SMCR Rules effective 9th December - FCA Conduct rules for Senior Managers (4) Delegating your responsibilities

Reason for issue:         SMCR 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 Rules SC1 and SC2.

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 training note will focus on Rule SC3 covering delegation. FCA guidance is as follows:

·              A Senior Manager may delegate the investigation, resolution or management of an issue or authority for dealing with a part of the business to individuals who report to them or to others.

·              The Senior Manager should have reasonable grounds for believing that the delegate has the competence, knowledge, skill and time to deal with the issue. For instance, if the compliance department only has sufficient resources to deal with day-to-day issues, it would be unreasonable to delegate to it the resolution of a complex or unusual issue without ensuring it had sufficient capacity to deal with the matter adequately.

·              The Senior Manager will not be in breach unless they fail to exercise due and reasonable consideration before they delegate the resolution of an issue or authority for dealing with a part of the business and fail to reach a reasonable conclusion. If they are in doubt about how to deal with an issue or the seriousness of a particular compliance problem then, although they cannot delegate to the FCA the responsibility for dealing with the problem or issue, they can speak to the FCA to discuss his approach.

·              Senior Managers will not always manage the business on a day-to-day basis themselves. The extent to which they do so will depend on a number of factors, including the nature, scale and complexity of the business and their position within it. The larger and more complex the business, the greater the need for clear and effective delegation and reporting lines, which may involve documenting the scope of that delegation and the reporting lines in writing.

·              The FCA will look to the senior conduct rules staff member to take reasonable steps to ensure that systems are in place to ensure that issues are being addressed at the appropriate level. When issues come to their attention, they should deal with them in an appropriate way.

·              Delegating without reasonable grounds for believing that the delegate has the necessary capacity, competence, knowledge, seniority or skill to deal with the issue or to take authority for dealing with part of the business indicates a failure to comply with rule SC3.

·              Senior Managers cannot delegate responsibility for resolving issues, they monitor progress and question any reports received from the delegate. For instance, if progress appears to be slow or if the issue is not being resolved satisfactorily, the Senior Manager may need to challenge the explanations they receive and, if necessary, take action personally to resolve the problem. This may include increasing the resource applied to it, reassigning the resolution internally or obtaining external advice or assistance. Where an issue raises significant concerns, senior conduct rules staff members should act clearly and decisively. If appropriate, this may be by suspending members of staff or relieving them of all or part of their responsibilities.

The FCA provides the following non-exhaustive list of examples of conduct that would be in breach of rule SC3.

(1)   Failing to take reasonable steps to maintain an appropriate level of understanding about an issue or part of the business that the senior conduct rules staff member has delegated to an individual(s) (whether in-house or outside contractors) including:

a)    disregarding an issue or part of the business once it has been delegated;

b)    failing to require adequate reports once the resolution of an issue or management of part of the business has been delegated; and

c)    accepting implausible or unsatisfactory explanations from delegates without testing their accuracy.

(2)   Failing to supervise and monitor adequately the individual(s) (whether in-house or outside contractors) to whom responsibility for dealing with an issue or authority for dealing with a part of the business has been delegated including any failure to:

a)    take personal action where progress is unreasonably slow, or where implausible or unsatisfactory explanations are provided; or

b)    review the performance of an outside contractor in connection with the delegated issue or business.

In determining whether or not the conduct of a senior conduct rules staff member complies with rule SC3 the factors which the FCA would expect to take into account include:

(1)   the competence, knowledge or seniority of the delegate; and

(2)   the past performance and record of the delegate.

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