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Q&A: Brad Stephenson, Laven Partners

Stephenson explains what he’s seeing in advance of the UK’s Senior Managers & Certification Regime deadline in December.

AW: Brad, first off, are alternative investment managers generally ready for the SM&CR regulation coming into force or will there be a mad scramble in late November to finalise compliance?

BS: I remember back in April, BDO carried out a survey which indicated that only 16% of firms surveyed had started any work on their SM&CR implementation plan. Since then we have definitely seen an increase in activity preparing for SM&CR as the implementation date draws nearer for solo-regulated firms. Here at Laven, we have encouraged our clients to put the relevant measures and procedures in place well before late November/December. From what we’ve seen, clients have taken our advice and are generally getting ready for SM&CR coming into force, with the help of our assistance and advice where necessary. Senior Managers and Certification Staff must be identified and trained by 9 December 2019, and the Conduct Rules will apply to them from that date. On the other hand, it is also worth mentioning the one-year implementation period to identify and train Certified Staff until 9 December 2020. However, alternative investment managers should exercise caution and should not be slow to put procedures in place so that they are covered if anything does go wrong during the 1-year implementation period from 9 December 2019 to 9 December 2020.

AW: The Senior Managers regime requires a firm to produce a document called a ‘Statement of Responsibilities’. Tell us a little more about what alternative investment firms are getting right and wrong when working on these statements.

BS: A Statement of Responsibilities (“SoR”) is a document that should be completed by all Senior Managers within a firm. It is worth mentioning that a Senior Manager is anyone within a firm who performs designated “Senior Management Functions” which could pose a significant risk to the firm if misconduct occurs. So far, most firms seem to be able to identify these “Senior Managers”, which include the Chief Executive (SMF1), Executive Directors (SMF3), the Chair (SMF9) and Partners (SMF27). This is also further extended to include two required functions, the Compliance Officer (SMF16) and the Money Laundering Reporting Officer (SMF17). Firms should be careful when allocating responsibilities under SM&CR. Failing to allocate responsibilities to the right Senior Managers or having Senior Managers who are not aware of their responsibilities will be one of the most likely mistakes a firm can make.

The SoRs document should clearly state what functions a Senior Manager is responsible and accountable for. The idea is that it should be a self-contained document and should not refer to other documents. The SoR should enable regulators, the firm and other individuals to easily understand a Senior Manager’s actual responsibilities and accountabilities. There is “Other Responsibilities” section, for anything not covered by Prescribed Responsibilities. These “Other Responsibilities” cover business including sales, customer service and IT. Where we are seeing some firms slipping up is that these SoRs should not be a comprehensive job description. Senior Managers need to provide a clear and precise overview of their responsibilities in their role.

Further, firms are aware of the relevant paperwork for SM&CR and complete it but firms should not be complacent and make sure that SM&CR measures and procedures are thoroughly implemented. All staff should also receive tailored training specific to their roles and responsibilities; the training Senior Managers are given will differ from the training given to Certified Staff. With SM&CR, the FCA has stressed the importance of “listening and speaking up” in order to hold managers accountable and further improve the workplace culture of solo-regulated firms.

AW: The Certification part of the new regulation puts the onus on the firm to identify staff who could cause significant harm to it, with an annual renewal of this certification. What could fall through the cracks here if alternative investment firm managers aren’t careful?

BS: Managers should be careful to identify all Certified Staff. This includes anyone who could cause significant harm to the business, such as those with a customer-facing role, typically CF30s and non-executive directors. If a new person joining the firm is not correctly identified or recognised at all as being Certified Staff, firms may risk hiring someone who could cause significant harm to the business due to possibly not going through all the relevant steps. This includes completing confirming that the person is fit and proper for their role and obtaining 5 years of regulatory references if possible.

Brad Stephenson
Laven Partners' Brad Stephenson

AW: Senior Managers and Certified Persons have to adhere to the FCA Code of Conduct (COCON). To what extent does a person’s personal conduct have to do with their responsibilities under the COCON rules?

BS: The new COCON rules are very interesting as conduct outside the workplace could now be considered relevant and reportable to the FCA. Firms will all need to look at breaches of COCON on a case by case basis, but the idea of telling everyone that you have got a great deal paying a builder in cash may become a thing of the past, as it could be deemed a breach of the conduct expected of a person in that position. Senior Manager and Certified Persons should have a conversation with their HR team and discuss what action, if any, should be taken in proportion to the respective breach of COCON. 

AW: Finally, Brad, what kind of technology exists for those alternative investment fund managers yet to implement a plan to get up to speed with SM&CR compliance and how does it help?

BS: We are seeing a general trend towards the use of RegTech as a result of the ever-growing regulatory burden. Regulatory updates have increased by 493% and revisions in the regulatory landscape have quintupled since the 2008-2009 financial crash. Because of this rapid rise, firms are looking for ways to save time without sacrificing the quality of work. Technology such as Laven Tech helps managers to implement a plan and prepare for SM&CR as it streamlines the process and enables managers to easily adjust to the new requirements. Laven Tech provides templates for all the necessary documents firms are required to complete under SM&CR. These are linked to dates inside the calendar to ensure any document which needs to be repeated or reviewed is captured and added to a to do list as well as to Outlook calendar if needed. From our perspective, as we use the technology internally for our hosting solution and compliance consultancy work, we have seen up to 40% time saving on compliance tasks after implementing RegTech and far less, if any, human error as a result of forgetfulness.

Brad Stephenson is COO of Laven Partners

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