September 21, 2017
Following the 2008 financial crisis and subsequent review of the financial services industry, parliament sought to replace the UK Approved Persons Regime with a regime that was more focused on senior managers and individual responsibility. This resulted in the creation of a new Senior Managers and Certification Regime (SM&CR).
The SM&CR has been in force for banks, building societies, credit unions and PRA- designated investment firms (“Relevant Authorised Persons”) since March 2016.
The SM&CR is due to be extended by the Financial Conduct Authority (FCA) to cover all financial services firms in mid to late 2019. In the summer of 2017 the FCA published two consultation papers (CP17/25 and CP17/26 ) on the proposed extension of the SM&CR to all financial services firms. These initial papers were supplemented by a further technical consulting paper covering transitional arrangements and broad timelines (CP17/40 ) in Q4:2018.
Final FCA rules are expected to be published in summer this year.
The SM&CR’s overarching aim is to reduce harm to consumers. This is achieved by raising the standards of conduct for everyone who works in financial services, and by making senior people in firms more responsible and accountable for their actions. The SM&CR aims to raise the standards of governance, increase individual accountability and help restore confidence in the financial industry. The regime shifts the responsibility of activities within the firm onto senior managers and brings into scope Non-Executive Directors.
The FCA proposes to take the principals and tools from “the regime already in place for Relevant Authorised Persons to create consistency across financial services, but tailor them to reflect the different risks, impact and complexity of firms subject to the extension”. Firms will be categorised depending on size and profile into Core, Enhanced or Limited Scope Firms. Depending on the firm categorisation the regime will apply differently.
There will be a core regime applicable to the majority of firms which consists of three elements: (the Senior Mangers Regime (SMR), Certification Regime (CR), and Conduct Rules).
There are two sets of basic rules which apply to almost every person who works in financial services, apart from ancillary staff (i.e. cleaners, caretakers, security staff etc).
There is also an enhanced regime that will only apply to the largest and most complex firms (less than 1% of firms regulated by the FCA). The FCA proposes that firms that meet the following criteria will be subject to the enhanced regime:
This regime will consist of the same three elements as the Core Regime but will additional requirements that reflect more closely the regime as it applies to dual PRA/FCA regulated firms.
Firms subject to the Enhanced Regime will need to have in place Responsibilities Maps, Handover Procedures, and will need to make sure that there is a Senior Manager responsible for every area of their firm (‘Overall Responsibility’).