The Year of the Senior Manager

The FCA’s major programme for SMCR is proceeding apace…. despite Brexit. SMCR implementation is a challenge for nearly every FCA-regulated firm. Related training is one aspect of the regime. The training is not just mandatory, but essential. The impact of SMCR affects everyone at the firm and wide-scale involvement from an early stage helps to ensure strong buy-in across the business. OWL training for clients is firmly under-way. We offer a tailored programme to firms implementing the new regime.

Posted in: FCA, Senior Managers Regime
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2019: All about Brexit?

Is 2019 the Year of the Brexit? Yes, maybe, no. Brexit may happen in 2019, or it may not. Whatever. Either way, it might not be the greatest regulatory challenge that we face this year.

Granted, we don’t know what form Brexit will take, but we do know more than we think. We know that if Parliament decides to ignore the will of the people and withdraws the Article 50 application, we will not leave and wonderful EU regulation will continue to apply. Relief all round. We can continue with PRIIPs, GDPR and the innumerable other blessings of EU membership.

We also know that if Parliament buys the Government’s Withdrawal Agreement, we will have a transition period (aka Implementation Period), in which EU requirements will continue to apply, until at least December 2020. Another easy one – PRIIPs, GDPR, universal rejoicing. But if that does not happen and we are released in less than three months from now, the FCA’s cunning plan is that there will be no change to the application of EU requirements, at least for the time being. And the Government will allow every resident EU national to stay for at least five years. And PRIIPs with everything.

So, what is there that we don’t know? Some may not be entirely confident that there won’t be a petulant reaction from the European Commission. Improbable as it may seem, it must be possible that if their attempts to thwart our departure fail, they may look for ways of turning independence into ostracization. Although strongly promoted by the alarmist tendency, the tactic of blockading their own exports has always seemed a little far-fetched, however gratifying the masochists might find it. Blockading UK exports seems a great deal less improbable. It is fair to assume that the equivalence of our regulatory regime will elude EU notice. But the FCA’s MoUs with key EU regulators will provide clear evidence of ‘supervisory cooperation’, ticking that important box which enables delegation. Selling to EU residents may be difficult, but doing business with EU business is unlikely to be seriously disrupted.

So, what is it that is going to preoccupy our attention in 2019? Let’s begin with SMCR.

With under a year to go before the regime is in force, if a firm’s programme is not underway yet, its time has come. There are choices to be made. Will the firm be implementing as late as possible or will it adopt as soon as ready? Is the message about risk and threat or is it about empowerment and responsibility? Will it be forms and admin or structure and governance? Persuasion or coercion? It does not have to be a tale of woe.

But there are mandatory ingredients. As the regulator takes a big bite of new power in the form of its extended disciplinary reach over all financial services employees, so education becomes increasingly essential. That it will also be compulsory is of little more than academic interest. Enormous numbers of people working in the financial services sector, for several decades in many cases, have never touched the level at which they would need FCA approval but will now be exposed to the risk of FCA fines and bans. For them, as for many others exposed to changing obligations, a proper understanding of the regulator’s expectations is fundamental.

The senior managers themselves, most of whom have held Controlled Functions in the past, will experience big changes to the duties that they must fulfil. Direct from primary legislation, the duty of responsibility, applicable to every senior manager, will predictably become an unanticipated means of admonition. Those unaware of the FCA’s guidance on how the regulator will determine when and where to take action will be unready to defend their conduct when challenged. As with so many aspects of regulation and compliance, records and routines go a long way towards demonstrating that duties have been fulfilled. Individuals need guidance, education and training.

But if SMCR is the main show in town, it is not the only one. For many, the fallout of the Asset Management Market Study has gone largely unnoticed. That may well change in 2019 as fund management firms struggle to get good Independent Directors into place in time for the September deadline. While non-execs are usually regarded as easily come-by, keeping them at bay being the greater challenge, it may be different this time round – the regulator will be counting. If, as September approaches, appointments have not closed in on the required 500, there will be closer analysis. Who has not done their bit? More needed and quickly. Hurry, hurry, even if stocks are exhausted.

