A New Era of Responsibility and Accountability

This bulletin is a must-read for all firm principals, advisers and staff as it sets out a significant change in the way directly authorised firms are supervised from 9th December 2019.


It is a little over a decade since the terrible market conditions experienced in the UK threatened to desolate the financial sector. A banking crisis was brought on by greed and excessive risk-taking by figures in senior positions, whilst the lending market became too relaxed, providing increasingly large sums of monies with decreasing assessment of affordability. The result was a devastating scenario that saw some of our oldest and largest banking institutions on the verge of collapse and required billions of pounds of public funds to prop them up. The Funding for Lending and Term Funding schemes, promotion for competition amongst lenders (by lowering regulatory barriers to entry) and innovation (e.g. by launching a regulatory sandbox). Alongside these measures, regulators have acted to ensure that mortgage lending continues to be prudent and sustainable. 2014 was an important year, with the Financial Conduct Authority (FCA) implementing the Mortgage Market Review (MMR).

At its heart, the MMR introduced a much more rigorous approach to income verification of borrowers and the assessment of affordability, and a presumption in favour of mortgage sales being on an advised basis. Since 2014 the FCA has consulted, drafted and implemented a new set of rules that change the way the industry is governed, to ensure there is no repeat of the reckless behaviour of the past by people in positions of authority, within financial services companies. This is now known as the Senior Managers and Certification Regime, or SM&CR.In addition to the SM&CR, the FCA is also implementing a new Directory, which is a publicly available resource that will include details of every authorised adviser in the UK, creating greater transparency and increased visibility of mortgage advisers.Senior Managers RegimeThe Senior Managers and Certification Regime (SM&CR) is already in place for the Banking sector (2016) and product providers (2018). It will now be extended to other FCA regulated (Directly Authorised) firms from 9 December 2019 and will replace the existing Approved person regime.

The aim of the regime is to improve standards of conduct and culture throughout the financial services industry and to increase the direct accountability of senior individuals within firms for their actions and the actions of those that they are responsible for. Senior staff, such as directors, not only become more accountable for their actions, but they must demonstrate they are personally fit, proper and competent to perform their roles. They must also agree to the Code of Conduct and ensure that all staff in the business operate within these rules. In a network environment, the regime does not extend to Appointed Representatives. It does however impact on the regulated entity – HL Partnership. Your network directors, Chris, Shaun, Neil, Bob, Peter and myself must comply with the new rules: the prescribed responsibilities, code of conduct and fit and proper tests. In doing so the Board accepts it takes full responsibility of the members in the network. No longer can any person ‘hide’ behind a business structure, they must accept responsibility for their area of the business.

The Conduct Rules

All Senior Managers and any other members of staff (unless they are classed as “ancillary staff”) will be subject to the Conduct Rules, which are fully detailed in a new FCA COCON sourcebook. These conduct rules are in two “tiers”. There are nine conduct rules in total across the two tiers; tier two will only apply to Senior Managers within the firm:
The FCA has been clear that the conduct rules apply to a firm’s regulated and un-regulated financial services activities.

\Many of these rules will be familiar to anyone who has taken their CeMAP qualification in the last 15 years. They are a revamp of the principles for business. In the network environment we will apply these rules in all areas of the business so, although the SM&CR does not directly impact on appointed representatives, these rules will apply to all members and their staff.

The Directory

You will be familiar with the existing FCA financial services register providing a public record of the firms regulated by the FCA or PRA. With the extension of the SM&CR, the FCA register will continue but it will contain fewer individuals than before.The FCA consulted in July 2018 about introducing a Directory, a new public register which will make information available on individuals carrying out certain roles in financial services, such a mortgage advisers. The Directory aims to make public, additional information on individuals including the advice areas that they are able to provide, their work location(s) and how they operate i.e. face to face, telephone, online or a mix of these methods.In March 2019 the FCA published the final rules on establishing the new Directory. They specified the data that will be required to be input and maintained by firms in the FCA Connect system.

They also confirmed the following timetable for firms to provide the information;9th December 2019 –firms can start data submission 9th December 2020 –firms’ data entry must now become business as usualEnd of December 2020 – the new full public Directory is liveThe Directory will include each adviser within the HLP network and we have 12 months to provide the initial Directory information, which must then remain accurate.

We will not be submitting the data for at least 3 months as we will see how the system settles down and ensure we have the means to provide accurate data from each adviser as the penalties for errors are significant.

In many ways these new rules are significant, especially for the HLP business and its senior management, but in other ways it really should be seen as business as usual. For a long time now the network has conducted its business in a way that is broadly compliant with the new rules.

That said, with emphasis on personal responsibility and adherence to the Conduct Rules and with the development of the Directory, there will be a slight shift in both the relationship the network has with its members and also the amount of detail the network retains for each adviser in terms of how they operate, how they are paid and how they demonstrate ongoing competence.The network will continue to develop its policies and procedures in line with the new rules and requirements and we hope that members can appreciate the increased responsibility for the network and continue to co-operate in the positive way it always has.

Kind regards,
Gavin Earnshaw

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HLPartnership is a trading name of HL Partnership Limited. Registered in England No.5011722. Registered Office: First Floor Office, 6 Merus Court, Meridian Business Park, Leicester LE19 1RJ.  HLPartnership Limited is authorised and regulated by the Financial Conduct Authority. FS Register number 303397.