FCA emphasises significance of Statements of Responsibility and Responsibilities Maps ahead of SMCR roll out

New guidance consultation published by the regulator

On 11 October, the FCA published a guidance consultation ("GC18/4") around statements of responsibility and responsibilities map. The regulator made it very clear that the purpose of the GC18/4 was to highlight relevant considerations for solo-regulated firms who shall shortly be subject to senior managers and certification regime ("SMCR") rules, when the regime is extended to cover solo regulated firms in 2019. However, given the relatively small cohort of firms in the extended regime who will be required to produce responsibilities maps, it would seem prudent for those firms already caught to have a quick check that the regulator's statements are in line with their current practice.

In GC18/4, the regulator has taken the approach of setting out (fictitious) examples of good and bad practice. This makes for quite an easy read. But to help condense the key messages, we have summarised the top good and bad points which the FCA is focussing on.

Statements of responsibility ("SoRs")

The FCA has provided clarity on the contents of SoRs for solo regulated firms. The FCA describes SoRs as: a single document that every Senior Manager will need to have, clearly setting out their role(s) and responsibilities. The FCA urges individuals to ask themselves: could someone who understands the type of business that you do, but doesn’t know how your firm is organised, understand what you are accountable for by reading your SoR? This is clearly what the FCA sees as the purpose of the SoR.

Interestingly, the FCA makes a point which Ashurst has been highlighting to its clients since the initial proposals were published: A SoR is not the same as a job profile, so it should not describe the competencies and skills required for the role or how the responsibilities should be discharged. This makes it clear that the SoR needs to be a new document, and cannot simply be a migration of job descriptions, in the event a firm had such an inventory.

We have set out a comparison table of SoR contents for different types of solo regulated firms below for ease of reference.

Shared Responsibilities

The FCA is keen to address good and poor practice in SoRs where responsibilities are 'shared'. There is a clear view of the regulator that not all 'shared' responsibilities are actually that. The FCA notes, for example, that it would be poor practice for a Compliance Officer to share Pprescribed Rresponsibilities with a CEO as it is not clear who would be ultimately accountable (and Compliance is a second line of defence function and should be independent). The FCA also criticises circumstances where although responsibilities are described as shared, it actually appears to be divided responsibility. This is made worse if the division is complex and involves individuals who report to each other, potentially confusing accountability. Unless such rationale is very clearly set out and there are no gaps of accountability, the FCA views this as sub-optimal.

A red flag is also raised to the regulator where every senior manager shares a Pprescribed Rresponsibility. The FCA's concern here is that roles are not being clearly defined and Senior Managers do not have clear individual accountability.

The FCA highlights good practice where sharing responsibility is used in an appropriate way (e.g. where there is a departing senior manager and the shared responsibilities are part of the handover) and the FCA commends good, clear explanation in the SoR of the rationale in this circumstance.

SoR Checklist

The following sets out some good and bad practice which the regulate has seen in relation to SoRs

Do's

• include enough information to clearly describe the Senior Manager’s actual responsibilities and accountabilities
• make the SoR self-contained
• list functions which the Senior Manager is responsible for
• give explanation and detail
• be prescriptive, particularly on asset classes or business lines

Dont's

• include unnecessary detail

• refer to other documents
• refer to executive director's responsibilities as contributing to the Board and to ExCo (this is part of the job of any Executive Director and is part of the description of the Executive Director Senior Management Function)
• put down that someone is responsible for TCF (the FCA views this as a firm-wide responsibility, not just one individual's responsibility)
• include details of responsibility in other entities (the SoR is specific to a legal entity)
• use this as an opportunity to change the senior manager's current responsibilities

Responsibilities Map

Responsibilities maps are only required for enhanced firms under the extended regime. The regulator suggests a "Goldilocks" approach and is looking for documents which are not too long, and not too short. They should be just right. And preferably with graphics and text to make it easily understandable. The regulator has given two checklists which are quite useful: one for firms in groups, and the other for firms which are not which relate to responsibilities maps.

Non-group entities

• Is it easy to understand the governance structure of the firm and who is responsible for strategic decisions? For example, are these made by individuals or through committees?
• Is it easy to understand who has oversight of delivery of these decisions?
• Can the reader understand who is responsible for implementing these decisions, including the key responsibilities of Senior Managers?
• Is information on responsibilities provided at a summary level? If not, consider moving detailed information into SoRs.
• Is it easy to understand who reports to whom?
• If there are multiple reporting lines, is the distinction between them clear?

Group entities

• Is it clear how the firm relates to others in its group, especially other UK regulated firms? Are the key group-level individuals with influence over the firm identified?
• Does the map show how they connect with key individuals and governance bodies of the firm?
• If the firm relies on group-level governance committees (e.g. group RiskCo), are these shown and can the reader understand how this works?
• If governance decisions are made by group management committees (e.g. EMEA Operations Committee), is the remit and membership of these committees clear?
• If group committees influence the governance of the firm, is it clear how these relate to each other and to the formal governance of the firm (eg its Board of Directors)?

Conclusion

The FCA tends to issue guidance where it feels there is confusion in the market. While this paper is targeted at solo-authorised firms, it would act as a good benchmark for existing SMCR firms in relation to their SoRs and Responsibility Maps.

For solo-regulated firms who are now ramping up towards the 2019 extension, this will be quite a useful paper before they start the task of preparing their own SoRs and Responsibilities Maps.