The Senior Managers and Certification Regime - Are you ready?

    The deadline for the Senior Managers and Certification Regime is 9th December

    If you work in the finance sector in any capacity, you’ll no doubt be aware of the Senior Managers and Certification Regime (SM&CR / SMCR). You’ll therefore also know then that the deadline for this is 9th December 2019. Which – from the publish date of this blog – is a mere week away.

    Despite its honourable intentions to ensure that financial organisations make themselves genuinely accountable to their clients, the team at Twenty84 understand the strain that this regulatory change has placed on small and large financial organisations alike. We’ve therefore pulled together the below final checklist of best practice to help youput the finishing touches in place and ensure you are compliant with the new SM&CR regulation.

    A brief recap of the SM&CR’s history:

    The SM&CR, as mentioned above, is the regulation designed by the Financial Conduct Authority (FCA), to ensure that Senior Managers (such as the C-Suite, CEOs, Risk/Compliance Officers, Senior Front Office staff) in financial services firms are held accountable for their decisions. As the FCA has said itself:

    “[…] Individual Senior Managers have an important part to play in establishing and embedding the right culture and governance within firms, to improve the standard of conduct at all levels.”

    The regulation’s origins date back to the 2008 financial crisis, where, upon recommendation from parliament, the FCA established an accountability regime that focused on the responsibility of senior managers and individuals in the financial sector. Back in 2016, its enforcement was extended from just banks and building societies to also include brokers, financial advisers, fund managers, insurers and reinsurers; and, as of next week, will be replacing the Revised Approved Persons Regime.

    There are three key components to the SM&CR:

    1.1   Senior Managers Regime

    In sum, senior managers are required to “take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible."

    1.2   Certification Regime

    Firms need to ensure that employees who have a hand in their regulated activities are fit to do so. This is not only based on their assessed competence and qualifications, but also their characteristics.

    1.3   Conduct Rules

    Senior Managers, Certified Persons and other employees will have to follow a set of rules in the FCA’s Code of Conduct Handbook.

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    What are the consequences for non-compliance?

    The FCA have emphasised that consequences for not being compliant with the new SM&CR regulation are more geared towards companies and individuals maintaining their reputation than suffering penalties. However, it’s important that these senior managers do understand the risks involved with non-compliance, including hefty fines, for both companies and individuals alike. You can see a list of fines that were made to companies and individuals last year in this FCA article.

    To doubly-ensure that your preparations so far will prevent you incurring these hefty fines or any reputable damage to your business, make sure you can answer “yes” to the following questions:

    Your final SM&CR Checklist:

    1)  Have I identified and informed absolutely everyone who will be affected?

    As part of the process, you’ll have already identified your company type under the new regime, whether that’s Core , Limited, or Enhanced. You should have also identified who in your team will be taking responsibility for senior management functions, and whether they have fully met the conversion requirements for the role. There are a number of different job types that fall under the requirements, however – such as the “significant management function” and “client dealing function” categories – so be sure that you have covered these bases in your final checks, too.

    2)  Has everyone received the training they need to, and do we have evidence for this?

    Additionally, as part of your SM&CR preparations, your staff should have received Conduct Rules training relevant to their roles. Certified persons will have also had tier one training, and senior managers will have had tier two training. In your final checks, be sure that everyone has received the relevant training they need, and that you have the evidence you need to demonstrate that you have done this in a safe place in case you should be required to present it.

    3)  Do senior managers and other relevant staff know what is expected of them?

    As mentioned above, you will need to demonstrate evidence that your staff have completed their necessary training. Part of this is ensuring that your staff can clearly state what their responsibilities are, and why these are necessary. Your senior managers will hold a clear outline of these responsibilities, so as part of both your final checks and as an ongoing process, be sure to check their knowledge and understanding of this, either through one-to-one or team meetings.

    4)  Do we have the correct processes in place for new starters/promotions?

    Over time, you will be likely to have additional staff joining your team or be promoting current members of staff to a senior management position. It’s important in this case to be sure you have the correct training and procedures in place for new recruits so they do not fall short of SM&CR regulation before they’ve even started. During your final checks, be sure that these procedures are clear to all the necessary individuals in your team.

    5)  Are there any other last-minute good practice measures we can polish?

    Ultimately, the aim of the SM&CR is to increase the public’s trust in the finance industry by reducing harm to consumers. So, consider general good practice, such as:

    • Making your customers’ needs and outcomes a priority
    • Keeping up to date with further compliance changes - always expecting the unexpected
    • Creating or emphasising a company culture with a consistent aim to do the right thing

    At Twenty84, compliance in the financial sector and regulatory changes are at the forefront of what we do.

    For the last ten years, we’ve worked alongside clients through compliance changes like the SM&CR to ensure they are as prepared as possible. If you’d like to discuss the SM&RC or any other regulatory changes, we’d be glad to hear from you; simply contact us here.

    We also have a helpful, expert-written guide to keeping up to date with regulatory changes, which you can download for free here.

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