1The purpose of this chapter is to ensure, together (in the case of a PRA-authorised person)2 with the equivalent PRA requirements and the requirements about FCA-prescribed senior management responsibilities in SYSC 24 (Senior managers and certification regime: Allocation of prescribed responsibilities), that:

1. (1)

   an SMF manager is responsible and accountable for every area of a firm’s activities;

2. (2)

   the allocation of responsibilities is done systematically and explicitly; and

3. (3)

   the process of allocation of responsibilities under this chapter covers every part of a firm’s activities, business areas and management functions (subject to the exclusions in SYSC 26.4 (Exclusions) without any gaps in what is allocated in this process.

1The purpose of this chapter is not primarily to ensure that formal responsibility for everything a firm does is allocated amongst its senior management. Even without the requirements of this chapter, responsibilities that have not been allocated explicitly would fall to the chief executive by default. However, one of the purposes of this chapter is to avoid responsibilities being allocated by implication or by default.

1. (1)

   1The allocation of responsibilities under this chapter does not replace the responsibilities of the chief executive.

2. (2)

   If a firm allocates responsibilities under this chapter to an SMF manager other than the chief executive, the chief executive will be responsible for managing that person’s performance of those responsibilities in the same way that the chief executive manages that person’s other responsibilities.

3. (3)

   A firm may allocate responsibilities under this chapter to the chief executive.

1 SYSC 26.4.3R means that a person does not have overall or local responsibility for a function under this chapter just by being a member of a firm’s governing body or equivalent.

1. (1)

   1A person who just provides oversight of a function does not have overall or local responsibility for that function under this chapter.

2. (2)

   Paragraph (1) and SYSC 26.4.4G mean that a non-executive director acting as such does not have overall or local responsibility for a function under SYSC 26.3 or perform the other overall responsibility function or the other local responsibility function.

3. (3)

   Paragraph (1) and SYSC 26.4.4G mean that a non-executive director:

   1. (a)

      providing oversight of a function; or

   2. (b)

      being responsible for the independence of a function;

   does not have overall or local responsibility for that function under this chapter or perform the other overall responsibility function or the other local responsibility function.

1A firm need not allocate the Responsibilities referred to in SYSC 26.4.6R(1)(b) to the person who is providing cover for the absent SMF manager.

1 SYSC 26.4.6R and SUP 10C.3.13R apply to a person performing the other overall responsibility function or the other local responsibility function as well as to a person performing one of the other designated senior management functions.

1. (1)

   2The purpose of SYSC 26.4.11R is to treat support services for the legal function as part of the legal function where responsibility for the support services is allocated to the person with overall responsibility for the legal function.

2. (2)

   A support service is one that is directly related, but subordinate, to the legal services described in SYSC 26.4.10R. It should be necessary for the successful or better functioning of the main legal services and be an integral part of them.

3. (3)

   One example of a support service is human resources services for the legal staff. This includes recruitment, training, continuing professional development, appraisal and discipline.

4. (4)

   The effect of SYSC 26.4.11R is that if the person with overall responsibility for the legal function also has overall responsibility for human resources services for the staff of the legal function, those services are covered by the exclusion in SYSC 26.4.9R(2). However, they are not excluded if those services are provided by a separate human resources department.

1. (1)

   2A firm may divide its legal function into different parts and appoint a different person to have overall responsibility for each.

2. (2)

   If it does, SYSC 26.4.9R and SYSC 26.4.11R still apply.

3. (3)

   So for example, if the firm has two legal departments, one headed by A (for which A has overall responsibility) and one headed by B (for which B has overall responsibility):

   1. (a)

      neither A nor B need be an SMF manager; and

   2. (b)

      the firm may allocate overall responsibility for the human resources function for A’s department to A and overall responsibility for the human resources function for B’s department to B even though neither A nor B is an SMF manager.

2 SUP 10C.7.1R and SUP 10C.8.1R exclude the person with overall responsibility for the legal function from the other overall responsibility function (SMF18) and the other local responsibility function (SMF22).

2The exclusions in SYSC 26.4.9R(2), SYSC 26.4.11R and SYSC 26.4.14G do not affect the scope of the following or the obligation to appoint an SMF manager to carry them out:

1. (1)

   any FCA-designated senior management function other than the ones in SYSC 26.4.14G; or

2. (2)

   any of the FCA-prescribed responsibilities.

2 SYSC 25.3.3G and SYSC 25.3.4G (Management responsibilities maps: Exclusion of non-financial services activities for some firms) are relevant to when an enhanced scope SMCR firm may exclude support services from the allocation of responsibilities under this chapter.

