Head of Compliance and MLRO Requirements for FCA authorisation applications


INSIGHT
Published
Feb 21st '23
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Heads of Compliance and Money Laundering Reporting Officers (MLROs) make sure you understand Financial Conduct Authority (FCA) expectations if your firm is applying to them to approve individuals to these positions.

 

Heads of Compliance [SMF16] and  MLROs  [SMF17] are important roles at financial services firms. Many firms are required to have an FCA-approved senior management function (SMF) holder – for example, see SMF16 and SMF17 in the FCA Handbook.

 

Also see www.handbook.fca.org.uk/handbook/SYSC/23.

 

Anyone performing the role of the SMF16 and SMF17 will need necessary skills and knowledge, from training and experience, to be effective. The level of their skills and knowledge should be in line with the size of the firm and its risk of harm.

 

Before your firm applies to approve a person in one of these roles, these are the things the FCA look for to assess their capability.

 

  • Training/Qualification

Most successful applicants will have completed relevant training before applying. The FCA is less likely to approve individuals who haven’t completed necessary courses when they apply (even if you intend to after they become authorised).

 

Relevant training means courses that are:

 

  • relevant to the type of business of the firm that the candidate is applying to work for
  • recent and up to date, ie with relevant knowledge of the current regulatory rules and expectations
  • where training happened several years ago, The FCA may ask if the candidate has since supplemented their training with continuous professional development (CPD) courses
  • detailed enough to give the individual the knowledge to carry out the role – short ‘introductory’ courses, on their own, don’t provide enough coverage or depth to be useful for a head of compliance or MLRO, even in the smallest firms

 

The FCA don’t endorse or recommend any courses or training providers, or prescribe the form training should take – whether that’s classroom-based courses, e-learning or course books/materials. However, the FCA has found courses with an examination or assessment is better for demonstrating that an individual has gained relevant knowledge. We can point you in the right direction or for some courses, arrange and conduct training sessions for you – just ask.

 

  • Experience

The FCA recognises that showing a candidate’s relevant experience as a SMF16 and SMF17 can come in many forms. Past successful applicants come from a range of backgrounds and experience – including in compliance and legal teams, lawyers, accountants and consultants.

 

Applicants don’t need to have held head of compliance or MLRO positions before to be successful, but it can help if you have held more junior compliance roles in the past, such as compliance manager or deputy MLRO. It can also help if you have held a similar approved position before – but this doesn’t guarantee the FCA will approve them.

 

Applicants who have only previously worked in a front-line role, and have had less training an experience, usually don’t have the skills and knowledge to hold a compliance function.

 

In some smaller firms, it may be appropriate and proportionate for the owner and/or chief executive to hold these functions themselves. However, the FCA still expects those individuals to have relevant training and experience to ensure their business will comply with the relevant rules and regulations for their firm.

 

  • Support from third parties, e.g. compliance consultants or lawyers

Sometimes firms choose to get compliance support from external advisors such as lawyers or compliance consultants. These advisors might help with their application or the ongoing running of their compliance function. This isn’t a requirement but some firms find it helps with their in-house arrangements.

 

However, if external support like this is your firm’s only compliance resource, the FCA will probably refuse your application.

 

Any individual at your firm who is accountable for a compliance or MLRO function should have sufficient knowledge and experience themselves to make relevant compliance decisions for the business, know when to seek advice and know how to implement advice received.

 

  • Capacity

Whoever performs Compliance or MLRO function must commit sufficient time to the role. Applicants who only intend to spend a few hours a week on it tend to be unsuccessful.

 

Many businesses have a full-time person who is responsible for these functions. Smaller firms may propose that an individual carries out the role on a part-time basis – and the FCA have sometimes accepted this – but their commitment to the role must be proportionate and sufficient.

 

If the proposed head of compliance or MLRO has another role within the firm or externally, The FCA will also want to understand any conflicts of interest. For example, successful applicants tend to be independent from the client-facing side of the business because one of their responsibilities will be to oversee the client-facing business.

 

Other factors the FCA considers include:

 

  • the physical location where the applicant will be based – ideally, they will work from the firm’s principal place of business in the UK
  • whether the applicant is a senior leader within the business, such as a company director – because if they aren’t, even if they have experience and knowledge the FCA might question whether they have the incentives or authority needed to be effective in these roles.
  • Even if an applicant believes they have sufficient experience or training, the FCA may still request an interview to test this.

 

Source: FCA

 

If you still feel you want to go ahead and apply for authorisation or registration, please contact us.

 

Contact us today on 020 8087 2377 or email us

 

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