FCA clarifies competence and capability requirements for prospective MLROs and heads of compliance

• United Kingdom

• Financial services disputes and investigations
• Fraud and financial crime

02-02-2022

The FCA has published a useful note setting out its expectations of applicants for senior compliance roles in authorised and registered firms. The note explains how candidates for Money Laundering Reporting Officer (‘MLRO’) and Head of Compliance roles can demonstrate their suitability in respect of four key areas: their training record; their prior experience; support obtained from third parties; and their capacity.

The Senior Managers and Certification Regime establishes clear lines of accountability for senior managers and requires the vast majority of firms to appoint FCA-approved individuals as Head of Compliance and MLRO, pursuant to senior management function rules SMF16 and SMF17 respectively.

Throughout the note the FCA steers clear of giving detailed and granular minimum requirements for obtaining approval, instead drawing out common themes from successful and less-successful past applications. For example no prescribed training modules, course providers or methods of learning are named. The regulator instead emphasises the need for applicants who, prior to seeking regulatory approval, have already completed training courses which are tailored or otherwise relevant to the type of business which they propose to work for and have received up-to-date training on current regulatory rules. These modules must have ‘sufficient length and depth to gain knowledge to carry out the role’.

The briefing also highlights that a successful applicant’s experience may take a number of forms, including junior compliance roles, although noting that a background in compliance won’t necessarily mandate automatic approval. On the flip-side, an individual who only possesses general first-line experience at a firm is unlikely to demonstrate that they have the necessary skills and knowledge for a senior compliance role.

All firms should take note of the FCA’s comments relating to support from third parties, which also ring true for the make-up of compliance functions generally. Whilst external advisors (such as lawyers or compliance consultants) may be a useful addition, the regulator notes that applications in which they are a firm’s principal (or sole) resource in this area have ‘tended not to be successful’. Ultimately, no level of external resource will reduce concerns surrounding the competency of an applicant.

No hard and fast rule is given in respect of the time commitment necessary for the roles. Arrangements should be ‘proportionate and sufficient’ in light of a firm’s size – seeming to leave the door open to part-time applicants in smaller firms. A candidate’s physical location in a firm’s principal place of business in the UK will also be relevant, as will any conflicts of interest which that person holds (whether internal or external to the firm in question).

Comment

In general, this level of transparency from the regulator is welcome. However, this note is, for the most part, a statement of the glaringly obvious. What prompted the FCA to share it now isn’t clear, but it may be suggestive of the fact that the regulator is seeing some particularly weak candidates being put forward for these roles. On the positive side, overall the briefing leaves firms and applicants a degree of autonomy in how they meet competence and capability requirements, whilst at the same time providing tried and tested examples of successful past candidates. 

These examples may also be helpful in helping firms think about how to comply with – and evidence – key internal controls under Regulation 21 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, including the requirement under 21(1)(b) which requires that firms must carry out screening of relevant employees both before the appointment is made and during the course of the appointment.

Although the briefing is geared towards the hiring of key compliance staff, it also contains wider suggestions for firms seeking to strengthen their compliance arrangements generally. 

The FCA’s briefing can be accessed here.