1 SYSC 26.1.4R (territorial scope) means that a firm should allocate overall responsibilities under this chapter so that they cover activities, transactions, business areas and functions that are located or take place wholly or partly outside, as well as ones in, the United Kingdom.

1There is an exception to SYSC 26.5.1G for an overseas SMCR firm. This is that SYSC 26.1.5R limits this chapter to the activities of its UK branch.

1. (1)

   1It is common for a branch to carry out only part of a transaction. For instance, a transaction may be booked in a branch but negotiated and arranged elsewhere or vice versa.

2. (2)

   When allocating responsibility to an SMF manager for activities in relation to transactions under SYSC 26.3 (Main rules), a firm should not exclude a transaction which is arranged, booked or negotiated in the branch merely because other elements of the transaction occur outside the United Kingdom.

1The meaning in practice of overall responsibility for a function of a UK SMCR firm depends on whether that function is under the management of the firm’s governing body or not.

1. (1)

   Certain requirements of the regulatory system say that the governing body of certain firms should 3have ultimate responsibility for, and the prime and leading role in, managing the firm.

   12
2. (2)

   In particular this is the case under:

   1. (a)

      SYSC 4.3A.1R (Management body); and3

      2
   2. (b)

      [deleted]32

   3. (c)

      rule 2.1 in the Part of the PRA Rulebook called Conditions Governing Business (General Governance Requirements)2 in the Part of the PRA Rulebook called Conditions Governing Business.3

3. (3)

   This means that the governing body of a UK SMCR firm subject to these requirements will manage the conduct of the whole of the business of the firm. In turn that means that the parts of this chapter dealing with a function that is not managed by the firm’s governing body will not be relevant to it.

1The FCA recognises that for some UK SMCR firms not subject to the requirements in SYSC 26.6.2G, some activities, business areas and functions of a firm may not be under the management of its governing body. This may be the case where, for example:

1. (1)

   the firm does not have a governing body; or

2. (2)

   the firm’s shareholders play a key role in managing it through, for example, a group management committee.

1. (1)

   1SYSC 26.3.2R(1) refers to the activities, business areas and management functions of the branch that are under the management of the branch’s governing body. However, the FCA recognises that for some branches, some activities, business areas and functions of the branches may not be under the management of the branch’s governing body. This may be the case where the branch does not have its own governing body or where it is organised in such a way that certain functions are under the management of a person or body outside the branch’s management structure. In those circumstances, it would not be appropriate to require the firm to allocate overall responsibility for that matter to a person who is part of the management structure of the branch.

2. (2)

   The requirements to allocate responsibility for activities, business areas and functions of a branch under SYSC 26.3.2R(1) and (2) respectively are intended to allow for the difference described in (1). In particular:

   1. (a)

      SYSC 26.3.2R(1) is intended to cater for the situation where a particular activity, business area or function of the branch is under the management of the branch’s governing body. In that situation, the firm should allocate responsibility for that matter under SYSC 26.3.2R(1); and

   2. (b)

      SYSC 26.3.2R(2) is intended to cater for the situation where a particular activity, business area or function of the branch is not under the management of branch’s governing body. In that situation, the firm should allocate responsibility for that matter under SYSC 26.3.2R(2).

1 SYSC 26.7 gives guidance on the effect of SYSC 26.3 (Main rules) when a function is under the governing body’s management. SYSC 26.8 gives guidance on the effect of SYSC 26.3 when the function is not.

1Having overall or local responsibility under this chapter for a matter does not necessarily mean:

1. (1)

   having ultimate authority over it; or

2. (2)

   having day-to-day management control of that function.

1In particular, the ultimate decision-making body of many UK SMCR firms is their governing body, acting collectively.

1This section gives guidance on what overall and local responsibility for a function means when the governing body manages the function in question under SYSC 26.3 (Main rules).

1When this chapter refers to a person having overall or local responsibility for a function as described in SYSC 26.7.1G, it means a person who has:

1. (1)

   ultimate responsibility (under the governing body and the chief executive) for managing or supervising that function; and

2. (2)

   primary and direct responsibility for:

   1. (a)

      briefing and reporting to the governing body about that function; and

   2. (b)

      putting matters for decision about that function to the governing body.

1In general, the FCA expects that a person to whom overall responsibility for a function is allocated as described in SYSC 26.7.1G will be the most senior employee or officer responsible for managing or supervising that function under the management of the governing body.

1. (1)

   1A person with overall or local responsibility for a matter will either be a member of the governing body or will report directly to the governing body for that matter.

2. (2)

   For example, a firm appoints A to be head of sales. A is not on the governing body. A reports to an executive director (B) and B reports to the governing body about the sales function. In this example B, rather than A, has overall responsibility for sales.

