Supporting the implementation of the Senior Managers and Certification Regime (SMCR)

The Senior Managers and Certification Regime (SMCR) was introduced by the FCA on the recommendation of the Parliamentary Commission on Banking Standards, following a review of the 2008 financial crisis.

The FCA was tasked with developing a new system of accountability, a replacement for the Approved Persons Regime, that is more focused on senior managers and individuals’ responsibility. The FCA wants the firms it regulates to operate a ‘culture of accountability’ throughout their organisations, with senior individuals accepting clearly defined and documented responsibilities for which they are personally accountable. The SMCR is the FCA’s drive for greater transparency and integrity within financial services, to mitigate the risk of another market crash and to restore public faith in the industry.

When is SMCR taking effect?

The SMCR took effect for banks in March 2016 and will soon be extended to all of the remaining 47,000 FCA regulated firms. The final implementation date for the extension of the SMCR is yet to be announced but it is likely a Policy Statement will be issued in Summer 2018, with rules envisaged to apply to FCA solo-regulated firms from mid-to-late 2019.

While this may seem some time away, compliance with the new rules will likely require a significant review and update of policies and contracts, as well as organisational mapping, all of which could be time consuming depending on the complexity of the firm. Beginning the process now, wherever possible, will reduce impact to business-as-usual activities.

What will the SMCR rules require of firms?

Not unlike the structure that is already in place for banks, the FCA is intending to introduce three primary strands to its extended SMCR rules:

  • Senior Managers Regime

The Senior Managers Regime focuses on the individuals who are operationally responsible for financially regulated firms; those individuals will be subject to approval by the FCA. All FCA authorised firms should have at least one Senior Manager and the firm will be required to ensure that it has appropriate processes in place to assess a Senior Manager’s fitness to undertake the role, both prior to applying for approval and at least annually throughout the time that they hold the relevant role.

Every Senior Manager will be assigned certain responsibilities and will be required to sign (and submit to the FCA) a Statement of Responsibilities, setting out these specific responsibilities within the firm. They will also be subject to a “Duty of Responsibility”, meaning that if there is an issue at the firm the FCA will consider whether or not the Senior Manager took “reasonable steps” to prevent said issue.

  • Certification Regime

The Certification Regime applies to individuals who are not themselves classified as Senior Managers, but whose job the FCA regards as having the potential to cause significant impact upon the firm; the financial markets or the customers of the organisation.

Firms will be required to take over from the FCA the responsibility for assessing and certifying the suitability of these staff, essentially providing reassurances that those individuals in a position to cause harm are fit to do so and are operating within proper parameters (both at the point of recruitment and subsequently on an annual basis). It will be for firms themselves to make this determination, having reviewed the individual against the FCA’s criteria and having collected necessary evidence on the individual.

  • Conduct Rules

All staff of a regulated firm (other than certain support staff such as security staff and receptionists), including those individuals governed under the Senior Managers regime and the Certification Regime, will be subject to the conduct rules, and firms are required to provide training on those rules. These high-level rules will govern professional conduct, and firms will be required to report any breaches of these rules to the FCA.

Do the same conditions apply for all FCA regulated firms?

It is expected that the FCA will take a phased approach for implementation across different sized organisations, splitting SMCR requirements into ‘core’, ‘limited ,and ‘enhanced’ categories depending on a firms size; the complexity of its business; and the potential impact a breach may have on its customers.

  • Core Firms

Most firms will be subject to the core regime: a base level of specific SMCR requirements applying to all FCA solo-regulated firms.

  • Limited Scope Firms

There will be a lighter touch application of the SMCR for a specific group of firms, including sole traders, service companies, Limited Permission Consumer Credit Firms and internally managed Alternative Investment Funds. These firms will be required to appoint fewer Senior Managers and allocate fewer responsibilities than ‘core’ or ‘enhanced’ firms.

  • Enhanced Firms

The largest and most complex firms under FCA regulation, approximately 1% of the market, will be subject to enhanced SMCR requirements. These additional requirements will include additional Senior Management Functions, additional Prescribed Responsibilities, a Responsibilities Map, Handover Procedures and ensuring that there is a Senior Manager responsible for every aspect of business undertaken in the UK). The SMCR that will apply to enhanced firms is more aligned with the requirements that apply to banks and building societies, such as large asset management and investment firms, large mortgage lenders and firms generating over £100m from consumer credit lending.

How can Collyer Bristow help?

Although the details are still being finalised, there is much that firms of all sizes and complexity can be doing now to prepare for the challenges that will be presented by implementation of the new regime.

Collyer Bristow’s SMCR team can help with formulating and executing a plan to cover the key aspects of compliance, notably the regulatory and employment related issues such as:

  • the mapping of staff and responsibilities (including templating, methodology and submission);
  • the audit and updating of policies (including whistleblowing) and processes to transition from the Approved Persons Regime;
  • the consultation with staff and updating of contracts and other employment documents; and
  • providing ongoing training to staff on their obligations and responsibilities under the regime. 

Discuss your requirements with a member of our SMCR team today.

Additional information