FCA Handbook - SUP 10C.3A The 12-week rule

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SUP 10C.3A The 12-week rule

Purpose

This section enables cover to be given for temporary absences and reasonably unforeseen permanent departures.

If an SMF manager permanently and unexpectedly leaves a firm, the purpose of this section is to allow the firm to replace them temporarily, without needing to get approval for the temporary replacement, while the firm applies to the FCA for approval of someone to act as a permanent replacement. The temporary replacement can stay in place:

(1) for up to 12 weeks; or
(2) up to the time when the FCA determines the application for the approval of the permanent replacement, as long as that application is made within the first 12 weeks following departure.

If an SMF manager permanently and unexpectedly leaves a firm, the firm may want to replace them for an interim period with another person and seek approval from the FCA for that interim appointee while the firm looks for a long-term replacement. This section allows the firm to appoint a temporary replacement in the ways described in SUP 10C.3A.2G without the need for FCA approval while it is seeking approval for the interim replacement.

If an SMF manager is temporarily absent, the purpose of this section is to allow the firm to replace them temporarily without needing to get approval for the replacement. The replacement can be in place for up to 12 weeks. In many cases, that is all that the firm will need. However, that period can be extended to cover unexpected longer absences in the same way as for permanent departures.

See SUP 10C.12.7G to SUP 10C.12.14G (time-limited approvals) for procedures for temporary appointments longer than the period permitted by this section.

The 12-week rule: The main rules

If:

(1) a firm appoints an individual (I) who is a member of the conduct rules staff of the firm to perform a function which, but for this rule, would be an FCA-designated senior management function;
(2) the appointment is to provide cover for an SMF manager who is an individual and whose absence is:
1. (a) temporary; or
2. (b) reasonably unforeseen; and
(3) the appointment is for less than 12 weeks in a consecutive 12-month period (subject to SUP 10C.3A.8R);

the description of the relevant FCA-designated senior management function does not relate to those activities of that individual.

In this section:

(1) the ‘absent manager’ means the SMF manager who has become absent as described in SUP 10C.3A.6R(2);
(2) the ‘temporary replacement’ means ‘I’ as defined in SUP 10C.3A.6R(1); and
(3) an SMF manager being absent includes the SMF manager ceasing to perform their FCA-designated senior management function.

(1) This rule deals with an appointment by a firm under SUP 10C.3A.6R where:
1. (a) the absence is reasonably unforeseen; or
2. (b) an absence of over 12 weeks is reasonably unforeseen.
(2) If, before the period under SUP 10C.3A.6R(3) would have expired but for this rule, the firm makes a valid and complete application for the approval for the performance by a person of the FCA-designated senior management function that was performed by the absent manager:
1. (a) the period for which the function performed by the temporary replacement is not an FCA-designated senior management function is extended until that application is finally determined; and
2. (b) the period for which the temporary replacement may perform the function without approval is extended accordingly.
(3) An application is finally determined for the purpose of (2) when:
1. (a) the application is withdrawn;
  (b) the FCA grants the application;
2. (c) (where the FCA has refused or not granted the application and the matter is not referred to the Tribunal) the time for referring the matter to the Tribunal has expired; or
3. (d) (where the FCA has refused or not granted the application and the matter is referred to the Tribunal) the reference, and any appeal against the Tribunal’s determination, has been finally disposed of.
(4) In this rule, the ‘absent manager’ and the ‘temporary replacement’ have the meanings in SUP 10C.3A.7R.

The reference in SUP 10C.3A.8R(3) to ‘not granted’ includes a situation where the FCA has granted an application subject to conditions or for a limited period (or both).

In the case of an appointment under SUP 10C.3A.6R to provide cover for a temporarily absent manager, the disapplication of the FCA-designated senior management function ends no later than the return of the absent manager.

Examples of when the rule can be used

The table in SUP 10C.3A.12G gives examples of how SUP 10C.3A.6R works.

Table: Examples of the operation of the 12-week rule

Firm can use the rule

Firm may not use the rule or the rule is subject to restricted use

(1) S gives long notice in accordance with S’s contract of employment. F did not foresee this. Immediately after S gives the notice, S stops performing their designated senior management function. Instead, S stays on as a consultant to help with the handover.

S leaves F altogether when the notice expires.

F knows that S will leave F a long time in advance before S leaves. However, for the purposes of the rule, S’s absence begins when S stops performing the designated senior management function.

(1) S and F agree a retirement plan for S a year before S leaves, including the retirement date. S, in accordance with the retirement plan, gives short notice of retirement and leaves when the notice expires.

(2) S takes parental leave with only short notice.

In a general sense, a firm will know that many members of staff are at some time likely to ask for parental leave. That does not mean, though, that a firm foresees a request for such leave before it is made.

However, a firm should try to avoid the need to use the rule or minimise use of the rule (see SUP 10C.3A.15G). In the case of long-term leave, a firm should have systems in place to deal with parental leave that will enable it to identify a replacement to fill in for S during S’s absence at once and apply for their approval in sufficient time for the replacement to have been approved by the FCA by the time S goes on leave.

(2) S has a contract of employment for a fixed term. There is no understanding that S will stay on after that. S leaves immediately after the end of that period.

Right from the start of S’s employment, it was reasonably foreseeable that S would leave at the expiry of their contract.

(3) S unexpectedly becomes sick and, immediately after, resigns or takes sick leave.

If S becomes ill a long time before S finally resigns, F may still be able to use the rule. For example, F and S may believe that S will be able to carry on working.

F may use the rule even if it does not initially know whether S will be able to return or how long S will be away.

(3) S gives long notice that S is going to take extended leave of 1 year. After S goes on leave, S resigns by giving the notice required by S’s contract of employment. F does not foresee the resignation.

