The Model Office Blog

The Senior Managers and Certification Regime

[fa icon="calendar"] Sep 4, 2017 5:06:55 PM / by Chris Davies

‘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.’ Jonathan Davidson Exec Director for Supervision for retail authorisations FCA.

The FCA Senior Managers and Certification Regime proposals (which you can read in full on the regulator’s website) recommend extending the SM&CR (currently applies to banks)  to the wider financial services industry, including financial advisers. Our next webinar covers how this directive may effect your firm, click here to attend. 

What is the Senior Managers and Certification Regime?  

The new regime aims to ‘reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence’.

Two key ways it hopes to achieve this are by:

  • encouraging a culture of staff at all levels taking personal responsibility for their actions.
  • making sure firms and staff clearly understand and can demonstrate where responsibility lies.

The three main areas of the regime

The regulator has set out three main parts for the new, extended regime:

Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. These rules are as follows:

  • You must act with integrity
  • You must act with due care, skill and diligence
  • You must be open and cooperative with the FCA, the PRA and other regulators
  • You must pay due regard to the interests of customers and treat them fairly
  • You must observe proper standards of market conduct

There are an additional four conduct rules for the senior managers within a firm:

  • You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
  • You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
  • You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
  • You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

Senior Managers: Responsibilities 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.

The Certification Regime:  Firms will need to 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.

 What does the new extended regime mean for you?

Firms must all follow the five conduct rules. Senior managers also need to follow the four additional rules. Personal accountability is an increasing area of focus. And you will face increased bureaucracy around certifying individuals who are not part of the SM&CR but whose roles significantly impact your customers or firm.

 Will any firms be exempt?

Sole trading financial advisers are classified as ‘limited scope’ firms under the new rules. This means that while they need to have a compliance oversight function in place, they will not have to allocate the Financial Conduct Authority’s necessary responsibilities to individual senior managers.

Everyone else is in scope – although the regulator has stated that it is keen for the requirements to be ‘proportionate’, smaller firms will still have to step up in this era of professionalism and transparency.

 What does the SM&CR extension tell us about the regulator’s focus?

The extension of the regime continues a well-trodden path for the Authority towards a culture for individual accountability.

Model Office's (MO's) Your People key covers all the SMCR details you need to ensure you have the right people in the right place with the right skills 

We also are currently updating our on-going research with our 5th year benchmark survey, you can take the survey here. 

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Topics: Benchmark, compliance, client centric, Financial regulation, Financial business development, fintech, Human resource development, client engagement, regtech, Constructive compliance, Risk management, practice management, FCA, advice, HMT, suitability, FAWG, FAMR, Fitbit, MiFIDII, SMCR

Chris Davies

Written by Chris Davies

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