Under the FSMA, the FCA were given powers to write Conduct Rules that would apply to most of the employees within a firm. Applied to the banking sector in 2016, the FCA have now extended the Senior Managers Regime to apply to all solo-regulated firms from 9th December 2019.
The enforceable Conduct Rules set out expected standards of personal conduct and provide firms (and the FCA) with standards to which employees can be held accountable. Located in the COCON (Code of Conduct) section of the FCA Handbook, there are 2 tiers of rules that apply directly to employees and are designed to promote positive behaviour and reduce harm.
The Conduct Rules apply to a firm’s regulated and unregulated activities (including any related ancillary activities) and are applicable to all Senior Managers; those carrying out Certified Functions; all Non-Executive Directors and any other employee not designated ancillary staff (i.e. HR admin, catering, cleaners, IT support etc). A full list of people considered to be ancillary staff can be found under COCON or in the FCA’s SMCR Guidance publication.
First Tier – Individual Conduct Rules
- You must act with integrity
- You must act with due care, skill and diligence
- You must be open and cooperative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
Second Tier – Senior Manager Conduct Rules
SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
It is mandatory for firms to provide their employees with training and guidance on the Conduct Rules and how those rules apply to their role and duties. It is also mandatory for a Senior Manager to be allocated a Prescribed Responsibility (PR) for this training and oversight. Solo-regulated firms will have 12 months (9th Dec 2020) to put in place processes to comply with the training and reporting requirements under SMCR; however, the best way to ensure ongoing compliance with Senior Managers Regime and Conduct Rules is to develop and implement the training program as soon as possible.
If you are having to draft your SMCR templates and policies from scratch; would like a fully customisable SMCR Toolkit or are just looking for Conduct Rules training guidance and templates for assessing fitness and propriety; take a look at our SMCR Toolkit which provides many of the mandatory documents required by Core, Limited and Enhanced firms in the SMCR implementation program.