SM&CR is a regulatory framework that was introduced by the FCA following the financial crisis in 2007 in an effort to improve governance and accountability of financial services professionals. Since its introduction in March 2016, it was applied to banks, building societies, credit unions, PRA-designated investment firms and insurers. The latest extension of the SM&CR will come into force on 9 December 2019, and will apply to 47,000 FCA solo-regulated firms.
7 March 2016: the SM&CR is first introduced for banks and PRA-designated investment firms
10 December 2018: The SM&CR is extended to cover insurers
09 December 2019: the SM&CR is extended to all FCA solo-regulated firms
The overarching aim of SM&CR is to reduce harm to consumers and strengthen market integrity by making individuals accountable for their conduct and competence.
The new Regime will replace the Approved Persons Regime and will extend to all FCA solo-regulated firms, regardless of size. It will also apply to branches of non-UK firms that carry out regulated activities in the UK.
The clock is ticking for UK firms with only three months to go until SM&CR changes come into force. Implementation of the new regime is a lengthy process that could take many months to complete. Many firms engage professional consultants to help them through this process. Firms must comply by 9 December 2019 or they may suffer regulatory penalties.
The new SM&CR will extend beyond banking, building societies and credit unions to the remainder of the financial services sector, covering roughly 47,000 additional firms comprising approximately 200,000 individuals;
The new Regime will completely replace the existing Approved Persons Regime (APER);
The accountability of Senior Managers will increase, standards of governance will rise, firms and internal teams must clearly understand and demonstrate where their responsibilities lie. Enshrined in clearly written Statement of Responsibilities;
Firms will assume full responsibility for the certification and evaluation of suitability, fitness and propriety of individuals who fall under the Certification Regime;
A new code of conduct rules will apply to almost everyone in the firm, excluding only ancillary staff.
The introduction of the new SM&CR will have a considerable impact on HR processes. To comply with the new rules, firms will need to make significant changes to governance documentation, compliance and HR processes, and submit additional documentation to the FCA. Therefore, firms affected need to take steps now if they want to be ready for the new Regime.
Classification of firm | Determine your firm’s classification to understand how the new regime applies to you: The FCA has taken a proportionate approach to SM&CR and created three classifications of firms: Enhanced, Core and Limited Scope. As a starting point, it will be important to understand the extent of your firm’s obligations by determining which category it falls within.
SENIOR MANAGERS REGIME | Identify Senior Managers, allocate responsibilities and develop statements of responsibility documents: The Senior Managers Regime aims to increase accountability for individuals in senior positions. Depending on your firm’s classification, you will have to map out and allocate responsibilities for your Senior Managers as well as submit respective Statements of Responsibility to the FCA. This is not designed to be a one-time process but requires ongoing monitoring, evidencing, and annual review. You are also required to update and re-submit these statements whenever there are substantial changes to a Senior Manager’s responsibilities.
CERTIFICATION REGIME | Decide which staff members will be under the certification regime, establish mechanisms to conduct fit and proper assessments and an annual certification process: According to the new SM&CR, companies are now required to evaluate the qualifications, training and competence of certification regime employees, who due to their role may pose a risk to the firm or its clients. After the roles have been determined, your firm will have to identify and allocate the appropriate certification responsibilities to each of those individuals. For insurers the certification process needs to be completed by end-2019, and for the rest of the FCA solo-regulated firms, the deadline is end-2020.
CONDUCT RULES | Train Senior Managers and Certification staff on the new Conduct Rules: As part of the new Regime, Conduct Rules will completely replace the existing Principles for Approved Persons rules and will apply to every individual in the firm, excluding ancillary staff. Firms will be required to provide effective training to all staff about how the new rules will apply to them, with their individual roles in mind.
The new SM&CR rules introduces a significant amount of administrative complexity to financial services firms. Firms need to start preparing now to effectively manage the plethora of requirements arising from this new regulation.
The EnOC Pro platform is a cloud-based system that has been specifically developed to assist firms in meeting these changes. EnOC’s SM&CR tool, called Accountability, is an intuitive approach that consists of a simplified, three-step setup process that enables you to be up and running in minutes.
EnOC also provides a variety of Expansions that aim to provide enhanced solutions for your business’ needs.
For as little as £25 per SMF, £12 per Certified individual and £3 for other individuals, EnOC helps you on your journey toward SM&CR compliance at a very low price point.
Find out more about EnOC here.