The Senior Managers and Certification Regime (SMCR) was first introduced in the banking sector in March 2016 with the aim of creating greater individual accountability of those working within financial institutions. The FCA hoped to strengthen the integrity of the financial services and increase protection for consumers in the wake of the scandals of previous years.
From 9th December 2019, the regulations are to be extended to all FCA solo-regulated firms, meaning a further 50,000 businesses will be covered.
This article looks at the impact the regulations will have and how such firms can prepare ahead of the looming December deadline.
Main Implications of SMCR for solo-regulated firms:
SMCR will replace the Approved Persons Regime (APER) and has three key elements:
- The Conduct Rules– introduce basic standards of good personal conduct which apply to all employees engaged in financial service activities;
- The Senior Managers Regime– requires financial firms to assign responsibility for certain areas of the business to named senior individuals who must be approved by the regulator; and
- The Certification Regime- requires firms to annually assess the fitness and propriety of staff in certain roles, thereby taking the onus off the FCA and placing on the firms themselves.
Practical steps that solo-regulated firms should take before 9 December 2019:
- Statement of Responsibilities- Under the Senior Managers Regime, each manager must be governed by a clear ‘statement of responsibilities’ that outlines their area of accountability. It is advisable to consult with all managers and provide draft statements ahead of the December deadline. This will provide managers with an opportunity to ensure they are sufficiently clear on the parameters of their own responsibilities and firms can make sure that all FCA ‘prescribed responsibilities’ have been allocated.
- Effective HR Policies- While there is a focus on Senior Managers in SMCR, it is important not to overlook the fact the Conduct Rules also need to be embedded into each firm. A way to ensure all aspects of the SMCR is implemented effectively is to update a firm’s employee handbook to incorporate the new obligations of the firm and its staff. In particular, a review should be conducted of a firm’s disciplinary and performance management policies and procedures. A procedure for the annual certification (under the Certification Regime) should also be introduced.
- Review of Recruitment Processes- A number of changes to a firm’s recruitment process may be required such as: (1) firms themselves will need to assess the fitness and propriety of certified persons before they start working. For those in a Senior Manager or Certified Person role, regulatory references covering the previous six years of employment must be sought under SMCR; and (2) when recruiting new staff members appropriate external checks should be completed (e.g. criminal record checks, financial services register, Companies House checks).
- Training Programmes- Firms should provide (compulsory) tailored training on the Conduct Rules that is specific to the roles of their own staff. A one-size-fits-all approach is not deemed sufficient by the FCA, who have said such training should allow each member of staff to “explain what a conduct breach looked like in the context of their business”. In addition to training on the Conduct Rules, managers will need to be educated on the Certification Regime so they are able to effectively recognise when employees may require reassessment.
Effective forward planning will be the key to ensuring sole-regulated firms are able to comply with their new obligations under SMCR. For more information or assistance with the impact of the expansion of SMCR to sole-regulated firms and employment issues arising as a result, contact Allison Grant (Head of Employment at Healys LLP) at Allison.Grant@healys.com or call 020 7822 4000.
More details of the employment services Healys provides are available at https://healys.com/services/employment/.