There are some big changes happening for regulated firms, like us, in the UK.
On 9 December 2019, the Senior Managers and Certification Regime (SMCR) – also referred to as the ‘Accountability Regime’ – will replace the Approved Persons Regime for all FCA registered firms.
According to the FCA website:
“The aim of the Senior Managers and Certification Regime (SM&CR) is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.”
What does SMCR mean?
The Senior Managers & Certification Regime (the SMCR) was first introduced in the banking sector in March 2016. It was introduced in response to the 2008 banking crisis and a series of scandals. It is now being extended from banking to the remainder of the financial services sector.
The FCA has introduced different standards depending on the size of the firm – we fall under the core regime.
The SMCR 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 show, who does what.
Senior managers will be personally accountable for business failings. They must be able to demonstrate they took reasonable steps to avoid any breach, or they will be personally liable. It therefore increases the risk and, unavoidably, the workload for senior managers.
What is SMCR compliance?
SMCR marks a significant shift in the way that the UK regulators supervise and monitor the activities of individuals in the financial services sector. We won’t detail all requirements here, but there are three main features to the SMCR:
Senior Managers Regime: each senior manager will have a Duty of Responsibility and a Statement of Responsibility.
The Certificate Regime: all employees who play a role that can affect the firm and its customers in a negative way fall under this regime. This will include those employees who interact with clients, are material risk takers, are proprietary or algorithmic traders or who perform a significant management or supervisory role.
The Conduct Rules: principles designed to ensure a high standard of behaviour for all staff (except for those in ancillary roles who do not perform a role specific to financial services).
In short, under the new rules, regulated firms have a responsibility to write down and notify the FCA exactly who is specifically responsible for what within the business. Firms will need to:
- Have at least one senior manager who is authorised by the FCA
- Assess annually whether individuals are fit for their role
- Take responsibility for checking the fitness and propriety of all staff
- Ensure timely reporting to the FCA of any new Senior Managers
- Ensure timely reporting to the FCA of any conduct breaches.
What have we been doing to prepare for SMCR?
As with any new regulation, preparing for SMCR has been something of an administrative burden! But it has given us a good reason to discuss, as a business, what our customers can reasonably expect from us, and how we can ensure we deliver that without fail.
Here are just a few of the things we’ve been doing
- We’ve drawn up a map of responsibilities to make it clear who is responsible for each area of the business and to make sure there are no gaps in accountability
- We’ve written a statement of responsibility for each senior manager
- We’ve been reviewing our annual appraisal process to ensure we assess the fitness and propriety of all staff carrying out controlled functions
- We’ve updated our recruitment process to ensure we obtain the relevant regulatory references from any candidates’ past employers
- We’ve been ensuring the whole team is aware of their obligations under the FCA’s Conduct Rules and have put plans in place to deliver extra training if needed
- We’ve reviewed all of our written policies and procedures to ensure they comply with all the new requirements under SMCR.
We’ve always taken our responsibilities seriously and encouraged a culture of integrity and compliance. The new rules mean we have had to formalise some of that, but we believe we are in good shape for when the new rules come into effect.
We think they should be a good thing for the industry as a whole. They should help establish effective governance and set new standards of personal conduct – both things which will help give our customers even greater peace of mind.
Will you be directly affected by the changes?
As clients of Face to Face Finance you will not be directly affected by the SMCR regulation and changes. However, whereas presently if you search for your Financial Consultant on the FCA register they appear, under the SMCR rules from 9th December 2019, your Financial Consultant will no longer appear on the FCA Register.
Please be assured that this does not mean they have stopped providing Independent Financial Advice. Should the regulatory status of either our firm or your Financial Consultant change, we would let you know directly.
If you have any questions, please don’t hesitate to get in touch.