Senior Managers and Certification Regime (SMCR)

Senior Managers and Certification Regime (SM&CR)

November 30, 2020

Due to the impact of Covid-19 on firms, the FCA has delayed the deadline of certain SMCR requirements until 31 March 2021. However, the expectation is that most firms will continue to drive towards meeting the original 9 December 2020 date.

Explore our insights and what this might mean for your firm.

Background

Following the 2008 financial crisis and subsequent review of the financial services industry, parliament sought to replace the UK Approved Persons Regime (APER) with a regime that was more focused on firms’ senior managers and individual responsibility. This resulted in the creation of a new Senior Managers and Certification Regime (SMCR).

The SMCR has been in force for banks, building societies, credit unions and PRA-designated investment firms (Relevant Authorised Persons) since March 2016 and was extended to cover all Financial Conduct Authority (FCA) solo-regulated financial services firms on 9 December 2019. It has replaced the APER entirely.

Overview

The SMCR’s overarching aim is to reduce harm to consumers and to strengthen market integrity. 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 conduct, actions and competence. The regime shifts the responsibility of activities within a firm onto senior managers and brings into scope non-executive directors.

SMCR and Covid-19

Recognising the impact Covid-19 has had on the operations of many firms, the FCA has provided some flexibility for SMCR requirements.

As part of this, the FCA has extended the maximum period firms can cover for a Senior Manager without being approved (the 12-week rule) to 36 weeks.

As an additional relief for firms, the deadline has been extended to 31 March 2021 for firms to assess the fitness and propriety of their Certified Persons; to train staff on the Conduct Rules; and to report Directory Person data.

The aim of this delay is to give firms who are significantly affected by Covid-19 time to comply with SMCR requirements. This move is consistent with other delays and rule relaxations that we have seen in recent months which are designed to assist firms whilst they manage the impact of Covid-19 on their operations and employees.

The FCA’s key message is that firms should continue with their SMCR implementation and where they can, complete these activities before the extended 31 March deadline.

Where firms look to take advantage of the extension, these decisions should be recorded and documented.

How Does The Regime Apply To Different Firms?

For solo-regulated firms, the FCA took a proportionate approach to implementation to reflect the different risks, impact and complexity of firms subject to the extension. Under the FCA’s regime, firms are categorised depending on their size and profile into Core, Enhanced or Limited Scope firms.

The SMCR consists of three key pillars:

  1. The Senior Managers Regime (SMR) – The most senior individuals (‘Senior Managers’) who perform key roles (‘Senior Management Functions’ or ‘SMF’)
  2. The Certification Regime (CR) – Employees who are not Senior Managers but whose job can cause significant harm to the firm or its customers
  3. The Conduct Rules – The New Conduct Rules apply to almost all employees within firms. The first tier (Individual Conduct Rules) is a general set of rules that applies to most employees (except ancillary staff).The second tier (Senior Manager Conduct Rules) applies to Senior Managers only.

The FCA’s New Directory

The FCA’s new Directory enables consumers, firms and other stakeholders to find information on individuals working in financial services. It will provide access to information available through the Financial Services Register (The FS Register), as well as information about other individuals, including those performing roles no longer made public on The FS Register following the introduction of SMCR.

With the FCA’s extension solo-regulated firms have until 31 March 2021 to submit their Directory Persons data, and from mid-December 2020 the FCA will begin to incrementally display data from firms as it is submitted. However, the FCA encourage firms to submit their information earlier than the March deadline, if they can.

Pershing Comment - Linda Gibson, Director of Regulatory Change (October 2020)

SMCR is a UK initiative and something the FCA has said all along they want to get right. It is no doubt aware that around the world other regulators are watching their progress and will judge their success. In Ireland, the CBI is preparing to introduce the Senior Executive Accountability Regime (“SEAR”) which has some similarities to the FCA regime.

Most firms will want to continue to drive towards meeting the original date to assess their Certified Persons and not lose momentum but work on the basis that they now have a ‘back pocket’ extension of 16 weeks to March 2021, in case they run into difficulties – either due to the assessment process not running as expected or due to Covid-19 issues.

The overall aim of SMCR is to drive change in behaviours and put a spotlight on culture - both of which should ultimately improve trust in financial services. For these reasons, it is worthwhile taking time and getting it right.

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