How can firms ensure that compliance with the Senior Managers & Certification Regime becomes part of normal business operations?

Julie Pardy, Director of Regulation and Market Engagement at financial software provider Worksmart Limited; and Nic Dent, Customer Engagement & Propositions Principal at the same company, spoke to qualifications provider the London Institute of Business Finance on July 7 2021, on the topic of ‘Transitioning SMCR into business as usual’. This can best be summed up by saying that firms need to make compliance with SM&CR requirements “something they do” rather than “something they have to do”.

Five years after the Senior Managers & Certification Regime was launched, firms should now be well used to implementing its requirements. However, Ms Pardy suggested that the Regime still wasn’t “embedded” throughout the industry, especially as it was only introduced in some regulated sectors more recently.

The Financial Conduct Authority’s six key outcomes of SM&CR are:

  • Responsibilities are clear
  • Accountabilities are clear
  • Skills and competence are evidenced
  • Conduct and behaviour is appropriate
  • Fitness and propriety is evidenced
  • Oversight and governance is appropriate

The FCA’s four drivers of culture within a firm are:

  • Purpose – what is the firm’s raison d’etre (other than making money)?
  • Leadership – what example do the senior management set?
  • People policies – what are the expectations of staff? What behaviours are incentivised and discouraged?
  • Governance – what is in place relating to accountability, delegation etc? How are decisions made?

Ms Pardy said the FCA sees SM&CR as a “cultural tool” to direct firms in the way they should behave. She urged firms not to adopt the attitude of “Very few managers have been subject to individual FCA action so all SM&CR has done is create a lot of extra work for us”. She admitted she could only find four or five fines from 2020/21 that might be attributed to SM&CR non-compliance.

However, she highlighted that many senior manager applications to the FCA are withdrawn, because the regulator identifies significant concerns about the individual and their firm is therefore encouraged not to proceed with the application. She then added that there has been an increase in Section 166 reviews – where a firm is required to provide a report by a skilled person, as a result of concerns over misconduct – since the Regime was launched. Mr Dent echoed this by commenting that there had also been an increase in the number of rule breaches reported to the FCA.

Ms Pardy then remarked that several thousand firms missed the FCA’s March 31 deadline for reporting their list of Approved Persons for the new Directory.

30% of attendees at the session said that conduct rules training had been the most challenging part of SM&CR implementation, so firms mustn’t forget that the Regime applies to staff at all levels, not just management.

A key point was made in conclusion, highlighting that Jonathan Davidson, the FCA’s Director of Supervision – Retail and Authorisations – said in a recent podcast that any senior manager who thought SM&CR was the responsibility of their compliance function had “missed the point entirely.”