The Senior Managers & Certification Regime (SM&CR) is a vital part of the Financial Conduct Authority's (FCA) initiative to enhance the integrity and accountability of financial services firms in the UK. The SM&CR has replaced the Approved Persons Regime to ensure that all appropriate employees, in particular Senior Managers, are held to account for their conduct in the market. Consequently, misconduct in the market should be reduced and consumers should enjoy more protection. From 9 December 2019, the SM&CR applies to all FCA regulated financial firms in the UK, therefore it is important to understand the SM&CR ahead of this deadline.
What is the aim of SM&CR?
The SM&CR aims to improve the conduct of employees within financial services firms by holding them to account for their actions. Essentially, this should establish a healthy culture within the firm and consumer confidence in the industry should increase.
What does the SM&CR do?
The SM&CR protects individual customers by improving the conduct of all employees and Senior Managers involved in a financial firm. The SM&CR demands that all employees are held to account for their actions, and this subsequently should ensure they conduct themselves with increased integrity and transparency.
The SM&CR demands that firms demonstrate and provide the following:
- Statement of Responsibilities: A Statement of Responsibilities must be completed by every employee in the firm who deals with clients. This statement must list the employee's responsibilities clearly. The statement should be available to colleagues and submitted to the FCA. It is a legal requirement for Statements of Responsibilities to be maintained and ready for inspection from 9 December 2019.
- Duty Responsibility: This refers to Senior Managers and states that if something goes wrong beneath a Senior Manager's leadership, they could be held to account because it occurred beneath their overall responsibility.
- Senior Management Function (SMF): The FCA demands that all Senior Managers in a firm must be identified and reported to the FCA. The FCA will then approve these individuals and certify that they are fit to carry out a Senior Management Function (SMF). An employee with an SMF status is considered to be someone who poses the greatest potential risk to a client or the market, due to the vast responsibility involved in their role. Therefore, individuals with an SMF status must be regularly assessed, using a Fitness and Propriety test, to ensure they are fit to perform their role.
- Certification Regime: The Certification Regime applies to employees who are not Senior Managers but have a role that could pose harm to a client or the market. An individual in this role has a Certified Function and it is the Senior Manager's responsibility to identify the employees who carry out a Certified Function, and to subsequently assess how fit they are to perform their role. If the employee passes the Fitness and Propriety test, they will be classified as a Certified Individual.
- Conduct Rules: Conduct rules are separated into two tiers. The First Tier of Conduct Rules applies to the majority of employees within a firm, apart from the ancillary staff, and aims to improve conduct and behaviour. The Second Tier of Conduct Rules relates to Senior Managers, who have additional responsibilities which need to be addressed to ensure they are conducting their role properly.
Why did SM&CR replace the Approved Persons Regime?
The Approved Persons Regime had been in place for several years prior to the SM&CR and was used to regulate the conduct of directors in financial firms, ensuring they were fit to direct the firm with integrity.
However, the Approved Persons Regime did not hold other employees accountable for their actions, it only focused on the directors of each firm. Therefore, employees who held important positions, such as Senior Managers, were not effectively held to account.
Consequently, the SM&CR was established to check and hold to account all employees within a firm, specifically those in Senior Management, to ensure the whole firm is contributing to positive business culture.
What will happen if you do not comply with SM&CR?
From 9 December 2019, the SM&CR applies to all FCA regulated firms in the UK. The only enforcement to date was inflicted upon Mr Jes Staley, the Chief Executive of Barclays Group, in March 2016. The FCA and the Prudential Regulation Authority inflicted a joint fine of £642,430 upon Mr Staley following his breach of a First Tier Conduct Rule.