The Certification Regime applies to individuals who perform a Certification Function. It is being introduced to cover those people whose jobs have a potentially big impact on customers, markets or the firm, but who are not Senior Managers.
Which individuals will fall within the Certification Regime
Any employees that carry out a Certification Function will fall within the Certification Regime. You therefore need to carry out a review of your organisation to identify these individuals.
The Certification Functions are as follows:
- Significant Management Function (current CF29)
- Proprietary traders
- CASS Operational Oversight Function
- Functions subject to qualification requirements
- Client Dealing Function
- Anyone who supervises or manages a Certification Function (directly or indirectly), but isn't a Senior Manager
- Material Risk Takers
- Algorithmic trading
In order to identify if any individuals within your organisation are carrying out one of the above Certification Functions, you will need to review the full, detailed definitions of each Certification Function, as set out in 27.8 of the Senior Management Arrangements, Systems and Controls chapter of the updated-FCA Handbook. These can either be accessed through the online version of the FCA Handbook (note however that, in order to see the rules that will apply from 9 December 2019, you will need to use the FCA Handbook timeline functionality) or by reviewing the final rules set out in the FCA's recent policy statement, which can be located here).
When carrying out your review, it is important to remember that it is not just employees in the traditional sense that may fall within the Certification Regime, but can include contractors and secondees. The definition of an "employee" is extremely wide and includes:
A person who personally provides, or is under an obligation personally to provide, services to A under an arrangement made between A and the person providing the services or another person, and is subject to (or to the right of) supervision, direction or control by A as to the manner in which those services are provided.
Creating the Certification Process
Those individuals falling under the Certification Regime are not required to be approved by the FCA, but you, the firm, must check and confirm (certify) that they are fit and proper to carry out that Certification Function. If you conclude that the individual is fit and proper, you must issue them with a certificate.
You are then required to carry out the fit and proper test on that individual at least once a year and you must renew the certificate accordingly.
In designing this Certification Process, you need to ensure:
- You have consistency regarding whether certain roles are certified or not.
- You have a process in place to track staff changes and to identify any new individuals who may fall within the Certification Regime. Remember that this is an on-going requirement and therefore, even if you don't have any individuals that fall within the Certification Regime on 9 December 2019, you still need to monitor this to catch any changes.
- That the fitness and propriety checks carried out by the firm conform with the FCA's detailed guidance, which includes reviewing an individual's honestly, integrity, reputation, competence, capability and financial soundness.
On the 9 December 2019 you need to know who will fall within the Certification Regime within your organisation, but you then have 12 months to carry out the fitness and proprietary test and to issue them with certificates.
Our next Milestone in September will focus on updating your internal policies and procedures, including various HR policies. In the meantime, should you have any queries on the SM&CR, please do not hesitate to get in touch.