23 July 2015 - Post by:Sarah Hitchins
Earlier this month, the FCA set out its ‘final rules’ in relation to certain elements of the Senior Managers and Certification Regime. There were some ‘tweaks’ to existing proposals, in addition to some more significant proposed changes, including the following:
Given the current scope of the Certification Regime, the FCA has identified that more junior employees who are currently approved as CF30s but not subject to any other qualification requirements will not be covered by the Certification Regime. As the FCA considers that these individuals could still pose a risk of significant harm to their firms or customers, it is proposing to extend the scope of the Certification Regime to cover a broader range of current CF30s who deal with clients, as well as those involved in algorithmic trading. The FCA intends to finalise its approach to extending the Certification Regime by the end of 2015.
Potentially more information to go into regulatory references
In line with the recommendations made in the Final Report of the Fair and Effective Markets Review, it looks like the FCA is proposing to revise its requirements relating to regulatory references that will need to be provided in relation to Certified Persons. In particular, it is likely that the FCA will require firms to provide more information about departing or former employees in regulatory references such as whether malus or clawback had been applied to reduce an employee’s remuneration and details of any outstanding or upheld complaints about an employee. If this additional information is required to be included in regulatory references, it is likely to make drafting regulatory references and minimising the employment law risks associated with them more challenging.
Less frequent notifications of breaches or suspected breaches of the Code of Conduct
Originally the FCA proposed that firms should inform it of breaches or suspected breaches of the Code of Conduct committed by employees other than Senior Managers and PRA Certified Persons every quarter. However, the FCA has now decided that it will only require this reporting to be undertaken on an annual basis, thereby suggesting that the FCA will be focusing on identifying overall volumes of breaches and suspected breaches as well as any emerging themes and trends via firms’ annual reporting cycles, as opposed to focusing on individual cases of misconduct.
Some further clarity around notifications of breaches or suspected breaches of the Code of Conduct for Senior Managers and PRA Certified Persons
The PRA has stated that it expects firms to notify if of breaches or suspected breaches of the Code of Conduct committed by these categories of employees within seven business days from the point at which a firm decides that a breach or suspected breach of the Code of Conduct has occurred. However, the FCA has not been so clear. Instead, the FCA’s rules continue to say that notifications must be made within seven business days of a firm becoming aware of ‘the matter’. The FCA has said that it will consider whether it will provide any further guidance and whether it will adopt the same position as the PRA.
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