

PRA-prescribed senior management responsibility 4.1(2)

(3) Responsibility for compliance with the requirements of the regulatory system about the management responsibilities map

This responsibility does not include allocating responsibilities recorded in it

PRA-prescribed senior management responsibility 4.1(3)

(4) Overall responsibility for the firm's policies and procedures for countering the risk that the firm might be used to further financial crime

(1)2 This includes the function in SYSC 6.3.8R (firm must allocate to a director or senior manager overall responsibility within the firm for the establishment and maintenance of effective anti-money laundering systems and controls), if that rule applies to the firm.

(2)2 The firm may allocate this FCA-prescribed senior management responsibility to the MLRO but does not have to.

(3)2 If the firm does not allocate this FCA-prescribed senior management responsibility to the MLRO, this FCA-prescribed senior management responsibility includes responsibility for supervision of the MLRO.

None

2(4A) Acting as the firm’s whistleblowers’ champion

The whistleblowers’ champion’s allocated responsibilities are set out in SYSC 18.4.4R

Part Two (applies to all firms except for small CRR firms and credit unions)

(5) Responsibility for:

(a) leading the development of; and

(b) monitoring the effective implementation of;

policies and procedures for the induction, training and professional development of all members of the firm's governing body.

PRA-prescribed senior management responsibility 4.1(13)

(6) Responsibility for monitoring the effective implementation of policies and procedures for the induction, training and professional development of all persons performing designated senior management functions on behalf of the firm other than members of the governing body.

PRA-prescribed senior management responsibility 4.1(5)

(7) Responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

the internal audit function, in accordance with SYSC 6.2 (Internal Audit)

This responsibility includes responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

a person approved to perform the PRA's Head of Internal Audit designated senior management function for the firm.

PRA-prescribed senior management responsibility 4.1(15)

(8) Responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

the compliance function in accordance with SYSC 6.1 (Compliance).

This responsibility includes responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

the person performing the compliance oversight function for the firm.

PRA-prescribed senior management responsibility 4.1(16)

(9) Responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

the risk function, in accordance with SYSC 7.1.21R and SYSC 7.1.22R (Risk control).

This responsibility includes responsibility for:

(a) safeguarding the independence of; and

(b) oversight of the performance of;

a person approved to perform the PRA's Chief Risk designated senior management function for the firm.

PRA-prescribed senior management responsibility 4.1(17)

(10) Responsibility for overseeing the development of and implementation of the firm's remuneration policies and practices in accordance with SYSC 19D (Remuneration Code)

PRA-prescribed senior management responsibility 4.1(18)

Part Three (applies in specified circumstances)

(11) Overall responsibility for the firm's compliance with CASS

(A) This responsibility only applies to a firm to which CASS applies.

(B) A firm may include in this FCA-prescribed senior management responsibility whichever of the following functions apply to the firm:

(a) CASS 1A.3.1R (certain CASS compliance functions for a CASS small firm);

(b) CASS 1A.3.1AR (certain CASS compliance functions for a CASS medium firm or a CASS large firm);

(c) CASS 11.3.1R (certain CASS compliance functions for certain CASS small debt management firms); or

(d) CASS 11.3.4R (certain CASS compliance functions for a CASS large debt management firm);

but it does not have to.

(C) If the firm does not include the functions in (B) in this FCA-prescribed senior management responsibility, this FCA-prescribed senior management responsibility includes responsibility for supervision of the person performing the functions in (B) that apply to the firm.

None

Allocation of overall responsibility for a firm’s activities, business areas and management functions

SYSC 4.7.8R
  1. (1)

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

  2. (2)

    This rule does not require a firm to ensure that SMF managers have overall responsibility for any activity, business area or management function that is:

    1. (a)

      included in an FCA-prescribed senior management responsibility;

    2. (b)

      included in an PRA-prescribed senior management responsibility; or

    3. (c)

      managed (as part of the PRA-designated senior management function concerned) by any of the firm's SMF managers approved to perform any of the following PRA-designated senior management functions for the firm:

      1. (i)

        the Chief Finance function;

      2. (ii)

        the Chief Risk function;

      3. (iii)

        the Head of Internal Audit function;

      4. (iv)

        the Head of Key Business Area function; or

      5. (v)

        the Group Entity Senior Manager function.

  3. (3)

    A firm must make the allocations of responsibilities in this rule in such a way that it is clear who has which of those responsibilities.

SYSC 4.7.9G

The purpose of SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) is to avoid gaps. It is to make sure that an SMF manager has responsibility for every part of a firm's activities, business areas and management functions not otherwise covered by other parts of this section or by the equivalent PRA requirements.

