Business risk services

Senior Managers and Certification Regime: FCA Feedback

David Morrey David Morrey

The Senior Managers and Certification Regime (SMCR) was implemented on 7 March 2016. Read on for some of the themes that have emerged from the FCA’s review processes recently.

The FCA has now reviewed a sample of the original grandfathering notifications together with the underlying Statements of Responsibilities (SoRs) and Management Responsibility Maps (MRMs). The FCA is also conducting on-site reviews and issuing remediation notices where it deems necessary. Several themes have emerged from the review processes and these are summarised below. The FCA has advised that firms should review their SoRs and MRMs in light of the feedback given and, where necessary, revise them using the rules and guidance provided in the FCA Handbook.

Coverage

The SMCR is a joint regulatory requirement. The feedback so far received relates only to the FCA driven elements of the regime. Despite this limitation a number of themes have been identified across different business types.

Themes

The feedback given relates to five principle areas of the regulatory submission:

  1. Identification and allocation of overall responsibilities
  2. Shared or divided responsibilities
  3. Statements of responsibilities
  4. Management responsibilities maps
  5. Governance

Further sub-themes were also identified dependent upon the nature of the firm and its jurisdiction.

Some examples...

Identification and allocation of overall responsibilities

  • Failure to allocate the FCA-prescribed responsibilities or overall responsibilities to the most appropriate individual
  • Failure to demonstrate that all business activities and functions of the firm have been allocated to Senior Manager Functions (SMF) managers
  • Poor definition of the allocation of SMF responsibilities in some European Economic Area (EEA) branches
  • Uncertainty that all individuals with responsibility for significant business units in EEA branches are identified
  • Evidence of failure to fully allocate responsibilities for their business to the SMF managers in non-EEA firms
  • Failure to allocate overall responsibilities for business functions and activities was seen in some credit unions

Shared or divided responsibilities

  • Lack of confidence that where one SMF manager reports to another, that the latter does not share some responsibility for the matters for which the former is responsible
  • Instances of a lack of clarity or detail where responsibilities have been shared or divided
  • Allocation of the money laundering reporting function and an EEA branch SMF to a single individual with no clear explanation of how responsibilities are allocated to the individual or how all the relevant business activities had been covered

Statements of responsibilities

  • Insufficient information to be able to understand what an SMF managers was responsible for
  • Additional information that was either not relevant to the responsibilities or which focused on how the individual discharged their responsibilities, rather than what they were actually responsible for

Management responsibilities maps

  • In some instances, firms had omitted information as part of the exemption for EEA branches, but had not identified where the omitted information could be found
  • Failure to describe or explain how a branch’s arrangements interact with firm or group governance arrangements

Governance

  • Insufficient information where governance arrangements are committee based such as failure to provide Terms of Reference (ToR), membership etc
  • Provision of only limited details on governance structure giving insufficient information to understand fully how the management and governance of the firm works

 

…and finally

In addition to recommending that firms should review their SoRs and management responsibilities maps in light of this feedback, the FCA advises that firms may also wish to consider the PRA’s rules and Supervisory Statement SS28/15 ‘Strengthening individual accountability in banking’. We note that the PRA rules are more aligned to BAU and cultural aspects and that the remediation of adverse feedback in this regard may prove to be significantly more demanding. We concur with the FCA’s advice.