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Risk Management Industry News for FCA Regulated Businesses

SMR Extends its Reach - Risk Managers Take Note

Posted by Serina Gill on 03-Apr-2018 14:24:42

The Financial Conduct Authority is to extend the reach of its Senior Managers Regime, affecting some 47,000 additional financial services firms and 200,000 individuals. For those risk managers currently not subject to the regime, there is potentially a major culture change on the way.

A vast range of financial services business will now join banks, which have been under the regime since 2016, and will include insurers, brokers and financial advisers among many others. It replaces the Approved Persons regime and will comprise: 

  • a core regime, applying to the majority of FCA regulated firms
  • an enhanced regime applying to the largest firms with more complexity and the highest impact on consumers
  • a limited scope regime, typically applying to sole traders

Although a formal start date has yet to be announced, the FCA has said it will apply the rules to insurers from late 2018 and for other financial services firms in mid to late 2019. There is also expected to be more detailed information published in the summer.

The consultation process has closed, and while it may seem like there are a few months of breathing space, there is no room for doubt - the expanded SMR is most definitely on its way.

Clearly, it makes no sense to leave out vast swathes of the industry and the regulator’s focus now is to hold individuals to account and to make every effort to prevent mis-selling scandals as occurred with PPI, interest rate swaps and the LIBOR rigging.

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Knowing who’s who
The SMR is about taking personal responsibility – and this is the message risk managers need to get across - and it means many more people will now be in the regulatory spotlight.

 Firms must identity who will be directly impacted by the SMR, such as executive directors, but also those subject to the certification regime, which applies to those at a lower level, but who are perceived to pose some risk – typically customer facing employees  such as sales staff. 

Those in the certification regime are not directly regulated by the FCA, but instead, are assessed by senior managers within their firm. Risk managers may well want to ensure that individuals know what is required of them and if they are required to conduct assessments, monitor or recommend training for those at lower levels.

The FCA has published conduct rules specific to all impacted by the regime and also specifically relating to senior managers. These need to be learned and used in training. In particular a statement of responsibility that is fully understood by each individual should be made.  

Cultural change is the intention
It is evident that the FCA means  business with the SMR. It has emphasised that the SMR plays a key role in its “continued focus on culture and governance in firms” and builds on initiatives to help the regulator identify and assess key senior individuals.

Chief executive Andrew Bailey has highlighted the senior managers regime as one of “the most important developments” since the financial crisis for incentivising a positive culture in financial services. 

Further, John Sutherland, a senior FCA adviser, has also said he believes it will put an end to the nepotism which can exist, particularly within the most prestigious City firms and bring in more structured and transparent recruitment.

While the FCA has said it will take a proportionate approach to regulating firms, according to their size and potential impact on consumers, it is obvious that the SMR is about introducing an approach that does not allow hiding places and has jail sentences as its ultimate sanction. As far as the SMR is concerned, there is no time to lose in understanding its aims and the practical implementations.

Effective Compliance Management