Senior Managers and Certification Regime (SMCR)

Senior Managers and Certification Regime (SM&CR)

October 2, 2019

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 is due to be extended to cover all FCA (Financial Conduct Authority) solo-regulated financial services firms from 9 December 2019. It will replace 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.

How Will the Regime Apply to Different Firms?

The FCA proposes to take the principles 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.

Core Regime Firms – This will be the majority of firms, to which the standard set of ‘core requirements’ will apply 

Enhanced Regime Firms – These are the largest and most complex firms, to which extra requirements will apply 

Limited Regime Firms – These firms will be subject to fewer requirements than Core Regime Firms 

The SMCR consists of three key pillars:

  • The Senior Managers Regime (SMR)
    • Reserved for the most senior individuals (‘Senior Managers’) who perform key roles (‘Senior Management Functions’ or ‘SMF’)
    • Required to be approved by the FCA
    • Statements of Responsibility (SoR) – Every SMF will require a document that states what they are responsible and accountable for
    • Prescribed Responsibilities – The FCA has set out a list of prescribed responsibilities which must each be allocated to an appropriate Senior Manager
    • Duty of Responsibility – SMFs must take reasonable steps to prevent a regulatory breach occurring 
    • Responsibility Maps – Enhanced firms only must prepare and maintain a single document that sets out the firm’s management and governance  arrangements
    • Handover Procedures – Enhanced firms must take all reasonable steps to ensure a person taking an SMF role has all the information and materials they could reasonable expect to do their job effectively. Firms must have a policy in place which explains how it complies with this requirement.
    • Overall Responsibility – Enhanced firms will need to ensure that every activity, business area and management function has a Senior Manager with overall responsibility for it

Important: There is no territoriality limitation under SMR; Senior Managers performing a role overseas which impacts the strategy of the UK firm would, in certain circumstances, still remain in scope.

  • The Certification Regime (CR)
    • Employees who are not Senior Managers but whose job can cause significant harm to the firm or its customers
    • Annual certification – Firms will be required to check and confirm (certify) that certified employees are suitable to do their job on an annual basis
    • The CR is limited to UK-based employees (with the exception of Material Risk Takers or those dealing with UK clients, where no territorial limitation applies)
    • Responsibility for the CR must be allocated to a Senior Manager who will be personally accountable for the regime
  • The Conduct Rules
    • New Conduct Rules that apply to almost all employees within firms
    • Two tiers of Conduct Rules will apply to all firms:
      • The first tier (Individual Conduct Rules) is a general set of rules that applies to most employees in a firm (except ancillary staff)
      • The second tier (Senior Manager Conduct Rules) applies to Senior Managers
    • Firms must train employees on how the conduct rules are relevant to their individual roles. A Senior Manager will be personally responsible for ensuring compliance with this requirement
    • Firms must report disciplinary actions taken due to a breach of the conduct rules to the FCA. This must be completed within seven days for Senior Managers, and on an annual basis for all other employees
    • SMR and Certification Regime employees will need to be trained and abide by the Conduct Rules from the start of the new regime (9 December 2019) but firms will have a further 12 months to train their other employees on the Conduct Rules

The 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.

Banking firms and insurers can start submitting data from September 2019 using the FCA’s Connect system. All other firms can start submitting data from 9 December 2019 with the deadline of 9 December 2020.

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