SYSC 4.7 Senior management responsibilities for UK relevant authorised persons: allocation of responsibilities1

The purpose of this section is to ensure, together with the equivalent PRA requirements, that an SMF manager is responsible and accountable for every area of a firm's activities.

The purpose of SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) is to avoid gaps. It is to make sure that an SMF manager has responsibility for every part of a firm's activities, business areas and management functions not otherwise covered by other parts of this section or by the equivalent PRA requirements.

As explained in SYSC 4.7.18G, SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not apply to non-executive functions.

When SYSC 4.7 refers to a person having overall responsibility for a function, it means a person who has:

1. (1)

   ultimate responsibility (under the governing body) 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.

Having overall responsibility for a matter does not mean having ultimate authority over it. The ultimate decision-making body of a firm is its governing body, acting collectively.

1. (1)

   A person with overall 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)

   A person who reports to another, or is subject to oversight by another, may still have overall 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's governing 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;

4. B has overall responsibility for that matter.

5. (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;

6. B has overall responsibility for that matter.

7. (5)

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

8. (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;

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

When this section refers to a person having overall responsibility for a function, it does not mean that that person has day-to-day management control of that function.

In general, the FCA expects that a person to whom overall responsibility for an area of a firm is allocated under SYSC 4.7.8R will be the most senior employee or officer responsible for managing that area.

1. (1)

   SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not mean that the firm has to allocate overall responsibility for the running of the governing body itself.

2. (2)

   This is because SYSC 4.7.8R is about assigning responsibility subject to the overall control of the governing body (see SYSC 4.7.12G).

3. (3)

   This means that a person does not have overall responsibility for a function under SYSC 4.7.8R just by being a member of a firm's governing body.

1. (1)

   A person who just provides oversight of a function does not have overall responsibility for that function under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions).

2. (2)

   Paragraph (1) and SYSC 4.7.17G mean that a non-executive director acting as such does not have overall responsibility for a function under SYSC 4.7.8R or perform the other overall responsibility function.

3. (3)

   Paragraph (1) and SYSC 4.7.17G mean that a non-executive director:

   1. (a)

      providing oversight of a function; or

   2. (b)

      being responsible for the independence of a function;

   3. does not have overall responsibility for that function under SYSC 4.7.8R or perform the other overall responsibility function.

The FCA expects a firm to allocate all the functions in SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities) and SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) to an individual and not to a legal person.

The FCA would not consider it unusual if a person who has overall responsibility for a particular function was not a member of the governing body. For example, in some firms, the head of compliance reports directly to the governing body even though the head compliance is not a member of the governing body.

1. (1)

   A person may have overall responsibility for a matter without being a member of the firm's governing body, which means that (ignoring (2)) a relatively junior person could have overall responsibility for an activity of a firm.

2. (2)

   However, the FCA expects that anyone who has overall responsibility for a matter:

   1. (a)

      will be sufficiently senior and credible; and

   2. (b)

      will have sufficient resources and authority;

3. to be able to exercise his management and oversight responsibilities effectively.

SYSC 4.7.21G(2) also applies to someone who has responsibility for an FCA-prescribed senior management responsibility.

1. (1)

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

2. (2)

   However, when deciding how to divide up overall responsibility for its activities, a firm should avoid assigning such a wide range of responsibilities to a particular person so 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 responsibility for some functions to be assigned to persons in the layer of management below the governing body. Anyone in that layer having overall responsibility for an activity will be performing a designated senior management function.

1. (1)

   The FCA expects that normally a firm will allocate the FCA-prescribed senior management responsibility in rows (5), (7), (8), (9) and (10) of the table in SYSC 4.7.7R to an SMF manager who is a non-executive director of the firm.

2. (2)

   The FCA expects that normally a firm will allocate:

   1. (a)

      the other FCA-prescribed senior management responsibilities; and

   2. (b)

      functions under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

   3. to an SMF manager who performs executive functions for the firm.

3. (3)

   In general, the FCA expects that a person who has responsibility for an FCA-prescribed senior management responsibility in (2) will be the most senior employee or officer responsible for managing that area.

4. (4)

   Paragraphs (1) to (3) do not apply to a small non-complex firm to the extent that they deal with those FCA-prescribed senior management responsibilities that, under the table in SYSC 4.7.7R, do not apply to small firms.

5. (5)

   The FCA accepts that it may not be practical for a small non-complex firm (see SYSC 4.5.13G) to comply with the parts of (1), (2) and (3) that would otherwise apply to it.

1. (1)

   The FCA expects that a firm will not normally split an FCA-prescribed senior management responsibility between several SMF managers, with each only having responsibility for part.

2. (2)

   The FCA expects that a firm will not normally allocate responsibility for:

   1. (a)

      an FCA-prescribed senior management responsibility; or

   2. (b)

      a function under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

3. to two or more SMF managers jointly.

1. (1)

   Although the norm should be for a firm to have a single individual performing each FCA-prescribed senior management responsibility or function allocated under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions), there may be circumstances in which responsibilities can be divided or shared (see (2)).

