What Is the Senior Managers and Certificate Regime?

By Andrew Frost, Executive Director, Lawson Conner (part of IQ-EQ)

The Senior Managers and Certificate Regime (SM&CR) first came into effect in 2016 in response to the banking crisis and its associated conduct failings. This regulation replaced the Approved Persons Regime (APR) that applied to certain senior/approved persons at FCA regulated firms.

Whilst this isn’t new to banks, building societies and credit unions, an extension of this regulation came into effect this week (9th December 2019) across. all solo-regulated financial services firms to create a system of personal accountability, underpinned by clarity of personal responsibility among Senior Managers.

These will include FCA authorised firms – estimated to be around 47,000 – such as: investment and asset management firms, insurance intermediaries, claims management companies, crowdfunding platforms and consumer credit businesses.

The SM&CR is part of the FCA’s approach to drive cultural change in the financial services industry and comprises the following mutually supporting elements:

• Senior Managers Regime (SMR): the most senior decision-makers, or Senior Managers, at the firm must be assessed as fit and proper, have clearly defined responsibilities and be subject to enhanced conduct requirements, including the duty to take reasonable steps in fulfilling their responsibilities.
• Certification Regime: for key risk-taking employees below the top tier, firms need to determine on appointment and then certify annually that they are fit and proper to undertake their roles.
• Regulatory references: as part of the hiring process for senior decision-makers and key risk-taking employees, firms must exchange mandatory employment references, containing information on prior conduct.
• Conduct Rules: all financial services staff are subject to minimum conduct standards requiring, among other things, that they act with integrity and due skill, care and diligence.

Don’t panic, it’s not rocket science

The intention from the FCA is to avoid adding yet another task to the ever-growing ‘to-do’ list for Senior Managers, but more of a continue what you’re doing process.

The aim of SM&CR is to make individuals more accountable for their conduct and competence. Whilst it’s a simple process, it will be effective in changing the culture of financial services. Firstly, it will standardise the behaviour, skills and due diligence of those individuals.  Another outcome is for those leading, such as Senior Managers, to not only take responsibility for their own actions, but the actions of others as well, therefore driving better accountability through transparency, clarity and support.

Business as usual?

Initially there were concerns that this was another regulatory piece of legislation that was going to cause more bureaucracy. But in fact, it’s simply designed to reinforce what people should be doing already; structuring the way Senior Managers and boards should be behaving.

Like all new regimes, it takes a while to adapt. And it requires some planning, which must be led by Senior Managers and not internal functions such as HR and compliance. It’s a business initiative, not a compliance initiative. Whilst compliance teams can be on hand to advise and guide, ultimately the buck stops with the senior management team, who must own it.

Also, what is critical is that the senior management team ‘walk the talk’ and are seen to actively demonstrate the desired behaviours themselves – in a practical way and on a day-to-day basis.

But do not fear this introduction as it gives regulators a much easier hook to put people on when things go wrong. It can be viewed as a good thing as it will improve the quality of the interaction and discussions and control over the business which is beneficial. It’s certainly not intended to trip people up or put people in prison. Its aim is to get everyone to do what they are asked to do in a standardised way.

It should not, however, be seen as a tick-box exercise; firms that embrace the change can and are clarifying or changing their operations, their approach to risk and culture, for the better by improving their internal decision-making processes, governance, and structuring.

Help is at hand

Central to the implementation of the SM&CR is the administrative workload that comes with compiling statements of responsibility and the number of documents required.At Lawson Conner, we help navigate financial services firms through the complexities of compliance and regulations.

SM&CR came in to force at a time when people were looking for more clarity and is exactly what Senior Managers needed so it is being viewed as a good thing across the financial services sector. With our help and guidance, we can keep you on the right side of the FCA.