In our previous blog we highlighted some key questions that Senior Management Function holders (SMFs) may wish to consider as they continue to respond to the current COVID-19 pandemic. As the pandemic has developed the FCA and PRA have clarified their expectations of dual-regulated and solo-regulated firms in relation to SMCR and the resulting impacts of COVID-19.
- The regulators are aware that ‘significant changes’ to an SMF’s responsibilities may be required but have emphasised that they understand the current operational challenges. The regulators expect dual regulated firms to resubmit relevant Statements of Responsibilities (SoRs) as soon as reasonably practicable taking into account the current circumstances; and understand that firms may take longer than usual to submit revised SoRs in the present environment.
- As noted in our previous blog, the FCA and PRA do not require or expect firms to designate a single SMF to be responsible for all aspects of their response to COVID-19. An exception is the identification of ‘key workers’, as noted in the FCA and PRA’s statements on key workers on 20 March. The recommendation is that this should be allocated to the CEO (SMF1) or most relevant member of the senior management team.
- For solo-regulated firms, the FCA has extended the maximum period firms can arrange cover for a Senior Manager without being approved, from 12 weeks to 36 weeks, in a consecutive 12-month period. If the FCA and PRA conclude that the 12-week rule is insufficient to allow firms to respond to temporary SMF absences linked to coronavirus, they will consider additional measures.
- If firms cannot reallocate an absent SMF’s Prescribed Responsibilities (PRs) among their remaining SMFs due to reasons relating to coronavirus, they can temporarily allocate them to the individual who is acting up as interim SMF under the 12-week rule, even if they are, at the time, unapproved as an SMF. An unapproved individual acting up as an SMF under the 12-week rule will not have a SoR (unless the firm applies for them to be permanently approved as that SMF). Therefore it is essential that firms ensure that their records (for example Responsibilities’ Maps, role profiles, etc.) keep a clear ‘running commentary’ of any temporary allocation of PRs to unapproved individuals during this period.
- Firms should also update their PRA and/or FCA Supervisors of any temporary allocation of Prescribed Responsibilities to unapproved individuals acting up as SMFs under the 12-week rule.
To further support SMFs, we have set out below some key actions that they may wish to consider; these are aligned to our Reasonable Steps Framework that can be found below.
Knowledge & Understanding
- Consider the impact on your business of the fast moving changes to legislation and regulation. For example, the FCA’s information for firms on Coronavirus (COVID-19) response.
- Ensure you are familiar with your own company policies and processes that may be applicable in the current circumstances including those that have changed to adapt to the new environment, for example with regard to Business Continuity and Operational Resilience.
Organisation & Control
- Consider the appropriateness of the current governance arrangements and ensure that discipline is maintained across committee meetings and regular one-to-ones to deliver a robust governance framework on a virtual network.
- Key decisions, rationales and actions agreed must be clearly recorded and, where appropriate, attributed. This can prove challenging given the volume of digital information flows and the sheer speed with which the global risk landscape is changing. Nevertheless, increased use of remote meetings and video calls will provide more opportunities for recording discussions and demonstrating attendance at meetings.
- Monitoring the adequacy of staff levels (both at the firm and key third-party providers) relative to business and customer needs during this time will be an area that requires additional focus.
- Aligned to this, short-term succession planning should be a high priority for SMFs and team leaders in order to manage temporary absences. In instances where an SMF is unable to fulfil their responsibilities due to health issues it is important that the individual’s responsibilities are re-allocated in a timely manner. The new allocation should be clearly communicated to those impacted and documented. Furthermore, where necessary, training should be provided to the individual taking on the role and the regulator informed if the change is for an extended period.
Review and Improve
- Management Information (MI) will be a key enabler for effective management in these extraordinary times. SMFs should ensure that it is relevant and meaningful and what new MI may be required, for example daily staffing figures and operational performance.
- Consider the appropriateness and effectiveness of existing delegated authorities and processes for escalation. It may be that SMFs wish to “tighten” oversight of key business areas.
- Ensure Compliance and Risk functions continue to engage with refocused monitoring.
Resolve and Learn
Operating in the current environment is new to all and a very steep learning curve. A key aspect of demonstrating reasonable steps will be to ensure that when issues arise the SMF takes action to prevent continued or repeated issues or breaches.
- Consider reprioritising programmes on a structured, risk‑based approach and document decisions.
- Be vigilant to new risks and do not ignore or delay dealing with new issues. Manage them as they arise, understand the root cause, triage and act, as always documenting as you go.
If in doubt when making decisions an SMF may wish to consider the fundamental purpose of the business and the regime. During this period, it is important for SMFs to continuously consider the impact of their decisions on the customer and wider stakeholders. SMFs must seek to ensure that the actions they take deliver appropriate outcomes for customers; support financial and operational resilience; and enable the business to fulfil its purpose.