SYSC 4.7.10G

As explained in SYSC 4.7.18G, SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not apply to non-executive functions.

Meaning of overall responsibility

SYSC 4.7.11G

When SYSC 4.7 refers to a person having overall responsibility for a function, it means a person who has:

  1. (1)

    ultimate responsibility (under the governing body) for managing or supervising that function; and

  2. (2)

    primary and direct responsibility for:

    1. (a)

      briefing and reporting to the governing body about that function; and

    2. (b)

      putting matters for decision about that function to the governing body.

SYSC 4.7.12G

Having overall responsibility for a matter does not mean having ultimate authority over it. The ultimate decision-making body of a firm is its governing body, acting collectively.

SYSC 4.7.13G
  1. (1)

    A person with overall responsibility for a matter will either be a member of the governing body or will report directly to the governing body for that matter.

  2. (2)

    For example, a firm appoints A to be head of sales. A is not on the governing body. A reports to an executive director (B) and B reports to the governing body about the sales function. In this example B, rather than A, has overall responsibility for sales.

SYSC 4.7.14G
  1. (1)

    A person who reports to another, or is subject to oversight by another, may still have overall responsibility for a function.

  2. (2)

    For example, a head of compliance may report direct to the governing body but be subject to performance appraisal by the chief executive. In this example, the head of compliance will still have overall responsibility for compliance.

  3. (3)

    If a person (A):

    1. (a)

      reports directly to the firm's governing body about a particular matter; but

    2. (b)

      is not a member of the governing body; and

    3. (c)

      reports to a member of the governing body (B) about that matter;

  4. B has overall responsibility for that matter.

  5. (4)

    If:

    1. (a)

      a person (A) reports directly to the firm's governing body about a particular matter;

    2. (b)

      A also reports to another person (B) about that matter;

    3. (c)

      neither A nor B is a member of the governing body; and

    4. (d)

      B also reports directly to the firm's governing body about that matter;

  6. B has overall responsibility for that matter.

  7. (5)

    A member of the governing body who reports to the chief executive may still have overall responsibility for a function.

  8. (6)

    If:

    1. (a)

      a person (A) reports directly to the firm's governing body about a particular matter; and

    2. (b)

      A’s function is subject to oversight by a non-executive director (B) or by a committee of the firm's governing body chaired by B;

  9. A (not B) has overall responsibility for that matter.

SYSC 4.7.15G

When this section refers to a person having overall responsibility for a function, it does not mean that that person has day-to-day management control of that function.

SYSC 4.7.16G

In general, the FCA expects that a person to whom overall responsibility for an area of a firm is allocated under SYSC 4.7.8R will be the most senior employee or officer responsible for managing that area.

SYSC 4.7.17G
  1. (1)

    SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not mean that the firm has to allocate overall responsibility for the running of the governing body itself.

  2. (2)

    This is because SYSC 4.7.8R is about assigning responsibility subject to the overall control of the governing body (see SYSC 4.7.12G).

  3. (3)

    This means that a person does not have overall responsibility for a function under SYSC 4.7.8R just by being a member of a firm's governing body.

SYSC 4.7.18G
  1. (1)

    A person who just provides oversight of a function does not have overall responsibility for that function under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions).

  2. (2)

    Paragraph (1) and SYSC 4.7.17G mean that a non-executive director acting as such does not have overall responsibility for a function under SYSC 4.7.8R or perform the other overall responsibility function.

  3. (3)

    Paragraph (1) and SYSC 4.7.17G mean that a non-executive director:

    1. (a)

      providing oversight of a function; or

    2. (b)

      being responsible for the independence of a function;

    3. does not have overall responsibility for that function under SYSC 4.7.8R or perform the other overall responsibility function.

Who functions should be allocated to

SYSC 4.7.19G

The FCA expects a firm to allocate all the functions in SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities) and SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) to an individual and not to a legal person.

SYSC 4.7.20G

The FCA would not consider it unusual if a person who has overall responsibility for a particular function was not a member of the governing body. For example, in some firms, the head of compliance reports directly to the governing body even though the head compliance is not a member of the governing body.

SYSC 4.7.21G
  1. (1)

    A person may have overall responsibility for a matter without being a member of the firm's governing body, which means that (ignoring (2)) a relatively junior person could have overall responsibility for an activity of a firm.

  2. (2)

    However, the FCA expects that anyone who has overall responsibility for a matter:

    1. (a)

      will be sufficiently senior and credible; and

    2. (b)

      will have sufficient resources and authority;

  3. to be able to exercise his management and oversight responsibilities effectively.

