SM&CR Coffee Time Briefing

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Objectives
To walk through the background to the increased accountability, regulations, to identify the key components and how these might affect firms and their employees.Some test questions are set out towards the end of this post.

Outcomes

  • To understand the origins of the increased accountability regulations
  • To describe the component parts of the SM&CR
  • To know how the Approved Persons Regime will be affected
  • To detail the component parts of a fit and proper check under the Certification Regime
  • To be aware of the Code of Conduct and the size of the population in scope
  • To be aware of the timelines involved.

VIDEO TRANSCRIPT
Hi my name’s Jeff Abbott. I’m Regulatory Services director here at 2be Development Consultancy.

Imagine the situation, you’re meeting a colleague at work for a coffee and a catch up and you ask them how things are going. They say to you that they’re up to their eyes in this project called SMCR. You’re not quite sure what that is, but you want to find out more and you probably will.

However, in this short video, I thought it might be worthwhile sharing with you a little bit about the background to the SMCR or Senior Managers and Certification Regime.

Where did it come from and why did it arise?

What does it involve? And, how it might affect you on a day to day basis?

Now to understand the background we have to go back just over a decade to the collapse of the banks and the financial crisis that was around. In the aftermath of the government bailing out the banks, the regulators, the government wanted to find out and try to understand why these problems arose. And it proved very difficult because trying to identify who was responsible for making key decisions within these various firms, proved, so difficult that no individuals were particularly identified as accountable for the problems.

The Parliamentary Commission on Banking Standards came up with a series of recommendations to try and prevent such issues occurring in future. These move forward the regulatory and statutory processes, to become a suite of regulations under the increased accountability regulations.

Primarily they consist of three parts; the Senior Managers Regime, the Certification Regime and the code of conduct and they come together to try and create a culture of accountability. Individual accountability within the firm where people clearly know what they are responsible for and are held to account for that responsibility. One of the prime expectations of the regulator is for firms to create that culture within the firms themselves.

Now if we start off with the Senior Managers Regime. Effectively this replaces, as does the regulation the approved persons regime, but in future, the regulator is only going to be interested in approving a much smaller group of people. They will focus their attention on the most senior managers within an organisation and approve those before they can take up their position.

Their interest is in a much narrower scope but, having said that their requirements, as have their powers, increased. Now in terms of their requirements, they expect a statement of responsibilities in respect of each of the senior managers. Clearly identifying, in a single document what each of these managers is accountable for within the firm.

Now within that, there is also the requirement to identify which of the senior managers carries the prescribed responsibilities that the regulator has stipulated. Now prescribed responsibilities include things like the operation of the Senior Managers Regime, the Certification Regime and the code of conduct. So the regulator will clearly know who carries that accountability.

The regulator also has increased powers with these changes. That says, as well as actions against the company, they can take actions against individuals if it is proved, by them, that that individual has not taken reasonable steps to discharge that responsibility. Part and parcel of that is they set out within the regulatory framework their expectations of what reasonable steps look like. But having said that it’s up to the regulator to prove that the individual has not fulfilled that duty.

In addition to the statements of responsibility some firms, the larger more complex firms will also have to produce responsibilities maps which shows how the governance structures the committees and the individual managers work together, to manage the company. Also, hand over procedures, so if one of the senior managers was to leave or move roles, then what would be the process to ensure that the seamless transition from one manager to the other.

So, these are the sorts of things that are happening within the Senior Managers Regime. To make that transfer, there are some forms that have to be completed naturally and depending on the size of the firm, maybe some of those forms have to be submitted to the regulator.

Now, the population of people that are currently within the approved person regime include a number of categories such as significant influence functions and customer functions, such as advisers. The people that don’t make it across to the senior manager regime and our significant management functions will see senior management functions. They fall into the Certification Regime. Now the Certification Regime is a situation, where the regulator, has put the responsibility on your firm to confirm the individuals that fall within the scope of the Certification Regime, and are fit and proper to do their job.

On top of that, there will be one individual manager within your firm that carries that prescribed responsibility to ensure that the requirements have been met satisfactorily.

Certification and fitness and the fit and proper test is in three parts:

1. The honesty integrity and reputation
2. The competence and capability
3. The financial soundness

So once a year, this confirmation has to be given and produce a certificate to confirm the individual’s continuing fitness to do the job. Now the certification population includes those senior managers, as I say, that didn’t make it across to the senior manager regime, but also people like advisers who require a qualification as part of their job. It will also include any supervisor of a certification function. Right the way up the management line until you get to that senior management function. So the audience, for this requirement, is growing.

Certification itself does literally mean being issued with a certificate. So if you are within the category of certification employees, you would be looking to work towards getting a certificate within the first year of the changes being implemented. The date when these changes come in is the 9th of December this year.

