A freedom of information request has revealed just how far-reaching the introduction of the Senior Managers & Certification Regime (SM&CR) across the financial industry could be.

Data obtained by specialist financial services law firm Cleveland & Co shows that some 72,000 individuals could be held personally responsible under the Regime for either their own misconduct, or that of their firm. At present, the Regime only applies in the banking sector and in certain investment firms, and only 3,159 managers are subject to its requirements.

Emma Cleveland, managing director of Cleveland & Co, said:

“The scale of the increase highlights the size of the task that many companies face.

“While the biggest companies with larger budgets should be able to handle the regulatory changes, it is smaller companies with the biggest mountain to climb.

“Understanding the rules and rolling out extra training – not just for senior staff – will take large chunks out of comparatively smaller budgets.

“It’s imperative that firms don’t leave introducing changes until the last minute and seek advice sooner rather than later.”

Ms Cleveland went on to say that many firms would need to overhaul their compliance arrangements.

The SM&CR will be extended to the entire financial services industry from March 2018. Earlier in August 2018, the Financial Conduct Authority (FCA) issued more details of what this will mean in practice.

The FCA says that the Regime aims to:

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

There will be three main components of the Regime:

1. Five Conduct Rules will apply to all staff at all FCA authorised firms. These high-level rules will require individuals to:

  • 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
  • observe proper standards of market conduct

2. Responsibilities of Senior Managers will be clearly defined, and if something within their remit goes wrong, then they can be held personally accountable. In the first instance, Senior Managers will be approved by the FCA. They will be listed in the firm’s entry on the FCA Register. Additional Conduct Rules for Senior Managers will require them to:

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

3. Where certain employees are not considered to be senior managers, but carry out roles that could significantly impact customers or firms, it will be the responsibility of the firm to certify these individuals for their fitness, skill and propriety at least once a year. These roles will be known as ‘significant harm functions’.

To comply with point 2, a document must be drawn up for every Senior Manager that explains what they are responsible and accountable for. This document will be known as a ‘Statement of Responsibilities’, and a completed copy must be provided to the FCA whenever a senior manager applies to be approved, or whenever a major change to their responsibilities occurs.

Under the new Regime, senior managers will include:

  • Chair
  • Chief Executive
  • Partner
  • Executive Director
  • Compliance Oversight
  • Money Laundering Reporting Officer

As at present, it will be possible for the same individual to carry out more than one of these functions.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.