SYSC 4.7.22G

SYSC 4.7.21G(2) also applies to someone who has responsibility for an FCA-prescribed senior management responsibility.

SYSC 4.7.23G
  1. (1)

    It will be common for a small non-complex firm to divide overall responsibility for its activities between members of its governing body and not to assign overall responsibility for any activity to someone who is not a member.

  2. (2)

    However, when deciding how to divide up overall responsibility for its activities, a firm should avoid assigning such a wide range of responsibilities to a particular person so that the person is not able to carry out those responsibilities effectively.

  3. (3)

    Therefore, in a large or complex firm, the FCA expects overall responsibility for some functions to be assigned to persons in the layer of management below the governing body. Anyone in that layer having overall responsibility for an activity will be performing a designated senior management function.

SYSC 4.7.24G
  1. (1)

    The FCA expects that normally a firm will allocate the FCA-prescribed senior management responsibility in rows (5), (7), (8), (9) and (10) of the table in SYSC 4.7.7R to an SMF manager who is a non-executive director of the firm.

  2. (2)

    The FCA expects that normally a firm will allocate:

    1. (a)

      the other FCA-prescribed senior management responsibilities; and

    2. (b)

      functions under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

    3. to an SMF manager who performs executive functions for the firm.

  3. (3)

    In general, the FCA expects that a person who has responsibility for an FCA-prescribed senior management responsibility in (2) will be the most senior employee or officer responsible for managing that area.

  4. (4)

    Paragraphs (1) to (3) do not apply to a small non-complex firm to the extent that they deal with those FCA-prescribed senior management responsibilities that, under the table in SYSC 4.7.7R, do not apply to small firms.

  5. (5)

    The FCA accepts that it may not be practical for a small non-complex firm (see SYSC 4.5.13G) to comply with the parts of (1), (2) and (3) that would otherwise apply to it.

Dividing and sharing management functions between different people

SYSC 4.7.25G
  1. (1)

    The FCA expects that a firm will not normally split an FCA-prescribed senior management responsibility between several SMF managers, with each only having responsibility for part.

  2. (2)

    The FCA expects that a firm will not normally allocate responsibility for:

    1. (a)

      an FCA-prescribed senior management responsibility; or

    2. (b)

      a function under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

  3. to two or more SMF managers jointly.

SYSC 4.7.26G
  1. (1)

    Although the norm should be for a firm to have a single individual performing each FCA-prescribed senior management responsibility or function allocated under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions), there may be circumstances in which responsibilities can be divided or shared (see (2)).

  2. (2)

    A firm should only divide or share a responsibility where this is appropriate and can be justified.

  3. (3)

    For example, it would be justified to share a function or responsibility if that is done:

    1. (a)

      as part of a job share; or

    2. (b)

      where departing and incoming senior managers work together temporarily as part of a handover.

  4. (4)

    A firm may have co-heads of a department or business unit if this can be justified under (1) to (3).

SYSC 4.7.27G
  1. (1)

    The FCA expects a firm to divide and allocate responsibilities under:

    1. (a)

      SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities); and

    2. (a)

      SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

  2. between its SMF managers so that responsibilities are grouped together appropriately.

  3. (2)

    The firm should make the judgement:

    1. (a)

      in (1); and

    2. (b)

      about whether and how responsibilities and functions should be shared;

    3. under:

    4. (c)

      SYSC 4.1.1R (robust governance arrangements); and

    5. (d)

      any other applicable Handbook requirements, including SYSC 4.7.25G and SYSC 4.7.26G.

  4. (3)

    The firm should take into account the way it is organised, the business it carries out and the need not to allocate too many responsibilities to one individual (see SYSC 4.7.23G).

  5. (4)

    The FCA expects a firm to allocate FCA-prescribed senior management responsibilities and responsibilities allocated under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) to the SMF managers they are most closely linked to.

SYSC 4.7.28G

SUP 10C.11.31G to SUP 10C.11.33G (Statements of responsibilities) contains material about:

  1. (1)

    how to prepare statements of responsibilities where a responsibility or function is shared or divided between several SMF managers; and

  2. (2)

    dividing and sharing responsibilities.

SYSC 4.7.29G
  1. (1)

    A firm may allocate more than one FCA-prescribed senior management responsibility to the same SMF manager.

  2. (2)

    This is subject to:

    1. (a)

      SYSC 4.7.23G (should not give too many responsibilities to one person); and

    2. (b)

      SYSC 4.7.27G (what responsibilities should be grouped together).

