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.
Rethinking Museum Governance
What are the legal responsibilities of museum trustees?
Property Patter: Break Options – The Top 5 Traps
Top 5 tips for exercising break options.
Charles Russell Speechlys advises FairXchange on investment from United Fintech
FairXchange was founded in 2016, to bring clarity and transparency to execution performance through the provision of independent data.
Mandatory climate-related disclosures coming soon
On 28 October 2021, the government published its response to its consultation on mandatory climate-related disclosures.
Sustainable Rural Estate Management: The Penpont Project
Listen for an insight into the thinking behind the Penpont Project.
Charles Russell Speechlys advises Acora on the acquisition of M9 Holdings
The acquisition of M9 Holdings marks the latest stage in Acora’s growth journey.
Reform of the UK Prospectus Regime
This article focuses on three aspects of the consultation: Quality and Duplication, Widening participation in public offers, Agility
Dilapidations: the law and the reality
Emma Humphreys outlines how the Dilapidations Protocol and related guidance applies in practice.
Investing with purpose - What is the goal of a family office?
A family office’s overall strategy and goals should be informed by the family’s investment purposes, ethics and beliefs.
What does Amazon’s ban of Visa Credit Cards mean for UK consumers?
Property Patter: Just how protected are Rent Act and Assured Tenants?
Landlords of residential property can still come across Rent Act and Assured Tenancies.
Charles Russell Speechlys advises Silbury Finance on a £35m facility to a Jersey unit trust to finance the development of a 89 unit retirement living village in Tunbridge Wells, Kent
The joint venture will finance the development of a 89 unit retirement living village in Tunbridge Wells, Kent.
Court of Appeal leaves rights of light in the dark
Lauren explores the impact of no appeal for Beaumont v Florala.
Reem Al Mahroos
Frequently Asked Questions: Hotel Franchise Agreements
What is a franchise agreement and what are the differences between it and a Hotel Management Agreement (HMA)?
Judicial Review Reform
Judicial review is a mechanism available to various interested parties to challenge the legality of decision made by a public body.
Sustainability Leaders: Colin le Duc, Generation Investment Management
What is the future for ESG?
Building Fire Safety Update: in the wake of the Hackitt Report
Find out more on the Building and Fire Safety update.
Top 10 tips on negotiating Section 106 Obligations for developers and landowners
Everything you need to know on negotiating Section 106 Obligations for developers and landowners.
Charles Russell Speechlys advises Dentex on the acquisition of Courtyard Dental Practice
Dentex is a fast-growing dental group focussed on developing its practices and optimising how dental practices operate.
Q&A: Rating rates mitigation schemes
Timothy Morshead QC and Joseph Green consider the likely success of two different rates mitigation schemes.