FCA Handbook - SUP 10C.5B FCA governing functions: Group entities

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SUP 10C.5B FCA governing functions: Group entities

Group entity senior manager function (SMF7)

(1)
The group entity senior manager function is the function of having a significant influence on the management or conduct of one or more aspects of the affairs of a firm in relation to its regulated activities.
(2)
This controlled function does not include having such influence in the course of performance of another designated senior management function for that firm.
(3)
This controlled function only applies if it is performed by:
1. (a)
  a person employed by; or
2. (b)
  an officer of:
any of the following:
1. (c)
  a parent undertaking or holding company of the firm; or
2. (d)
  another undertaking which is a member of the firm’s group.

There is a PRA-prescribed senior management responsibility with the same name and reference number (SMF7) as the group entity senior manager function. Although in many respects it is drafted similarly to the group entity senior manager function, it is also in some respects wider.

Basis on which group entity senior manager function is included

(1)
This provision explains the basis on which the group entity senior manager function is included as a controlled function.
(2)
The basic position is set out in SUP 10C.3.9G. As is the case with all controlled functions in this chapter, the definition of the group entity senior manager function is subject to the overriding provisions in SUP 10C.3.6R, which sets out the requirements of section 59(1) and (2) of the Act.
(3)
This means that unless the firm has an arrangement permitting the performance of these roles by the persons concerned, these persons will not be performing the group entity senior manager function.
(4)
Therefore, the FCA accepts that there will be cases in which a person performing the role described in SUP 10C.5B.1R will not require approval.
(5)
However where there is such an arrangement the function may apply.

When the group entity senior manager function applies

(1)
Individuals in the management of a group in which a firm is a subsidiary do not automatically come within the group entity senior manager function because their job relates to the firm.
(2)
The FCA does not aim or expect to approve individuals to perform this function for every firm to which the function potentially applies under SUP 10C Annex 1 (What functions apply to what type of firm) just because the firm is part of a group.
(3)
The FCA would not consider it to be unusual for there to be no one performing the group entity senior manager function for a firm that is a subsidiary in a group.

Whether someone performs the group entity senior manager function should be assessed on a case-by-case basis. The factors to be taken into account include:

(1)
the organisational structures of the group and the firm;
(2)
the split of key responsibilities between the group and firm boards and senior management; and
(3)
whether SMF managers based in the firm have an appropriate level of authority within the group to ensure that the firm complies with the requirements of the regulatory system.

(1)
An individual based elsewhere in a group whose responsibilities in relation to a subsidiary in the group that is a firm are limited to developing the group’s overall strategy is unlikely to be performing the group entity senior manager function.
(2)
The function is more likely to apply to individuals who are directly responsible for implementing the group’s strategy in the firm.
(3)
Therefore, if an individual based elsewhere in the group:
1. (a)
  is directly responsible for taking decisions about how the firm should conduct its regulated activities; and
2. (b)
  has not delegated this responsibility to an SMF manager based in the firm;
it is likely that they will require approval to perform the group entity senior manager function (or, as described in SUP 10C.5B.6G, another designated senior management function).
(4) [deleted]
(5) [deleted]