Allocation of responsibilities and territorial scope.

SYSC 4.7.30G
  1. (1)

    As explained in SYSC 4.7.2R, there is no territorial limitation to the application of this section.

  2. (2)

    This means that a firm should allocate:

    1. (a)

      the FCA-prescribed senior management responsibilities; and

    2. (b)

      overall responsibilities under SYSC 4.7.8R;

    3. so that they cover activities, transactions, business areas and management functions that are located or take place wholly or partly outside, as well as ones in, the United Kingdom.

Group management arrangements and outsourcing

SYSC 4.7.31G
  1. (1)

    SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) requires overall responsibility for various aspects of a firm's affairs to be allocated to an SMF manager.

  2. (2)

    This requirement does not prevent a firm from relying on an employee of a company in the same group to perform the function.

  3. (3)

    A firm has two main choices about how to fit such arrangements into the senior management regime for relevant authorised persons.

    1. (a)

      The group employee is appointed by the firm's governing body to perform the function. This means that the firm will have entered into an arrangement with that person. As explained in SUP 10C.3.9G, an arrangement with the firm is one of the factors that makes the senior management regime for relevant authorised persons apply. The result is that the group official will be performing a controlled function and will need to be approved as an SMF manager.

    2. (b)

      The firm appoints someone (A) to oversee what the group employee does (so far as it concerns the firm) and to take overall responsibility for the function. A will need to be approved as an SMF manager.

SYSC 4.7.32G
  1. (1)

    SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not cover responsibility for an aspect of a firm's affairs managed by an individual approved to perform the Group Entity Senior Manager PRA-designated senior management function.

  2. (2)

    Where a responsibility is held by someone approved to perform the Group Entity Senior Manager PRA-designated senior management function for the firm, there is no need to apply the arrangements in SYSC 4.7.31G.

  3. (3)
    1. (a)

      The statement of responsibilities for the individual performing the Group Entity Senior Manager PRA-designated senior management function; and

    2. (b)

      the firm's management responsibilities map;

    should clearly show what responsibilities are held by that individual.

SYSC 4.7.33G

A firm may rely on an employee of a company in the same group to perform an FCA-prescribed senior management responsibility. However, SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities) also requires this to be arranged in such a way that the person performing the responsibility is approved as an SMF manager of the firm.

SYSC 4.7.34G

SYSC 4.7.31G and SYSC 4.7.33G also apply to a firm that outsources functions to a third party and is relying on an individual from the outsourced services provider to carry out the functions in those paragraphs.

Link between the senior management regime and this section

SYSC 4.7.35G
  1. (1)

    A firm should allocate between its SMF managers responsibility for every area of its activities.

  2. (2)

    This is required by a mixture of:

    1. (a)

      SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities);

    2. (b)

      SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

    3. (c)

      the requirements for FCA-designated senior management functions; and

    4. (d)

      the corresponding PRA requirements.

SYSC 4.7.36G
  1. (1)

    Having overall responsibility for an activity under SYSC 4.7.8R requires approval as an SMF manager. This is because a person who has overall responsibility for an activity will be:

    1. (a)

      performing the other overall responsibility function; or

    2. (b)

      approved to perform another designated senior management function.

  2. (2)

    The other overall responsibility function applies because this is the effect of SUP 10C.7.1R (definition of other overall responsibility function).

  3. (3)

    SUP 10C.7.1R says that the other overall responsibility function does not apply to a person who is approved to perform another designated senior management function.

Link between SYSC 4 Annex 1G and this section

SYSC 4.7.37G
  1. (1)

    The purpose of SYSC 4 Annex 1G (The main business activities and functions of a relevant authorised person) is to help a firm to prepare its management responsibilities map (see SYSC 4.5.16G).

  2. (2)

    There is no direct link between SYSC 4 Annex 1G and this section.

  3. (3)

    However, a firm may find SYSC 4 Annex 1G useful as a checklist to help it make sure that it has not failed to allocate overall responsibility under SYSC 4.7.8R for a particular activity of the firm.

  4. (4)

    If a firm uses SYSC 4 Annex 1G to help it check whether it has allocated overall responsibility as described in (3), it should bear in mind that it is not comprehensive (see SYSC 4.5.20G).

SYSC 4.7.38G

SYSC 4.7.26G (a firm should normally allocate responsibility for particular areas to a single SMF manager) does not mean that the FCA expects there to be a separate person with overall responsibility for each individual business area in SYSC 4 Annex 1G (The main business activities and functions of a relevant authorised person).