PRA and FCA published a statement that sets out their joint approach to the Senior Managers and Certification Regime (SM&CR) for dual-regulated firms in light of the COVID-19 outbreak. The authorities have made specific provisions for firms in these circumstances and these relate to notification about changes to senior manager responsibilities, temporary arrangements for senior management functions, furloughing senior management functions, and certification requirements under SM&CR
Where possible, the authorities have stated their intention to provide flexibility to FCA and PRA dual-regulated firms. The specific provisions include the following:
- Notification about changes to Senior Manager responsibilities. The obligation on firms to update and resubmit a statements of responsibilities if there are significant changes to senior management functions responsibilities is set in statute. There is no fixed statutory deadline for firms to resubmit the revised statements in the event of such a significant change. The authorities understand that significant changes to senior management functions' responsibilities may be required in this period due to sickness or any other temporary situations as a result of COVID-19. Thus, the regulators expect firms to resubmit relevant statements of responsibilities as soon as reasonably practicable; the regulators understand that firms may take longer than usual to submit revised statements in the present environment.
- Temporary arrangements for senior management functions. FCA’s and PRA’s rules allow individuals to perform senior management functions without approval for up to 12 weeks in a consecutive one-year period if their firm experiences a senior management vacancy that is temporary and/or reasonably unforeseen. This is sometimes referred to as the "12-week rule." FCA and PRA are gathering evidence on whether the 12-week rule is likely to give dual-regulated firms enough flexibility to deal with temporary absences of senior management functions as a result of COVID-19. If FCA and PRA conclude that the 12-week rule is insufficient to allow firms to respond to temporary senior management function absences linked to COVID-19, they will consider additional measures.
- Allocating responsibility for coordinating firms’ responses to COVID-19 among senior management functions. FCA and PRA do not require or expect firms to designate a single senior management function to be responsible for all aspects of their response to COVID-19. While it is important for firms to have a clear framework for allocating responsibilities to various functions for different aspects of their response to COVID-19, FCA and PRA do not generally prescribe a "one-size-fits-all" approach. An exception is the identification of key workers, which firms should allocate to the CEO.
- Furloughing senior management functions. If an individual performing one of the mandatory or required senior management functions becomes absent, the firm must appoint individuals to continue performing these functions so they can continue fulfilling their legal and regulatory obligations. If the replacement is temporary, firms can use the 12- week rule to arrange cover. Other functions are not mandatory under PRA and FCA rules. So firms have greater flexibility to furlough the individuals performing them. Unless a furloughed senior management function is permanently leaving their post, they will retain their approval during their absence and will not need to be re-approved when they return. So firms do not have to submit a Form C, unless a furloughed Senior Management Function employee steps down permanently or leaves the firm. Likewise, firms will not need to submit a Form J, which is normally required when a function goes on long-term leave, in respect of furloughed functions.
- Certification requirements for dual regulated firms. Firms should continue to take reasonable steps to complete any annual certifications of employees that are due to expire while coronavirus restrictions are in place. Even in these circumstances, certified staff who are not fit and proper should not be re-certified. Certification is an important mechanism for firms to ensure that their critical people are fit and proper.
Keywords: Europe, UK, Banking, Insurance, Securities, SM&CR, COVID-19, Senior Management Functions, Dual Regulated Firms, Governance, ESG, FCA, PRA
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