Individual Accountability to the Financial Conduct Authority Extending the Senior Managers & Certification Regime

Which of your Directors will be responsible and accountable for the compliance of your sales department?

Currently FCA Authorised Firms, such as directly authorised motor dealers, operate under the Approved Persons regime. As a minimum, each dealership currently has a Control Function 1 (CF1) Approved Person, this person holds overall responsibility for the culture and compliance of the business. The CF1 role is generally the proprietor of an independent driver dealership, the managing director or sometimes the finance director (as a penalty for being in the wrong place at the wrong time) of a large or PLC dealership. Depending on the size of the business there are other historical regulatory roles such as CF8 (Apportionment and Oversight Function) or CF10 (Compliance Oversight Function) held by other directors or senior managers other than that of the MD.

This is changing, The Senior Managers & Certification Regime will be replacing The Approved Person Regime for Directly Authorised Firms (Appointed Representatives in networks will remain as they are until 2019). This change will be fundamental in the way compliance and importantly the responsibility for compliance is currently managed in a motor dealership, with the most significant impact not on the directors who are familiar with accountability for their business, but the management and sales teams.

Source: FCA CP17/25

Under the Senior Managers Regime there will be three tiers of responsibility that would apply to an FCA directly authorised Motor Dealer:

1 Senior Managers Regime (Owners and Directors)

The most senior people in the business or anyone who performs a Senior Management Function needs to be approved by the FCA, this will encompass owners, directors and potentially may include General Managers dependant on the business structure.

You must take reasonable steps to ensure that the business of the firm for which you are responsible is:

• controlled effectively;
• complies with the relevant requirements and standards of the regulatory system; and
• ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.

Each dealership will need to have in place for these individuals:

Statement of Responsibilities - A document that every senior manager needs to have, sets out what they are responsible and accountable for. This needs to be sent to the FCA for approval and be kept up to date.

Duty of Responsibility – Every senior manager will have a duty of responsibility. This means that if a firm breaks one of the FCA requirements, the senior manager responsible for that area could be held accountable if they did not take reasonable steps to prevent or stop the breach.

Criminal record checks – A requirement for a business to conduct annual criminal records checks for senior managers and non-exec directors as part of checking they are fit and proper.

2 Certification Regime

Applies to employees who are not Senior Managers but their role may involve a risk of significant harm to the firm or any of its customers. Managers within the business who can cause significant harm to the business, Sales Managers and Business Managers will fall into the Certification Regime and General Managers who escaped the Senior Managers role. For these staff, the dealership will be required to evidence they have carried out a check and confirm their suitability to do their job at least once a year.

Annual certification:

Assessment of fitness and propriety

Honesty, integrity and reputation

Competence and capability

Financial soundness

3 Other Staff

Individual Conduct Rules - sales staff who perform financial services roles, such as giving finance quotations or settlement figures, will be subject to basic standards of behaviour that people performing financial services activities are expected to meet. Firms need to train their staff on the conduct rules and how they apply to them. Firms will need to report breaches of conduct rules resulting in disciplinary action to the FCA.

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

What do you need to do to prepare, as a directly authorised motor dealer?

• Review the dealerships’ systems, controls and governance arrangements. The FCA rules require these to be adequate to support the new arrangements.
• Evaluate in which segment staff sit; Senior Managers, Certified Staff and Other Staff.
• Assign areas of responsibility; Senior Managers, Certified staff, other Staff.
• Re-write job descriptions to include empowerment; all applicable staff.
• Document Duty of Responsibility for Senior Managers.
• Document Statement of Responsibilities for Senior Managers.
• Carry out criminal record checks for all applicable staff.
• Implementation of your business’s procedure to assess annual suitability and competence for roles.
• Adhere to record keeping requirements.