EnOC Simplifies: the Certification Regime

The Senior Managers and Certification Regime (SM&CR) is made up of three elements: the Senior Managers Regime, the Certification Regime, and the Conduct Rules.

The regime is due to come into action for Financial Conduct Authority (FCA) solo-regulated firms from 9 December 2019, completely replacing the Approved Persons Regime (APR). For more info on the events that led to the regulatory reform, read EnOC’s guide on how the SM&CR came to be.

EnOC simplifies: the Certification Regime

The Certification Regime applies to functions that fall outside Senior Management Functions (SMFs), but have the potential to significantly impact customers, firms or the market.

The new Certification Regime reinforces a key theme of the SM&CR: that firms need to embed a culture of doing the right thing because it is right — not simply because it is regulated.

Some roles that previously required FCA approval will now shift to the firms themselves. The firms, and not the FCA, will be approving the certification functions, and this pushes organisations to step up and take responsibility for ensuring their staff are qualified and fit to carry out their roles.

Firms are responsible for retaining, and being able to evidence, detailed documentation and records proving they have vetted, assessed and approved their staff appropriately.

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What’s required?

Under the new regime, firms must certify that individuals carrying out a Certification Function are appropriately qualified to carry out the role.

This involves: ascertaining which employees carry out Certification Functions, confirming they are fit and qualified to carry out the role, and supplying them with a certificate of approval. Certifications will need to be undertaken on an annual basis, at a minimum.

A few key questions that firms must ask themselves are:
a) Has the individual obtained appropriate qualifications?
b) Has the individual undergone appropriate training?
c) Is the individual competent?

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What are the Certification Functions?

There are numerous certification functions, and some of them are:

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Significant Management Function

Individuals with significant responsibility for a business unit. These important roles can seriously impact the way a firm conducts its business and are not limited to revenue-generating business areas.

CASS Operational Oversight Certification Function

This Function covers oversight of the operational effectiveness of a firm’s systems and controls for client money and client assets.

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Functions subject to qualification requirements

Such as: mortgage advisers, retail investment advisers, pension transfer specialists and others.

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The client dealing function

Any person dealing in or arranging investments with clients, including retail and professional clients and eligible counterparties. Includes financial advisers, people involved in corporate finance, dealing or arranging deals in investments, and investment managers. Individuals who do not choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant skill are not included.

Anyone who supervises or manages a Certified Function (directly or indirectly), but isn’t a Senior Manager

This will make sure that staff who supervise certified employees are held to the same standard of accountability. It also makes sure there is a clear chain of accountability between junior certified employees and the Senior Manager ultimately responsible for that area.

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Material Risk Takers

Firms need to consider all types of risk when identifying their Material Risk Takers, including those of a prudential, operational, conduct and reputational in nature.

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