"The temptation for some firms will be to look at meeting the requirements set out within the SM&CR as a project which, by its very nature, has a defined end date."
The Senior Managers & Certification Regime (SM&CR) is coming into effect on the 9th December for FCA solo-regulated firms and will significantly change how financial services employees are regulated.
The FCA sees this as a catalyst for change - an opportunity to establish healthy cultures and effective governance by encouraging greater individual accountability and setting a new standard of personal conduct.
The Senior Managers Regime aims to remove any ambiguity around individual responsibility by defining exactly what each senior manager is responsible and accountable for within their business. Firms will be classified as Limited Scope, Core or Enhanced and this will dictate the controls and processes that need to be in place by the 9th December.
• Limited Scope – this will apply to any firm that currently has a limited application of the Approved Persons Regime. The obligations for these firms will be quite light; they will have to allocate just three Senior Management Functions (SMFs) identified by the FCA to appropriate individuals.
• Core – these firms will have a baseline of SM&CR requirements applied. There will be six SMFs, of which only one of these roles, the Chair, can now be held by a non-executive director. The FCA also defines five detailed Prescribed Responsibilities (PRs) that will have to be allocated to suitable individuals. Alongside this, each senior manager within the business will need to have a Statement of Responsibilities (SoRs) which sets out what they are accountable for and their responsibilities.
• Enhanced – organisations will have to apply extra rules if they meet one or more of the six criteria as prescribed by the FCA. A firm classed as enhanced will require 17 SMFs and 12 PRs.
Alongside the Senior Managers Regime, the FCA is introducing the Certificate Regime which replaces the old Approved Persons Regime. It will move the onus onto firms to have the right controls and processes in place to ensure that individuals performing specific roles are certified as “fit & proper”, both before they start their jobs and then on an annual basis.
The temptation for some firms will be to look at meeting the requirements set out within the SM&CR as a project which, by its very nature, has a defined end date. However, it is quite clear that this needs to be an ongoing activity and therefore the focus should absolutely be on quickly embedding this into the BAU activities of the firms. Building robust processes and controls, coupled with an effective communication strategy, will ensure that every individual in the organisation understands their accountabilities and responsibilities. Although it may seem like an HR or compliance project, the nature of the change means that it must be driven from the very top of the organisation, by the CEO.
Where firms have a complex group structure with multiple legal entities, the Senior Managers Regime will need to be applied to each firm in the group separately, even if many of the senior managers are “shared” around those entities. This will be specifically relevant to those firms who have gone through a series of acquisitions.
Firms classified as Enhanced will also need to produce and regularly update the Responsibilities Map. These are designed to be a single document detailing who is accountable if something goes wrong. Their purpose is to help ensure that there is a senior manager with overall responsibility for every aspect of the business – there can’t be any gaps or areas where the sharing or splitting of responsibilities is unclear. The Responsibilities Map will need to include details such as how the PRs have been allocated, who has overall responsibility for the firm’s activities, business areas and management functions, details of reporting lines and much more. This is a complex document to compile and keep up to date and should ensure there are no gaps in the senior managers’ SoRs.
Finally, it is worth noting that developing a coherent and all-encompassing SoR and Responsibilities Map is not an easy task. With 9th December fast approaching, firms should already be well down the path of understanding their classification, working through the relevant controls and processes with a view to embedding these into BAU as soon as possible.