A Senior Moment

One might be forgiven, amidst the hurly burley of Brexit and MiFID II, for forgetting the home-grown Senior Management changes that are due to be implemented at around about the same time as these major initiatives.

The Senior Management and Certification Regime was introduced into banks and insurers some time ago, and it was always the intention of HM Treasury that this regime should be extended to the rest of the financial sector.

This is to take place some time in 2018 and FCA has promised a consultation paper in this second quarter of 2017. Much remains unclear.

As currently implemented, the SMCR would represent an unwieldy bureaucratic overload on already hard-pressed firms. FCA have stated publicly that they are looking to introduce the principles of SMCR across the sector and that they do have proportionality in mind – but that’s hard to reconcile with the most basic of requirements currently incumbent on in-scope firms.

We’ve written elsewhere (see our article in the November issue of Compliance Monitor here) of what the likely shape of SMCR is to be across the sector. FCA’s hints at “staggered” implementation indicate that firms are likely to have to submit to FCA some variant of the responsibility map and statements of responsibility for relevant staff.

So whilst we all wait for FCA’s opening consultation, it’s worthwhile seeing what you have in place now in the areas of organisational charts and job descriptions. However the implementation pans out, these are likely to be critical to your compliance.

PEP Talk…

FCA’s March Guidance Consultation (GC 17-02) on PEP identification provided some welcome relief from excessive worrying about who should and should not be caught by the definition.

It is formally extended to UK persons with the implementation of the 4th Money Laundering Directive in June this year.

FCA re-iterates that a client will only normally be considered a PEP when they meet the formal definition of carrying out a “prominent public function” and excluding “middle ranking and more junior official[s]”.

FCA goes out of its way to exclude from the definition those without “executive decision-making responsibilities (such as a government MP with no ministerial brief or an opposition MP)”.

Which leaves us in the correct (but possibly surprising) position that The Rt. Hon Jeremy Corbyn MP is not to be classified as a politically exposed person and ex-prime minister and current private citizen David Cameron is.

All that said, firms must continue to take a risk-based approach and come to their own conclusions about what additional due diligence to take. And erring on the side of caution will lead to some understandable inconsistencies.

CfDs Get Harder…

Any firm which provides CfDs to retail customers will now be all over FCA’s December consultation paper (CP 16-40) on the subject.

This crystallised FCA’s long-held view that these products were unsuitable for retail customers and served them no discernible investment need. Indeed, FCA produced statistics which showed that very few retail customers in their sample actually made money on them.

In our article in the February issue of Compliance Monitor (see here) we considered the possible impact of these proposals on CfD platform providers, whose only contact with the customer is through the web site. Such firms have a hill to climb in showing FCA that they can satisfy the appropriateness obligations.

But these issues aren’t unique to CfD platform firms. Appropriateness and suitability continue to be at the heart of FCA’s retail supervisory agenda, and anyone advising – or accepting an execution only order in – such complex instruments needs to be able to evidence their assessment of these criteria.

We expect FCA to continue to focus on these issues in their interactions with retail firms, wherever derivative trading forms part of customer activity.