Global Regulation, Local Solutions Emerging Themes 2020 - Page 37

The extension of personal regulatory duties
beyond approved persons will feel like the
most significant change for most people at
solo-regulated firms, many of whom have
never been accountable directly to regulators
for their personal conduct. This needs careful
explanation and messaging to staff.
For solo-regulated firms, the FCA’s
Conduct Rules currently apply only to
Senior Management Function (“SMF”) holders,
non-executive directors and certification
staff. From 9 December 2020, the Individual
Conduct Rules will apply to all staff (except
those carrying out purely administrative roles
specified in the FCA’s rules). Failure to meet the
standards imposed under the Conduct Rules
will mean that an employee could be liable to
regulatory enforcement action, including
a financial penalty.
Firms have a statutory obligation under the
new regime to provide training to employees
within scope of the Conduct Rules, to help
them understand their personal regulatory
duties. This training must be provided by
9 December 2020. Firms also need to have
processes to train new joiners and provide
periodic refresher training.
In the post-SMCR world, solo-regulated firms
must also notify the FCA if they take disciplinary
action (which includes issuance of a formal
written warning) against a person relating
to any action, failure to act, or circumstance
that amounts to a breach of any of the
Conduct Rules. Please see Polly James’
and Joseph Ninan’s article for commentary
on the challenges associated with these
new reporting requirements.
The new Certification regime requires soloregulated firms to identify which of their
staff are performing specific FCA certification
functions, and to assess the fitness and
propriety of each individual to perform
their roles, on an annual basis.
I have set out below three key questions that I
feel that solo-regulated firms should be asking
themselves when assessing whether they are on
track to be SMCR-ready by 9 December 2020:
If, for whatever reason, a certification staff
member cannot be certified as fit and proper
to perform their role at the annual certification
deadline, they will need to be removed from
their role or temporarily re-deployed. Regulatory
references will also need to be obtained for
new certification staff (i.e. those who were not
already in role at the time of commencement)
and firms will be required to have a written
policy in place, showing how they comply with
the FCA’s regulatory reference requirements.
Solo-regulated firms were required to identify
and provide Conduct Rules training to their
certification staff by 9 December 2019, and
must now put in place a process to certify
them as fit and proper by 9 December 2020.
From our experience in advising banks
and insurers on the first wave of SMCR
implementation, the certification regime is
likely to result in the need to make various
amendments to HR policies and procedures
(including any fit and proper policy, appraisal
forms, assessment records and/or employment
contracts). It may also require difficult judgment
calls to be taken in the event that there are
questions over an individual’s fitness and
propriety – it is worth thinking through in
advance some scenarios where this may arise.
Have you identified all your certification staff
and are you putting in place a process to
assess their fitness and propriety? Remember,
you have a year until December 2020 to
devise and implement a certification process
(to cover both existing staff and new joiners)
Have you identified your Conduct Rules staff
who come into scope of the new rules on
9 December 2020, and do you have plans to
ensure they receive tailored training on the
Conduct Rules before that date (including
planning for refresher training and training
for new staff members)?
Do you have suitable policies in place to
evidence your processes (e.g. a regulatory
reference policy and a Conduct Rules
training/breach reporting policy)? This
will help to protect SMFs with prescribed
responsibilities relating to SMCR compliance.
From our experience,
implementing these
requirements takes longer
and is more complex than
you may think. Our advice is
to start as soon as you can
to ensure you are ready by
the December deadline.
From 9 December 2020,
the Individual Conduct
Rules will apply to all
Senior Associate,


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