This briefing is part of a series in which we explore some of the practical considerations and realities for solo-regulated firms in light of the incoming Senior Managers and Certification Regime.
From 9 December 2019, Financial Conduct Authority (FCA) solo-regulated firms will be subject to the Senior Managers and Certification Regime (SMCR). For many firms, much time and energy has been spent in preparing for the ‘day 1’ requirements of SMCR. But what should firms be doing to ensure they stay on top of their SMCR obligations?
The FCA’s comprehensive Guide for FCA solo-regulated firms sets out further detail. Many of the sections in that guidance contain helpful “Things to consider” bullet points. Firms should also consult the FCA’s dedicated webpage for solo-regulated firms.
Embedding the certification process
The annual certification process of staff performing Certification Functions (Certified Persons) may not be an immediate action for firms but they should consider at an early stage defining the framework in which the certification assessment sits.
For many, the most straightforward approach will be to incorporate the assessment into the existing appraisal cycle. This will likely mean co-ordinating with the firm’s Human Resources department to determine how it will sit within the performance management framework and existing processes. Legal and Compliance teams should have input into the shaping of these assessments, paying particular regard to the interpretation of ‘fit and proper’.
Tweaking reporting procedures
Ad-hoc notifications will need to be made to the FCA where disciplinary action has been taken against Senior Managers for breaching the Conduct Rules. The FCA must be notified within seven business days of the conclusion of the action. Firms will, however, also be required to report on disciplinary action for breaches committed by other staff (except those in an ancillary role who are outside the scope of the Conduct Rules) on an annual basis. Legal and Compliance teams should therefore ensure that they have made the necessary changes to their regulatory reporting procedures and processes to capture this new requirement. It is important to remember that there is still a requirement to notify even where there has been no breach of the Conduct Rules during the reportable period.
For individuals other than Senior Managers, the data is reported via Gabriel (the FCA’s online reporting system) using the REP008 notification. Firms will be required to provide details as to the nature of the breaches and the disciplinary action that was taken. The majority of firms will be required to report in October, covering the period 1 September to 31 August. Limited Permission Consumer Credit firms will report in line with their reporting year, alongside their annual return. There are particular forms for use in relation to reporting on Senior Managers.
Onboarding and induction
It goes without saying that all relevant staff should be aware of their obligations under SMCR. Firms are required to train relevant staff on how the Conduct Rules apply to their role. Senior Managers and Certified Persons will need to have been trained on the Conduct Rules from the start, but firms will have 12 months in which to train other staff.
While existing employees will have been subject to training and awareness campaigns, this should not mean that the focus on SMCR becomes neglected over time, particularly as individuals come and go within the business.
Developing an appropriate onboarding and induction process with Human Resources will be vital in ensuring that new employees are made aware of the SMCR requirements, in particular the Conduct Rules, given their wide-ranging impact on all members of staff, not just those in the most senior positions.
Reviewing governance arrangements over time
The FCA has been clear that SMCR does not necessarily mean far-reaching and extensive revisions to firms’ existing governance arrangements. It is of course natural that as time goes on and a business grows, a firm’s governance framework will become increasingly more sophisticated. Reporting lines will change and new committee structures will form. SMCR should not necessarily dictate these changes but it is clear that how the firm is governed will be intrinsically linked to the operation of SMCR.
With the need to demonstrate reasonable steps and ensure appropriate oversight of delegated tasks, Senior Managers will be increasingly alive to the governance framework in which they operate and how it can best work for them. For many firms this will mean tweaking their governance arrangements to better document reporting lines, clearly distinguish the scope of committees within their terms of reference and review escalation procedures to ensure that what flows up to board level is appropriate and proportional.
It may be prudent to review at the six month and one year milestones of SMCR whether the governance framework is still fit for purpose within the context of SMCR. Any substantive changes made to a firm’s governance structure may mean that documents such as a Senior Manager’s Statement of Responsibilities or the Responsibilities Map require updating to maintain their accuracy.
Don’t forget about culture
In the urgency to ensure compliance with SMCR, it can be easy to forget one of the key drivers behind its implementation: achieving a healthy culture.
Firms should take stock at certain milestones to consider how SMCR has helped to improve culture. Creating and embedding a healthy culture is ultimately about doing the right thing, even when nobody is watching, regardless of what rules and requirements say. Firms should reinforce the message that SMCR is not necessarily a mechanism to create a healthy culture, but is there to enhance and complement.
Culture underpins the entirety of a firm’s business, from customer service agents right up to the board. The FCA is keen to stress that good boards and Senior Managers will set a positive tone from the top which will flow down to all other parts of the business. Senior Managers and other key personnel should assess whether they are taking into account culture when undertaking their day-to-day role, making key decisions and reviewing their areas of the business.
How Walker Morris can help
We are uniquely positioned to be able to help firms not only implement but continue to satisfy their SMCR obligations on an ongoing basis. We have extensive experience of working with regulated firms to review their corporate governance arrangements and assisting in relation to large-scale regulatory change projects. Should you have any queries arising from this briefing, or require any assistance, please contact Jeanette, who will be very happy to help.
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