What’s good for the sell-side is good for the buy-side explains Andy Bennett, Head of Regulatory Training at Fitch Learning.
As we know, the Senior Managers and Certification Regime (SM&CR) was introduced in the UK for the banks in 2016 as a regulatory response to the Parliamentary Commission on Banking Standards. Yet now the regulator is rolling this out to solo-regulated firms and it is bound to raise the question from many in those firms, “What does this have to do with us?”. How can we get buy-in from the buy-side?
The first thing to identify is that harmonising the regimes around licensing individuals is a sensible thing to do. Having, for example, client dealing functions approved by the regulator as fit and proper in one part of the industry and certified by the firms in the other makes no sense. Bringing the solo-regulated firms into SMCR allows comparability and consistency of standards, it provides for easier movement of employees between firms and it creates a clear framework of governance that can be identified with throughout the financial services.
Another advantage for the solo-regulated firms is that this has been done before. This is not an ill-thought-out knee-jerk reaction to regulatory breaches. It is a well bedded in regime. The regulators have had time to identify what works well and tweak what possibly doesn’t.
Bringing the solo-regulated firms into SMCR allows comparability and consistency of standards, it provides for easier movement of employees between firms and it creates a clear framework of governance
One notable improvement to the original regime is the introduction of the Directory to augment the Financial Services Register. At the moment, only approved persons are visible on the FS Register, which, under SMCR, excludes certifications functions. Many rightly feared that the removal of the huge number of existing CF30s, which would include advisers and investment managers, from public view would damage the credibility of and the trust in the financial services. The Directory solves this problem.
The Directory will be a searchable database of not only those who have been approved by the regulator, but also those who have been certified by their firm. This will allay the fears of a lack of transparency. It will also appease those individuals who wear their CF30 with pride and see their regulated visibility as a part of their professional qualification to deal with clients.
This leads to the main focus of the SMCR: individual accountability. With a financial services firm – as within any firm – accountability is a good thing. Ensuring that all those who make decisions or take actions on behalf of the firm have a satisfactory reason for making those decisions or taking those actions can only drive up standards. For those individuals who have always had satisfactory reasons, there will be no real change; for those who have not, there is probably a need to rethink those actions and decisions, creating an improvement for both customers and the firm.
Another major draw is how this accountability escalates with transparency through the firm, with each line manager assessing their team and being held to account for that assessment. The existing process of the regulator approving individuals from afar creates a disconnect between the individual being assessed and the assessor. The supervisors and managers that are engaging with employees on a day to day basis are better placed to affirm a person’s honesty, integrity and reputation. In addition, this regular, and sometimes continuous interaction leads to a much greater level of visibility on what is going right and what could go wrong – before it goes very wrong. The opportunity to spot small problems and deal with them early before the regulator needs to get involved can only be a good thing.
Then there are the Conduct Rules. These tell us how we should conduct our behaviours (with Integrity and skill, care and diligence) and the results of that appropriate behaviour (fair outcomes for customers and market conduct), with the cooperation with the regulator acting as regulatory filter between the two. Looking around many of the solo-regulated firms we work with, these basic tenets of behaviour are already stated and adhered to within the existing business model through their values, ethos or codes and already applied to a much wider employee base than the Statements of Principle. If anything, the Conduct Rules should be seen as a vindication of the practices and attitudes that have been promoted by these firms for a long time.
As a final point, because this has been done before, the available expertise is also greater. Many L&D professionals from the banking sector who were involved in the first round of SMCR can now provide a valuable resource to solo-regulated firms. Training providers that assisted the banks and insurance companies have established resources to allow clear understanding of the regime and its implication to a range of staff in the firms from the senior managers, through certified persons to other conduct staff. The ability to draw on this expertise and experience will help the establishment and positioning of this regime in the run up to 9th December 2019.