The final part of the regulations is the code of conduct, which is effectively replacing the approved persons code, but being applied to a much wider audience. In fact, the regulator expects this code of conduct to be applied to everybody in the firm, except those that they describe as ancillary staff, people that are performing a role that would be broadly similar if it was outside financial services, such as a receptionist, a security person, a maintenance person. Though some firms are actually choosing to include these in the code of conduct.

Now the code of conduct comes in two parts. There’s the part that affects everybody and basically the expectation that:.

  • People will act with integrity, due care, skill and diligence
  • Be honest and open with the regulator
  • Treat customers fairly
  • Follow appropriate standards of market conduct

So that applies to everybody and there’s an additional layer for those who are deemed senior management functions as well. The regulator requires everybody to be trained on the code, with developed further understanding of how, as individuals, they will also fulfil that code on a day to day basis. So that will involve some training. So it might affect you if you’re not in the certification function as well. So that’s something that you could look forward to and learn how that works on a day to day basis.

So in a nutshell, those are the three key elements of the changes. And as I say these changes come into effect from the 9th of December. There’s a lot of work for firms to get in place prior to that, as well as a number of things that they will have to deal with when the changes come through. There are other elements that are covered off in the regulations, which I haven’t touched on in this video such as regulatory references or breach reporting. But having said that these are the key elements.

 

Test Questions

Who came up with a series of recommendations on the steps that should be taken for the future?
A. PCBS
B. FOS
C. PCSB
D. HMT

What does PCBS stand for?
A. Pensions Commission for Better Standards
B. Professional Conduct for Banking Standards
C. Parliamentary Commission on Banking Standards
D. Parliamentary Council for Banking Standards 

The Approved Persons Regime for Core Firms
A. Will run alongside the new regulations
B. Be replaced by the new regulations
C. Be phased out over the next 18 months
D. End on 09 December 2020

The FCA, in future, will only approve
A. All Senior Management Function appointments
B. All Senior Management Function and NED appointments
C. All Senior Management Functions and selected Certification Functions
D. No one as it will be up to each individual firm

Which component is not part of a Fit and Proper Check?
A. Financial Soundness
B. Competence and Capability
C. Treating Customers Fairly
D. Honesty, Integrity and Reputation

How frequently must a Fit and Proper check be undertaken?
A. It is a one-off event
B. Every 2 years
C. Every time an employee changes Certification Function
D. Every Year

Which of the following is not a requirement of the Code of Conduct?
A. You must act with integrity
B. You must act with due care, skill and diligence
C. You must ensure your customers are satisfied with your service
D. You must observe proper standards of market conduct

Which one of the following roles is not deemed to be an ancillary role by the FCA?
A. Receptionist
B. Maintenance Worker
C. Claims Administrator
D. Security Guard

The regulations start for Enhanced Firms on 09 December 2019.  How long do you have to issue your first Certificate for each employee?
A. One year
B. One year from your chosen opt in date
C. Any time up to 6 weeks before 09 December 2020
D.31 December 2020

Test Answers

Who came up with a series of recommendations on the steps that should be taken for the future?
A. PCBS
B. FOS
C. PCSB
D. HMT

What does PCBS stand for?
A. Pensions Commission for Better Standards
B. Professional Conduct for Banking Standards
C. Parliamentary Commission on Banking Standards
D. Parliamentary Council for Banking Standards 

 

The Approved Persons Regime for Core Firms
A. Will run alongside the new regulations
B. Be replaced by the new regulations
C. Be phased out over the next 18 months
D. End on 09 December 2020

 

The FCA, in future, will only approve
A. All Senior Management Function appointments
B. All Senior Management Function and NED appointments
C. All Senior Management Functions and selected Certification Functions
D. No one as it will be up to each individual firm

 

Which component is not part of a Fit and Proper Check?
A. Financial Soundness
B. Competence and Capability
C. Treating Customers Fairly
D. Honesty, Integrity and Reputation

 

 

How frequently must a Fit and Proper check be undertaken?
A. It is a one-off event
B. Every 2 years
C. Every time an employee changes Certification Function
D. Every Year

 

 

Which of the following is not a requirement of the Code of Conduct?
A. You must act with integrity
B. You must act with due care, skill and diligence
C. You must ensure your customers are satisfied with your service
D. You must observe proper standards of market conduct

 

 

Which one of the following roles is not deemed to be an ancillary role by the FCA?
A. Receptionist
B. Maintenance Worker
C. Claims Administrator
D. Security Guard

 

 

The regulations start for Enhanced Firms on 09 December 2019.  How long do you have to issue your first Certificate for each employee?
A. One year
B. One year from your chosen opt in date
C. Any time up to 6 weeks before 09 December 2020
D. 31 December 2020

 

 

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About Author

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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