1. (1)

   1A person who reports to another, or is subject to oversight by another, may still have overall or local responsibility for a function.

2. (2)

   For example, a head of compliance may report direct to the governing body but be subject to performance appraisal by the chief executive. In this example, the head of compliance will still have overall responsibility for compliance.

3. (3)

   If a person (A):

   1. (a)

      reports directly to the firm’sgoverning body about a particular matter; but

   2. (b)

      is not a member of the governing body; and

   3. (c)

      reports to a member of the governing body (B) about that matter, who also reports to the governing body about that matter;

   B has overall or local responsibility for that matter.

4. (4)

   If:

   1. (a)

      a person (A) reports directly to the firm’s governing body about a particular matter;

   2. (b)

      A also reports to another person (B) about that matter;

   3. (c)

      neither A nor B is a member of the governing body; and

   4. (d)

      B also reports directly to the firm’s governing body about that matter;

   B has overall responsibility for that matter.

5. (5)

   A member of the governing body who reports to the chief executive may still have overall or local responsibility for a function.

6. (6)

   If:

   1. (a)

      a person (A) reports directly to the firm’s governing body about a particular matter; and

   2. (b)

      A’s function is subject to oversight by a non-executive director (B) or by a committee of the firm’s governing body chaired by B;

   A (not B) has overall or local responsibility for that matter.

1A person may have local responsibility for a function for a branch of an overseas SMCR firm even though that person also reports to a person outside the branch.

1This section relates to the allocation of overall or local responsibility for any activities, business areas and functions of the firm which are not under the management of its governing body (see SYSC 26.3 (Main rules)).

1A person having local responsibility for a function for a branch does not need to be part of the management structure of the branch in order to have local responsibility for the function.

1. (1)

   1Generally, where a an overseas SMCR firm allocates responsibility as described in SYSC 26.8.1G to one of the firm’s SMF managers who is not based in the branch the FCA would expect:

   1. (a)

      that the responsibility would not be allocated to a manager whose responsibilities for the branch are limited to setting overall strategy for the branch; and

   2. (b)

      that, instead, the firm would allocate it to a manager who is the most senior person responsible for implementing the strategy for the branch.

2. (2)

   See SUP 10C.1.5AG for more about how the difference between strategic and implementing responsibilities affects the FCA senior managers regime for approved persons in overseas SMCR firms.

1. (1)

   1In some cases, a person who has local responsibility for a particular function may be very senior within the firm as a whole.

2. (2)

   For instance, in some branches, an individual with local responsibility for a function may also be the head of the firm’s Europe and Middle East division for a business line and may be more senior within the firm as a whole than the person performing the PRA’s Head of Overseas Branch designated senior management function.

1Having overall responsibility for a function as described in SYSC 26.8.1G for a UK SMCR firm means being the most senior employee or officer (under the chief executive if there is one) responsible for managing or supervising that function.

1The FCA expects that anyone who has overall or local responsibility for a matter:

1. (1)

   will be sufficiently senior and credible; and

2. (2)

   will have sufficient resources and authority;

to be able to exercise their management and oversight responsibilities effectively.

1. (1)

   1The FCA would not consider it unusual if a person who has overall or local responsibility for a particular function was not a member of the firm’s governing body or equivalent.

2. (2)

   For example, in some firms, the head of compliance may report directly to the firm’s governing body even though the head of compliance is not a member of the governing body.

1Other parts of this chapter dealing with seniority are:

1. (1)

   SYSC 26.7.3G (seniority of someone with overall responsibility for a function under the management of a firm’s governing body);

2. (2)

   SYSC 26.8.3G and SYSC 26.8.4G (seniority of someone from elsewhere in the firm having local responsibility in a branch); and

3. (3)

   SYSC 26.8.5G (seniority of someone within a UK SMCR firm with overall responsibility for a function not under the management of a firm’s governing body).

1. (1)

   1It will be common for a small non-complex firm to divide overall or local responsibility for its activities under the management of its governing body between members of its governing body and not to assign overall or local responsibility for any activity to someone who is not a member.

2. (2)

   However, when deciding how to divide up overall or local responsibility for its activities, a firm should avoid assigning such a wide range of responsibilities to a particular person that the person is not able to carry out those responsibilities effectively.

3. (3)

   Therefore, in a large or complex firm, the FCA expects overall or local responsibility for some functions to be assigned to persons in the layer of management below the governing body. Anyone in that layer having overall or local responsibility for an activity will be performing a designated senior management function.

1 SYSC 26.9.4G(2) also applies to allocating responsibility for functions that are not under the management of the firm’s or branch’s governing body.

