The Background of SMCR

Can you believe that it was all the way back in March 2016 when the FCA introduced the Senior Management and Certification Regime (SMCR) as a replacement for the Approved Persons Regime (APR)? It began in banking with a view to increasing the integrity of those operating in the industry in response to the banking crisis of 2009. The idea was to foster a ‘culture of accountability’ by outlining and monitoring individual responsibilities across the workforce. The really critical change was moving the responsibility for compliance away from the firm, to the individual. Thereby, holding a handful of senior managers personally accountable for compliance in that firm. In addition to this, the FCA extended the SMCR conduct rules to apply to all staff except for those in ancillary roles. As a result, the whole firm has to demonstrate true compliance rather than just a handful of individuals.

SMCR Rules

From December 2019, the regime extended to all FCA regulated firms. This ranges a variety of firms from insurers to claims management companies, as well as solo-regulated firms. Many of these firms have overcome true challenges in order to introduce real cultural change in the way they work. Previously seen as tick-box exercises, compliance obligations soon became an important cultural issue. Especially as senior individuals can face potentially huge personal ramifications such as hefty fines from the FCA or theoretically prison sentences.

The impact of COVID-19

As we are all aware, COVID-19 has had a major impact on us all, both in our everyday and working lives. Most companies have had to switch to remote working for their workforce, and this includes the financial industry. So, how did COVID-19 affect the rules and regulations of SMCR? Fortunately, the FCA recognised the added complications of complying with SMCR under a pandemic and provided various support. This includes support in Statements of Responsibilities, Senior Management Functions, and a deadline extension of the Conduct Rules for solo-regulated firms. In addition, the FCA outlined that individuals captured by the Senior Managers Regime may be considered to be key workers, whilst also providing companies the opportunity to place Senior Managers on furlough.

Statements of Responsibilities (SoRs)

The FCA will not enforce the requirement on firms to submit and update SoRs, under the following circumstances:

  • If the change is to cover multiple sicknesses or other temporary changes in responsibilities in direct response to the pandemic
  • If the change is temporary and expected to revert to the firm’s previous arrangements

Despite these changes, the FCA do expect allocations (however temporary) to be clearly documented internally. Therefore, everyone within the firm understands who is responsible for what. Firms’ internal records should aim to keep a ‘running commentary’ of their Senior Manager population and their responsibilities throughout. This includes keeping SoRs, role profiles and Responsibilities Maps (if applicable) up to date. For the full details around this, view the FCA statement here.

Temporary arrangements for Senior Management Functions (SMF)

Furthermore, the FCA has issued a Modification by Consent to the 12-week rule to support firms using temporary arrangements during the crisis. The 12-week rule allows an individual to cover for a Senior Manager without approval, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks. If temporary arrangements last longer than 12-weeks as a result of the crisis, firms can notify the FCA, extending it up to 36 weeks. Nevertheless, again firms must clearly document these responsibilities, however temporary, including on relevant SoRs and Responsibilities Maps (if applicable).

Under the modification, firms will also be able to allocate the Prescribed Responsibilities of the absent Senior Manager to an individual as cover. Usually, Prescribed Responsibilities can only be allocated to another approved Senior Manager under this rule. It is best practice for firms to still do this, if possible.

Extension of the SMCR Conduct Rules for Solo-Regulated Firms

On the 2nd September 2020, following a request from the FCA, the Treasury made a statutory instrument to delay the deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons from 9 December 2020 until 31 March 2021. This includes extending to the same deadline the following requirements:

  • the date the Conduct Rules come into force, for staff who are not Senior Managers or Certification Staff
  • the deadline for submission of information about Directory Persons to the Register

Ensuring a ‘culture of accountability’

Understandably, the FCA has provided some key concessions to SMCR rules and regulations in light of COVID-19. One thing we have noticed in all their communications, is the importance of documentation, even if it is only internally. However, with some staff working remotely, how can you ensure that all your documentation is accurate and up-to-date? Those who began with manual processes are now realising the many pitfalls and risks that come with these systems. Certainly, having a complete lack of visibility of people in relation to fitness and propriety certification can be a key problem.

Clearly, the answer is to move to an online solution, where the data can be accessed by all, anywhere, at any time. With our purpose-built software, Actus Comply, you can have full visibility of accountability. With features such as assigning and tracking responsibilities with a full audit trail; clear reporting and the ability to integrate with performance management. Actus Comply also offers CPD; Certification and Conduct management for the whole firm. If you are a financial services institution, looking to deliver confidence and assurance, why not get in touch?

Book a demo

View GRP Case Study

White Paper: How can SM&CR drive real culture change?

Listen to the related HR Uprising Podcast: SMCR and Culture Change