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Financial Services Firms Regulatory and Compliance update – Senior Managers & Certification Regime

11 October 2019

Richard Hull


From 9 December this year, the Senior Managers and Certification Regime (SMCR) will be extended to around 47,000 Financial Conduct Authority (FCA) solo-regulated firms. So, if you are an FCA regulated firm, you must act now.

What is SMCR?

Following the banking crisis in 2008 and major conduct issues within the financial industry such as the manipulation of LIBOR, SMCR aims to improve culture, accountability and governance in financial services firms. It has been in place for dual-regulated firms (such as banks) since 2016, and was rolled out to insurance companies in 2018. Now the regime will be extended to all FCA solo-regulated firms. Broadly speaking, there are three key elements to SMCR:

1. The Senior Managers Regime (SMR) applies to senior managers who carry out key roles at firms such as executive and non-executive directors. Firms must, amongst other things, provide senior managers with a ‘statement of responsibilities’ which clearly sets out what the responsibilities of senior managers are and what they are accountable for. In addition, before a senior manager starts their role, firms must be satisfied they are fit and proper to perform their role and approval must be sought from the FCA.

2. The Certification Regime covers staff who do not fall under the SMR but who have the potential to cause serious harm if they do not carry out their roles properly (for example, staff who give investment advice). The FCA has specified various certification functions and firms will need to make sure that staff who carry out certified functions are fit and proper to perform their roles and issue them with annual certificates.

3. The Conduct Rules set out high-level standards of behaviour that will apply to almost all individuals in FCA regulated firms except for staff who just carry out secondary functions. Firms are expected to provide training so that staff are aware of how the Conduct Rules will apply to them. If firms take disciplinary action against someone for breaching a Conduct Rule, the FCA must be notified.

The extent to which SMCR applies to individual firms depends on whether you are classified as a core firm, a limited scope firm or an enhanced firm. Most firms will be a core firm, but it is important to identify which category you are in so that you can make sure you are applying the rules correctly.

What are the consequences of failing to comply?

There may be regulatory enforcement action taken against individuals or firms that fail to comply. This may result in personal fines and bans on individuals holding senior roles or working in financial services firms.

What should you be doing now?

If you haven’t already, you must do the following:

1. Identify which scope you fall into and therefore which rules apply.

2. Train staff who will be subject to the new regime and also those who will have responsibility for carrying out assessments. You should also make sure that staff who are responsible for recruitment understand reference and SMCR requirements generally.

3. Assess staff as fit and proper and issue certificates of fitness and propriety to certified staff.

4. Review employment documents such as template service agreements and settlement agreements to make sure they reflect your obligations under the SMCR.

The 3CS Regulatory and Compliance team can assist with SMCR including training for staff and board members, provide comprehensive advice on the regime, and prepare documents, contractual clauses and amendments to policies and procedures. Contact us for advice and assistance.

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Senior Solicitor

Richard Hull