It’s now two years since the final implementation date of the Senior Manager & Certification Regime (SMCR) (March 2021) and over three years since the initial implementation date for solo regulated firms. (December 2019). For many firms the changeover from the Approved Persons regime to SMCR was an automated transfer within the FCA register with very little friction. Firms were required at the time to implement the new regime and the FCA provided significant amounts of guidance to help firms with the changes This made it clear that SMCR was not a one-off project and that once implemented it was to signal a new way of working for firms, with new processes that should now be business as usual.
We work with numerous firms on a daily basis, across all sectors of the Financial Services Industry and we have found that the work completed by firms to implement SMCR has varied by sector and subsequently by individual firms within these sectors. This experience has enabled us to draw some observations from the implementation of the regime and this article addresses the anomalies that we have experienced and provides some thoughts on what firms should do next. But first, let’s revisit the basics…
Overview of Regime...
The Senior Manager Regime makes the most senior of managers accountable for the conduct of the firm; after all they set the culture in the firm. The extent to which this affects the firm is dependent on the scope of the firm (Limited, Core or Enhanced). Depending on the activity and scope, each firm will have Prescribed Responsibilities that must be assigned to individual approved directors and these responsibilities can only be shared in exceptional circumstances.
Each FCA Approved Manager (SMF) under the regime must hold and maintain a Statement of Responsibility which must set out what they are responsible for within the firm.
For Enhanced firms, additional requirements for responsibility mapping, overall responsibilities and handover certificates are in place. It is deemed good practice to apply these concepts within Core scope firms where appropriate.
Under the Certification Regime, firms must approve staff where they undertake either a specified certified role (i.e. mortgage advisor which requires a qualification), or should consider the significant influence on customer outcomes a manager may have within the firm.
Each certified person should be given a certificate detailing the role for which they are certified, which must be reassessed annually. All certified staff should be uploaded to the FCA Directory of Persons along with Non-Exec Directors.
Firms must undertake annual Fitness & Propriety assessments for all approved Senior Managers and Certified Staff.
Conduct Rule training must be conducted with all staff involved with the distribution of the regulated products and services, as well as back-office staff who may be involved in delivery of this. This would include HR staff amongst other departments. Staff captured by the rules must be trained annually and they are expected to understand how the rules apply to their specific role. Senior Managers have an additional tier of conduct rules which apply to them.
Annual Conduct Rule Breach reports (REP008) are required as well as a seven day reporting timescale in the unlikely event that an FCA approved SMF committed a breach of the rules.
Two years on...
Below we have outlined some of the items that are overlooked by firms which would signal to the FCA that they have not fully implemented SMCR. This is not an exhaustive list, but it serves as guidance to outline common issues which can be easily addressed.
1. SMF roles
From time to time we come across firms that are already authorised, however the way in which they have implemented SMF roles may not sit in line with FCA requirements. A couple of examples of this include:
- Core scope firms with unapproved board directors or directors listed on Companies House but not listed on the FCA register; and
- Core scope firms with debt permissions which classify the firm as conducting debt management activity; however they have not appointed an SMF16 Compliance Oversight.
2. Specific roles
Whilst SMCR did not introduce new requirements on firms to appoint specific roles, if a firm was not in line with the rules prior to the implementation of SMCR, they would continue to appear outside of requirements.
3. HR processes
How well have firms implemented the SMCR into their HR processes? Some firms are not considering this at recruitment stage, where the firm will need to demonstrate candidate’s fitness for the role applied for. Similarly, after an individual is in their role, sometimes not enough attention is paid to maintaining processes that seek to identify skills gaps and create induction/training plans as a matter of course. Do HR and Senior Management fully consider the potential for conduct rules breaches within disciplinary proceedings remembering that non-financial related conduct was called out by the FCA as an area of concern?
4. FCA register
What processes are in place to ensure that changes to the FCA register are completed in line with FCA timescales or is this an after-thought? It is not uncommon to find that a Senior Manager has left a firm and it is months later when firm recruit a replacement that the FCA is updated on their departure. Additionally, can firms evidence that they have considered and continue to reconsider the potential that business structure changes and staff being promoted may require certification or FCA approval?
5. Fitness and Propriety and ongoing training
Some firms are not ensuring that annual Fitness & Propriety assessments are being conducted in a timely manner, or that the firm’s conduct rule training is fit for purpose or assessing how well employees can discuss how the rules apply to them. Firms should ensure that this is being conducted annually as required and has the firm considered the new conduct rule being implemented by Consumer Duty.
Whilst firms should quite rightly be firmly focussed on Consumer Duty implementation, it is important to not drop the ball on the basics of other regimes which have a significant impact on the culture set within their firm. SMCR was the precursor to Consumer Duty in setting the agenda that firms and their staff need to be focussed on the delivery of good outcomes from the Boardroom to the coal face. So, it would seem appropriate in our opinion as part of the implementation of the Duty to check in on SMCR at the same time.
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