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Law firm urges wealth advisers to be ready for SMCR

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December this year sees the FCA extending the Senior Managers and Certification Regime (SMCR) to all ‘solo-regulated firms’, which will include wealth managers and financial advisers. 

Partners at Fox Williams, Joanna Chatterton and Peter Wright warn that the preparation required should not be underestimated and firms are advised to begin putting the new structures in place now. 

Chatterton (pictured) explains that the SMCR is the FSA, as it was then, response to the banking crisis.

“They realised that they couldn’t bring to account senior people in organisations who said: ‘It wasn’t me – I delegated it’,” she says. “It became that you weren’t able to bring people to account and they were the ones who earning lots of money and supposed to be running things.”

So, this piece of legislation was designed to place accountability on a small number of people in financial institutions.

“Their responsibility as proscribed by the FCA must be contained within statements of responsibility. Ultimately, if anything goes wrong in the line of sight of a senior manager, the first port of call will be that senior manager.”

The legislation applied to banks in 2016, insurers in 2019 and now by the end of 2019 will be in place for solo regulated firms which will include hedge funds, financial advisers and wealth managers.

Wright says: “In reality it’s a tool kit which ensures that firms document the responsibility of staff members. Before, you could point at something that had gone wrong but it wasn’t clear who had responsibility for that business area so it’s designed to prevent that from occurring. It’s a tool to help the regulator build its cases in the future.”

Practically, the scheme had to be extended because otherwise there would have been two different regimes for banks and insurers and an IFA working within a bank or independently regulated differently.

The scheme was expected to apply to solo regulated firms last year so the wealth industry has had a stay of execution and a chance to get its house in order.

Wright says: “There is a resource impact which could be substantial as you are dealing with various compliance issues and also various employment law and human resources. The certification regime firms will need processes for all their certified staff to be certified that individual x y and z are fit and proper and then that has to be built into their appraisal framework which then impacts how you handle misconduct and disciplinary processes.”

Chatterton says that, in her experience, when a firm starts out planning and instructing on implementing the regime, staff aren’t always so keen. “You find people saying: ‘I don’t want that responsibility’ so people have retired or left to do something else.”

She has also found that when a firm has to put pen to paper and say people are fit and proper, staff who have never been taken up on bad performance are weeded out. She cites a case where a firm had a compliance officer with longstanding performance issues which everyone knew about and with certification that person was let go.

Wright says: “To be frank those firms with skeletons in their closets have to face the issue head on – they can no longer turn a blind eye.”

Chatterton says: “We think the engagement and quality of the people doing the senior jobs has gone up. We have done some board training and now on the three-year anniversary we are going back.

“We found the first time around that people were wondering why they were doing it but now we are bombarded with questions as people are thinking about it and wanting to demonstrate that they are carrying on their roles in a good way.”

Chatterton comments that there is now more of a spotlight on an organisation that is doing something the right way, with an increased focus on good governance.

“On many different levels, if people want to give you their money to manage, they want to know that the organisation they are dealing with is following good, ethical, cultural and acceptable standards. People are more attuned to that now.”

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