James Ewing, Head of Assurance, Risk and Planning, Banking Standards Board and Maximilian Weidlich, Policy Associate, Banking Standards Board
The Senior Managers and Certification Regime ,stipulates that, where an individual is performing a role requiring certificationwhich has an impact in the UK (whether on a UK firm, customer or client), the employing firm must assess their fitness and propriety (F&P) and decide whether to issue a certificate on at least an annual basis.
During the development of our Statement of Good Practice on the Certification Regime:Fitness & Propriety Assessment Principles, our Certification Regime Working Group highlighted complexities in implementing the regime for both UK firms operating overseas and overseas firms with an operation in the UK. This view was echoed by respondents to our consultation and one respondent described this as ‘the greatest challenge’ for firms with a global reach. This is because the Certification Regime applies to individuals performing certain roles, even where they may not be based in the UK. UK branches of overseas firms may face additional operational challenges (compared to UK firms with overseas branches) as they may have less or no direct control over other parts of the business which have employees working in roles requiring certification.
The first obstacle in implementing the Certification Regime in firms with an international reach relates to identifying which overseas roles actually require certification. In this blog we discuss our learnings from working with the Certification Regime Working Group.
The regulationsspecify the criteria for determining which individuals based overseas are performing roles which require certification in the UK. Five different categories of individuals who either come to work in the UK or are based overseas but have an impact in the UK have been highlighted to us as being the most likely to satisfy the requirements of the Certification Regime:
- line managers of UK certified staff (and their line managers unless already part of the Senior Managers Regime);
- individuals moving to the UK to take up a certified role for the first time (whether new to the firm or intra-group transfer);
- individuals who are based abroad but travel to the UKto perform a role requiring certification for more than 30 days in a rolling twelve-month period;
- individuals who work remotelyfrom an overseas jurisdiction and perform a role requiring certification for more than 30 days in a rolling twelve-month period;and
- individuals with a global rolewho have responsibility for making decisions which have implications across multiple jurisdictions including the UK and are considered to perform a role requiring certification.
Some firms have developed decision trees, based on the regulations, to help them determine who, from amongst their overseas-based employees, is performing a role requiring certification in the UK. However, given that some individuals may come into and indeed fall out of the requirements of the Certification Regime (depending on their line management relationships or how many days their work impacts on the UK operation of the firm, UK consumers or clients), it is important that firms keep their process under review and have mechanisms in place to assure themselves that:
- they are aware of any individuals who are subject to the regulatory requirements;
- those individuals who have newly become subject to the regulatory requirements are aware of their responsibilities in relation to maintaining their F&P;
- a process has been initiated to gather the information required to enable the appropriate decision-maker within the firm to assess their F&P and determine whether to issue a certificate; and
- the knock-on effects of an individual becoming subject of the regulatory regime in terms of their line manager have been considered and acted on as necessary.
For line managers based overseas, it may be proportionate to review team or business-line structures to ensure they have meaningful oversight of the individuals subject to the Certification Regime (whether UK- or overseas-based) for whom they are responsible so that they can feed into these individuals’ F&P assessments appropriately. Without the appropriate level of oversight, it may not be possible for a decision-maker to make a truly informed decision about whether that individual is fit and proper and can be issued with a certificate.
For individuals who come in and go out of the Certification Regime frequently, it may be proportionate for firms to take the view that they will operate as if the individual’s role falls under the Certification Regime at all times. However, this will be a decision that will depend on an individual firm’s risk appetite, the size of its certified population and the resource implications that may be involved.
For individuals who come into the Certification Regime for a specific purpose on a one-off basis and then return to a role which does not require certification, it is unlikely to be proportionate to continue to apply the requirements of the regime when the individual is no longer in scope at the end of that rolling twelve-month period.
In our next blog in this mini-series on the international challenges to certification, we will explore some of the practical challenges in assessing F&P across a global group.
Referred to in the regulation as a ‘Significant Harm Function’ (see SYSC 27.7.3 for full list).
See SYSC27.3.1 in FCA Handbook for further detail.
See SYSC27.5.3 in FCA Handbook for further detail.
See SYSC27.5.3 in FCA Handbook for further detail.