Written by Carly Phillips-Jones.
On 28 January 2022, the FCA published a new webpage to help firms decide if an individual candidate is suitably competent and capable of effectively performing the roles of head of compliance or money laundering reporting officer (MLRO). The FCA consider that they will need necessary skills and knowledge, training and experience to be effective, the level of which should be in line with the size of the firm and its risk of harm.
The guidance, based on the FCA's experience of successful applications, includes the following:
- Training: Most successful applicants will have already completed tailored or relevant training courses for the business they propose to work for before applying to the FCA for approval. This training should provide up-to-date knowledge of the current regulatory rules and expectations and should have sufficient length and depth as would be appropriate for the role. The FCA have recommended that courses with an examination or assessment are better in demonstrating that an individual has gained relevant knowledge.
- Experience: Individual applicants do not need to have held head of compliance or MLRO positions in the past to be successful. They may have held more junior compliance roles in the past, such as compliance manager or deputy MLRO. Previously holding the same or similar approved positions is a good demonstration that someone may be suitable for these roles but it does not mean that an applicant will be automatically approved. Successful applications for heads of compliance and MLROs should have a range of backgrounds and experience, including in compliance and legal teams, lawyers, accountants, and consultants, and not just in a front-line role.
- Support from third parties: Applicant firms will sometimes have or intend to get some level of compliance support from external advisors (e.g. lawyers or compliance consultants), to help with their application or the ongoing running of their compliance function. This is not a necessary requirement but may be helpful in addition to the firm’s own in-house functions, applicant firms have tended not to be successful where this external support is the firm's only compliance resource. However, even with external support, the individual accountable for the compliance and MLRO function should have sufficient knowledge and experience to make relevant compliance decisions for the business, know when to seek advice and how to implement advice received.
- Capacity: Some smaller firms may propose an individual who carries out the role on a part-time basis, and the FCA has accepted these proposals in some cases. However, the time commitment to the role must be proportionate and sufficient, applicants who only intend to fulfil the role for a few hours per week have tended to be unsuccessful. If the proposed head of compliance or MLRO has another role within the firm or externally, the FCA will consider if there are any conflicts of interest. In addition, applicants who are not working from the firm’s principal place of business, or are not senior leaders within the business, such as external compliance consultants, are often unsuccessful.
It is also important to note that even if an applicant believes they have sufficient experience or training in accordance with the guidelines, the FCA may still request an interview to evaluate competence and will also consider the applicant's response to questions asked during the application process.
If we can assist with any aspect of the above or SM&CR more generally, please get in contact with our expert, James Green.