Whilst banks have been living with the Senior Managers & Certification Regimes (SMCR) for some time, the Financial Conduct Authority (FCA) is extending its reach to all authorised firms, including insurers, asset managers, insurance and mortgage brokers and consumer credit firms. The government anticipates the SMCR will come into force for these other firms during the early part of 2018.
Firms affected by SMCR will need to start planning their own implementation projects. This will require them to look at their governance and clearly document their risk management structures. SMCR will mean that a much larger proportion of a firm’s employees will be subject to regulatory scrutiny – which will have far-reaching implications for recruitment, training, appraisal and disciplinary processes.
A draft of the new rules (which runs to nearly 400 pages!) is set out in a consultation paper recently issued by the FCA. What follows is a summary of the practical steps which firms should consider taking as part of their implementation plan to become SMCR-compliant.
What should you be doing now?
Getting ready for the new regime will involve a considerable amount of preparation. Firms should devote time to proper planning of the project and dedicate sufficient resources. Given that the SMCR places a great deal of emphasis on personal responsibility and accountability, good internal communication will be a crucial part of the process. Talking through the requirements will ensure key people ‘buy in’ as early as possible.
Firms affected by the SMCR should be starting to think about the following:
- Consider what resources the project needs and decide who will manage it. Don’t underestimate this – the effects of the SMCR are far-reaching.
- Identify which of the FCA Senior Management Functions will apply to your firm and who will undertake these functions.
- Allocate each of the FCA defined prescribed responsibilities to the appropriate Senior Manager.
- Start to draft individual ‘Statements of Responsibilities’ for each Senior Manager setting out their responsibilities and what they are accountable for. This will in due course need to be approved by the FCA.
- For “enhanced firms” prepare a ‘Responsibilities Map’. This is a single document describing the firm’s management and who will undertake each of the prescribed responsibilities.
- Start to identify managers who perform Certification Functions. These are employees who aren’t senior managers but whose role means it’s possible for them to cause significant harm to the firm or its customers.
- Consider who in your firm will carry out the fit and proper assessment for the Senior Managers and employees carrying out Certification Functions.
- Consider which employees will be subject to the Conduct rules.
These first steps should mean that you can assess the size of the task involved for your business. As the project progresses it will be necessary to feed the results into HR procedures, recruitment and training. External assistance is likely to be required for certain parts of the process which could, for example, include asking professional advisers to independently validate the steps taken.
Work in progress
Implementation of the SMCR is likely to be a complex and sensitive task for many firms. Its impact will be felt across a large part of the management of a firm’s business and could ultimately require changes being made to how the firm is organised.
Whilst we now have a good idea of what the rules will look like, some of the detail of the regime is still work in progress by the regulator and we will provide further updates as and when the FCA issues the results of its present consultation.
 “Individual Accountability: Extending the Senior Managers & Certification Regime to all FCA Firms” — Consultation Paper 17/25.
For further information, please contact:
Philip Alton, partner, Banking & Finance
T: 0121 234 0076
Robert Rosenberg, consultant, Banking & Finance
T: 0121 212 7723