When the original Senior Managers and Certification Regime (SM&CR) was introduced in 2016, it made waves across the financial services sector. It wasn’t just a new regulatory framework, but reflected a seismic shift in how conduct and accountability were perceived and embedded across the industry.
But implementing that change was a slow process and one that is still ongoing. Now the extended regime has been applied to insurers, and all other FCA regulated firms must be compliant by December 2019. For those implementing the regime for the first time – there’s a long way to go.
It won't happen by osmosis
It’s tempting to think that firms new to the regime have some sort of head start. SM&CR has been around for a while and viewed as best practice. Firms have had an extra two years to lay the cultural foundations needed for a successful SM&CR implementation. But that’s really where the advantage ends. From an operational and logistic standpoint, the same challenges apply now as they did in 2016:
- A degree of restructuring may be needed to clarify responsibilities and to check for realistic distribution amongst senior management.
- Finding and keeping the right talent is always a challenge and adequate seniority is a vital element of the regime.
- Collating appropriate and accurate management information is essential to help management make informed decisions, for which they are personally accountable.
- Educating and training people about their individual responsibilities and conduct expectations is integral to the regime.
- Keeping up with the new documentation and reporting requirements will be challenging and must be embedded in day to day processes.
The FCA is ready – even if you’re not
In 2016, SM&CR was new to the FCA too, so they weren’t immediately set up for enforcement activities. This time around, the investigative processes are well established and reporting norms are in place. So it may be quicker to take action for instances of non-compliance.
But SM&CR isn’t just about meeting regulatory requirements, it’s about truly embedding conduct and personal accountability. And proving that those elements are fully embedded across your organisation.
Firms implementing SM&CR should draw from lessons learned from the first wave of the regime. Don’t underestimate the time needed. Or the resource requirements. While many firms may already be far along in their preparations, others won’t have started yet. But it’s important to get the implementation project on its feet to be ready for the December 2019 deadline.
There are three key areas you should think about:
- How will the organisational structure be affected? Implementation may affect entity structure, have offshore implications and require significant changes in governance. Think about how responsibilities will be allocated, the role of Non-Executive Directors and ownership of SM&CR itself.
- What about infrastructure? This includes a map of the management functions, an overall responsibilities map and fit and proper checks. How will the relevant documentation be collected and retained? How will disciplinary reporting be captured?
- How will the SM&CR move into business as usual? What mechanisms are in place to support this in the long term? Businesses will always continue to evolve – what about succession planning and personnel changes? Or changes to the product lines and services?
Conversion arrangements are in place to simplify the move from the Approved Persons Regime and to streamline the process for the FCA. Despite this, it may not be a straight forward process for all firms and we can offer independent assurance over your implementation planning. For further information please contact Paul Young.