Sean Lam comments on the tasks FCA Solo-Regulated firms must prioritise in the last month before SM&CR takes effect on 9 December 2019.
The deadline for compliance with the Senior Managers & Certification Regime (SM&CR) is upon us. Firms who have hitherto been thinking that this new Regime is a walk in the park will be in for a rude awakening. Firms that have viewed this Regime as an opportunity to further improve their processes, behaviour and conduct of their management and staff and embedding a culture of responsibility and accountability, rather than just a box-ticking exercise, will find real organisational value beyond just being compliant. Whilst there is an element of admin work, firms must resolve these administrative tasks quickly, either by using technology or other methods, and therefore allowing them to focus on the duties of responsibility and accountability, and embedding good culture within their business.
At this late hour, what must firms do?
Whilst this list is not exhaustive, firms must have at least assessed if they are enhanced, core or limited scope, identified their senior managers (holders of the Senior Manager Functions (SMF)), allocated prescribed responsibilities (PRs) to the SMFs, identified SMFs’ other responsibilities, and identified their certificated individuals. Individuals who will not be senior managers must be withdrawn from the FCA Register before 9 December.
For more detail, the Rules are set out in the FCA Policy Statement PS19/20: Optimising the Senior Managers & Certification Regime.
Statement of Responsibilities (SoR)
All individuals designated as SMF holders must have a Statement of Responsibility (SoR). It is a succinct and concise document that sets out clearly their role and their responsibilities. The senior manager is the owner of their own Statement of Responsibility and must be involved in the preparation and completion of their SoR. This SoR must be ready before the deadline.
Senior Managers must also list and describe Other Responsibilities that they carry out as part of their senior management function, not already covered by their PRs. It will usually cover business functions and activities for which they are accountable, for example, high profile projects or initiatives, business transformation programmes or mergers. These must be inserted into the SoR.
Identifying Certification Staff
Firms must identify individuals who will be certification staff. These could be staff who have responsibility for significant business units or who are currently holding the CF30 customer function, and who will be holding the client dealing certification function when SM&CR commences. A list of certification functions is found in the Rules.
Ensuring appropriate and specific training for individuals
Training and evidencing competence has always been important but the emphasis is now on appropriate and specific training that is tailored to the individual. The duties and responsibilities of the individual must be taken into consideration. Training undertaken must be evidenced, fit and proper declarations must be recorded.
Conduct Rule breaches
Firms must have the ability to log and report conduct rule breaches that result in disciplinary actions, like written warnings, salary reductions, bonus clawbacks or bonus reductions (due to the breach), suspensions or dismissals. Logging is important because firms are required to provide details of breaches in regulatory references for at least six years. Even if an individual has left the firm, if a breach comes to light and the firm concludes that disciplinary action, as mentioned above, would have been taken if the individual were still an employee, then the FCA must still be notified and the regulatory reference given to the individual’s current employer must be updated.
Embedding good culture
All the SM&CR roads lead culture, ensuring that firms have embedded good culture, good behaviour, within their business. Good culture is subjective and intangible, and will vary from firm to firm. Firms should define examples of what good culture looks like and measure themselves against that standard. Examples of bad culture will also help individuals avoid or eliminate bad behaviour.
Firms must not be distracted by the administration requirements of SM&CR, this must be resolved quickly and the focus must be on the duties of responsibility and accountability, and establishing and embedding good culture within the hearts and minds of the individuals and in the business.
Is there still time?
Firms who have not yet started their SM&CR journey face the monumental task of becoming SM&CR ready before the 9 December deadline. Firms will need to seek out appropriate technologies or other solutions that can help them catch up in the shortest possible time, quickly resolving the administration requirements of SM&CR, thereby allowing them to focus on the duties of responsibility and accountability, and establishing and embedding good culture within the firm.
Whilst most of the SM&CR activity is geared toward being ready for the commencement date, and rightfully so, firms must also be mindful of how they will maintain and update their SM&CR records going forward. Records must remain current, evidence must be retained, and should be easily accessible and quickly retrievable. Becoming SM&CR ready is not an easy endeavour, but remaining SM&CR compliant may yet prove to be a much more difficult undertaking, and firms must keep both eyes firmly on SM&CR not just for now, but also well into the future.
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