F may not treat the absence as unexpected for the purpose of SUP 10C.3A.8R after S resigns as F foresaw an absence exceeding 12 weeks. SUP 10C.3A.8R applies if F did not foresee any absence or only foresaw an absence of under 12 weeks.

In addition, although the resignation is treated as unexpected permanent absence for the purpose of SUP 10C.3A.6R, F should not use the fixed 12-week period in SUP 10C.3A.6R(3) as F should have put someone in place to cover S’s expected long-term temporary absence immediately after S goes on leave.

(4) S gives long notice that S is going to take a short career break. Shortly after S goes on leave, S resigns by giving the notice required by S’s contract of employment. F does not foresee the resignation.

F may treat the absence as unexpected for the purpose of SUP 10C.3A.6R and SUP 10C.3A.8R once S resigns. F foresaw a short absence (under 12 weeks) but not a permanent absence.

(4) S gives a long notice of resignation. However, S becomes ill and has to resign shortly before the expiry of their notice.

F cannot use the rule.

F knew that S would leave a long time before S actually leaves. It does not matter that F did not foresee that the reason would be illness.

(5) S leaves F.

F appoints R to fill in for S until a permanent replacement is approved.

F makes an application to the FCA 5 weeks after R is appointed. However, F withdraws the application for approval of the candidate 2 weeks later. Two weeks after that, F makes an application for the approval of someone else. The FCA grants its approval 8 weeks later. That means that R performs the function for l7 weeks.

F would not be able to use the extended period in SUP 10C.3A.8R if the second application was made more than 12 weeks after R is appointed.

(5) S takes extended leave. F expects this. F appoints R1 to fill in for S. After 10 weeks, F wishes to replace R1 with R2.

F can use the rule for R2 as well as for R1. However, F can only appoint R2 for 2 weeks under the rule.

If F has sufficient warning, it should find a replacement for S before S leaves and should not use the rule.

In this table:

‘S’ refers to the absent SMF manager referred to in SUP 10C.3A.6R;

‘F’ refers to the firm in question; and

‘R’ (and R1 and R2) refers to the individual providing cover referred to in SUP 10C.3A.6R.

Fit and proper

A firm must ensure that an individual appointed as described in SUP 10C.3A.6R(1) is fit and proper to perform that role.

(1) The material in FIT is relevant to the assessment in SUP 10C.3A.13R.
(2) The assessment may take into account that the replacement will only be in post for a limited period.
(3) A firm should ensure that the replacement has the skills, personal characteristics, knowledge and expertise necessary for the discharge of the responsibilities allocated to them under SUP 10C.3A.6R, including any FCA-prescribed senior management responsibilities or any responsibilities under SYSC 26 (Senior managers and certification regime: Overall and local responsibility) re-allocated from the absent manager.

Reasonable use of the rules

A firm should:

(1) use SUP 10C.3A.6R and SUP 10C.3A.8R reasonably;
(2) not use those rules unless it needs to, even if the firm is otherwise entitled to use them;
(3) use those rules as infrequently as reasonably possible; and
(4) limit the time a substitute is in place under the rules to as short a time as reasonably possible.

The steps that a firm should take to achieve the things in SUP 10C.3A.15G include:

(1) having in place and operating effective and up-to-date succession plans for each of its SMF managers;
(2) using notice periods effectively to identify candidates to fill the place of the departing SMF manager and to apply for approval for the replacement quickly;
(3) submitting an application for the approval of the individual who is to fill the place of the absent or departing SMF manager as soon as reasonably possible; and
(4) ensuring that the application in (3) is of good quality and, in particular, ensuring that the FCA does not have to ask for explanations of the material submitted under the application or to request further information.

A firm could also take the following steps to achieve the things in SUP 10C.3A.15G:

(1) including sufficiently long notice periods in the terms of engagement of its SMF managers; and
(2) ensuring any fixed term of engagement of an SMF manager is sufficiently long.

Notification

(1) A firm may be required to notify the FCA of the absence of an SMF manager using a Form C or D under SUP 10C.14 (Changes to an FCA-approved person’s details) but it is not otherwise required routinely to report the use of SUP 10C.3A.6R or SUP 10C.3A.8R (The 12-week rule: The main rules).
(2) A firm should, however, report the use of those rules if there is something about the appointment that the FCA would reasonably expect to know – for instance, under Principle 11 (Relations with regulators).
(3) An example of (2) may be if the firm concludes that the person filling in for the departed or absent SMF manager is suitable for the role but that the FCA might have reasonable doubts about whether that person is suitable.

Re-allocation of overall and local responsibilities

(1) A firm to which SYSC 26 (Senior managers and certification regime: Overall and local responsibility) applies may have allocated responsibilities under that chapter to an SMF manager who is absent under SUP 10C.3A.6R or SUP 10C.3A.8R (The 12-week rule: The main rules).
(2) SYSC 26.4.6R (Exclusion where the 12-week rule applies) deals with how those responsibilities may be reallocated during the SMF manager’s absence.
(3) SYSC 26.4.8G explains that SYSC 26.4.6R, SUP 10C.3A.6R and SUP 10C.3A.8R apply to a person performing the other overall responsibility function or the other local responsibility function as well as to other designated senior management functions.

Re-allocation of prescribed responsibilities

(1)
If:
1. (a)
  a firm allocates any FCA-prescribed senior management responsibilities to an SMF manager; and
2. (b)
  the SMF manager later becomes absent;
3. the firm should reallocate them to another SMF manager.
(2) The firm may not allocate the absent manager’s FCA-prescribed senior management responsibilities to the person providing cover for that manager unless the person providing cover is also an SMF manager of the firm.