Overall Responsibility for Legal Function under Senior Management Regime

FCA have provided further guidance as set out in their discussion paper DP 16/4 as to how the ‘Senior Management Function 18’ applies to the legal function within banks and other firms affected by the Senior Management Regime (SMR). SMR is the new accountability regime that currently (from 7 March 2016) applies mainly to banks and insurers, though the FCA have already proposed to extend the regime to all firms, replacing the current ‘Approved Persons Regime’ (APER) in other regulated entities by 2018. One of the core principles of the SMR is that a Senior Manager must have ‘overall responsibility’ for each area of the firm’s business, ensuring complete coverage with ‘no gaps’.

As part of their implementation of SM&CR, firms have questioned the FCA on how ‘Senior Management Function 18 – Other Overall Responsibilities’ (SMF18) applies to the legal function. According to the FCA, a Senior Manager must have overall responsibility for all areas of the firm (including the management of the legal function) and this may mean appointing the person responsible for legal function as an SMF18 if this responsibility has not already been allocated to another Senior Manager (for example, to the Head of Compliance).

They have clarified that their current rules require that a Senior Manager must have overall responsibility for every activity, business area or management function in a relevant firm. This includes the legal function. As such, whoever has overall responsibility for management of the legal function needs to be captured as an SMF18 if they are not already captured under another SMF (such as the Head of Compliance)”. In the paper, FCA have stated that the relevant legislative and regulatory framework does not contain any requirement that the role of General Counsel be designated a Senior Manager within the SMR.

Through this DP, the FCA have invited further industry feedback/ comments for reviewing whether SMF18 should continue to apply to the management of the legal function.

(Whereas the above DP is currently relevant to all deposit takers and insurance providers, it will be of interest to other firms as well due to the FCA’s proposals to apply SMR to all regulated firms by next year. They may therefore consider, in the meantime, whether they should be allocating the responsibility for managing the legal matters/ affairs of the firm to an appropriate FCA approved person within the allocation of responsibilities/ job descriptions of senior managers)