21 February 2020
Claire Aynsley is Head of Regulatory Compliance & Standards at the CSA.
It may have seemed as though it was a long time coming, but it’s finally here, and the first deadline has already passed. I’m talking, of course, about the new Senior Managers and Certification Regime (SMCR) which formally started on 9 December 2019. And if you’ve not already completed your initial actions, then you need to get your skates on or risk falling foul of the Regulator.
SMCR, as I have written previously, is not solely a compliance issue; it will also significantly impact a company’s Human Resources (HR) function as well as requiring input from legal personnel. It creates a number of challenges: it creates cultural and motivational issues; future appraisal issues; and issues as regards how managers are remunerated.
It is asking senior managers to take on roles and responsibilities that they may be uncomfortable doing, or who may not be equipped with the necessary skills to take on the job envisaged. Individuals who will be certificated will appear on a public register, and some may be uncomfortable, too, with having their names so readily available.
The SMCR does not just impact individuals. All staff members (apart from ancillary employees such as a receptionist or cleaner) are bound by the new Conduct Rules. Even though such rules appear to be quite general (e.g the need to act with integrity, act with due care, skill and diligence, be open with regulators, pay due regard to interests of customers and treat them fairly, observe proper market conduct etc.) every company will need to demonstrate that these rules have been properly communicated and embedded, with culture being the core focus. Every member of staff will be required to evidence adherence to Conduct Rules, if challenged. And a new disciplinary process will be required for anyone who breaches those Rules, and a further process identified as regards whether the breach is notifiable to the FCA!
So what actions should firms have completed by the formal deadline, and what are the next steps?
Senior Management Functions
First off, by now, firms need to have identified their Senior Management Functions (SMFs). It is worth noting that many existing approved persons can be grandfathered over to the new regime. If any firms have someone they expect to be a SMF who is not already an approved person, they may want to look into the viability of making that person an approved person and following the grandfathering process (as opposed to starting from scratch).
Businesses also need to have identified their certification staff. If in doubt, firms are encouraged to err on the side of caution, and as they become more comfortable with the regime, they can amend their certification population accordingly, if necessary.
Firms should diarise the checking of the FCA Register. Given the significant volumes of firms moving to the new regime and an even larger number of approved persons expected to be converted to SMFs, there could be initial teething problems with the conversion. Firms are therefore encouraged to diarise a point in this first month of implementation to check the FCA Register and make sure that their details have been moved to the new regime correctly.
With a longer timeframe to put them in place, tasks such as identifying the remaining staff required to comply with the Conduct Rules and providing the necessary training, carrying out certification and uploading certification staff details to the FCA can wait for the time being.
But they shouldn’t wait too long. Firms should still be cautious about leaving such elements to the last minute (uploading certification staff details at the last minute could be problematic if there are system issues).
By now, firms should have ensured that the relevant Conduct Rules staff (SMFs; certification staff; non-executive directors) are trained on the Conduct Rules and that they understand the implications. When it comes to training remaining staff on the Conduct Rules (an action not required for another 12 months) it is suggested that firms may want to look at doing this ahead of the implementation date (e.g. October/November 2020), to ensure it is not forgotten and avoid the need for repeat training.
Statements of Responsibilities need also to have been considered. Ideally these should be short and succinct. They should be aligned with the job description but not necessarily identical. It is important to make sure that Statements of Responsibilities are agreed with the relevant SMFs and they understand their responsibilities. (It is also worth noting that Core firms do not need to submit their Statements of Responsibilities to the FCA for any staff converting from approved person to SMF. Fresh SMF applications, however, will require the provision of a Statement of Responsibilities.)
When it comes to assessing the fitness and propriety of the SMFs, some checks (such as DBS checks) won’t need to be replicated where someone is converting from approved person to SMF. However, as with Statements of Responsibilities, any new SMF application will require all relevant checks to be carried out in advance.
Anyone with any questions about SMCR, or who may want further details on the policies and procedures that may need changing to support its implementation, are directed to FCA website. CSA Members can access additional information on the CSA website where the outputs of a dedicated SMCR compliance meeting can be found, along with a series of SMCR webinars.
Back to news