January 20, 2020

January 20, 2020

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SM&CR to Apply to Benchmark Administrators

On November 29, the UK’s Financial Conduct Authority (FCA) published a consultation paper on applying the Senior Managers Regime (SMR) to benchmark administrators. (For more information on the Senior Managers and Certification Regime, or SM&CR, please see the July 28, 2017 edition of the Corporate & Financial Weekly Digest.)

SM&CR already applies to banks and insurers, and will apply to most other UK financial services firms as of December 9. Because benchmark administrators only began to be supervised by the FCA in January 2018, the SMR will apply to them starting December 7, 2020. This gives these firms one extra year to prepare for the regime.

The regime for benchmark administrators will be less onerous than the regime for other FCA-authorized firms in a number of ways:

  • the Certification Regime will not apply to benchmark administrators, on the basis that the Article 4(7) of the Benchmark Regulation (BMR) already requires these firms to ensure that employees have the necessary skills, knowledge and experience;

  • benchmark administrators will not need to allocate Senior Management Functions (SMFs) 16 and 17 (Compliance Oversight and Money Laundering Reporting Officer, respectively), again due to overlap with the BMR;

  • benchmark administrators will have to allocate only three Prescribed Responsibilities, rather than the five that must be allocated in other Core firms; and

  • the Conduct Rules will apply, but only to employees involved in the regulated financial services activities at the firm. This is because only a specific part of the business at these firms is regulated activity, and the FCA considers that it would not be proportionate to apply the Conduct Rules to the other parts of the business. This approach is in line with the application of the FCA’s Principles of Business to these firms.

The FCA anticipates that all benchmark administrators will be classified as “Core” firms, with access to the existing waiver process to apply to be categorized as “Limited Scope” and the option to “opt up” to “Enhanced” status. In the consultation paper the FCA suggests that, in particular, it expects administrators of commodity benchmarks (known as “Annex II firms”) to apply to be Limited Scope.

Until the SMR applies to these firms, they will fall under the Approved Persons Regime (APR). After December 7, 2020, the only entities that still fall under the APR will be appointed representatives, and the FCA plans to update its rules to make this clear.

The consultation paper is available here and closes for comment on February 28, 2020.

©2020 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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