On November 29, the UK’s Financial Conduct Authority (FCA) published a consultation paper on applying the Senior Managers Regime (SMR) to benchmark administrators. (For more information on the Senior Managers and Certification Regime, or SM&CR, please see the July 28, 2017 edition of the Corporate & Financial Weekly Digest.)
SM&CR already applies to banks and insurers, and will apply to most other UK financial services firms as of December 9. Because benchmark administrators only began to be supervised by the FCA in January 2018, the SMR will apply to them starting December 7, 2020. This gives these firms one extra year to prepare for the regime.
The regime for benchmark administrators will be less onerous than the regime for other FCA-authorized firms in a number of ways:
- the Certification Regime will not apply to benchmark administrators, on the basis that the Article 4(7) of the Benchmark Regulation (BMR) already requires these firms to ensure that employees have the necessary skills, knowledge and experience;
- benchmark administrators will not need to allocate Senior Management Functions (SMFs) 16 and 17 (Compliance Oversight and Money Laundering Reporting Officer, respectively), again due to overlap with the BMR;
- benchmark administrators will have to allocate only three Prescribed Responsibilities, rather than the five that must be allocated in other Core firms; and
- the Conduct Rules will apply, but only to employees involved in the regulated financial services activities at the firm. This is because only a specific part of the business at these firms is regulated activity, and the FCA considers that it would not be proportionate to apply the Conduct Rules to the other parts of the business. This approach is in line with the application of the FCA’s Principles of Business to these firms.
The FCA anticipates that all benchmark administrators will be classified as “Core” firms, with access to the existing waiver process to apply to be categorized as “Limited Scope” and the option to “opt up” to “Enhanced” status. In the consultation paper the FCA suggests that, in particular, it expects administrators of commodity benchmarks (known as “Annex II firms”) to apply to be Limited Scope.
Until the SMR applies to these firms, they will fall under the Approved Persons Regime (APR). After December 7, 2020, the only entities that still fall under the APR will be appointed representatives, and the FCA plans to update its rules to make this clear.
The consultation paper is available here and closes for comment on February 28, 2020.