The Senior Managers and Certification Regime (SM&CR) will be extended to the entire financial services industry from March 2018. The Financial Conduct Authority (FCA) has now issued more details of what this will mean in practice.
The FCA says that “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”, and 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:
o act with integrity
o act with due care, skill and diligence
o be open and cooperative with regulators
o pay due regard to customer interests and treat them fairly
o 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:
o take reasonable steps to ensure that the business of the firm for which they are responsible is controlled effectively
o 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 SC3
o 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
o 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 it must be given to the FCA whenever a senior manager applies to be approved, or whenever a major change to their responsibilities occurs. The FCA will conduct a separate consultation in due course on the format of these statements.
Under the new Regime, senior managers will include:
• Chief Executive
• 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 FCA invites responses to its proposals by November 3.
Firms should note that the new system is known as the ‘Senior Managers and Certification Regime’. The ‘Certification’ part of this title is designed to emphasise that all staff at all levels, in every financial services firm, have a responsibility to conduct themselves with integrity and to act in the interests of customers.
Jonathan Davidson, Executive Director of Supervision- Retail and Authorisations at the FCA, said:
“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 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.