The 9 December deadline for the implementation of the Senior Managers and Certification Regime (SMCR) is looming and firms are busily preparing to ensure that they are ready. FCA solo-regulated firms, as well as EEA and third-country branches, will become subject to the SMCR, which will replace the current FCA Approved Persons Regime (APR).
The SMCR aims to reduce harm to consumers, strengthen market integrity and highlight individual accountability. The FCA has identified three categories of firms: Limited, Core and Enhanced. This article focuses on core firms and in particular how the regime applies to partnerships and individuals based overseas.
For partnerships, the FCA envisages that most if not all partners or members will be senior managers, but this will depend on the constitution of the partnership or LLP. If a partner is not involved with the management of the partnership firm, they may not be categorised as senior managers under the SMCR. Such partners may include: corporate partners and limited partners that are not involved in managerial decisions, junior partners with no senior management responsibility, or silent partners.
Partnerships should investigate the role of each partner on a case-by-case basis, and decide whether the individual is in fact performing a Senior Management Function (SMF) and therefore whether they need to be appointed to the SMF27 (Partner) function.
When a partner is not undertaking a management role, the firm will need to actively notify the FCA via Form C of the withdrawal of this partner from the relevant APR Controlled Function (CF4). Otherwise, the FCA will automatically map the partner to the corresponding SMF27 function.
Where a partner performs an SMF, their responsibilities will need to be clearly set out in their Statement of Responsibility. The FCA has set out that prescribed responsibilities should not be divided or shared between partners unless there is a strong justification for this. If certain responsibilities must be shared in a firm, this should be explained in each partner’s Statement of Responsibility.
Partnerships should be aware that the Certification Regime only applies to employees. If a partner does not hold an SMF and is not an employee (which can also cover secondees and contractors), the Certification Regime will not apply.
It may be the case that certain members of an LLP are not senior enough to be categorised as SMF27 partners, but are also not “employees” under the Certification Regime. Firms should be mindful of the tax implications of this, and consider whether these types of partner still qualify to be taxed as a partner.
The Senior Managers Regime applies to anyone who undertakes an SMF for a firm in the scope of the regime, not only in the UK but anywhere in the world. For core firms, any individual performing the following functions overseas will be caught by the regime: SMF1 (Chief Executive), SMF3 (Executive Director), SMF27 (Partner), SMF9 (Chair), SMF16 (Compliance Oversight) and SMF17 (MLRO).
The Certification Regime applies to all overseas employees carrying out Certified Functions who are dealing with UK clients. However, if the individual is deemed a ‘material risk taker’, the Certification Regime will apply even if the individual is based overseas and does not deal with UK clients.
The SMCR also applies to certain persons based in the UK branch of an overseas firm. The SMCR does not apply to an overseas firm without a UK branch even if a person working for the firm deals with a UK customer.
Firms constituted as partnerships or firms with overseas individuals should:
- Review the territorial reach of the SMCR and the influence that individuals based overseas may have over UK entities. This may require amendments to their global employee handbooks, policies and compliance manuals to meet the relevant requirements
- Assess the role of each partner (if the firm is a partnership), and decide whether the individual is performing an SMF
- Clearly set out in each Statement of Responsibility the allocation of the individual’s prescribed responsibilities and the extent of their influence over the firm
- Ensure that your firm’s current APR Control Functions are correct as these will be automatically mapped to the corresponding SMFs by the FCA.