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Senior Managers and Certification Regime to be extended to all FCA authorised organisations

The FCA's Senior Managers and Certification Regime (SMCR) aims to improve individual accountability for those who hold key roles or have overall responsibility for whole areas of relevant organisations, and sets out standards of conduct applicable to individuals working at all levels.

The SMCR has already been introduced for banks and similar institutions, as well as branches of foreign banks operating in the UK. The FCA now plans to extend the regime to all FSMA authorised organisations from 2018 and is planning on issuing a Consultation Paper in Q2 of this year.

The adoption of the SMCR will be a large undertaking for many organisations, but starting early will mean a better chance of getting it right and will help with a smooth transition.

The new regime under the SMCR has three key areas:

  • The Senior Managers Regime focuses on individuals who hold key responsibilities. In order to gain a better understanding of the structure of responsibilities within a n organisation, the FCA has outlined several prescribed responsibilities known as Senior Management Functions ("SMFs"). An SMF involves an individual managing the firm's affairs which might involve material risk and/or serious consequences for the firm. An individual responsible for a prescribed SMF must be certified by the FCA and undergo yearly internal assessment and FCA certification. The FCA plans to use this information to hold approved persons accountable throughout their career.
  • The Certification Regime applies to other staff who pose a risk of significant harm to the firm or its customers. Examples of this would include staff who give investment advice or who have CASS oversight. These staff will not be pre-approved by regulators. Instead, organisations must put in place procedures for assessing these individuals and firms will be accountable to regulators for the fitness and success of these procedures.
  • The Conduct Rules set out a basic standard of behaviour that all staff within organisations covered by SMCR will be expected the meet.

What to expect

The implementation of these rules will require a significant assessment of the business and the possible introduction of several policies and procedures. As the regime has already been rolled out for banks and similar institutions, we have learnt some lessons on the potential issues that may arise.

Under the SMCR, banks are required to allocate a number of specific prescribed SMFs. There is a relatively long list including the responsibility for ensuring that the firm complies with the SMCR. Organisations should be prepared to assess how these prescribed SMFs apply to their business and allocate them to key individuals.

For smaller organisations, implementation can actually be more difficult as there is often overlap of responsibility for certain functions, making the structure difficult to outline. One of the first key actions for firms is to document this exercise in role profiles and a management responsibility map which will be filed with the FCA.

There are many different parts to consider which can be problematic to put together. Anecdotally, banks have found that implementation is slow to get started and concerns about initial authorisation can mean that considerations of long term impacts can be lost.

As an indication of scale, the FCA has conducted an application of the Senior Managers Regime to its own structure and the 102 page document produced can be found here.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions



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