A temporary reprieve on SMCR but forward planning will save time and money

On 4 July 2018 the FCA published its near final rules on how it plans to extend the senior managers and certification regime (SMCR) to solo regulated firms. The new regime will come into play on 9 December 2019, not  2018 or early 2019 as had been the initial intention.   The regime will also be phased in, as it was for the banks such that:

  1. Whilst firms will need to identify who their certification staff are by 9 December 2019, they will have 12 months from that date to complete the initial certification process;
  2. Whilst senior management and senior staff will need to have been trained and will be required to abide by the new conduct rules from the 9 December 2019, firms will have 12 months to train their other staff on the conduct rule.

The SMCR is the most far-reaching attempt to improve industry culture and to overcome the problems faced by the FCA, bringing senior people to account for regulatory failings. It entails a significant shift in the way firms must manage regulatory risk.

  • It requires a small number of senior managers to have personal accountability for failings relating to certain prescribed responsibilities allocated to them.
  • The certification aspect of the regime covers a wider population of significant harm function holders than the current approved person regime.  Those in this category must be certified as fit and proper by their firm when they join and on an annual basis. Effectively the role of regulating what could be the majority of your workforce rests with you rather than the FCA in the future.
  • A wider group of people, not previously caught under the approved persons regime at all, such as members of the HR and IT functions, will be required to abide by new Conduct Rules which cover everyone bar a small number of ancillary employees.
  • Everybody in the firm needs to receive training on the conduct rules and how they will work in practice.
  • A new referencing regime, designed to overcome the problems of the “rolling bad apple” by requiring employers to provide information which might be relevant to an assessment of an individual’s fitness and propriety in a template form reference, will entail an overhaul of how referencing is managed, with record keeping requirements being at the forefront of consideration.

The Fox Williams SMCR specialist team has a wealth of experience working closely with numerous international banking clients to project manage SMCR implementation.  In our experience:

  1. It can be difficult to correctly identify and categorise some Senior Managers and Certification Function employees;
  2. The SMCR can generate senior and junior staff changes;
  3. The SMCR almost always leads to employment contract, staff handbook, job specification and other documentation changes;
  4. The Conduct Rules are often misunderstood;
  5. Those expected to determine questions of fitness and propriety find it a challenge to be expected to think like a regulator and exercise difficult judgements with career defining implications;
  6. It’s almost always quicker, easier, and less expensive, if SMCR preparation begins well in advance.

Whilst 2019 may seem a long way off, even at this stage firms can do the following to prepare for the implementation of the SMCR, and assist Senior Managers and certified staff to understand their own obligations:

  • advise and train boards and senior managers on what to expect and what is expected of them;
  • consider how roles map into the new regime;
  • draft responsibilities statements;
  • revise and update employment contracts;
  • draft new policies and update existing ones to assist with SMCR compliance; and
  • identify any employee relations issues which inevitably come with a period of change, for example, those who want to be senior managers but aren’t, and those who don’t want to be senior managers but are, removing staff who may not meet certification requirements;
  • provide drafting guidelines for managers on assessing fitness and propriety, and advising on new forms for appraisals and for handling regulatory references.

Senior Managers and Certification Regime – Background


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