Regulatory change: Setting out expectations from the start is important


The 7th March may seem like a fairly insignificant date. However, in the financial services, the 7th March 2016 and 2017 (and probably 2018 and 2019 too) will become significant for the implementation of a new accountability regime: the Senior Managers’ and Certification Regime (SMCR), and the Conduct Rules. The SMCR is a reaction to the events, and specifically individuals’ roles within those events, that led to the last financial crisis.

The Senior Managers’ Regime is an attempt to clearly define lines of responsibility within all relevant authorised persons (RAPs). The senior managers will be expected to motivate those that they manage to behave appropriately for the firm and for the firm’s customers. For most RAPs the process of the Senior Managers’ Regime will be well under way, if not reaching completion. The identification of senior managers and the mapping of their responsibilities to statements of responsibility, for example, will be reaching completion in advance of the 7th March 2016 implementation deadline.

We should also not forget the additional responsibility this new regime will place on the managers of certified persons

But what of the Certification regime?
All functions identified as performing a certification function will cease to be an approved person by the regulator on the 7th March 2016. By 7th March 2017, all RAPs need to have issued a certificate confirming that they have judged their certification functions as fit and proper to perform their role. This year of transition will pass all too quickly and those that perform certification functions and will become certified persons, need to be aware of the changes that affect them: setting out expectations on their role up to and after certification.

Of particular use will be information on how the shift from a one-off assessment of fitness and propriety by the regulator to an ongoing assessment by the firm will lead to a more rigorous process of documenting, recording and reporting competence. We should also not forget the additional responsibility this new regime will place on the managers of certified persons, who may not previously have been captured by the approved person regime.

Conduct Rules
There is also an important message to deliver around the Conduct Rules. The Conduct Rules are a revised set of rules developed from the Statements of Principle for Approved Persons. They are a further attempt by the regulators to focus the conduct of individuals and make sure that their actions are appropriate to the situation in which they operate.

These Conduct Rules take effect on the 7th March 2016 for both senior managers and certification functions. As we mentioned before, the firm has the transition period in which to assess and certify their employees. However, anyone identified as a certified person will be immediately bound by the Conduct Rules; the new Conduct Rules apply whether the certificate has been awarded or not.

There is an important obligation on the RAPs to communicate the expectations for certification functions to understand and follow the Conduct Rules. In addition, this understanding should be role specific, creating a clear view of what is and is not good practice in their business area. With the wider application of these rules to most other employees from 7th March 2017, the need for appropriate messaging that can be communicated to a large audience in a role-relevant manner is clear.

Making Certification functions fully aware of the new accountability regime and enabling them to understand the impact this will have on their role is an important factor in the smooth implementation of any new policies and processes put in place. Furthermore, ensuring that effective Conduct Rule training is provided before they come into force is essential.

Creating learning that sends a clear message to certified persons in advance of those changes taking place, will go a long way towards the regime’s successful implementation within RAPs. As in all things, setting out expectations from the start makes the rest so much easier.


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