The Financial Conduct Authority (FCA) have published a consultation on how to apply the Senior Managers Regime (SMR) to benchmark administrators.

The SMR sets important standards for governance and accountability, and will apply to almost all FCA-regulated firms from December 2019. As benchmark administrators are a new category of authorised firms they have been granted a one-year extension from the wider roll out of the SMR. The new rules will come into force for these firms on 7 December 2020.

SMR is designed to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. Benchmark administrators provide critical market infrastructure and the pricing of many financial instruments and contracts depends on the integrity of the benchmarks they administer. As a result, healthy cultures and high standards of personal conduct are important in preventing harm to markets and consumers.

The FCA is proposing that all benchmark administrators are automatically classified as ‘Core’ firms under the regime. This means that they will have to apply up to 4 Senior Manager Functions (SMFs) and allocate 2 Prescribed Responsibilities to the relevant Senior Managers. However, recognising that benchmark administrators vary in size and complexity, the FCA is proposing that benchmark administrators can use the FCA’s existing waiver process to apply for ‘Limited Scope’ categorisation if appropriate. The FCA is not proposing to apply the Certification Regime to benchmark administrators.

For both Core and Limited Scope benchmark administrators, the FCA’s Conduct Rules will apply to almost all employees. This is in line with the extension to all other solo-regulated firms and should increase awareness of conduct issues across firms. However, the FCA is proposing to tailor the Conduct Rules for certain commodity benchmark administrators.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:

‘Benchmark administrators play an important role in financial markets. As with all other firms offering regulated financial services, it is important that benchmark administrators have healthy cultures and high standards of personal conduct. Our proposals seek to ensure appropriate accountability for senior managers at these firms.’

The FCA welcomes feedback on the proposals and aims to finalise its approach by Q3 next year.

Source: FCA

Background

  1. The proposed changes to the Conduct Rules will affect commodity benchmark administrators that are subject to Annex II of the Benchmarks Regulation (‘Annex II firms’).
    2. The Consultation Paper.