Under the Senior Managers & 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 in order 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 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 due to the Coronavirus. What qualifies as “reasonable” will depend on the circumstances, and the FCA has recognised the novel difficulties faced by firms seeking to fulfil their regulatory obligations at this time.
However, firms should note that the FCA Handbook emphasises the importance of handover materials, such as a handover certificate prepared by the predecessor. Where the Coronavirus 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 firm 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 between the predecessor and successor is in place where real-time discussions of this kind are important.
The foregoing is easier said than done, and firms 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 Coronavirus as reasonable grounds for a firm 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 that wish to leave in a hurry.
Most senior managers will themselves recognise the advantage of participating in an effective handover of their SMFs, and will see it as part of adhering to their professional codes of conduct. Where they are unwilling to do so, the buck ultimately stops with the firm – Coronavirus or not.
Steps to take on termination
Anecdotally, we have seen a few instances of senior managers initially selected for redundancy having that process deferred to allow more time for handover. We would value receiving any reader experiences of this, even on an anonymous basis. If terminations do go ahead, the provision on assistance after termination should be tailored specifically in settlement agreements.
If you would like to discuss the matters raised in this alert further, or for guidance on your specific rights, responsibilities and potential liabilities, please contact Partner Merrill April or Legal Adviser David Jones who both specialise in partnership and employment law issues for multi-national employers, senior executives, firms and partners.