On 8 March, the FCA published the long-awaited final rules on the proposed new Financial Services Directory (the “FS Directory”). The introduction of the FS Directory is expected to be welcomed by firms and consumers alike. Following the FCA’s consultation during the summer/autumn of 2018, the emphatic industry view is that a directory of those working within financial services would be a positive move towards increased accountability and consumer protection. The FCA has been at pains to highlight that the FS Directory will promote transparency by requiring firms to disclose a relatively granular level of detail on their staff and by ensuring that the directory is rolled out using very user-friendly, online functionality. From the perspective of firms, the FS Directory will make it quicker and easier to check the work history of new hires, complimenting the regulatory reference regime. Wider regulatory benefits include enabling the FCA to better identify and prioritise high risk supervision cases as well as the creation of a robust information sharing network with intelligence partners including the police and other regulators.
What about the existing Financial Services Register?
The current Financial Services Register (the “FS Register”) will continue to be maintained. However, the population of FS workers included on the existing FS Register will decrease as the number of people requiring regulatory pre-approval reduces in line with wider roll out of the Senior Managers and Certification Regime (“SMCR”). Since March 2016, SMCR has significantly reduced the number of individuals working within banks, building societies and PRA investment firms who require regulatory pre-approval. Within those firms only the most senior staff holding senior manager functions are now pre-approved by the FCA and/or the PRA. With the extension of SMCR across the rest of the industry, first for insurers (effective 10 December 2018) and then to a diverse range of firms such as asset managers, investment funds, consumer credit firms and crowdfunding platforms (as of December 2019), the existing FS Register will soon only include details of a very small proportion of the most senior financial services workers.
Who will be included in the FS Directory?
The online accessible FS Directory will include details of:
- individuals designated as Certified Staff under SMCR (i.e. those in significant harm functions);
- NEDs who have not been designated as Senior Managers under SMCR; and
- certain other individuals in customer facing roles such as sole traders or appointed representatives.
How extensive will the reporting obligations be?
One particularly notable feature of the FS Directory is the relatively granular level of detail required to be disclosed in relation to individuals. Whereas the existing FS Register contains relatively limited information, firms’ reporting obligations in relation to the FS Directory are much broader and consists of the following:
- employer details;
- any restrictions applying to a firm’s regulated activities;
- individual’s name and unique individual reference number (IRN);
- relevant roles held by the individual (e.g. applicable certified function under SMCR);
- start and end dates of each role;
- where applicable, the type of regulated business an individual is qualified to undertake (e.g. retail investment advice, mortgage advice and pensions advice);
- workplace locations (required only in relation to customer-facing roles and not required where the firm believes that disclosure of this information might put the individual at risk);
- customer engagement methods, for example face to face, telephone and/or online;
- membership of relevant accredited bodies such as the Chartered Insurance Institute, the Pensions Management Institute and the London Institute of Banking and Finance;
- regulatory sanctions and prohibitions including any Final Notice, withdrawal of approval or financial penalty; and
- date the information was last updated.
How reliable will the FS Directory be?
One concern raised during the consultation was on the reliability of a database which the FCA has almost no input on. The FCA will not routinely spot check or audit the data submitted by firms. How will consumers or firms therefore get comfortable that the information is complete, accurate and up to date? The FCA has highlighted several checks and balances that will be put in place to ensure the reliability of the data. These include:
- a requirement that firms that have not made changes to their data in a 12-month period positively confirm that their disclosures remain up to date. Where no confirmation is received by the FCA a ‘health warning’ will be flagged on the directory and the relevant firm may be required to pay a £250 administrative fee;
- the FS Directory will highlight when information was last updated. This will highlight to users any information that may be historic and therefore inaccurate;
- the FS Directory will enable users to report any errors to the FCA. Firms will then be responsible for rectifying any erroneous information as soon as possible (again, the £250 administrative fee may be applied in such circumstances);
- the FCA Connect system will perform some limited automated checks, for example on data format; and
- where an individual is stated as being subject to partial restrictions or prohibitions the FCA will, before any information goes live, check that this does not prevent them from carrying out their role.
What do we need to do and when?
Banks and insurers can start submitting data to the FS Directory using the FCA Connect system from September 2019 ahead of the March 2020 deadline. The directory for these firms will then go live in March 2020. Solo-regulated firms not yet subject to SMCR can start to upload their data from 9 December 2019 in line with the SMCR extension date. The information in relation to these solo-regulated firms will then go live in December 2020.
The FCA has confirmed that there will be a 12-month period between December 2019 and December 2020 when individuals working for solo-regulated firms (for example financial advisors) will be unavailable on the existing FS Register and not yet listed on the new FS Directory. This essentially creates a year long hiatus during which these individuals will be completely unsearchable. Whilst the FCA has faced some criticism for this lacuna firms and consumers will still be able to carry out due diligence by other means during this time.
The FS Directory is widely considered to be a positive step in the right direction. It will be an additional source of due diligence for firms when making fitness and propriety determinations in relation to certified staff and will augment other information sources such as regulatory references. However, it brings with it more onerous disclosure obligations for firms and it will be important to ensure that existing systems are robust enough to track and retain the level of data required. This will be particularly challenging for firms with a large population of certified staff. The FCA has recognised that for certain firms, particularly larger ones, compliance with the FS Directory will be an administrative burden. Steps have been taken to ease this burden including facilitating multiple entry, which will enable firms to upload details for large numbers of individuals in one submission. Also welcome is the confirmation that the deadline for uploading information on joiners, leavers and changes to existing entries will be seven days (as opposed to the previously suggested one day). Nevertheless, the requirement to record, update and verify such a broad range of data is onerous and steps should be taken as soon as possible to stress test the current HR systems and IT infrastructures.
Finally, it is important to bear in mind that a specific Senior Manager will be ultimately accountable for the information provided on the FS Directory. This will be the same Senior Manager with responsibility for the firm's duties under the certification regime more generally. It will therefore be important to ensure that the relevant Senior Manager understands the mechanics of the FS Directory and is aware that they will ultimately bear responsibility for any breaches.
If your organisation would like to discuss any aspect of the FCA’s new FS Directory, please contact Steven Cochrane or Alison McHaffie.