Approaching the last stages of SM&CR changes

By Mark Greenwood, group regulatory policy manager at The SimplyBiz Group

The FCA has now confirmed its near final rules for the Senior Managers & Certification Regime (SM&CR), which we now know is set to come into force on 9^th December 2019.

The FCA issued a series of SM&CR-based papers on 4^th July. They consisted of:

• Policy Statement PS18/14 - Extending the Senior Managers & Certification Regime to FCA firms – Feedback to CP17/25 and CP17/40, and near-final rules
• Consultation Paper CP18/19 - Introducing the Directory
• Policy Statement PS18/16 - Final Guidance: the Duty of Responsibility for insurers and FCA solo-regulated firms
• The Senior Managers and Certification Regime: Guide for FCA solo-regulated firms

What is the SM&CR?

Senior managers within a firm have a crucial role in demonstrating that they are accountable and responsible for their part in delivering effective governance. This includes taking personal responsibility and being accountable for their decisions and exercising rigorous oversight of the business areas they lead. The FCA wants all firms to develop a culture of accountability at all levels and for senior individuals to be fully accountable for defined business activities and material risks.

This should, over time, result in improved culture and governance in the industry, and help to reduce consumer harm. It should also promote public confidence that firms have the right people in the right roles, working in the interests of consumers and markets.

The aim of the SM&CR is to reduce harm to consumers and strengthen market integrity by creating a system that enables firms and regulators to hold people to account. As part of this, the regime aims to:

• encourage staff to take personal responsibility for their actions
• improve conduct at all levels
• make sure firms and staff clearly understand and can demonstrate who does what.

Why is the FCA implementing this?

Recommendations were made by parliament after the financial crisis that the FCA develop a new accountability system that was more focused on senior managers and individual responsibility – and so the SM&CR was created. This has been applied to banks, building societies, credit unions and PRA-designated investment firms since March 2016, and now the FCA is replacing the Approved Persons (AP) regime with the SM&CR in almost all financial services firms.

The FCA wants to have consistent principles applied across financial services; however, it also wants the new regime to be proportionate and flexible enough to accommodate the different business models and governance structures of firms. With this in mind, the proposals tailor the principles from the banking regime to reflect the different risks, impact and complexity of all other firms subject to the extension.

What next?

The SimplyBiz Group is reviewing the near final rules and will produce an extensive guidance document that will clearly set out your responsibilities and the actions required under this new regime.