The regime is due to come into force for Financial Conduct Authority (FCA) solo-regulated firms from 9 December 2019, completely replacing the Approved Persons Regime (APR). For more information on the events that led to the regulatory reform, read EnOC’s guide on how the SM&CR came to be.
The Senior Managers Regime introduces a new era of individual accountability in financial services. Senior Managers are set to have specific responsibilities allocated to them, and they will need to show they have taken all reasonable precautions to prevent misconduct. If a breach occurs and the responsible Senior Manager is unable to prove they took reasonable preventative measures, action may be taken against them, against the firm, or both.
Firms that view the new regime as an opportunity for embedding a culture of honesty and responsibility rather than a box-ticking exercise will find real organisational value beyond simply becoming compliant.
As part of the SM&CR, the FCA has introduced Senior Management Functions (SMF) and Prescribed Responsibilities (PR), which will need to be communicated and proven through Statement of Responsibilities (SoR) and Responsibilities Maps.
SMFs are a new type of designation under the SM&CR, and will replace the Certified Functions under the APR. Different SMFs will apply to firms depending on whether the firm is classified as Enhanced, Core or Limited Scope:
The example table below shows which SMFs must be assigned to appropriate Senior Managers within each classification of firm (for more details, please consult the FCA Handbook).
The FCA has identified and defined Prescribed Responsibilities (PRs), each of which addresses potential conduct or prudential risks. For Core and Enhanced firms, respective PRs must be allocated to a Senior Manager to ensure individual accountability.
Outlined in the example below are the PRs for FCA solo-regulated Core and Enhanced firms (for more details, please consult the FCA Handbook).
Each Senior Manager should be able to clearly outline the responsibilities of their role, along with any SMFs they hold. This must be provided to the FCA in a Statement of Responsibilities (SoR), which should be monitored and kept up to date and resupplied if there are any significant changes. Firms should be ready to produce SoRs on request.
Firms should be intimately aware of their organisational structure, with a clear understanding of who they report to and who holds the ultimate responsibility for outcomes. While SMFs are expected to delegate tasks, they can never delegate responsibility, and must take all steps to ensure those carrying out delegated tasks are trained and capable to do so.
Enter the Responsibilities Map: a detailed list of the responsibilities, and the individuals assigned to those responsibilities for the entire organisation. The Responsibilities Map should be able to describe clearly to someone who has no knowledge of the firm:
Under the SM&CR, the Responsibilities Map is only applicable to Enhanced firms, however there are benefits to be found for other firms in undertaking this exercise despite it not being mandated.
Unfortunately but unsurprisingly, the administrative burden of implementing the Senior Managers Regime will be greatest for smaller firms which may have less resources and expertise to implement these changes.
EnOC is designed to close the technology gap, giving even the smallest of firms access to enterprise-level services at a low price point. Check out the platform at www.enoc.pro and find out how EnOC can help speed up your SM&CR journey.