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The Expanded FCA Senior Managers and Certification Regime (SM&CR)

The FCA’s Consultation Paper CP 17/25 presented an expanded SM&CR (Senior Managers & Certification Regime) proposal.

The objective of the proposal is to reduce consumer risk and strengthen market integrity. This is to be achieved by making individuals across the entire industry personally accountable for their professional competence and conduct.

The two major stated objectives are:

  • to develop a culture whereby employees take personal responsibility for their own actions – irrespective of their level in the organisational hierarchy;
  • to ensure that firms and their personnel unambiguously understand and can articulate exactly where responsibility resides in a given instance.

A SM&CR of this nature already exists within the banking, insurance and dual-regulated firm sectors. The FCA’s proposal is to:

  • extend this coverage so it covers all solo-regulated firms
  • make certain revisions to its existing implementation within the above three sectors.

The target date for implementation is 2018, at an exact date to be determined.

  • Application Scope

    All UK-based regulated firms will be covered by the SM&CR.

    Non-UK firms conducting regulated activities in the UK under appropriate authorisation will also be covered.

    Any firm currently operating under the existing Approved Persons Regime will in future be subject to the SM&CR.

  • Key features

    The focus is on three main components of the SM&CR:

    • the Senior Managers’ Regime,
    • the Certification Regime, and
    • the Conduct Rules.
  • Impact

    This is likely to mean the following for firms:

    Senior Managers

    •  must be allocated specific regulatory roles and responsibilities;
    •  will be accountable to the regulator and subject to potential enforcement action for failures to comply with the requirements of their area(s) of responsibility;
    •  firms must provide the regulator with their organisation’s responsibility maps. These must clearly show how responsibilities have been allocated. They must be updated when changes arise;
    •  firms must produce and provide a Statement of Responsibilities for each senior manager.

    Certification

    • the designation covers employees one organisational level below senior managers. Many, though not necessarily all, will currently be FCA-approved persons
    • previously, the responsibility for ensuring that they were fit and proper individuals resided with the FCA. This will change and it will be the firm’s responsibility to assess and certify that the individuals concerned are fit and proper, as required by their duties and regulation. This will place additional emphasis on firms obtaining and validating detailed references

    Conduct Rules

    • will apply much more widely than the existing approved persons regime
    • firms will be required to train employees on the Conduct Rules as they apply to their particular roles
  • Timescales

    The FCA’s consultation period for CP 17/25 remains open until 3 November 2017:

    • operational implementation details and transitional arrangements have not been clarified. They will be subject to another consultation at a so far unspecified date
    • a template for the Statement of Responsibilities as well as other technical matters, will be produced later this year for consultation

    The FCA has not set a date for the full implementation of the extended SM&CR regime. HM Treasury stated in 2015 that this must be implemented by 2018. Given the current proposed timetable, an implementation date of late 2018 seems probable.

  • Conclusion

    Firms need to start mobilising and planning for their SM&CR implementation now.

    This is likely to be the first stage in what will prove to be a long marathon of regulatory change.

    You can read the full proposal here.

  • How Thistle can help you?

    Thistle will continue to keep this area under review and will issue further updates where necessary. For more information, email info@thistleinitatives.co.uk or call 0207 436 0630.