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Senior Managers and Certification Regime - Broker Summary

Posted by H3 on 2019-03-01 15:06:20 GMT

The Senior Managers and Certification Regime (SM&CR) introduces changes on how the FCA will regulate people in financial services, it replaces the existing Approved Persons Regime, and will be in place by the 9th December 2019.  The SM&CR will apply to all FCA solo-regulated firms authorised under Financial Services and Markets Act, it will not apply to Appointed Representatives.



What you are required to do under the SM&CR depends on whether your firm is classified as Limited Scope, Core or Enhanced.  For almost all brokers you will either be a Limited or Core firm type, with sole traders being a limited firm type.

Key Areas:


Senior Managers Regime: 

All FCA authorised firms should have at least one senior manager.  A Senior Management Function (SMF) is a new type of controlled function under FSMA.  A number of SMFs have been prescribed, and which are relevant to you depends on your firm type.  The FCA calls the people who hold these functions Senior Managers. They are the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity.  The FCA will know who a firm’s most senior decision makers are, and make sure firms clearly allocate responsibilities to those key Individuals.  Anyone who performs an SMF needs to be approved by the FCA before they can start their role.


There are 3 SMFs within the Limited Scope tier, and these are: SMF29 – Limited Scope Function (existing CF8 ), SMF16 – Compliance Oversight, SMF17 – Money Laundering Reporting Officer

There are 6 SMFs within the Core SMR, and these are:  SMF1 – Chief Executive, SMF3 – Executive Director, SMF27 – Partner, SMF9 – Chair, SMF16 – Compliance Oversight, SMF17 – Money Laundering Reporting Officer


Every Senior Manager will have a Duty of Responsibility under FSMA. This means that if a firm breaches one of the FCA requirements, the Senior Manager responsible for that area could be held accountable if they didn’t take reasonable steps to prevent or stop the breach. 

A Statement of Responsibilities (SOR) is a single document that every Senior Manager will need to have, clearly setting out their role and responsibilities.   SOR’s need to set out what Senior Managers are responsible and accountable for, rather than how they carry out those responsibilities.

Prescribed Responsibilities are specific responsibilities that a firm must give to a Senior Manager. They are in addition to the inherent responsibilities that are an essential part of a Senior Manager’s role. The FCA prescribes these responsibilities to make sure a Senior Manager is accountable for key conduct and prudential risks.   Limited Scope Firms won’t need to apply the PRs, but they will apply to all other firms.

Giving a Senior Manager a PR won’t require re-approval by the FCA, but when a firm moves a PR from one Senior Manager to another, the relevant SOR must be updated to reflect these changes and submitted to the FCA using Form J.  Firms must also make sure that individuals have the necessary skills and capability to carry out the role.


Certification Regime:

This requires firms to assess the fitness and propriety of certain employers who pose a risk of significant harm to customers.  The onus has been moved to firms to conduct the checks, such as on an adviser.

If a role meets the definition of a Certification Function, a firm needs to make sure that anyone doing that role has been certified. This means the firm must check and confirm that the person is fit and proper to do the job, and issue them with a certificate. This certification must be done at least once a year, and firms should take into account whether the individual:

- has obtained a qualification

- has undergone, or is undergoing, training

- possesses a level of competence

If a sole trader has no employees, then the Certification Regime won’t apply to them.

The following functions will be Certification Functions under the SM&CR relevant to brokers; Functions subject to qualification requirements such as mortgage advisers.  Anyone who supervises or manages a Certified Function (directly or indirectly), but isn’t a Senior Manager.

A key feature of the SM&CR is to reinforce that firms need to take responsibility for their staff being fit and proper to do their jobs.  The FCA handbook requires firms to make sure anyone performing a SMF or a Certification Function is fit and proper for their role. 

Under the SM&CR, firms must collect extra evidence when assessing candidates for Senior Manager positions, Certification Functions or Non-Executive Director (NED) roles (even if they’re not a Senior Manager). These requirements are:

- Criminal records checks for Senior Managers: 

- Regulatory references


The application of the fit and proper requirements to Limited Scope firms is slightly different in some areas:

- Sole traders are not required to seek regulatory references or criminal records checks for themselves, even where they also hold a SMF.

- Sole traders with employees should consider whether any of these individuals meet the definition of a Senior Manager or perform one of the Certification Functions. If so, the fit and proper requirements apply.

- Non-approved board directors (both executive and non-executive) at Limited Scope firms are not subject to the fit and proper requirements, including regulatory references and criminal records checks.


Conduct Rules:

Almost all but ancillary staff all under the conduct rules which relate to professional conduct.  There is a requirement to report any breaches of these rules to the regulator.

The conduct rules are split into two tiers:

First Tier:

- You must act with integrity,

- You must act with due care, skill and diligence

- You must be open and cooperative with the FCA, the PRA and other regulators

- You must pay due regard to the interests of customers and treat them fairly

- You must observe proper standards of market conduct


Second Tier – Senior Manager Conduct Rules

- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

- You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system

- You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively

- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

The Conduct Rules apply to a firm’s regulated and unregulated financial services activities (including any related ancillary activities - i.e. an activity carried on in connection with a regulated activity).  The Conduct Rules apply to all Senior Managers, all Certified Functions, all Non-Executive Directors who are not Senior Managers, and all other employees, except ancillary staff (i.e. people who don’t perform a role specific to financial services)

The Conduct Rules apply to the majority of employees working in firms, because a broad range of staff have the potential to cause harm.



The FCA will contact firms ahead of the conversion window with an assessment of their status based on the information that they hold.  This will help firms work out which level of the regime applies to them.  Firms are still responsible for assessing which tier they fall into based on the rules. If firms disagree with the FCA assessment they must tell them so that they are allocated to the correct tier. This is important to make sure that the correct forms are available for conversion – failure to do so may cause problems with a firm’s approvals.

Firms won’t be required to obtain regulatory references for existing employees who will be performing the same role after the start of the new regime. Individuals at Core and Limited Scope firms will be automatically converted wherever possible, with no action required by firms.  Firms won’t have to apply for re-approval for currently approved individuals where there is no substantive change in the individual’s role before and after the commencement of the SM&CR. 


We provide a personal compliance service, tailored to your needs.  If you would like more information on the service we provide or a no-obligation quote please get in touch. 


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