Under the senior managers and certification regime (SMCR), firms are required to ensure that persons taking on designated senior management functions (SMFs) are equipped with all of the information and material they could reasonably expect to perform those functions effectively.
Where SMFs are being taken over from another person, those firms are also required to take reasonable steps to ensure that the predecessor contributes to this information and material and that there are arrangements in place for an orderly transition. These duties are set out in detail at SYSC 25.9 of the Financial Conduct Authority (FCA) handbook.
Handing over responsibilities under the SMCR can be a complex task, and the matter has been complicated further by the difficulty or impossibility of doing so in person as a result of coronavirus. What qualifies as ‘reasonable’ will depend on the circumstances, and the FCA has recognised the novel difficulties faced by businesses seeking to fulfil their regulatory obligations at this testing time.
However, firms should note that the FCA handbook emphasises the importance of handover materials as part of the handover process, such as a handover certificate prepared by the predecessor.
Where the coronavirus crisis makes it impossible for a predecessor to conduct aspects of their handover through in-person meetings, as they might otherwise have done, the FCA is likely to view it as reasonable for the company to ensure that the handover materials are more detailed by way of compensation. Equally, it would be reasonable to expect firms to ensure that the infrastructure for remote handover meetings is in place where necessary.
These measures are easier said than done, and companies may now find themselves in the position of having insufficient materials in place for handover, predecessors who had expected to be able to handover in person, and short timescales in which to resolve the situation. However, the FCA is unlikely to view the pandemic as reasonable grounds for a business failing to ensure effective handovers and the participation of predecessors, given the alternatives to in-person handovers that are available in the form of better materials and remote communication.
Speaking more generally, as a matter of good practice firms should consider standardising the format of handover materials across SMFs to ensure that they are all of the quality required. At the same time, they should consider treating handover materials as ‘live’ documents, with a requirement that senior managers keep them updated as they work. This will help to mitigate the impact of unforeseen circumstances or senior managers who wish to leave in a hurry.
Most senior managers will want to participate in an effective handover of their SMFs. Where they are unwilling to do so, the buck ultimately stops with the company – coronavirus or not.
Anecdotally, we have seen a few instances of senior managers initially selected for redundancy having that process deferred to allow more time for handover. If terminations do go ahead, the provision on assistance after termination should be tailored specifically in settlement agreements.
Merrill April is a partner and David Jones an associate at CM Murray