By Adam Palmer
With one month to go, many solo-regulated firms are only just now awakening to the realities of SM&CR – and unfortunately they’ve woken up to find themselves on the back foot. This is largely because the work required ahead of the deadline has been significantly underestimated or been left to the last minute due to other priorities.
The implementation of SM&CR within the banking sector has so far revealed some positive effects on business culture and day-to-day operations, demonstrating the potential for this particular regulation to give UK businesses a facelift more broadly when the remainder of firms are brought in scope.
Yet while the outlook is positive, for many, the coming of this new regime will necessitate substantial self-assessment and potential changes to both governance and culture. Whilst there are new policies, processes, and documentation to implement, firms will often need to put considerable thought into how they intend to meet the SM&CR requirements in respect of culture and governance, and the work required to deliver compliance can also take time.
First and foremost, many firms for the first time ever will be forced to formalise the process of allocating prescribed responsibilities. These are specific regulatory responsibilities that must be assigned to an individual senior manager. The individuals assigned to these roles must be the most senior manager responsible for that activity or area, and firms should avoid assigning a wide range of responsibilities to just one individual – for example, the Compliance Officer. In many cases the CEO of the firm should be assigned certain responsibilities.
Second, firms must prepare to write statements of responsibility that must clearly set out an individual senior manager’s specific responsibilities It needs to be clear and succinct, contain detail about the roles and responsibilities themselves, and be self-contained, that is, not referring to other documents. These documents need to be updated and resubmitted to the FCA whenever there is a material change. They also need to be aligned with key HR materials, such as employment contracts, job descriptions, and legal documents such as LLP agreements.
Third, firms will be required to implement certification processes. Under the new regime, firms are required to assess the fitness and propriety of certain employees. The FCA leaves it to the discretion of firms as to how they perform this assessment – specific requirements are not clearly defined. Firms have until December 2020 to certify existing staff, but they must identify and train those who will fall within this certification regime by 9 December. The certification process applies to all new employees after 9 December, as well.
The SM&CR is designed to reduce harm and strengthen integrity across the whole financial system, as well as within individual firms, by making individuals truly accountable for their own conduct and that of their delegates. The engagement that must take place with certain individual employees will take time if necessary changes to their overall business culture are to be effective. In addition, employees across the firm need to be trained on SM&CR individually, as it will in many cases touch on their day-to-day roles.
With the year-end period approaching, and many demands along with it, spending time focused on updating company ‘codes of conduct’ and formalising statements of responsibility for senior managers may not be at the top of firms’ to do lists. But if they want to make sure they don’t receive an unpleasant start to the New Year from the regulator, it’s important for all solo-regulated companies to make SM&CR a top priority today.