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The FCA, The SM&CR and COVID19

[fa icon="calendar'] Apr 23, 2020 2:21:26 PM / by Chris Davies posted in Financial regulation, Financial business development, fintech, regtech, Risk management, practice management, FCA, advice, HMT, suitability, FAMR, MiFIDII, SMCR, Data, Culture, Enforcement, supervision, audit, Conduct, AI, Risk,, Accountability, Platforms, PROD, Product governance, digital,, Regulatory, Reporting, HRD, PII, Pandemic, COVID19, resilience

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The FCA and Prudential Regulatory Authority (PRA) have released a joint statement for dual regulated firms outlining its expectation for firms during the COVID19 pandemic. The FCA have also released a statement on solo regulations showcasing a flexible approach.

Here we cover the FCA statement on expectations for solo-regulated firms:

  1. Senior Management Responsibilities: In relation to risk responsibilities, Senior Managers (SM’s) should now consider;
  • Where the current situation might lead to emerging risks
  • How it effects existing risks along with controls used to manage them
  1. Statements of Responsibilities and ‘significant changes’ to Senior Manager responsibilities: The FCA are concerned with SM absences or change in SM responsibilities due to the pandemic. The good news is the FCA are adopting a flexible approach here and does not intend to enforce the requirement to submit updated Statements of Responsibilities (SoRs) if the change:
  • Covers multiple sicknesses, temporary changes in responsibilities due to the pandemic
  • Is expected to revert to the firm’s previous arrangements and are temporary

What does not change is the requirement for documenting allocations of responsibility (including temporary) to ensure all are aware of everyone’s responsibilities. It is also deemed good practice for firms to keep a record (running commentary) of the SM roles and responsibilities something SYSC 2.1 requires already i.e. clear on where responsibilities lie and business affairs are monitored. Finally firms should update the FCA on any SMs who are furloughed through this pandemic.

  1. Temporary arrangements for Senior Manager Functions:
  • Firms can notify the FCA if they need to modify the 12 week rule (which allows an individual to cover a SM without being approved where the absence is temporary/reasonably unforeseen and the appointment is under 12 weeks) if temporary arrangements last longer than 12 weeks to a maximum of 36 weeks.
  • Temporary roles and responsibilities still need to be documented
  • Prescribed Responsibilities (PRs) can be allocated to the individual taking the temporary role (rather than only to another approved SM)
  • Firms should still allocate a role to the most senior individual available
  1. Furloughed staff: The FCA issues a key workers in financial services statement, which stated individuals captured by the Senior Mangers Regime (SMR) maybe considered key workers. It now recognises that some SM’s maybe furloughed if unable to fulfil responsibilities (due to illness, caring for others or no current practical responsibilities):
  • A furloughed SM will retain their approval (unless permanently exiting) and not require re-approval by the FCA upon return
  • The firm is still responsible for the SM fit and proper status
  • If SYSC 26 (overall responsibility rule) applies, the firm should re-allocate responsibilities to another SM.
  • PRs should be re-allocated to another SM
  • Required functions (SMF16 Compliance SMF17 Anti Money Laundering) should be furloughed as a ‘last resort’. If replaced and temporary the firm can use the 12-week rule to arrange cover. Firms should ensure that any allocation is appropriate and complies with FCA rules (e.g. an oversight role cannot be allocated to an executive)
  • It is important to note that other SMFs are not mandatory and thus firms have flexibility to furlough individuals performing them.

So, it is imperative firms keep their eye on the compliance ball during this pandemic and indeed know that the FCA are building in flexibility to ensure firms have the best opportunity to continue to comply and compete.

...Live Long and Prosper...Keep well and stay safe 

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The FCA and COVID19

[fa icon="calendar'] Apr 3, 2020 11:02:42 AM / by Chris Davies posted in Financial regulation, Financial business development, fintech, regtech, Risk management, practice management, FCA, advice, HMT, suitability, FAMR, MiFIDII, SMCR, Data, Culture, Enforcement, supervision, audit, Conduct, AI, Risk,, Accountability, Platforms, PROD, Product governance, digital,, Regulatory, Reporting, HRD, PII, Pandemic, COVID19, resilience

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With the on-going need for firms to continue to comply and compete, it’s worth focusing on the FCA measures and strategy taken to gain insight into what measures firms need to apply during these trying times:

Financial Resilience:

Operational resilience (we cover this in our next live webinar Thursday 9th April 14:00) is a key focus for the regulator and sits as one of the 8 main areas for regulation in its 19/20 business plan. Saying that it wants ‘firms to continue operating during this challenging  period’ the FCA confirmed it intends to ‘provide flexibility to regulated firms to ensure this’. Its expectations cover:

  • Firms that have been set capital and liquidity buffers should use them to support the continuation of the firm’s activities. 
  • Firms should plan ahead and ensure the sound management of their financial resources. This might include using government schemes designed to help firms through this period to meet debts as they fall due.
  • If a firm needs to exit the market, planning should consider how this can be done in an orderly way while taking steps to reduce the harm to consumers and the markets.

SM&CR Responsibilities:

The FCA do not require a single senior manager responsible for coronavirus response.

  • SMF24 operational resilience comes into focus
  • SMF1 or most relevant staff member need to take responsibilities for key workers

Dear CEO letter:

Oh yes we have another one, but a good one! Here the FCA want to address some long overdue issues some of which make complete sense for the retail investment advice sector;  

  • Flexibility across client identify verification;
    • Accept scanned documents (PDFs)
    • Accept client selfies or videos (Social media eat your heart out) We would add linked in profile to verify professional status
    • Due diligence on ‘other’s e.g. bank account provider, agreements to access data
    • Use commercial providers
    • Additional data to triangulate evidence such as IP addresses, phone numbers
    • Verification of email/ physical address via electron codes
    • Seek additional verification once self-isolation measures lifted
  • Flexibility over 10% depreciation notification (until end September) No action taken:
    • If firm has issues at least one notification within a current reporting period
    • If a firm provides general updates (which firms doesn’t?)
    • If a firm decides to stop reporting to professional clients only

So plenty of good stuff, firm’s will really benefit from such relaxation of measures but should ensure they’ve got their finger on the governance, risk and compliance pulse.

...Live Long and Prosper...Keep well and Healthy 

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