Senior managers and Covid-19 absences: FCA publishes further details on its expectations for solo-regulated firms

Written on 13 May 2020

UK financial authority temporarily adjusts rules for firms solely under its regulation that need to cover or reallocate authorised senior management functions due to coronavirus disruptions

On 6 May 2020, the Financial Conduct Authority (FCA) published a "modification by consent" for solo-regulated firms using temporary arrangements in respect of their senior managers as it looks to demonstrate regulatory flexibility during the Covid-19 pandemic.

The FCA's latest statement on the Senior Managers and Certification Regime (SM&CR) outlining expectations for firms during the Covid-19 emergency follows a joint statement in April with the Prudential Regulation Authority on the pandemic and the SM&CR for dual-regulated firms.

Extension of '12-week rule'

The modification extends the maximum period in which an individual can stand in for a senior manager without receiving regulatory approval – known as the "12-week rule" – from a maximum of 12 weeks in a consecutive 12-month period to a maximum of 36 weeks in a consecutive 12-month period.

This means that where, for example, a firm needs to replace a senior manager who is absent due to Covid-19, or a firm has experienced a delay in recruiting a senior manager's replacement due to Covid-19, the firm can rely on the extended period in respect of temporary cover.

The modification also allows firms to allocate an absent senior manager's prescribed responsibilities to the individual covering the role, even if that individual does not have regulatory approval. In this situation, a firm should consider whether it would need to recertify the individual who has taken on the prescribed responsibilities in accordance with the FCA's certification rules.

The FCA says the intention of the modification is to give firms flexibility in "a period of uncertainty". The regulator also aims to reduce the administrative burden on firms by removing the need for them to submit Form A or Form J applications and Statements of Responsibilities (SoRs) notifications, if the changes are temporary and directly related to the pandemic.

While the modification does provide some flexibility, the FCA still expects firms to be mindful of the seniority and suitability of the person standing in for the absent senior manager. In respect of prescribed responsibilities, the FCA states that, if possible, they should be allocated to another approved senior manager. The FCA also reminds firms that they should still allocate responsibilities to the most senior person responsible for that activity or area, who has sufficient authority and an appropriate level of knowledge and competence to carry out the responsibility properly.

Record-keeping

As set out in the FCA's previous guidance on its approach to the Covid-19 pandemic, the regulator does not expect firms to submit updated SoRs where the change to responsibilities:

  • is made to cover multiple sickness absences or other temporary changes in responsibilities in direct response to the pandemic; and
  • is temporary and the firm expects to revert to its previous arrangements.

Nevertheless, firms should keep clear internal records of any allocation of responsibilities regardless of how temporary they are. This includes updating relevant SoRs and, if applicable, a responsibilities map. These updates will help to ensure that there is clarity on who is responsible for each area and activity. The records are also advisable in case the FCA does request evidence of such allocations either now or in the future.

Furloughing senior managers

Firms may furlough senior managers if they are unable to fulfil their responsibilities or where there is a reduced requirement for their roles. For example, if a firm suspends a business service or function due to the disruption caused by Covid-19 it could, in principle, furlough the senior manager responsible for it. Firms can also furlough senior managers that are absent due to illness or have caring responsibilities, subject to the rules of the Coronavirus Job Retention Scheme.

The FCA has confirmed that furloughed senior managers will retain their regulatory approvals and will not need to be re-approved on their return.

In respect of individuals performing "required functions", for example, compliance oversight (SMF16), the money laundering reporting officer (SMF17) and the limited scope function (SMF29), the FCA has said that these individuals should only be furloughed "as a last resort". If any of these individuals are furloughed, the firm should replace the furloughed individual until their return and if the replacement is temporary, firms can use the 12-week rule to arrange cover.

Firms should update their FCA supervisors of any furloughing of one or more senior managers.

Details of how to apply for the modification are here. The FCA's webpage on its expectations of solo-regulated firms is here.

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