SM&CR deadline. Are we there yet?


So here we are on the morning of 9 December 2019. It is a cold, crisp, dry morning. The sun is shining, and everything feels the same as normal. So, what’s changed? Today is the deadline of the senior managers & certification regime for FCA solo regulated firms. It is the day when all the hard work put in over the recent months comes to fruition. in theory everything should be ready to move forward in this new environment of accountability. Many firms when they look back at what they’ve done in order to prepare themselves for this day have adapted existing practices within their firm feeling that that will be more than adequate to satisfy the needs of the regulator in future. The FCA has told us on many occasions, in numerous formats, of what they expect to see and experience in this new world. The FCA talks about the biggest cultural change. How much evidence have we seen amongst firms of what the regulator expects in this area? The FCA has an expectation that firms, especially those in senior management positions, will be able to articulate their company culture, the drivers of it,

The FCA talks about the biggest cultural change. How much evidence have we seen amongst firms of what the regulator expects in this area?

how they measure it and what they need to do when necessary to change. This is an enormous challenge for some firms. Having defined the culture it is important to determine the core values that underpin it. In many firms the values are displayed on various notice boards and signage throughout the premises, but little is done to articulate what these values mean to people working within the company and how they are embedded in day to day practices. Ideally each of the values should be supported by a set of behavioural competencies that are measured and evidenced on a regular basis. Perhaps it is part of performance management activity that shows how the firm is moving forward. The skills required to perform this activity should not be underestimated and it normally requires some specialist training to ensure that you get achieve a consistent standard of application throughout the firm by those who perform supervisory roles. This leads onto another point of how you have defined the measurable objectives and outcomes that you use to determine how successful you have been in implementing your cultural drivers for the firm. Quite surprisingly some firms have not engaged their T&C personnel within the design of the fit and proper assessments for certification staff. It is seen as a separate responsibility rather than an integral part of the same process. Some firms have adapted the old approved persons attestations featured in the fit and proper section of the new appointment application process and combined this with a job description and performance review to satisfy themselves that the person is fit and proper. This is not necessarily the sound way to confirm an individual’s fitness there are differences between performance management and competence measurement with the potential outcome that a person may be competent to perform their role but is not successful in achieving their performance objectives. The former should be enough to generate a certificate for the certification function employee. If you base your decision on whether the individual in question has achieved their performance objectives, you may deny a person the right to hold a certificate as they may be able to demonstrate underlying competence. There is still time for many firms to engage their T&C personnel to shape and hone the necessary procedures to gather the evidence of a person’s competence and capability. In order to do this, you must have clear measurable standards of what a competent performer looks like. This opens a new challenge for firms. They have been used to defining such standards for financial and mortgage advisers and those overseeing roles as well as investment managers. Competence is far more than holding an appropriate qualification or a Statement of Professional Standing. Some firms struggle to come up with an answer when defining competence. It should be defined in such a way that there is consistency of its understanding across various areas of the firm. This doesn’t mean that the performance standards are the same in order to determine competence. Competence for different individuals can be acceptable. Although you would expect people performing the same role to have similar standards. Gathering evidence of a person’s competence does not require you to introduce supervisors sitting in and observing various activities performed by the person being assessed. It is of course the most powerful form of evidence. It is not necessarily the most

there is still a lot to do to ensure that the necessary changes have been implemented correctly and that there is work to do to embed them and operationalise them

practical way of gathering it. It is resource intensive and there may be other ways in which the evidence can be generated. Making use of supporting direct and indirect evidence offers an alternative way of generating enough evidence to determine the person’s competence. At this point the regulator expects all certification functions to have been trained on the code of conduct both overall and how they it affects them on a day to day basis performing their role. This part is proving to be quite challenging for firms and was one of the findings recorded by the FCA in the stock take report issued in August this year. Rather than regard the code of conduct as a piece of e-learning that needs to be delivered on an annual cycle the regulator is really looking for firms to be able to link the code of conduct to their values framework that they are operating to underpin their culture and to embed appropriate behaviours with an understanding of how it helps deliver the code. In this regard you may wish to consider aspects such as personal charters where people make a list of what they will be doing to deliver their aspects of the code and include this in part of the annual performance appraisal. This could be reviewed with the employee providing evidence of what they have done. Reward mechanisms could take this into consideration. Before you decide whether or not the actions that you have taken are sufficient to demonstrate the code of conduct is fully understood in your business why not do a spot check just to see whether the work that you did some months ago to train people on the code of conduct has actually stuck? The chances are that many people will recall aspects of it with no full understanding of what is expected of them on a day to day basis. The other key part of this regulation is the need to be able to understand what a breach of the code of conduct looks like and what the appropriate process is for reporting and recording that breach. This work should have been completed. You still have all other staff to train on the code of conduct except of course ancillary staff unless you choose like some firms to include everybody. Bringing the certification regime to life does require portfolios of evidence or evidence to be gathered of a person’s competence and capability. It doesn’t have to be a once a year event. Many firms have overlooked the fact that you can use the regulations to stagger the introduction of the certificates so that it becomes a manageable cycle. Other aspects of the senior manager and certification regime that will provide challenges are keeping the documents up to date. For instance, the statements of responsibilities and the responsibilities maps. Some firms have chosen to use responsibilities maps despite the regulations not requiring them such as for core and limited scope firms. The same applies to handover procedures. The FCA recommend that firms consider using these as a control document. Another aspect that firms need to deal with immediately are the requirements associated with the regulatory references whether they are providing these for members of staff who have left or seeking those for new employees. They need to have appropriate procedures in place and for new employees. They also need a process to confirm or certify them as quickly as possible bearing in mind that one of the requirements is a trainee will require a certificate. This is different to the T&C rules which focus around an individual’s competence to determine the way in which they are supervised and managed. All these changes form part of a dynamic new world and require various departments or people within a firm to communicate effectively with each other. Making sure that you understand what to do in given circumstances is fundamental to the success of this. The FCA expects under ‘reasonable steps’ to see documented processes and procedures in place to ensure they are implemented effectively. This will also turn attention to how the Senior Management Function responsible for the oversight of the Senior Managers and Certification Regime is performing these responsibilities. This will require key, relevant and timely management information which can consume large amounts of resource to manage – therefore many firms are turning towards specialist companies that offer specifically designed solutions. In conclusion the 9th of December has arrived but there is still a lot to do to ensure that the necessary changes have been implemented correctly and that there is work to do to embed them and operationalise them. Within the business for banks building societies and insurers that feel that they have already achieved this perhaps it is the right time to review and audit what they have put in place


About Author

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I provide consultancy and support to UK based financial services companies helping them to design and implement practices that develop their people, achieve their business goals and comply with the needs of the regulators. I specialise in T&C, competence assessment and conduct which may be of particular interest to companies as they address the requirements of the Certification Regime and Code of Conduct requirements. My specialities include: Knowing you have a business to run Valuing your people as your greatest asset Keeping things simple, practical and relevant Engaging the business to promote ownership Ensuring Compliance is a natural by product of doing things well

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