How the Senior Managers and Certification Regime Improves Accountability

The aim of the FCA's new regulatory framework is to improve compliance and accountability throughout the financial sector.

The Financial Conduct Authority (FCA) recently announced the roll-out of the Senior Managers and Certification Regime (SMCR or SM&CR). This new financial regulatory framework has been designed and is being increasingly implemented to improve compliance and accountability across the UK’s financial sector.

Things are changing in the UK when it comes to compliance in finance and rather than having all responsibility and blame put on the desk of compliance managers, staff (apart from ancillary staff will need to undergo regular and recognised training to comply with SMCR (visit https://www.smcrcompliance.com/ for more information about the Senior Managers and Certification Regime.)

A previously all too common problem within compliance across the financial sector was that there was no clear framework with regards to who is accountable and for what. Previously, should there be any issue with compliance amongst senior management or other staff at a firm, it was the responsibility of a compliance manager.

An issue which has emerged has been that the buck was previously passed and moreover, there was very little personal accountability. It is this accountability and the need to simplify how financial compliance works that has been one of the drivers of the SMCR.

Who Does SMCR Apply To?

Broadly, SMCR applies to the entire FCA regulated and authorised financial sector in the UK, with a few nuances and details to consider. Whilst SMCR replaces the previous Approved Persons Regime (APR), it has no impact on the Approved Persons (AR) regime and it also does not apply to banks, as they are subject to regulations under the Senior Managers Regime (SMR) which is more tailored to the needs and requirements of the banking sector.

SMCR categorises financial firms into three broader categories of firm which are:

  • Core Firms – This classification includes the vast majority of UK financial firms and the standards, requirements and regulations for core firms are the benchmark of expectation and the FCA’s baseline with regards to what firms must adhere to.
  • Enhanced Firms – Still subject to the rules and requirements as core firms are, enhanced firms’ specific regulations and requirements are designed specifically for those firms which may be described as ‘more complex’ in their make up and nature. Thus, regulations and requirements for enhanced firms are designed to reflect the additional and enhanced needs of complex companies that require additional and more complex regulatory oversight.
  • Limited Scope Firms – Few firms will qualify as limited scope. However, importantly, the FCA have designed regulations and framework to apply to those firms who will already be subject to some exemptions under the Approved Persons (AP) Regime.

What Types of Financial Companies Are Subject to SMCR?

Since 9th December 2019, which marked the initial implementation of the SMCR programme across the UK’s financial sector, most financial firms will need to adhere to the regulatory regime and practices under SMCR. Many ‘well-established’ financial firms such as experienced financial advisors, insurance brokers and even mortgage brokers, including those offering specific-purpose mortgages like those for home improvement (find out more) will have been aware and will be compliant.

However, because this regulation applies to companies offering not just financial advice and products in the ‘purest sense,’ but also to those who offer consumer credit, many companies who have been unaware are affected and must comply too. This includes (but is not limited to):

  • Dentists offering finance packages
  • Companies and dealerships offering car finance
  • Lenders of personal loans
  • Investment managers
  • Financial product distributors

The Three Pillars of SMCR Compliance

Although there are a few levels to the SMCR programme, more broadly, there are three key pillars:

Senior Managers Regime (SMR) – This covers the most senior people within firms such as Chief Executives, Partners and Non-Executive Directors who all need to be directly authorised by the FCA.

Certification Regime (CR) – For all employees of non-senior level, but who may otherwise potentially cause damage to a firm.

Conduct Rules – These are the rules which govern conduct of all non-senior and senior individuals under the SMCR.

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