The covid pandemic has created an environment where long term absence of senior management function folders has become a more significant issue. By significant, we mean a scenario where the volume of long-term absences was probably becoming problematic for the FCA and PRA to deal with and required a new process that still provided them with the necessary controls to oversee firms and their senior individuals, without compromising on their responsibility to protect consumers and businesses from harm. The FCA and PRA have collaborated on their approach to this to minimise complexity for dual regulated firms.

In looking at the changes, it is worth noting that the absence can arise for a variety of reasons (both planned and unplanned) such as those incapacitated through illness, efficiency drives resulting in reduced headcount, as a consequence of staff policy, such as parental leave, or from a senior employee moving on.

Changes to the FCA Handbook and PRA Rulebook both came into effect on 2nd June 2021 following a consultation period that started in late 2020.

The new rules provide a defined distinction between a person who permanently ceases to perform a controlled function and a person who ceases to on a temporary basis but remains approved to do so and is expected to return to carry out the controlled responsibilities.

Dual Regulated Firms:

• For dual regulated firms there is a new requirement to notify the PRA and FCA in the event an approved person is absent for more than 12 weeks. Notification is required within 7 business days of the end of the 12-week period.

FCA – Amendments to the Supervision Manual:

10A.14.8C G “In cases of temporary absence (for example sick leave or parental leave) where the firm is keeping the same role open for an FCA approved person, approval to perform the relevant FCA controlled function will continue and therefore the firm will not be required to submit a Form C. See SUP 10A.14.8HG for guidance on interim appointments.”

PRA – Amendments to the Insurance – Senior Managers Regime – Applications and Notifications Part:

5.1A “If a PRA senior management function holder has been temporarily absent for more than a 12 week period, the firm for which the person performs a PRA senior management function must notify the PRA of:
(1) that absence within seven business days of the end of the 12 week period; and
(2) the PRA senior management function holder’s return from absence within seven business days of the date of their return,
in each case, using Form D.”

• In the event of a temporary absence, you must ensure that another individual is appointed to perform the controlled function, but you do not need to apply for approval of a temporary replacement for the absent person unless or until it becomes apparent that person will be performing the function for more than 12 weeks. We advise exercising caution here and if you are in any doubt as to the expected length of absence, speak with the PRA and/or FCA for guidance.
• You must provide notification of the approved person’s return within 7 business days, where the absence was required to be notified.
• When someone who has temporarily ceased to perform a controlled function returns, no new approval is required and there is no need to notify the FCA or PRA if the absence was under 12 weeks.

FCA Solo Regulated Firms:

• In the case of the FCA only regulated firms, if it is known that an approved person will be absent for more than 12 weeks, notification can be made prior to the end of the 12-week period. We would recommend doing so as part of the process of building trust with the regulator..

FCA – Amendments to the Supervision Manual:

10A.14.8F G “Where a firm is aware that an FCA-approved person will be absent for more than 12 weeks that firm can notify the FCA prior to the end of the 12-week period.”

These are small but sensible changes to policy implemented in a co-ordinated way by the FCA and PRA, an approach that we are increasingly seeing as the regulators seek to co-ordinate their approach where it makes sense to do so.

If you have any questions about the notification of temporary changes to approved persons, or the wider approach to the approval of Senior Management Function holders, please do contact me.

Kenneth Underhill

Director
Implement Compliance Solutions & Resources