The Financial Conduct Authority (FCA) has published proposals to extend the Senior Managers and Certification Regime (SM&CR) to almost all regulated firms. The new regime will essentially replace the Approved Persons Regime.
The aim of the new regime is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. As part of this, the SM&CR aims to encourage a culture of staff at all levels taking personal responsibility for their actions, and make sure firms and staff clearly understand and can demonstrate where responsibility lies.
The FCA proposes three parts to the SM&CR.
Firstly there will be Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. This simple set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.
Secondly, the responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.
And thirdly, under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, says:
“Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms.
“This is about individuals, not just institutions. The new Conduct Rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. The regime will also ensure that Senior Managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”
The FCA is committed to ensuring that the regime is proportionate according to the size of the firm, and therefore proposes applying a baseline of specific requirements to all regulated firms, called the “core regime”. For the largest and most complex firms (fewer than 1 per cent of regulated firms) the FCA proposes some extra requirements, under the “enhanced regime”.
Insurers currently apply a revised version of the FCA’s Approved Persons Regime and the Prudential Regulation Authority’s Senior Insurance Managers Regime. The FCA proposes to build on this framework and introduce all elements of the Senior Managers and Certification Regime to insurers.
Sarah Henchoz, Employment Partner at Allen & Overy, says: “The FCA’s approach of not seeking to apply a one size fits all policy to the extension firms will be a welcomed relief to the industry which were actively seeking a level of proportionality in recognition of the different types and size of firms that will now be caught under the regime. Instead, the level of regulation and obligations on firms and individuals within firms will vary according to their size. The large ones will be required to implement policies and processes that largely mirror that currently in place in the banks and building societies, whereas the smaller ones will have SMCR-lite. Underpinning all of the requirements, however, will be the same structure of senior managers, certified persons and the application of conduct rules to the majority of the workforce.
?There is still no implementation date and the indication is that this will not be until after the summer of 2018 which again will be welcomed relief for firms who still have a lot of work to do in terms of planning and scoping before they can begin implementation.”
