Senior Managers and Certification Regime and the TPR
Update 7 January 2019: We published a note that clarified the interaction between the PRA’s and FCA’s proposals for applying the Senior Managers and Certification Regime (SM&CR) to firms in the TPR. In particular, this note included a set of Frequently Asked Questions (FAQs) on how the two sets of proposals would apply to dual-regulated, EEA firms that were operating in the UK via an establishment passport through a branch (‘EEA branches’).
Compliance with the PRA’s requirements under the Senior Managers and Certification Regime (SM&CR) was not a pre-condition of entry into the TPR.
All firms in the TPR (including cross-border service providers) are required to have an individual approved to perform the Head of Overseas Branch function (SMF19). In some circumstances the PRA Rulebook requires third country branches also to have persons approved to perform other PRA Senior Management Functions (SMFs) (eg Chief Risk function (SMF4) or With-Profits Actuary function (SMF20a)). Where those circumstances arise for firms in the TPR (including cross-border service providers), they are required to have persons approved to perform the relevant additional SMFs.
The PRA is not applying all the PRA Prescribed Responsibilities (PR) for third country branches to firms in TPR. Instead the following apply:
- the existing Prescribed Responsibility for “compliance with the UK regulatory system applicable to the firm”. This applies to all firms in the TPR. (It does not include compliance with any PRA requirements for which transitional relief has been granted until such relief expires); and
- a bespoke, new Prescribed Responsibility for managing the process of obtaining such permission (including, without limitation, the completion and submission of the firm’s application and providing the PRA with such co-operation and with all accurate and up to date information and assistance that it may reasonably require in order to determine whether the requirements for authorisation have been met).’ This PR will be used to clarify accountability for firm specific actions which firms may be asked to undertake during the transition to third county branch. This PR should be allocated to individuals with deemed approval as Head of Overseas Branch (SMF19) for firms in TPR.
The new PR applies to those firms which applied for Part 4A authorisation as a third-country branch, only for the duration of the application process. If the firm obtains authorisation, then the full list of PRA PRs will apply to the firm. If the firm withdraws its application or fails to obtain such authorisation as a third country branch and is placed into Supervised Run Off (SRO), then the SM&CR requirements for firms in SRO will apply.
The statutory instrument establishing the TPR amends FSMA and allows the PRA and FCA to treat individuals as if they were approved to perform an SMF while their firms are in the TPR, if those firms have submitted an application under section 60 of FSMA on their behalf (‘Section 60 applications’).
The PRA may give these deemed approvals to individuals performing any SMF. If you are a firm operating in the UK through an EEA branch, your population of PRA SMFs may already be approved by the FCA as EEA Branch Senior Managers (SMF21) but you will need to make new section 60 applications to the PRA for individuals performing PRA SMFs while in the TPR.
This deeming operates as follows:
- Where firms have submitted a Part 4A permission application accompanied by the relevant full SMF applications in advance of entry into TPR, the PRA (with the FCA’s consent) can decide to treat the individuals as approved with effect from entry into TPR. Individuals will not be required to undergo the standard PRA fitness and propriety assessment to be eligible for deemed approval.
- Firms that have not submitted full SMF applications prior to entry into TPR will need to complete and submit application form(s) (‘TPR SMF Application’) containing key information on the individual(s) they propose to perform SMFs while they remain in the TPR. They will also need to complete and submit the related Statement of Responsibilities form. After receiving a TPR SMF Application the PRA (with the FCA’s consent) can decide to treat the relevant individual as approved. Individuals will not be required to undergo the standard PRA fitness and propriety assessment to be eligible for deemed approval. Firms should ensure that they submit the relevant Senior Managers and Certification Regime forms within six weeks from the end of the transition period to enable individuals to obtain a deemed approval by 12 weeks from the end of the transition period.
Other requirements under the SM&CR will apply to individuals with deemed approval, including the Conduct Rules and Senior Manager Conduct Rules.
More broadly, PRA SMFs in firms which submit (either prior to their entry into TPR or during TPR) a Part 4A authorisation application will undergo a full fit and proper assessment by the PRA/FCA (including interviews at either regulator’s discretion). PRA approval, (with the FCA’s consent), will be subject to the outcome of such assessments. Firms should not treat a deemed approval as an SMF as an indication that we and/or the FCA are satisfied as to that individual’s fitness and propriety to perform that or any other SMFs on a permanent basis.
Certification Regime and Regulatory References
PRA regulated firms operating in the UK through an EEA branch passport were also subject to the Certification Regime under the FCA’s rules (in respect of any relevant UK-based employees) and remain so in the TPR. They also became subject to the PRA’s Certification rules (which do not give rise to additional substantive obligations). The Certification Regime became effective for insurers, including those operating in the UK through an EEA branch on 10 December 2018 but insurers had 12 months from that date to complete the first round of annual certifications (Strengthening accountability page 22 November 2019 update).
The PRA's and FCA’s requirements on regulatory references applied to all dual-regulated firms, including (under FCA rules) deposit-takers and insurers operating in the UK through an EEA branch passport (in respect of their UK-based SMFs, Senior Insurance Manager Functions (SIMFs) and, where applicable, Certified employees, Notified NEDs and Key Function Holders (KFHs)). This remains the case on entry into the TPR.
The Certification Regime and Regulatory References applies to firms without a UK establishment previously operating in the UK through a FOS passport which have entered into the TPR.
The PRA’s Conduct Rules apply to SMFs with deemed provisional approval and employees subject to the PRA’s Certification rules (ie UK Material Risk Takers (MRTs)) from the moment their firm enters into the TPR. Individuals in firms previously operating in the UK through an EEA branch passport and subject to the FCA’s Conduct Rules remain subject to those requirements while their firms are in TPR. They will also become subject to the PRA’s Conduct rules (which do not give rise to additional obligations).