On 4 July 2018, the Financial Conduct Authority (FCA) issued a Consultation Paper (FCA’s CP 18/19), setting out its plans to introduce a new Directory. This will act as a public register, allowing consumers and firms to check the status and history of people working in the financial services sector. The CP states that the Directory will include all those who hold Senior Manager Functions (SMFs) as well as all those who are in Certified roles.
This latest CP was issued alongside a suite of publications setting out near-final rules and providing guidance on the extension of the Senior Managers and Certification Regime (SMCR) to all Financial Services and Markets Act (FSMA) authorised firms, including asset managers, investment firms, insurers and consumer credit firms.
Why a Directory? Feedback on the FCA proposals to extend the SMCR
In July 2017, the FCA consulted on its plans to extend the full scope of the SMCR to insurers and solo-regulated FSMA firms. The extension of the SMCR will limit the number of individuals directly approved by the FCA and the Prudential Regulation Authority to certain senior manager functions, placing the onus on firms to certify individuals in ‘significant harm’ functions as fit and proper and effectively reducing the Financial Services (FS) Register to SMFs only. Nevertheless, the FCA received substantial feedback on the public value of the FCA maintaining a central public record of certified staff and certain other individuals, even though the suitability of these individuals is assessed by firms rather than the FCA under the SMCR.
How will the Directory work?
The FCA proposes that the public Directory will be centrally hosted by the FCA. Access will be available online and will be free of charge to all. Customers will be able to search for individuals classed as ‘Directory Persons’ and SMFs at all FSMA firms across multiple sectors regulated by the FCA.
To facilitate the creation of the Directory, firms will need to report certain information about their Directory Persons and will thereafter be responsible for timely and accurate reporting and updating.
The Directory interface that will be created will search information held in both the FS Register and FCA’s Connect Database. It is the FCA’s intention that the Directory will become the primary location for users to find information on individuals at FSMA firms. This includes both consumers as well as firms seeking information on individuals in these roles.
The scope of the Directory
The FCA proposes that the public Directory will include information on a wider range of individuals than the FS Register including;
- All certified staff.
- All non-Senior Manager Function Directors such as Non-Executive Directors;
- Individuals performing roles which require specific qualifications (e.g. mortgage advisors).
- Sole traders.
- Appointed representatives.
What information will appear on the Directory?
The FCA proposes that the following information will feature in the Directory:-
- Employer details including the firm’s name, reference number and contact details.
- Restrictions on the firm’s activities or permissions.
- The individual’s full name and unique reference number.
- The relevant roles held by the individual including certification function, relevant qualification, details of non-SMCR Directorships (executive and non-executive), sole traders and/or appointed representatives.
- The start and end date for the aforementioned roles held.
- The types of business the individual is qualified to engage in.
- The geographical location of the individual’s workplace.
- Details of any regulatory sanctions or prohibitions such as a withdrawal of approval or prohibition.
- The date the information was last updated.
The FCA proposes that the information would be available to extract in aggregate form, free of charge, potentially allowing wider uses such as market monitoring and analysis tools used by trade bodies.
Practical Implications for Firms
The FCA’s proposals recognise that there will be a number of practical implications for both firms already subject to the SMCR and for those firms that come under the regime in 2019. With over eight million views of the existing FS Register last year alone, SMCR firms will need to prepare for more of their data (such as lists of certified staff) becoming publically available. SMCR firms are already under an obligation to ensure that their fitness and propriety assessments are sufficiently robust and will need to be mindful that consumers (and firms) will also be relying on this information.
Given the proposal for firms to provide accurate information to the FCA on their Directory Persons within one business day of any changes, the need for effective and embedded processes to capture information on staff leavers, joiners and those changing certified roles is paramount. This is likely to create substantial pressure on firms which have a large number of certified staff and will mean that manual systems for capturing such information are likely to be inadequate.
Likewise, firms which are preparing to transition to the SMCR should ensure that the requirements for, and implications of the Directory are factored into their implementation plans.
Timing and next steps
Firms have until 5 October 2018 to respond to CP18/19 and the FCA has encouraged firms to engage with the proposals and provide feedback. The FCA has also published a prototype version of the Directory so that users can explore how the interface will work in practice. The FCA expects current SMCR firms and insurers (including reinsurers and appointed representatives) to start retaining relevant Directory data from 10 December 2018 with an upload deadline one year later on 10 December 2019. For those firms transitioning to SMCR in 2019 the data capture date is 9 December 2019 with an upload deadline of 9 December 2020.
It should be noted that the changes in scope brought about by the extension of SMCR will mean that only Senior Managers at FSMA firms will continue to appear as active on the FS Register on commencement of the extended SMCR. Other Approved Persons currently at these firms will still be displayed on the FS Register but their historical roles will be shown as inactive.