What is the Purpose of the Certified Individual Role?

Compliance Knowledge Base | FCA Compliance

Posted by: Morgan Rennie Published: Tue, 22 Oct 2019 Last Reviewed: Tue, 22 Oct 2019
What is the Purpose of the Certified Individual Role?

According to the Senior Managers & Certification Regime (SM&CR), the Certified Individual role is a way to ensure that all employees who hold significant responsibility in a financial services firm are certified to fulfil their function. The SM&CR is part of a directive to ensure that solo-regulated firms and dual-regulated financial firms contribute to a culture of integrity in the industry. Therefore, the Certified Individual role ensures that employees are assessed and certified to fulfil their duty and responsibilities effectively.

The Certified Regime

The Financial Conduct Authority (FCA) created the Certified Regime to replace the previous Approved Persons Regime in March 2016. The Approved Persons Regime only assessed and held to account the directors of financial services firms, not all employees. Therefore, the FCA reviewed this practice and decided that all employees who hold significant responsibility in a financial services firm must be assessed and are certified.

The Certification Regime applies to employees who are not Senior Managers but have a role that could potentially harm a client or the market. An individual in this role will exercise a Certified Function.

According to the SM&CR, Certified Functions consist of the following:

  • Management functions but the employee is not a Senior Manager.
  • Supervising or managing a Certified Function but the employee is not a Senior Manager.
  • Proprietary Trader
  • Client dealing function
  • CASS oversight function
  • Material Risk Taker
  • Algorithmic Trading
  • Functions subject to qualification requirements under the T&C regime
What is the Purpose of the Certified Individual Role?

What is a Certified Individual?

A Certified Individual is an employee in a firm, who carries out a certified function and has been certified as fit and proper to fulfil this function, following an assessment conducted by their Senior Manager. It is the Senior Manager's responsibility to identify the employees who carry out a Certified Function and to subsequently assess them, using a Fitness and Propriety test.

Clients can feel confident when investing their trust and money into financial firms if they are aware that all employees are fit to perform their role. It also means that Senior Managers, who are accountable for what occurs beneath them, can have increased confidence that their colleagues can work properly.

Why is the Certified Individual Role important?

The 2008 financial crisis exposed many problems within the financial services industry, and in particular the banking sector. In response, the UK Parliament decided to create the Parliamentary Commission for Banking Standards, which sought to discover ways to improve the standards of the industry and prevent misconduct from taking place in the future.

The Parliamentary Commission for Banking Standards decided that firms must take responsibility for their employees, and this involved assessing whether the employees were fit and proper to fulfil their roles. Therefore, employees now have to complete a Fitness and Propriety test, carried out by their manager, to become certified to fulfil their role.

The FCA and Prudential Regulation Authority decided to apply the SM&CR to dual-regulated firms, such as banking firms, from March 2016. However, from 9 December 2019, all solo-regulated firms in the UK must understand the Certified Regime and the SM&CR as a whole.

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