April 2019
By Steven Howard, Head of Mortgage and Lending Intermediaries Compliance Services at The SimplyBiz Group
One of the more common questions we receive from business owners since publication of the Senior Managers and Certification Regime (SM&CR) is whether, as a sole trader business, they will be affected, and whether or not they will have to do anything differently from the December 2019 deadline onwards.
It is an understandable question, as much of the focus around SM&CR seems to be on the responsibilities principals and those in senior management will be adopting in order to monitor the activity of their staff. As a sole trader, where the individual is the business, they have always had full personal responsibility and liability for the activities carried out in the name of that firm.
A sole trader firm does not mean there are no other employees within the business. There will only ever be one business owner, but that owner may employ staff or recruit other people to carry out activities in the name of the business. Reversely, an incorporated firm may only have one employee, with that person being the sole director and adviser. That latter example should not be confused with the firm being a sole trader.
While you would expect an incorporated firm to face different levels of responsibility and activity to a sole trader in order to meet the new regime, the reality is largely similar for all firms and therefore each will need to account for the impact and changes to their businesses.
So, how does SM&CR apply to sole traders? Well, for starters, all will automatically be categorised as ‘limited scope' firms, whereas the incorporated firm, unless a significantly large or limited permission firm, would be categorised as a ‘core' firm.
Most of the regulatory heavy-lifting sits around Conduct Rules and fit and proper areas within this regime and it is these two aspects which all firms need to observe very carefully.
| SM&CR elements | Core | Limited |
|---|---|---|
| Senior Managers' regime | X | X |
| Senior Managers' conduct rules | X | X |
| Statement of responsibility | X | X |
| Duty of responsibility | X | X |
| Prescribed responsibility | X | |
| Criminal records checks | X | X |
| Certification regime | X | X |
| Certification functions | X | X |
| Fit and proper requirement | X | X |
| Regulatory references | X | X |
| Individual conduct rules | X | X |
| Ancillary staff | X | X |
Implementation of this set of requirements will mean all firms should start work soon to ensure their new procedural ducks are in a row before the December implementation date.
The difference between the requirements on Limited and Core firms, are around the senior manager functions needing to be attributed within your firm. A limited permission consumer credit firm will need SMF29 (Limited Scope Function - Apportionment and Oversight). This is less than is applicable to Core firms but, in either case, it is important to note SM&CR does not require any firm to create new roles or hold additional senior management functions to those it already holds for its controlled functions under the existing approved persons regime. All firms must ensure they have the right people allocated to the right roles before the FCA automatically mapped firms across into the new regime.
SM&CR will affect every authorised firm, regardless of size, legal status or types of regulated activities it carries out. I would recommend you check on the guidance provided by your compliance service provider to make sure you are on the right track and you are fully aware of all your responsibilities. I would urge you to get your preparations underway as soon as possible.
For further information about SM&CR, please contact the FIBA team about compliance services on 0330 002 0987