While Independent Directors may come in twos, assessments of value will come by the half-dozen. Working to the same timeframe, as each authorised fund reaches its year end after September, the bell will ring for its first assessment. But what will they really look like? No one yet knows the answer to that simple question. As one of the few novelties in the field of regulation, assessments of value will command some curiosity. Among the most interested will be the investment advisers, whose job it will be to take notice of the assessments. Will they take them seriously or will they laugh up their sleeves at a self-assessment published with hubristic comments about the immeasurable worth of access to such unique talent. It is, apparently just like every one of its competitors, a benefit beyond price. Was that ever in doubt, even as the fund underperformed? Did the manager have any critical remarks at all to make about the quality or cost of the services for which the investors had the honour to pay? Some assessments will be rightly the object of ribald cynicism. Others though, will be seen as honest evaluations. Perhaps the frank remark will be the one that attracts the investor.

So, while it may be, possibly, just, that Brexit commands the headlines more readily than even SMCR, the scales may tip quickly after March as we wade out of the Brexit fudge to the sunny uplands of the statements of responsibility. By then, one thing will be clear, neither will go away.

Posted in: Assessment of Value, Asset Management Market Study, Brexit, EU, FCA, Senior Managers Regime
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The Thought That Counts

Through its recent publications, FCA is starting to tell us how it will handle Brexit in practice. Wisely they continue to steer away from the politics, but quite rightly make clear their practical preferences – FCA’s job is, after all, to ensure that markets work well. Major disruptions and contract discontinuity might not quite fit the bill.

Alongside a massive pile of technical standards, FCA has published its approach to No Deal (CP 18/29). The discussion begins with a comforting description of the benefits of the implementation period, which FCA prefers to think of as the transition period, but which, in the event of no deal, will not materialise. To help to mitigate its disappointment, were such a situation to arise, the FCA will create its own transition period. Those who see this as a Treasury-led programme should think again – the Treasury Regulations have the FCA’s fingerprints all over them.

On the face of it, these are measures for EEA firms – a classic act of UK generosity in the face of studied hostility. Should we even care what is going to become of inward passporting firms, given that this refers to a scenario where any plans for equivalence will have failed? Those who feel most aggrieved about the loss of their EU access may feel disinclined to help those who have not helped them. As FCA says:


“Without other rule changes, firms currently passporting into the UK that choose to participate in the TPR will have to comply with the Handbook as Part 4A firms (whose head or registered offices are overseas) because of the TPR Regulations. This would be challenging for many firms given the short time until exit day……………….”


It quite makes your heart bleed. The opportunity to make a show of generosity with forked tongue is sorely tempting. Why make it a comfortable ride for them, if we get no ride at all? Unfortunately, it might not go down hugely well with affected consumers.

There is a better reason for looking at the plan: it covers how EEA domiciled funds can continue to be marketable here. Many of those funds are of course the creation of UK firms and have their assets managed in London. While alternative arrangement could certainly be made for similar offerings aimed at British consumers, much time and money would be saved by continued easy access.

The FCA’s cunning plan is to maintain the status quo, for the time being at least. Classically, that which sounds so straight-forward requires the whole Temporary Permissions Regime, from Statutory Instrument to FCA Rule. But let’s hope that the rules were well understood beforehand, because the chances of anyone understanding the requirements from the proposed structure of the TPR seem very slight indeed. The sensation that the FCA’s heart might not be entirely in this task is overwhelming – all a far cry from the spoon-feeding that we are used to where, in the Regulator’s constant attempts to minimise misunderstanding and non-compliance, jolly application tables provide everything except the name of the call centre operator who will, if spoken to nicely, read the rules to you in dulcet tones. Given their fervent hope that none of this will ever come about, it is not difficult to understand why FCA may not have applied its best efforts to drafting requirements that make any pretence at user-friendliness. Establishing the application of a rule imposed (or not) through the TPR will be a lawyer’s dream.

Anyway, if you don’t take anything else away from this Consultation Paper, and you probably won’t, there is one key message not to be overlooked: if you miss the window and don’t notify the Regulator before Brexit that you want to go on accessing the UK, that could be the start of a very long holiday.


Posted in: Brexit, EU, FCA, UCITS
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