UK Regulators announce new measures after acknowledging firms affected by COVID-19 will need to keep their governance arrangements under review.

By Rob Moulton and Anna Lewis-Martinez

On 3 April 2020, the FCA and the PRA released a statement announcing several new governance measures for dual-regulated firms amid the COVID-19 outbreak under the Senior Managers and Certification Regime (SM&CR). The new measures provide for more flexibility, while acknowledging that firms will need to keep their governance arrangements under review.

Highlights of the announcement include the following points:

  • Firms are normally obligated to update and resubmit a Statement of Responsibilities (SoRs) if there are significant changes to Senior Management Functions (SMFs). At present, SoRs can be submitted as soon as reasonably practicable and there is an understanding that firms may take longer than usual to submit these.
  • A single key person does not have to be responsible for all aspects of COVID-19 response. While it is important for firms to have a clear framework for allocating responsibilities for different aspects of their response to COVID-19, the FCA and the PRA do not generally prescribe a ‘one-size-fits-all’ approach; the regulators appreciate that different firms may employ different approaches in combatting the repercussions from the outbreak.
  • The FCA and the PRA remind firms that if they cannot reallocate an absent SMF’s responsibilities among their remaining SMFs, they can temporarily allocate them to an unapproved individual who is acting up as interim SMF under the existing 12-week rule. Both regulators are currently gathering evidence on whether the 12-week rule gives firms sufficient flexibility to deal with temporary absences of SMFs and will consider additional measures if required.
  • Individuals performing mandatory SMF roles should only be furloughed as a measure of last resort. Certain SMFs are not mandatory and firms have greater flexibility to furlough individuals performing them. However, firms should be mindful about the risks and unintended consequences of furloughing non-mandatory SMFs.

Notably, the two regulators have clarified that firms should continue to take reasonable steps to complete any annual certifications of employees that are due to expire while COVID-19 restrictions are in place. Furthermore, even in the current circumstances, certified individuals who are not fit and proper should not be re-certified.