Regulatory Update: Proposed guidance on statements of responsibilities for FCA firms

Posted: 18th October 2018

BACKGROUND

In May 2016, the FCA announced its intention to extend the then-new individual accountability regime to all regulated firms. For solo-regulated firms, the new rules will come into force on the 9th December 2019. For insurers, this date will be the 10th December 2018.

In July 2018, the FCA published near-final rules on the extension of the Senior Managers and Certification Regime (SM&CR) to all FSMA authorised firms as part of PS18/14 – Extending the Senior Managers and Certification Regime to FCA firms and a Guide to the SM&CR for solo-regulated firms.

To further assist firms in their readiness, on the 11th October 2018, the FCA published proposed guidance for solo regulated firms. The guidance sets out the purpose of ‘Statements of Responsibilities’ (SoRs) and ‘Responsibilities Maps’. This new publication provides some self-assessment questions for firms and outlines examples of good and poor practice in the development of these documents.

Although the guidance is aimed at solo-regulated firms, it is advisable that other regulated firms, insurers included, refer to the document to ‘sense check’ their approach to date.

THE GUIDANCE

The FCA confirms the guidance should be applied in a risk-based and proportionate way, considering the size, nature and complexity of the firm. Examples within the guidance document are intended to be illustrative and not exhaustive.

DRAFTING SoRs

When drafting SoRs – a document designed to make clear what a Senior Manager is responsible and accountable for – firms should be asking one key question:

“Could someone who understands our business, but doesn’t know our firm’s structure, understand what the individual Senior Manager is accountable for just by reading their SoR?”

The FCA emphasises that an SoR is not the same as a job profile, so it should not outline the required skills and competencies needed to undertake the role nor how responsibilities should be shared. It should focus, simply, on what the role holder is accountable for.

The guidance then goes on to set out some key question firms can ask to understand Prescribed Responsibilities (PR) and how they are currently shared and divided among Senior Managers. The regulators expectation is that there should be a very good reason for dividing or sharing PRs, and this must be documented.

The FCA sets out examples of good practice where PR is shared (for example: between the departing and incoming senior managers working together temporarily as part of a handover) and also inappropriate sharing of PR. For example, it would be poor practice for a Compliance Officer to share PRs with the CEO as it is not clear who would be ultimately accountable.

The FCA also reconfirms its position on Responsibility Maps, suggesting firms develop them by asking themselves:

“Would someone who didn’t know our firm be able to understand how it is governed and who is accountable for its business activities?”

Responsibility Maps should contain key information about governance bodies, senior management reporting lines and Senior Managers’ responsibilities. Governance around groups can be complicated. In response, the guidance includes a series of questions aimed at groups, as well as helpful examples of Responsibility Maps.

NEXT STEPS

Responses to the consultation must be received by the 10th December 2018. Firms should consider the content and feedback their opinions to the FCA if appropriate. The FCA intends to issue a response in the same month.

Although guidance from the FCA in this area will be welcomed by firms, there are still a number of areas where further clarification would be helpful, such as examples around identifying individuals that fall within the certification regime.