The Senior Managers and Certification Regime (SMCR) focuses on senior managers and individual responsibilities in firms that provide financial services.

It assists the Financial Conduct Authority (FCA) in regulating people who work in financial services.

Essentially, the SMCR is designed to ensure that regulators and firms hold individuals to account, thereby reducing harm to consumers and strengthening the financial services market.

But who is subject to the SMCR, and why has the FCA introduced it?

Why Has the FCA Introduced the SMCR?

The FCA has introduced the SMCR as part of a regulatory drive to improve the culture, governance and accountability of financial services firms.

It replaces the Approved Persons Regime (APR), and has a clear emphasis on senior managers and specific individuals’ responsibilities, with the aim of raising standards of conduct.

Raising standards of conduct should strengthen the entire financial services industry, while protecting its customers. The SMCR should also help deter misconduct.

Its major objectives include:

• Encouraging staff working in financial services to take personal and individual responsibility for their actions and behaviours.

• Making sure staff understand the different roles and responsibilities that firms have, and how these impact on customers.

• Improving conduct overall throughout the financial services sector.

The origins of the SMCR go back to the 2008 financial crisis, with a need to strengthen the way different firms deal with individual conduct and the responsibilities of key individuals to maintain a culture of compliance.

It has three main parts:

• Senior Managers Regime (SMR) – this covers the most senior people in a firm, who carry out key roles which the FCA designates as Senior Management Functions (SMF).

• Certification Regime (CR) – this applies to employees who are not senior managers, but who have job roles that potentially could cause significant damage to a firm or harm to its customers.

• Conduct Rules – these rules apply to most employees in financial services firms, and include both individual conduct rules for most staff, and rules for senior management.

What this means in practical terms, is that almost everyone working in financial services will be impacted in some way by the SCMR.

Which Businesses Does The SMCR Apply To?

The SMCR is a relatively recent set of compliance regulations.

Originally, from 2016, it applied to banks dually regulated by the PRA and FCA.

However, from December 2019 it has been rolled out to all firms that the FCA regulates, which means the SMCR now also applies to solo-regulated financial services firms, as well as building societies, investment and insurance firms, and credit unions.

It also extends to foreign banks operating in the UK.

Solo-regulated firms have until 31 March 2021 to submit data to the FCA for its directory of key people working in financial services, other than those already registered with Senior Management functions.

Should I Seek Compliance Support?

We have already seen how the new SCMR regime can apply to a wide range of firms and the individuals working within them.

FCA is categorising these firms into three broad groups:

• Core
• Enhanced
• Limited Scope.

These categories depend on the size and profile of individual firms.

The SMCR does not require firms to change their structure, or hire new staff for specific roles.

However, it does aim to improve the standard of conduct in firms at all levels.

A big part of this is increasing the visibility of individuals working within them, and that is why the FCA has created its new directory.

Under the SCMR requirements, firms must certify and register individual advisers who are not senior managers, with the FCA.

This should allow interested parties, including consumers and members of the public, to check the details of key people working in financial services firms.

From a compliance perspective, firms must therefore first assess and certify these individuals, then submit the correct data to the FCA, facilitating their entry in the directory.

This will apply to mortgage networks too, since the SCMR covers appointed representatives (ARs), who carry out certain types of business that require qualifications.

And compliance with the SCMR does not stop once a firm has registered its individuals by the March 2021 deadline.

Thereafter, firms must maintain this data accurately, update the FCA of any changes and complete annual re-assessments, or be in breach of the FCA’s reporting rules.

Making Sense of the SCMR

Because SCMR purposely drills down to individual roles and responsibilities, it has the potential to become complex for firms to both manage and comply with.

Its objectives are sound and designed ultimately to benefit both consumers and the whole financial services sector.

But it represents a significant amount of detail because it changes how the FCA regulates people.

You need to understand what category of firm you are under the SCMR, and therefore whether you will be subject to more or fewer requirements.

It is also important to understand how you should apply the SCMR, including the certification function for individual advisers.

Whether your firm is categorised as core, enhanced or limited scope in its operations, we can help you to comply with the SCMR.

For more information about how we can help you with compliance, please get in touch today.