Don’t worry we aren’t talking about gym buffs or having that six pack ready for the summer, we mean the tricky business of being an FCA Approved Person or being in a Senior Management role, and in particular we are focusing on the ‘competency and capability’ requirement as part of the three-prong condition of being ‘Fit and Proper’. So, leaving aside Honesty and Integrity and Financial Soundness, what does the FCA actually mean when it requires and assesses whether someone is ‘Competent and Capable’ for a role at a regulated firm and why is this such an important issue?
Whilst submitting direct authorisation applications within the Fintech sector, we have seen that over the past year or so the FCA ramp up their focus on the importance of the skills and experience of those in senior management roles, all as a part of holding those in senior roles accountable, as well as competent and capable, to appropriately discharge their duties. The importance of the accountability of those in senior management is most acutely exemplified by the upcoming SM&CR implementation.
Who is responsible?
Before hiring an individual, a firm should ensure that they are selecting the right candidate, and that this candidate fits not only the firm’s requirements, but also the FCA’s. This includes taking a deep dive into whether the candidate has the knowledge, skills and expertise to undertake the role, particularly in relation to the function that they are undertaking.
As part of our work at Thistle, we often help a firm decipher which types of skills and experience are necessary for their organisation and whether that person needs to be approved as part of their wider application build.
For example, when working with firms in the lending sector, we have seen that they are unaware that they will need to employ or contract a person with relevant credit underwriting experience, if they do not have one already. “Why?”, they say. “We have an awesome algorithm that does this for us”. This may be so, but the FCA will still require an individual with the appropriate knowledge and experience to oversee this, as well as address any anomalies. In our recent interaction with the FCA, the latest progression we have seen is that this individual should even have specific underwriting experience relating to the type of lending they are looking to do (P2P, credit, high-cost short-term, so on). Of course, this person may not necessarily be an Approved Person, but the FCA are increasingly likely to question the suitability of such an individual due to its critical nature. Therefore, the same line of thinking should be taken, as if it were an assessment of Fit and Proper, including an assessment of the individual’s competency and capability to fulfill their role.
As part of the upcoming SM&CR, it will also be the Senior Managers responsibility to ensure that the business arm of which they are responsible is executed effectively, compliantly and that any work delegated is to an appropriate person and is still overseen by them. The risk for non-compliance within SM&CR may have wide implications for both the firm and any individuals who fall under the regime, with personal liability for those individuals who fail to meet the conduct standards expected.
How can Thistle help you?
If you are concerned about this update, please get in contact for an initial chat to see how we can assist in becoming compliant.
For general Senior Managers, this could be helping you to complete a compliance framework for your area of business and helping you understand what is required from a regulatory point of view. For those specifically within lending this could be assisting you to build your credit underwriting, debt management and treating customers fairly policies or using our drafts, undertaking audits and helping address areas of concern and providing training either through our online Knowledge Training Centre or face-to-face.
Contact us today on firstname.lastname@example.org or call 0207 436 0630.