1The following provisions of SYSC 24.3 (Who prescribed responsibilities should be allocated to) also apply to allocations under this chapter so far as those provisions deal with sharing responsibilities:

1. (1)

   SYSC 24.3.8G (responsibilities should generally not be shared);

2. (2)

   SYSC 24.3.9G (when responsibilities may be shared); and

3. (3)

   SYSC 24.3.11G (statements of responsibilities);

1. (1)

   1The material in SYSC 24.3 (Who prescribed responsibilities should be allocated to) about splitting of responsibilities is not directly relevant to this chapter. This is because SYSC 24 deals with functions that have been defined in the FCA Handbook whereas this chapter does not define the areas into which a firm’s activities should be divided when allocating responsibilities to its SMF managers.

2. (2)

   However SYSC 24.3.10G (responsibilities should be grouped together appropriately) is also relevant for deciding whether responsibility for a particular set of matters should be allocated to one SMF manager or allocated between several.

1. (1)

   1This chapter requires overall or local responsibility for various aspects of a firm’s affairs to be allocated to an SMF manager.

2. (2)

   This requirement does not prevent a firm from relying on an employee of a company in the same group to perform the function.

3. (3)

   A firm has two main choices about how to fit such arrangements into the senior managers regime for SMCR firms.

   1. (a)

      The group employee is appointed by the firm (usually by its governing body if it has one) to perform the function. This means that the firm will have entered into an arrangement with that person. As explained in SUP 10C.3.9G, an arrangement with the firm is one of the factors that makes the senior managers regime for SMCR firms apply. The result is that the group official will be performing a controlled function and will need to be approved as an SMF manager.

   2. (b)

      The firm appoints someone (A) to supervise what the group employee does (so far as it concerns the firm) and allocates responsibility for the function to A, leaving day-to-day activities to the group employee. A will need to be approved as an SMF manager.

1 SYSC 26.10.1G also applies to a firm that outsources functions to a third party and is relying on an individual from the outsourced services provider to carry out the functions in those paragraphs.

1. (1)

   1This chapter does not cover responsibility for an aspect of a PRA-authorised person’s2 affairs managed by an individual approved to perform the Group Entity Senior Manager or the Group Entity Senior Insurance Manager PRA-designated senior management function (see SYSC 26.4.2R (Exclusions where other requirements apply)).

2. (2)

   Where a responsibility is held by someone approved to perform one of those PRA-designated senior management functions for the PRA-authorised person2, there is no need to appoint that person under this chapter and apply the arrangements in SYSC 26.10.1G.

3. (3)
   1. (a)

      The statement of responsibilities for the individual performing the PRA-designated senior management function; and

   2. (b)

      the firm’s management responsibilities map;

   should clearly show what responsibilities are held by that individual.

1. (1)

   1Having overall or local responsibility for an activity under this chapter requires approval as an SMF manager. This is because a person who has overall or local responsibility for an activity will be:

   1. (a)

      performing the other overall responsibility function or the other local responsibility function; or

   2. (b)

      approved to perform another designated senior management function.

2. (2)

   The other overall responsibility function applies because this is the effect of SUP 10C.7.1R (definition of other overall responsibility function).

3. (3)

   SUP 10C.7.1R(2) says that the other overall responsibility function does not apply to a person who is approved to perform another designated senior management function.

4. (4)

   The other local responsibility function applies because this is the effect of SUP 10C.8.1R (Definition of the other local responsibility function (SMF22)).

5. (5)

   SUP 10C.8.1R(2) says that the other local responsibility function does not apply to a person who is approved to perform another designated senior management function in relation to the branch.

1. (1)

   1The purpose of SYSC 25 Annex 1G (Examples of the business activities and functions of an SMCR firm) is to help a firm to prepare its management responsibilities map (see SYSC 25.7.2G).

2. (2)

   There is no direct link between SYSC 25 Annex 1G and this chapter.

3. (3)

   However, a firm may find SYSC 25 Annex 1G useful as a prompt to help it make sure that it has not failed to allocate overall or local responsibility under this chapter for a particular activity of the firm.

4. (4)

   If a firm uses SYSC 25 Annex 1G as a prompt when it allocates overall or local responsibility as described in (3), it should bear in mind that it is not comprehensive (see SYSC 25.7.8G).

1The FCA does not require:

1. (1)

   there to be a separate person with overall responsibility for each individual business area in SYSC 25 Annex 1G (Examples of the business activities and functions of an SMCR firm); or

2. (2)

   a firm to allocate functions under this chapter using the same split of business areas as in SYSC 25 Annex 1G.

2If a firm does not have anyone who performs the chief operations function (or the equivalent PRA-designated senior management function) the firm should allocate responsibility for the functions in SUP 10C.6B.4G (The chief operations function (SMF24)) among its SMF managers under this chapter.