SMCR resource hub
Supporting compliance with the Senior Managers & Certification Regime
21 August 2017
13 October 2017
Policy and Public Affairs
A page of materials to make sense of the Senior Managers & Certification Regime (SMCR) that will soon underpin the regulation of important staff within all financial services firms.
What is the Senior Manager's & Certification Regime (SMCR)?
Is a new regulatory framework for similar fitness, propriety, conduct and accountability standards for individuals holding positions of responsibility within financial services firms. It currently applies to deposit-taking institutions (banks, building societies etc); while the similar Senior Insurance Managers Regime (SIMR) applies to all Solvency II firms (eg insurers). However the Government has decided to extend the SMCR to all financial services firms by the end of 2018. It will effectively replace the FCA Approved Persons regime, and the FCA is now consulting on bringing this in.
Read our background briefing on the SMCR »
See our video and lecture slides: implications of moving SIMR to SMCR, by Charles Cattell »
What does it mean for me?
It sets out the regulation of all important staff within the firm, but also has rules for most other staff as well, except those in ancillary roles. It is more onerous that the Approved Persons regime, and at its core are comprehensive standards split depending on seniority and exposure to the public:
- Senior Managers:for senior staff filling "Senior Management" Functions (SMFs);
- Significant Harm Functions (SHFs): for SMF-holders whose roles "are deemed capable of causing significant harm to its customers";
- Other staff: all other employees except "ancillary staff" (post room, security guards, etc).
Responsibilities for senior managers are significant, and require an onerous compliance structure:
- Requirement for prior FCA approval:prior FCA approval for each person appointed to perform one or more SMFs, before the person takes up the function;
- Statement of responsibilities: setting out which aspects of the firm's affairs that person will be responsible for managing;
- Allocation of prescribed responsibilities: there is a long list of prescribed responsibilities, such as compliance with regulatory requirements, and training and professional development; and
- Regulatory references:firms take reasonable steps to obtain appropriate references from the person's current and previous employers to six years.
- Strong ethical/cultural focus: while most of the above involve compliance processes that you may already be familiar, the regulator is taking notable emphasis on the softer ethical and cultural elements to the regime. They are expecting firms to understand ethical behaviour and take greater lengths to incorporate these into firm culture and day-to-day behaviour.
Does the regulator expect all firms to be organised the same way as banks?
No. The FCA is tailoring the rules depending on the nature of risks your firm carries and your management structure. First it has suggested setting out different three different categories for firms based on size and risk:
- Enhanced firms: about 350 solo-regulated firms that meet one of six criteria (i) Significant IFPRU; (ii) CASS Large Firm; (iii) Assets Under Management >£50bn in previous 3 years; (iv) current annual total intermediary regulated business of >£35bn; (v) annual regulated consumer credit lending revenue >£100m; or (vi) non-bank mortgage lending >10,000 mortgages outstanding. These will have extra senior management functions.
- Limited scope firms: firms that have a limited application of Approved Persons including limited permission consumer credit firms, sole traders, oil and energy market participants, etc. For a list, see the FCA consultation, p.15. That leaves
- Core firms: firms that have been caught by the Approved Persons regime that do not fit into those other categories. The senior management functions depend on structure and organisation: and not all need to be filled if you have nobody doing those jobs, and it is possible for people to have more than one senior management function (consultation p.19, para 4.6).
What can we do to help?
Compliance with the SMCR is the responsibility of each individual firm to undertake themselves. However, we can help with the below framework which is intended to guide firms on the most relevant points they must consider to comply with the new requirements.
We have published a range of materials to influence the debate as well as communicate to the profession the key regulatory developments:
Read our background briefing setting out key developments from the FCA and PRA and a summary of the implications as we see them »
Read our briefing on the FCA 2017-2018 Business Plan which highlighted SMCR as well as culture and ethics as a key priority »
Underpinning an individual or firm's behaviour must be grounded by ethics, principles, law and regulation:
Members comply with the CII Code of Ethics or the PFS Code of Ethics »
To help understand this, we have a Code of Ethics: Practical Guide »
Qualifications are only part of the story, as technical knowledge must be kept constantly up to date with rigorous Continuous Personal Development (CPD) requirements across the range of topics.
Your firm's culture is probably the most complex aspect of the SMCR, especially given the high importance to this assigned by the regulators. Ask yourself:
- Does this culture promote ethical behaviour?
- Does it set the right order of priorities for individual staff members facing difficult issues?
- To achieve this, positive behaviours have to be enshrined in all parts of the organisations, not just those who directly deal with customers.
See our guide: Ethical culture: a practical guide for small firms, by Duncan Minty »
See also our other resource hubs:
A mark of a strong profession is one that builds knowledge and shares good practice in the public's best interests. As a professional body with over 125,000 members, the CII is ideally placed to help financial advisers and planners navigate their way through the regulatory landscape and get to grips with the business development issues that affect them the most. The Financial Conduct Authority (FCA) is a more engaging regulator than ever in sharing examples of good practice, so we can use our positive relationship and regular communications with it to relay and share our insight and experiences with the widest possible range of members.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.