The Senior Managers and Certification Regime (SMCR) introduced one of the biggest changes to the financial services industry in years. It requires all (47,000) firms to put into place a strategy that fits with the Financial Conduct Authority’s (FCA) ideal; to place persons within ‘prescribed’ roles and to adjust internal process so that the management and control of all staff are operated under a tighter regime. What does it really expect of firms though, and does it apply to my firm? Let’s take a look.

 

Why was the SMCR implemented?

For some time, the FCA struggled to understand how businesses were structured and they found it difficult to define who is responsible for what and, to appreciate where decisions are made in firms they authorise. They wanted to understand quickly the ‘go to’ persons in a firm and, to learn what the structure looked like. With each firm being very different, this caused many issues and so the FCA decided to introduce their own ideal ‘accountability framework’.

 

What is the focus of the SMCR?

The new accountability framework focuses mainly on senior management. It requires firms to consider more radically who the Senior Management Team are (given guidelines from the FCA) and, to then state their specific responsibilities so that they and their colleagues are aware and clear as to where boundaries and expectations lie – the FCA will also be aware as a result.

 

What are the main aims of the FCA in the introduction of the SMCR?

The FCA would like to;

· further strengthen market integrity (through the clearer standards);

· improve culture regarding leadership and governance and;

· further reduce any potential for harm to the customer.

 

So what are the main areas of focus?

The FCA would like to see;

· A clearly defined ‘tiered structure’ and reporting line.

· Well defined governance.

· Management responsibilities clear and communicated to all staff.

· More robust Training and Competence (T&C) for all staff, including more vigorous ‘fitness and propriety’ checking, and, implementing better standards of conduct at all levels.

 

The outcomes – what does the FCA expect?

The FCA has been very clear in their requirements, having issued clear guidance papers and definite deadline dates within which to act. In the main, the expectations are for;

· Management to be clear on what they are responsible for (for themselves and their peers).

· Greater focus on all staff fitness and propriety and, on skill and capability.

· Firms to evidence responsibilities clearly using a more standardised structure and operational mapping.

· Firms to evidence clearly the governance regime, using a more standardised approach.

 

Are all firms treated the same under the SMCR?

There are three types of firm under the SMCR;

· Limited  Small firms and sole traders

· Core  Most firms will be classed as ‘core’

· Enhanced Large Corporate firms only

Each type of firm will have a slightly different expectation from the FCA and this is because of the size, complexity and staff numbers. There will be much more to do within the enhanced firm than the limited firm; whereas core firms will apply the regime as appropriate to their size and strategy.

 

What are the categories/tiers of staff under the SMCR?

There are four ‘categories’ or ‘tiers’ of staff;

Senior Managers – those holding Senior Manager Functions (SMFs) and are formally approved by the FCA.

Certification staff – those who are part of the Certification Regime and are ‘approved’ by the firm only.

Conduct staff – those who will have to work to prescribed Codes of Conduct (COCON).

Ancillary staff – those who have no interaction whatsoever with financial clients.

 

How can I be sure where my staff are placed?

Senior Managers:  Will be Directors or senior ‘officers’ who carry ultimate responsibility in their areas of remit.

Certification Staff: Will have a role of significant ‘impact’ and/or will manage significant business units/offices.

Conduct Staff: Everyone else in the firm who works with financial clients.

 

What is the difference between an operational mapping and a structure chart?

· A mapping places staff within the four distinct tiers, in rows down the page, with tier 1 being at the top. Reporting lines must be indicated clearly, even if a tier 3 individual reports up to a tier 1.

· A structure chart will place staff according to seniority, which is not necessarily the same as accountability. Structure charts can be flatter in style and are usually split by department.

 

Who should sit on Boards and what is the stance regarding Non-Executive Directors (NEDs)?

 

Many firms will have NEDs sitting on their Boards and, some members of the Senior Team (Tier 1). The FCA recognise that the Main Board will often consist of both NEDs and Tier 1 personnel, as they acknowledge that NEDs offer challenge and often useful knowledge and experience. Often during Board Meetings value will be gained (by the Tier 1 staff) from the guidance offered by a well-informed NED. The FCA do however expect governance and control to rest with the Tier 1 personnel, therefore as Board Meetings will typically be where fundamental strategic and commercial matters will be deliberated, the Tier 1 team can form well-rounded conclusions with the support of the NEDs.

 

There is a lot more involved with SMCR, this newsletter just provides a brief overview for information.  We have the ability within 3CS to review your current regime and to comment as to where weaknesses and strengths lie. We are also able to offer support and guidance to you if you are a new firm applying for direct authorisation.  Please do contact us if we can be of any assistance.

 

Karen Coomber

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Registered in England & Wales | Registered office is 60 Moorgate, London, EC2R 6EJ
3CS Corporate Solicitors Ltd is registered under the number 08198795
3CS Corporate Solicitors Ltd is a Solicitors Practice, authorised and regulated by the Solicitors Regulation Authority with number 597935


Registered in England & Wales | Registered office is 60 Moorgate, London, EC2R 6EJ
3CS Corporate Solicitors Ltd is registered under the number 08198795
3CS Corporate Solicitors Ltd is a Solicitors Practice, authorised and regulated by the Solicitors Regulation Authority with number 597935