What will the SMCR mean for partnerships and overseas individuals?
The 9 December deadline for the implementation of the Senior Managers and Certification Regime (SMCR) is looming and firms are busily preparing to ensure that they are ready. FCA solo-regulated firms, as well as EEA and third-country branches, will become subject to the SMCR, which will replace the current FCA Approved Persons Regime (APR).
The SMCR aims to reduce harm to consumers, strengthen market integrity and highlight individual accountability. The FCA has identified three categories of firms: Limited, Core and Enhanced. This article focuses on core firms and in particular how the regime applies to partnerships and individuals based overseas.
For partnerships, the FCA envisages that most if not all partners or members will be senior managers, but this will depend on the constitution of the partnership or LLP. If a partner is not involved with the management of the partnership firm, they may not be categorised as senior managers under the SMCR. Such partners may include: corporate partners and limited partners that are not involved in managerial decisions, junior partners with no senior management responsibility, or silent partners.
Partnerships should investigate the role of each partner on a case-by-case basis, and decide whether the individual is in fact performing a Senior Management Function (SMF) and therefore whether they need to be appointed to the SMF27 (Partner) function.
When a partner is not undertaking a management role, the firm will need to actively notify the FCA via Form C of the withdrawal of this partner from the relevant APR Controlled Function (CF4). Otherwise, the FCA will automatically map the partner to the corresponding SMF27 function.
Where a partner performs an SMF, their responsibilities will need to be clearly set out in their Statement of Responsibility. The FCA has set out that prescribed responsibilities should not be divided or shared between partners unless there is a strong justification for this. If certain responsibilities must be shared in a firm, this should be explained in each partner’s Statement of Responsibility.
Partnerships should be aware that the Certification Regime only applies to employees. If a partner does not hold an SMF and is not an employee (which can also cover secondees and contractors), the Certification Regime will not apply.
It may be the case that certain members of an LLP are not senior enough to be categorised as SMF27 partners, but are also not “employees” under the Certification Regime. Firms should be mindful of the tax implications of this, and consider whether these types of partner still qualify to be taxed as a partner.
The Senior Managers Regime applies to anyone who undertakes an SMF for a firm in the scope of the regime, not only in the UK but anywhere in the world. For core firms, any individual performing the following functions overseas will be caught by the regime: SMF1 (Chief Executive), SMF3 (Executive Director), SMF27 (Partner), SMF9 (Chair), SMF16 (Compliance Oversight) and SMF17 (MLRO).
The Certification Regime applies to all overseas employees carrying out Certified Functions who are dealing with UK clients. However, if the individual is deemed a ‘material risk taker’, the Certification Regime will apply even if the individual is based overseas and does not deal with UK clients.
The SMCR also applies to certain persons based in the UK branch of an overseas firm. The SMCR does not apply to an overseas firm without a UK branch even if a person working for the firm deals with a UK customer.
Firms constituted as partnerships or firms with overseas individuals should:
- Review the territorial reach of the SMCR and the influence that individuals based overseas may have over UK entities. This may require amendments to their global employee handbooks, policies and compliance manuals to meet the relevant requirements
- Assess the role of each partner (if the firm is a partnership), and decide whether the individual is performing an SMF
- Clearly set out in each Statement of Responsibility the allocation of the individual’s prescribed responsibilities and the extent of their influence over the firm
- Ensure that your firm’s current APR Control Functions are correct as these will be automatically mapped to the corresponding SMFs by the FCA.
Sign up to our SMCR Practical Workshop
Looking for further guidance? Throughout September, IQ-EQ and Charles Russell Speechlys are teaming up to deliver an informative and practical SMCR workshop to companies impacted by the upcoming regime. Click to find out more and register your attendance.
This article was written by Alicia Griffin, Associate, Charles Russell Speechlys LLP. The article was originally posted to the IQ-EQ website on 3 September 2019.
The Future of Property Careers
Join to our panel discussion and Q&A with industry leaders on the range of opportunities within the property and construction sector.
COVID-19 Vaccination – can an employer make it compulsory for employees?
We review what legal issues to take into account when considering to make vaccination compulsory as an employer.
Linking ESG and Executive Pay
How does a business go about embedding a focus on strong ESG performance into the structures and culture of its organisation?
National Security and Investment Act granted Royal Assent
The Act establishes a new regime for the review of mergers, acquisitions and other transactions that could threaten national security.
Recent Trends In Firewall Legislation: BVI, Bermuda And Gibraltar
Charles Russell Speechlys advises Waverton on acquisition of Cornerstone Asset Management
Established in July 2010 and with offices in Edinburgh and Glasgow, Cornerstone offers wealth management and financial planning advice.
What do the new Debt Respite Scheme Regulations mean for Landlords and Tenants?
This will provide legal protection from creditors in the form of either a breathing space or a mental health crisis moratorium.
Charles Russell Speechlys promotes five to Partner
The promotions are effective 1 May 2021 and are accompanied by one Legal Director and 15 Senior Associate promotions.
Risk allocation in commercial leases: the High Court considers rent suspension, insurance and frustration arguments
Read our summary of the full judgement on the latest Covid arrears case.
Charles Russell Speechlys boosts private wealth offering with the hire of an international tax team
Robert Reymond will be joined at the firm by Leigh Nicoll, Emma Tyrrell and Oliver Cooper.
Proposed Takeover Code Amendments – Key Changes
The Consultation Paper has now been followed by a corresponding response paper which made certain modifications to the initial proposals.
Building Back Better: Future Gazing
What’s next for the hospitality industry post-pandemic?
Building Back Better: Re-examining your proposition
Why hospitality businesses should re-examine their proposition now
Building Back Better: Real Estate and Restructuring
How and why should hospitality businesses re-structure post pandemic?
Charles Russell Speechlys advises Fudco Partnership on sale to Exponent-backed Vibrant Foods
Fudco is a family-owned business selling South Asian ethnic foods in UK and Europe.
Charles Russell Speechlys advises Polar Technology on investment by BGF
Polar Technology Management Group is a holding company for engineering businesses operating at the leading edge of technology.
Electrical safety standards in the private rented sector from 1 April 2021
The Electrical Safety Standards in the Private Rented Sector will apply to existing specified tenancies from 1 April 2021.
UK property market continues to thrive
Stamp Duty, Green houses and 5% deposits: The Government’s Commitment to Housebuilding Continues
We look at the current raft of measures the Government has in place to support home ownership and the housebuilding industry.
Use and Regulation of Renewable Energy Certificates in the UAE
The market for trading in renewable energy certificates is set to increase in both visibility and importance.