Extending the Senior Managers and Certification Regime

Chairman Mark Davies summaries the Senior Managers and Certification Regime and explains what this means for financial services businesses.

The Financial Conduct Authority (FCA) has just published (26/7/17) proposals to extend the Senior Managers and Certification Regime (SM&CR) to all FCA firms (FCA CP17/26), to insurers (FCA CP17/25) and PRA to insurers (PRA CP14/17).

The regime was proposed by the Parliamentary Commission for Banking Standards to improve standards in the banking sector and effectively beef up and replace the Approved Person’s regime. The commission was set up in July 2012 by the government in response to the 2008 banking crisis and the LIBOR manipulation scandal.

The SM&CR aims to make individuals accountable for the conduct culture and competence of their firms and as a consequence improve consumer outcomes and strengthen market integrity. SM&CR is intended to encourage staff to take personal responsibility for their actions and make sure firms clearly set out and can demonstrate where responsibilities lie.

The regime already applies to banks and the regulators (FCA and PRA) are extending it to cover (almost) all firms regulated by FCA and PRA.

The regulator aims to take the SM&CR from the banking sector and apply those broad principles to the rest of financial services in a proportionate flexible way. The aim is that small firms, firms with distinct sector responsibilities can accommodate their different business models and different governance structures within a consistent framework.

The regime will have three elements which will be called the Core Regime, these are the Senior Managers Regime, Certification Regime and Conduct Rules.

The Senior Managers Regime will focus on the most senior people in the firm, with FCA defining which roles are ‘Senior Management Functions’ depending on the type of firm involved. Each Senior Manager needs to have a document which sets out what they are responsible and accountable for.  Firms will provide these documents to the FCA as part of the approval process and update them when there’s a change in these responsibilities. Each Senior Manager will have a duty of responsibility and some FCA prescribed responsibilities so if something goes wrong it’s clear what they are responsible for and provide a framework for the FCA to decide whether they appropriately discharged their responsibilities.

FCA is implementing SM&CR to make sure that senior managers are personally accountable for their decisions and exercise rigorous oversight of the business that they lead. This is what FCA call the “Culture of Accountability”.

SM&CR doesn’t seek to change a firm’s structure, but asks firms to clarify and document the governance structures they have in place today. And if a firm finds its current arrangements are not appropriate to change them so that the firm is well governed.

FCA will ask the largest firms (Enhanced Regime) to provide responsibility maps, handover procedures and ensure that there’s a Senior Manager responsible for each part of their firm. In practice this is a good discipline for all firms. CP17/25 provides guidance to determine if you are a firm subject to the Core, Enhanced, Limited Scope or not an SM&CR firm.

The consultation process asks for feedback by 3rd of November with publication of final rules in 2018.

If you would like to contribute to the discussion contact us on 01273 651 500 or email contactme@grovelands.co.uk. To keep up to date with our news and updates don’t forget to follow our social media channels and sign up to our newsletter.

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