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SMCR: One Year Later

7th March 2017

One year later - the Senior Managers & Certification Regime (SMCR)

Twelve months after the Senior Managers and Certification Regime was introduced for the Banking and Insurance sectors, the FCA today published their reflection on the progress made to date.

Quick recap: What is the SMCR?

Last year on 7th March 2016, the FCA and PRA implemented a number of policy changes to increase individual accountability within the banking sector – for deposit takers and the largest investment firms (banks); this was in the form of The Senior Managers and Certification Regimes (SMCR).

Back in 2013, the Parliamentary Commission on Banking Standards (PCBS) put forth a series of measures they thought would improve the standards in financial services.

In conjunction, the FCA and the PRA acted upon these recommendations by introducing the Senior Mangers Regime (SMR), the Certification Regime (CR) and Conduct Rules. In addition, there were changes to the remuneration code and additional rules related to whistleblowing to tie in with the new regimes that came into effect last year.

In addition, the regulators also introduced rules for senior managers in insurers that came into effect at the same time.

Role of the regimes:

The SMCR regimes have an important role in the regulator’s continued focus on culture and governance within firms. In addition the regimes build upon initiatives to help the Financial Conduct Authority to identify, as well as assess, key senior individuals within firms.

Regulatory References & Conduct Rules:

Today, one year on from last year’s implementation, the SMCR rules relating to regulatory references also come into effect.

These rules relate to regulatory references for Senior Managers and staff in the Certification Regime, which includes staff that could cause ‘significant harm’ to either the firm or its customers or both e.g. investment advisers.

Today, 7th March 2017, is also the deadline for SMCR firms to have issued staff with certificates for the Certification Regime.

Whilst the Conduct Rules have already applied to Senior Managers and staff in the Certification Regime for the last 12 months, today these also apply to all other staff, except from those that perform purely ancillary functions.

FCA Reflections on the regime

In essence, the FCA has seen that the regimes have had the following impact and results over the last year:

• Firms have been seen to take their responsibilities more seriously;
• The FCA has been working to ensure that senior managers responsibilities are properly allocated and understood within firms;
• Some firms however, have tried to obscure who is genuinely responsible by sharing responsibilities amongst staff at different levels of management; and
• There has been some ‘strong progress’ in relation to firms adopting a culture of individual accountability through the implementation of the SMCR.

Despite the progress that many firms have made with the regimes, the FCA recognises that cultural change within firms takes time and informs in their reflections that “there is still more to do” warning firms that they will “continue to keep a watchful eye on the progress that firms are making”.

Next Steps: Regime Extension

It was announced last year, before the implementation of the SMCR for the banking sector that the Bank of England and the Financial Services Act 2016 would look to extend the SMCR to all sectors of the financial services industry.

The FCA will now look to consult with the industry, firms and consumers on the proposals to extend the SMCR to all other firms with expected implementation to begin in 2018.

Related Reading:

• SM&CR: The Next Steps to Improving Culture
• Regulator puts Culture in the Spotlight
• New Rules on Whistleblowing take effect
• SMR: Breach of Conduct Reporting REP008
• Culture & Regulatory Compliance: FCA seeks to ban former Barclays COO

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.