The Certification Regime is applicable to staff other than SMFs in positions where their actions could potentially harm the markets, the company they are working for or their customers. Though such people do not require approval from the FCA to carry out their duties, firms are obliged to check and confirm whether they are suitable to undertake their tasks on an annual basis. The functions that could cause harm if carried out incorrectly are known as ‘significant harm functions’ and ‘certification functions’
The organisations that are subject to the regime include banks, building societies and investment firms. If the company or organisation is satisfied that an employee is or remains competent to fulfil their role, they must supply them with a certificate. If this is not the case, they must provide them with notice in writing. Firms are expected to outline a single process for certification.
The Certification Regime is part of the Senior Managers and Certification Regime or SM&CR. The new regulations are designed to enhance accountability for business leaders and the functions that they are responsible for, whilst helping firms to improve conduct standards throughout their operations. The new rules were drawn up and implemented following a series of high-profile scandals from which business leaders emerged unscathed from poor practises.
The FCA and PRA developed the regime around the belief that effective regulation can only be truly achieved if individuals are held to account. The employees the Certification Regime targets are defined as ‘People who are not Senior Managers but whose job can cause significant harm to the firm or its customers’. These can include proprietary traders, those that deal with clients, have certain managerial functions and those that either directly or indirectly manage Certified Functions but is not a Senior Manager. Staff who meet the definition of Material Risk Takers are also affected. Previously, some of these roles were pre-approved by the FCA. Moving forward, firms will now have the responsibility of assessing fitness and propriety. The Certification Regime is limited to UK-based employees and Material Risk Takers and those dealing with UK clients from elsewhere. Senior Managers will personally be accountable for the Certification Regime.
The Certification Regime includes two sets of rules, the first of which apply to virtually everyone employed within the finance industry. Employees and managers are expected to act with integrity, due diligence and care, co-operate with the Financial Conduct Authority, the Prudential Regulation Authority and other regulators and must pay due regard to customers’ interests, treating them fairly. They must also observe proper standards or market conduct.
Senior managers are expected to take reasonable steps to ensure their firm’s businesses are controlled effectively, that it complies with the requirements and standards of the regulatory system and to disclose any information the FCA and PRA are likely to be concerned with. Firms are also expected to train staff to deliver a clear understanding of how the rules relate to their roles.
© Copyright Redland Business Solutions 2019