(1) The chief financial officer of a group can be used as an example of how SUP 10C.5B.5G applies.
(2) If the group’s chief financial officer limits their role to strategic functions, such as setting the broad financial policies that members of the group should follow and monitoring the application of those policies, it is unlikely that they will be performing the group entity senior manager function.
(3) The group’s chief financial officer does not carry out the group entity senior manager function just because they are responsible for the allocation of group capital to the firm. That is a function of the investing member of the group, not of the firm.
(4) If the group’s chief financial officer is responsible for implementing the group’s strategy in the firm or is responsible for the day-to-day management of the firm’s financial resources or of the firm’s finance function, the chief financial officer is likely to be performing the group entity senior manager function.
(5) If the firm has its own chief financial officer, that may make it less likely that the group’s chief financial officer is performing the group entity senior manager function.
(6) If:
1. (a) the group’s chief financial officer does not implement decisions at the firm level (see (4)) and instead makes proposals to the firm’s chief financial officer about the operation of the firm’s finance function; and
2. (b) the firm’s chief financial officer has sufficient discretion in how they apply and respond to such proposals,
3. the group’s chief financial officer will generally not be performing the group entity senior manager function; instead, the group chief financial officer will be carrying on a group-level function rather than performing a function on behalf of the firm.
(7) One way of looking at it is to ask whether the influence and authority of the group chief financial officer cuts back the ability of the firm’s chief financial officer to manage the firm’s financial affairs to such an extent that it would be unreasonable to see the firm’s chief financial officer as controlling the firm’s financial resources alone (subject to the firm’s governing body and any director of the firm to whom they report).
(8) Another way of looking at it is to consider:
1. (a) whether it would be reasonable to see the group’s chief financial officer as giving instructions to the firm’s chief financial officer or as making proposals that it would be expected that the firm’s chief financial officer would generally follow (in which case the group’s chief financial officer is likely to be performing the function); or
2. (b) (within the framework of policies and proposals set as described in (2)) whether the firm’s chief financial officer considers proposals from the group’s chief financial officer on their merits and in the light of the interests of the firm and its customers (in which case the group’s chief financial officer is not likely to be performing the function).

(1) SUP 10C.5B.5G and SUP 10C.5B.5AG also apply where the influence is applied by a management committee of the group or its holding company.
(2) Therefore, if the firm’s governing body has sufficient discretion in how it applies and responds to proposals coming from group committees, approval would generally not be required for individuals on such a committee. In this case, the committee and its members will be carrying on a group-level function rather than performing a function on behalf of the firm.

So, where:

(1) a firm has in place the relevant SMF managers based in the firm; and
(2) those SMF managers are effective and have sufficient control over the firm,

the FCA would not routinely expect the firm to have persons performing the group entity senior manager function in place.

(1)
SUP 10C.5B.1R(2) means that an individual who is approved to perform another designated senior management function for a firm will often not need to be approved to perform the group entity senior manager function for that firm as well.
(2)
So for example if the individual has responsibility for the firm’s finances they may be performing the chief finance officer function. If that is the case the individual will not be performing the group entity senior manager function by carrying out the functions of a chief finance officer.
(3)
Similarly an individual who is approved to perform another designated senior management function for the firm may have influence that comes from holding that post in matters falling outside the core duties of that post. For example a chief finance officer of a firm will have important input into decisions that fall outside the core financial control function. That influence does not mean that they are performing the group entity senior manager function.

The group entity senior manager function is potentially relevant:

(1)
whether the individual is located in or outside the United Kingdom; and
(2)
whether the group is headquartered in the United Kingdom or overseas.

(1)
The parent of a subsidiary firm cannot itself perform the group entity senior manager function.
(2)
A shareholder in the parent will also not perform this function unless the shareholder is also a director, officer or employee of the parent and is exerting significant influence over the firm through that role.

(1) SUP 10C.5B.1R(1) says that the group entity senior manager function only applies in relation to the firm’s regulated activities.
(2) This does not mean that it is limited to having direct influence on the conduct of regulated activities. It simply reflects the link that section 59 of the Act (Approval for particular arrangements) requires between a senior management function and regulated activities. It emphasises the point made by SUP 10C.3.6R (Definition of FCA controlled function: arrangements).
(3) Therefore, the group entity senior manager function can cover support functions.

Thus, for example, the influence of a person performing the group entity senior manager function may relate to the firm’s:

(1) financial resources (so that the firm’s group’s chief financial officer may be within the scope of the function);
(2) technology (so that the firm’s group’s chief information and technology officer may be within the scope of the function); or
(3) human resources (so that the firm’s group’s head of human resources may be within the scope of the function).

However, as explained in SUP 10C.5B.5G to SUP 10C.5B.5CG, group officers holding the responsibilities in SUP 10C.5B.10G will very often be outside the scope of the function.