This note provides an overview of how the duty of responsibility will apply to Consumer Credit Firms in 2018 and why preparation for the Senior Managers’ Regime and duty of responsibility is of paramount importance to Consumer Credit Firms.
By 2018 the Duty of Responsibility which came into force on 10 May 2016 will apply to all senior managers in firms holding FCA permission, including senior managers of consumer credit firms.
The FCA has provided guidance on the duty of responsibility together with a policy statement on enforcement of the duty, published on 3 May 2017.
Application of the duty and burden of proof:
The duty of responsibility will apply where the FCA proves a contravention of a regulatory requirement by a firm and that a senior manager was responsible for management of the activity to which the contravention occurred. In such circumstances the senior manager will be personally liable if the FCA proves s/he did not take the steps that a person in their position could reasonably be expected to take to avoid the contravention occurring (or continuing).
Although the FCA has confirmed the standards will not apply pre 10 May 2016, the duty will apply to past and present senior managers who are, or were, responsible for the management of activities in their firm which have contravened an FCA regulatory requirement.
Evidence of liability and the need for Preparation:
Individuals should be aware that when determining whether an individual is responsible for a regulatory breach, the FCA will not only consider how the firm operates in practice and what an individual’s actual role and responsibilities are, or were, but, will want to use the firms statement of responsibilities and management responsibilities map to identify the areas of responsibility assigned to the senior manager in question. If the firm has not prepared for SMR, which includes the creation of statements of responsibilities and a management responsibilities map, individuals who are delegated activities by a senior member will be unable to prove they were not, or are not, the person liable for a breach of the duty of responsibility because s/he did not hold ultimate responsibility.
Additionally, what happens if you are an outgoing senior manager of a CCA firm who has not yet implemented SMR and therefore a handover of your responsibilities has not been in accordance with the FCA Handbook? How do you prove that you provided the new senior manager with all information s/he needs to perform the responsibilities of that role?
The answer to these questions is that you will find it very difficult to prove who is, or was, responsible if you have not prepared for SMR and created statements of responsibilities and a management responsibility map.
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