SM&CR Rules effective 9th December - FCA Conduct rules for Senior Managers (3) Regulatory compliance

YOUR COMPETENCE MATTERS

Reason for issue:         SM&CR Rules effective 9th December.

Action required:           Please send this note on to any other Approved Persons, within the business, read and ensure your CPD record is updated.

We have previously provided a training note covering the Conduct Rules applicable to all staff and Senior managers Rule SC1 – covering effective business control.

As a reminder, the Senior Manager rules are as follows:

SC1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.

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.

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.

SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

This newsletter will focus on SC2 relating to regulatory compliance. FCA guidance is as follows:

·              Senior Managers must take reasonable steps to ensure their firm's compliance with the regulatory system and to ensure that all staff are aware of the need for compliance.

·              Senior managers do not themselves need to put in place the systems of control for the business, unless it is within their role and responsibilities. However, they should take reasonable steps to ensure that the business has operating procedures and systems with well-defined steps for complying with the detail of the regulatory system and for ensuring that the business is run prudently. The nature and extent of the systems of control that are required will depend upon the relevant requirements and standards of the regulatory system, and the nature, scale and complexity of the business.

·              Where a Senior Manager becomes aware of actual or suspected problems that involve possible breaches of the regulatory system within their area of responsibility, they should take reasonable steps to ensure that they are dealt with in a timely and appropriate manner. This may involve an adequate investigation to find out whether any systems or procedures have failed and why. They may need to obtain expert opinion on the adequacy and efficacy of the systems and procedures.

·              If an issue raises questions of law or interpretation, Senior Managers may need to take legal advice. If appropriate legal expertise is not available in-house, they may need to consider appointing an appropriate external adviser.

·              Where independent reviews of systems and procedures have been undertaken and result in recommendations for improvement, the Senior Manager responsible for that business area should ensure that, unless there are good reasons not to, any reasonable recommendations are implemented in a timely manner. What is reasonable will depend on the nature of the issue to be addressed and the cost of the improvement. It will be reasonable for a senior conduct rules staff member to carry out a cost benefit analysis when assessing whether the recommendations are reasonable.

The FCA has provided the following non-exhaustive list of examples of conduct that would be in breach of rule SC2.

(1)     Failing to take reasonable steps to implement (either personally or through a compliance department or other departments) adequate and appropriate systems of control to comply with the relevant requirements and standards of the regulatory system for the activities of the firm.

(2)     Failing to take reasonable steps to monitor (either personally or through a compliance department or other departments) compliance with the regulatory system for the activities of the firm in question.

(3)     Failing to take reasonable steps to inform themselves adequately about the reason why significant breaches (suspected or actual) of the regulatory system for the activities of the firm may have arisen (taking account of the systems and procedures in place). This would include failing to investigate whether systems or procedures may have failed and failing to obtain expert opinion on the adequacy of the systems and procedures where appropriate.

(4)     Failing to take reasonable steps to ensure that procedures and systems of control are reviewed and, if appropriate, improved, following the identification of significant breaches (suspected or actual) of the relevant requirements and standards of the regulatory system relating to the activities of the firm, including:

a)  unreasonably failing to implement recommendations for improvements in systems and procedures; and

b)  unreasonably failing to implement recommendations for improvements to systems and procedures in a timely manner.

(5)     For a manager with responsibility for overseeing the establishment and maintenance of appropriate systems and controls or the apportionment of responsibilities, any failure to take reasonable care to ensure that those obligations are discharged effectively.

(6)     For a proprietary trader, failing to maintain and comply with appropriate systems and controls in relation to that activity.

(7)     For a money laundering reporting officer, failing to discharge the responsibilities imposed on them by the firm for oversight of its compliance with the FCA's rules on systems and controls against money laundering.

(8)     For a Senior Manager, responsible for the compliance function, failing to ensure that:

a)  the compliance function has the necessary authority, resources, expertise and access to all relevant information; or

b)  a compliance officer is appointed and is responsible for the compliance function and for any reporting as to compliance; or

c)  the persons involved in the compliance functions are not involved in the performance of services or activities they monitor; or

d)  the method of determining the remuneration of the persons involved in the compliance function does not compromise their objectivity; or

e)  the method of determining the remuneration complies, where applicable, with the Remuneration Code or, for a Solvency II firm or a small non-directive insurer, other relevant requirements in relation to remuneration.

Ongoing support

If you have any queries, relating to this note, please do get in touch. Further training notes will be issued covering the remaining Senior manager rules.