PRA and FCA set out their expectations on dual-regulated firms under the SMCR. The regulators say they recognise firms will have to keep their governance arrangements under review, and intend to be flexible. It notes that although statute requires regulatory notification of significant changes to SMF responsibilities, there is no statutory deadline – as a result, the regulators will expect firms to submit changes as soon as reasonably practicable, and will understand submissions may take longer than would be normal. The regulators are also considering whether the current rule that allows the provision of 12-week “emergency” cover is likely to give firms enough flexibility in the current circumstances. It would be better for firms to reallocate the functions of a temporarily absent SMF holder to other senior managers, but if this is not possible, the 12 week rule can be invoked, but if it is, it is critical for firms to ensure records keep a clear picture of responsibilities, given that individual will not have a SOR.
The guidance also notes the regulators do not expect a single SMF to be responsible for all parts of a firm’s response to Covid-19, except for allocation of the key worker identification to the SMF1, as already stated. Otherwise, the regulators think many aspects of a response may naturally sit with the SMF24 holder, if a firm has one – particularly in respect of business continuity, information security and outsourcing.
In relation to furloughing SMF holders, the regulators note that firms must, as appropriate, always have:
- CEO, CFO and Chair of Governing Body for CRR and Solvency II firms;
- Head of overseas branch for UK Branches of third-country banks and insurers;
- Small insurer SMF for non-Solvency II insurers; and
- Head of Small Run-off firms for small run-off insurers.
Individuals performing these functions, as well as the FCA required functions (Compliance Oversight, MLRO and Limited Scope Function) should be furloughed only as a measure of last resort. For non-mandatory SMFs, firms may furlough SMF holders if, for example, the business line for which they are responsible is suspended, but must think carefully about the risks this would create. Firms do not need to make any notifications in respect of furloughed SMFs unless they leave the firm but should update their supervisor by email or call.
Finally, firms should continue to take reasonable steps to complete any annual certifications of employees that are due to expire while coronavirus restrictions are in place. While there may be some need for flexibility, staff who are not fit and proper must not be re-certified.