“The Senior Managers & Certification Regime (SM&CR) is a programme designed by the FCA to improve ‘trust in financial services’ by making the right people in financial services firm accountable for their decisions”.
James Moorhouse, CII, 3rd October 2018
From 9th December 2019, the SM&CR will apply to all FCA solo-regulated firms authorised under FSMA, as well as EEA and third-country branches. Appointed representatives will still fall under the Approved Persons regime.
Why has it been introduced?
The regime was introduced to provide better protection for consumers and to improve the market, individuals will now be held accountable for their behaviour and ability to carry out their jobs. The result should lead to better working cultures and transparency in individual responsibility. SM&CR aims to prevent industry misconduct and was first introduced following the banking crisis and Libor scandal of 2008. It was introduced to banks in 2016. The legislation has since been extended to apply to all FSMA authorised firms and it was extended to insurers in December 2018. The regime is now being rolled out to all solo-regulated firms.
There are 3 firm categories under the SM&CR:
- Limited scope: this will apply to firms who already have exemptions under the Approved Persons Regime. These firms will be exempt from some baseline requirements and will typically have fewer senior management functions.
- Core: firms in this tier will have to comply with the baseline requirements.
- Enhanced: this will apply to a small number of firms whose size, complexity and potential impact on consumers or markets warrant more attention. These firms will have extra requirements.
The 3 key parts to SM&CR
- The Senior Managers Regime
The most senior people (‘senior managers’) who perform key roles (‘senior management functions’) will need FCA approval before starting their roles. Every senior manager will need to have a ‘statement of responsibilities’ that clearly says what they are responsible and accountable for.
- The Conduct Rules
The Conduct Rules set minimum standards of individual behaviour in financial services. By applying the Conduct Rules to a broad range of staff the FCA is aiming to improve individual accountability and awareness of conduct issues across firms.
The Conduct Rules will apply to almost all employees who do financial services activities, or linked activities, in a firm. Some Conduct Rules apply to all employees, while others only apply to senior managers.
If the Conduct Rules are breached by a senior manager, then the FCA must be informed within 7 business days. The firm must be able to outline the steps they took to prevent a breach. Should an individual senior manager breach any of the conduct rules then they could face disciplinary action. Following an investigation, the FCA may decide to take action against an individual and the firm that employs them. In the case of employees, conduct breaches should be reported on annual basis. This is a requirement once disciplinary action has been completed. Firms could find themselves subject to fines, legal costs and reputational damage. Senior Managers in the banking sectors could also face criminal proceedings.
- The Certification Regime
This applies to employees whose role means it’s possible for them to cause significant harm to the firm or its customers. These roles are called ‘certification functions’.
These people won’t need to be approved by the FCA. Instead, firms will need to check and certify that they are fit and proper to perform their role at least once a year.
How can we help?
Madison HR thrive on helping employers to establish positive, fair and ethical working environments. As culture ambassadors we ensure that any policies and processes, that we introduce are transparent, legally compliant and equitable. We can work with management teams on introducing specific training programmes and performance management plans. Our consultants are experienced in overseeing disciplinaries and conducting thorough investigations.
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