The Financial Conduct Authority has today published Consultation Paper CP25/21 setting out proposed reforms to streamline the Senior Managers & Certification Regime, aiming to reduce unnecessary burdens on firms while strengthening the accountability framework. These changes would, among other things, simplify senior manager approval processes, rationalize certification functions, and adjust timing requirements for updates and criminal‑record checks.
Jill Lorimer, Head of the Financial Services Regulatory team at Kingsley Napley LLP, comments:
“Firms will welcome these proposals. Introducing changes to reduce the compliance burden on firms while maintaining the principles of the regime is an important step in the right direction. Particularly notable is the suite of proposed improvements to the process of applying to the regulator for senior management approval. Clarifying the application form, providing better guidance to firms and expediting the procedure should be ‘quick wins’ for the regulator.
The FCA intends to look at whether the current suite of senior manager roles could be rationalised and providing better guidance on how prescribed responsibilities should be allocated. Smaller firms in particular are likely to support these proposals, as the current structure weighs particularly heavily on those firms with fewer senior people. Large firms are likely to welcome the proposal that firms should have more time to update the FCA as to changes in their certified staff: currently, this is a significant burden for large firms with a large certified population. However, firms may be disappointed that little in the way of substantial change is proposed in respect of the certification process more generally.
Firms will however welcome a change to the current ’12 week rule’. This is the provision which allows firms to appoint a person to cover for a senior manager who is unexpectedly absent for a period of up to 12 weeks. In practice, this timeframe poses real challenge where the incumbent has stepped away for the role permanently for whatever reason and needs to be replaced: it is almost impossible for firms to identify, recruit and gain the necessary regulatory approval for a new candidate within that time, after which the firm is technically in breach. The proposal is that firms should have 12 weeks to apply for the approval of the new candidate, rather than 12 weeks to obtain approval. This addresses what has always been a real anomaly: firms finding themselves in breach for no reason other than delays on the part of the regulator in determining approval applications. More importantly, it means that firms can take the time it needs to find the right candidate for the role.
While no major changes are proposed in respect of the conduct rules, it is good to see that some clarification may be provided as to the requirement to report breaches to the regulator and also the interaction between breaches of the conduct rules on one hand and fitness and propriety on the other. One welcome development would be the proposed removal of ‘suspension’ from the definition of a disciplinary action giving rise to a reporting obligation: this would recognise, rightly, that suspension is often a neutral act while enquiries are being made and it may well be that no breach as in fact occurred.
On regulatory references, it is proposed to provide guidance on what should be included in a reference where a person leaves the firm before any investigation into potential misconduct has taken place. In practice this is a thorny issue with which many firms struggle, seeking to balance their regulatory responsibilities against fairness to the individual. Clear pointers on what is expected in this not unusual scenario would be very well received.
Overall, this represents a thoughtful package of measures: while there is no single scene‑stealer, these proposals would collectively alleviate some of the compliance burden in a way likely to be welcomed by industry.”