2. (2)

   A firm should only divide or share a responsibility where this is appropriate and can be justified.

3. (3)

   For example, it would be justified to share a function or responsibility if that is done:

   1. (a)

      as part of a job share; or

   2. (b)

      where departing and incoming senior managers work together temporarily as part of a handover.

4. (4)

   A firm may have co-heads of a department or business unit if this can be justified under (1) to (3).

1. (1)

   The FCA expects a firm to divide and allocate responsibilities under:

   1. (a)

      SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities); and

   2. (a)

      SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

2. between its SMF managers so that responsibilities are grouped together appropriately.

3. (2)

   The firm should make the judgement:

   1. (a)

      in (1); and

   2. (b)

      about whether and how responsibilities and functions should be shared;

   3. under:

   4. (c)

      SYSC 4.1.1R (robust governance arrangements); and

   5. (d)

      any other applicable Handbook requirements, including SYSC 4.7.25G and SYSC 4.7.26G.

4. (3)

   The firm should take into account the way it is organised, the business it carries out and the need not to allocate too many responsibilities to one individual (see SYSC 4.7.23G).

5. (4)

   The FCA expects a firm to allocate FCA-prescribed senior management responsibilities and responsibilities allocated under SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) to the SMF managers they are most closely linked to.

SUP 10C.11.31G to SUP 10C.11.33G (Statements of responsibilities) contains material about:

1. (1)

   how to prepare statements of responsibilities where a responsibility or function is shared or divided between several SMF managers; and

2. (2)

   dividing and sharing responsibilities.

1. (1)

   A firm may allocate more than one FCA-prescribed senior management responsibility to the same SMF manager.

2. (2)

   This is subject to:

   1. (a)

      SYSC 4.7.23G (should not give too many responsibilities to one person); and

   2. (b)

      SYSC 4.7.27G (what responsibilities should be grouped together).

1. (1)

   As explained in SYSC 4.7.2R, there is no territorial limitation to the application of this section.

2. (2)

   This means that a firm should allocate:

   1. (a)

      the FCA-prescribed senior management responsibilities; and

   2. (b)

      overall responsibilities under SYSC 4.7.8R;

   3. so that they cover activities, transactions, business areas and management functions that are located or take place wholly or partly outside, as well as ones in, the United Kingdom.

1. (1)

   SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) requires overall 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 management regime for relevant authorised persons.

   1. (a)

      The group employee is appointed by the firm's governing body 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 management regime for relevant authorised persons 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 oversee what the group employee does (so far as it concerns the firm) and to take overall responsibility for the function. A will need to be approved as an SMF manager.

1. (1)

   SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions) does not cover responsibility for an aspect of a firm's affairs managed by an individual approved to perform the Group Entity Senior Manager PRA-designated senior management function.

2. (2)

   Where a responsibility is held by someone approved to perform the Group Entity Senior Manager PRA-designated senior management function for the firm, there is no need to apply the arrangements in SYSC 4.7.31G.

3. (3)
   1. (a)

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

   2. (b)

      the firm's management responsibilities map;

   should clearly show what responsibilities are held by that individual.

A firm may rely on an employee of a company in the same group to perform an FCA-prescribed senior management responsibility. However, SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities) also requires this to be arranged in such a way that the person performing the responsibility is approved as an SMF manager of the firm.

SYSC 4.7.31G and SYSC 4.7.33G also apply 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)

   A firm should allocate between its SMF managers responsibility for every area of its activities.

2. (2)

   This is required by a mixture of:

   1. (a)

      SYSC 4.7.5R (Allocation of FCA-prescribed senior management responsibilities);

   2. (b)

      SYSC 4.7.8R (Allocation of overall responsibility for a firm’s activities, business areas and management functions);

   3. (c)

      the requirements for FCA-designated senior management functions; and

   4. (d)

      the corresponding PRA requirements.

1. (1)

   Having overall responsibility for an activity under SYSC 4.7.8R requires approval as an SMF manager. This is because a person who has overall responsibility for an activity will be:

   1. (a)

      performing the other overall 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 says that the other overall responsibility function does not apply to a person who is approved to perform another designated senior management function.

1. (1)

   The purpose of SYSC 4 Annex 1G (The main business activities and functions of a relevant authorised person) is to help a firm to prepare its management responsibilities map (see SYSC 4.5.16G).

2. (2)

   There is no direct link between SYSC 4 Annex 1G and this section.

3. (3)

   However, a firm may find SYSC 4 Annex 1G useful as a checklist to help it make sure that it has not failed to allocate overall responsibility under SYSC 4.7.8R for a particular activity of the firm.

4. (4)

   If a firm uses SYSC 4 Annex 1G to help it check whether it has allocated overall responsibility as described in (3), it should bear in mind that it is not comprehensive (see SYSC 4.5.20G).

SYSC 4.7.26G (a firm should normally allocate responsibility for particular areas to a single SMF manager) does not mean that the FCA expects there to be a separate person with overall responsibility for each individual business area in SYSC 4 Annex 1G (The main business activities and functions of a relevant authorised person).