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Senior Managers Regime for all benchmark administrators looms into view

On 2 June 2020, the FCA published Policy Statement 20/5, “Extending the Senior Managers Regime to benchmark administrators: final rules”.  Under the policy statement, from 7 December 2020, the FCA intends to extend the Senior Managers Regime and the Conduct Rules to UK-authorised benchmark administrators that do not undertake any other regulated activities (“In-scope Firms”).[1]  Note that the requirements of the Certification Regime will not apply to this category of firm.  Why?  Because benchmark administrators are subject to the Benchmarks Regulation (the “BMR”).  The FCA considers that this will achieve a similar outcome to the Certification Regime due to the fact that it already includes requirements to ensure that employees are fit and proper[2].

During the FCA’s consultation over the extension, firms that are subject to Annex II of the BMR (administrators of commodity benchmarks) had called for certain modifications to the regime.  These included categorisation of Annex II firms as Limited Scope and restricted application of the Conduct Rules solely to employees exercising ‘control’ over the provision of a benchmark.  However, the FCA has decided not to implement any changes specifically for Annex II firms.  Instead, all In-scope Firms will be categorised as ‘Core’ firms by default (but can be re-categorised as ‘Limited Scope’ firms using the existing waiver option).

A limited number of Senior Management Functions and Prescribed Functions apply to In-scope firms, as summarised in the table below:

Function Core firm Limited firm
SMF
1. CEO
Yes
No
3. Executive director
Yes
No
9. Chair
Yes
No
27. Partner
Yes
No
27. Limited Scope Function
No
Yes
PR
(a): performance by the firm of its obligations under the SMR, including implementation and oversight
Yes
No
(b-1): performance by the firm of its obligations in respect of notifications and training of the Conduct Rules
Yes
No
(d): responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime.
Yes
No

In addition, whilst the Conduct Rules continue to apply, they do so with some tweaks for Annex II firms:

Number Conduct rule Non-Annex II firm Annex II firm
1
You must act with integrity.
Yes
Yes
2
You must act with due skill, care and diligence.
Yes
Yes
3
You must be open and cooperative with the FCA, the PRA and other regulators.
Yes
Yes (i)
4
You must pay due regard to the interests of customers and treat them fairly.
Yes
Yes
5
You must observe proper standards of market conduct.
Yes
Yes
SC1
You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
Yes
Yes (ii)
SC2
You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
Yes
Yes (ii)
SC3
You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
Yes
Yes (ii)
SC3
You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
Yes
Yes (i),(ii)

(i) Any obligation to disclose information is restricted to the regulated benchmark activities of the Annex II firm only.
(ii) Applies only to (a) the regulated benchmark activities of the Annex II firm and to (b) those activities that might reasonably be regarded as having a negative effect on the integrity of the UK financial system or a firm’s financial resources.

The good news for In-scope firms is that they won’t need to perform fit and proper testing on staff who would otherwise be subject to the Certification Regime or maintain FCA Directory data for this group of individuals.  Beyond this, whilst it’s true that all staff will need to be trained on the application of the Conduct Rules in advance of the 7 December 2021 ‘go live’ date, time is on your side in that respect.  Top of the agenda right now should be the regulatory requirements which carry a 7 December 2020 deadline.  These relate primarily to Senior Managers and include, amongst other things, preparation of statements of responsibilities, the ability to request and respond to regulatory references, conducting criminal records checks and the creation of a process which enables all In-scope Firms to attest annually as to fitness and propriety.

Coronavirus won’t be an excuse for missing this deadline.  Six months is enough time to meet the requirements but, if you haven’t started yet, don’t leave it much longer.  Bear in mind that, under SYSC 22, firms are required to keep “orderly records” in relation to fit and proper testing as well as disciplinaries so as to be in a position to respond to regulatory references.  Best practice also recommends that firms maintain a “consolidated record” of the sources of F&P information and a system for logging and tracking F&P certification issues[3].  If you have the need, we can provide just such a system through our “Corterum” platform.  If not, but you’d welcome a chat as to how the new regime might work in practice, just drop us a line.

[1] Benchmark administrators that undertake any other regulated activities have been subject to the SM&CR since December 2019.

[2] See Article 4 of the BMR.

[3] Banking Standards Board Statement of Good Practice 1, Certification Regime: Fitness and Propriety Assessment Principles, page 17 (https://bankingstandardsboard.org.uk/pdf/Assessing-F&P-Statement-of-Good-Practice.pdf)

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