What do financial services firms need to know about the FCA’s new register, and what are the implications for SMCR?

Financial Conduct Authority

What do financial services firms need to know about the FCA’s new register, and what are the implications for SMCR?

The FCA launched its much-lauded updated Financial Services register in July, which aims to offer better protection and transparency for consumers. The register allows customers to see details of anyone involved in regulated activities, and the latest updates will make some key information more prominent, including previous actions against firms and individuals.

The changes to the register, which had more than seven million unique users last year, were intended to offer enhanced visibility to customers, making it easier to avoid scams and unauthorised firms. The updates were also a key part of the latest Senior Managers Certification Regime legislation, as financial services firms were given a deadline of December 2020 to submit information.

However, Covid-19 has disrupted the UK regulator’s plans and that deadline may be extended until 31 March 2021.

What do the Register updates entail?

Last year, the FCA faced a backlash after it removed all the customer-facing roles at advice firms from its register and it received a barrage of complaints about the inability to check credentials. Subsequently, the regulator has spent around £6.5m on a new register which promises to make transparency and accessibility better for customers. 

What is SM & CR, and what impact will the new Register have?

The Senior Managers and Certification Regime was implemented for banks, building societies, credit unions and PRA-regulated investment companies in 2016, and brought into force for solo-regulated firms at the end of 2019. It is essentially a code of conduct, which aims to strengthen market integrity and ensure that all senior managers are accountable for their conduct and competence. 

The latest requirements of the regime, which concern the new register, called for solo-regulated firms to carry out an assessment of the ‘fitness and propriety’ of their Certified persons.

The task was multi-faceted for solo-regulated firms – the first part involved preparing and submitting detailed reports on every Certification employee and non-SMF director within the firm. If this sounds onerous, the good news is that the regulator has proposed extending the deadline for assessments and submissions till March 31, and it has just closed the public consultation on this proposal which might buy solo-regulated firms extra time.

The second part of the task was to check that the FCA register had been correctly updated and to report any inaccuracies by Jan 16, although if the reporting deadline is successfully extended, this will have to be pushed back too.

How are ‘fitness and propriety’ assessments conducted?

The regulator has published guidance to help firms undertake a thorough assessment of fitness and propriety that can be used as a ‘benchmark’ to assess suitability rather than just a checkbox exercise.

Some of the guidance includes assessing specific suitability for the role that is carried out, amending existing performance management processes to integrate ‘fitness and propriety tests’ and obtaining satisfactory regulatory references. Senior managers should also be trained on assessment and reporting and be prepared to sit on fitness and propriety panels for ‘borderline cases.

The assessment of fitness and propriety is based on the criteria set out in the Financial Services and Markets Act 2000, and it specifies that the individual has obtained a qualification, undergone training and has the personal characteristics required by ‘the general rules set out by the FCA.’ These characteristics are broad in criteria but are stated as honesty, integrity and reputation, competence and capability and financial soundness.

While the guidance is not prescriptive there are some general rules for each category. For example, honesty, integrity and reputation encompass examining whether the person has been convicted of a criminal offence, subject to adverse findings in civil proceedings or the subject of any disciplinary offence. Competence and capability involve investigating the individual’s training and experience, and whether they have adequate time to fulfil their responsibilities. To fulfil the financial soundness criteria, firms must examine whether the individual has outstanding debt or judgements against them and whether they have filed for bankruptcy or entered into arrangements with creditors.

What feedback has the FCA’s new register received?

Despite the proposed delay in submission deadline, which the FCA states is largely to give firms the extra time they need while the current pandemic rolls on, the register will begin to be populated on an ongoing basis. Reactions so far have been mixed – some have criticised the £6.5m spend saying the register is incomplete. Its critics have suggested that the money could have been better spent on devolving power to professional bodies to manage their own registers instead. The previous register came under fire for its lack of usability, however, so some have argued that it’s money that needs to be spent. Either way, though, the process of certifying staff is time-consuming, so solo-regulated firms need to make sure they are starting the process in preparation for the potentially postponed March deadline.

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