SMCR Changes Are Coming To Town

Scott Holmes

Scott Holmes

Audit & Assurance Partner

You’d better prepare; you’d better comply; you’d better adapt; we’re telling you why - SMCR changes are coming to town…

With under a week to go until the new Senior Manager Certification Regime (SMCR) comes into effect on 9 December 2019, FCA regulated firms which are currently subject to the Approved Persons Regime (APR) should be well underway with their preparations for the new regulations.

The new regime, which has been operational in banks since 2016 and insurance firms since 2018, requires a number of key changes to be implemented within all FCA regulated firms.

Implementation of Senior Manager Functions

The APR “Controlled Functions” are being replaced by SMCR “Senior Manager Functions” (SMFs), which encompass the roles of Chair, Chief Executive, Partner, Executive Director, Money Laundering Reporting Officer and Compliance function.

Firms now need to ensure that any individual holding one of these positions is approved by the FCA before assuming the role, and that a Fit and Proper statement is submitted annually thereafter. A Statement of Responsibilities must be prepared for each position and provided to the FCA when an application for approval is made.

In addition to the individual sets of responsibilities for each role, there are also several “prescribed responsibilities” which must be allocated between the SMF team, including CASS compliance and responsibility for policies and procedures pertaining to financial crime.

Annual certification

Where staff are employed within functions which run the risk of causing harm to the firm or its customers, under the new rules these employees must be certified as fit and competent for their post. As with SMF approval, these certificates must be issued prior to an individual taking on the role and every 12 months subsequently - however unlike SMFs, the certification is undertaken by the firm and FCA involvement is not necessary.

Businesses may need to re-evaluate their recruitment and onboarding processes to take these new requirements into account and ensure that relevant individuals have been suitably assessed before commencing employment.

Should a certified individual choose to leave their role, firms will be obligated to provide a regulatory reference based on a standard template.

New codes of conduct

A new set of ‘good conduct’ rules will come into force, with a much broader reach; the new standards will apply to all employees except those within support roles, such as administrative, security and cleaning staff.

SMFs will also need to ensure conformity with new Senior Manager Conduct Rules relating to issues such as regulatory compliance, disclosure to regulators and control of the business.

This influx of new rules, coupled with the application to a wider range of staff, means that the risk of potential breaches could significantly increase. Firms need to ensure that appropriate training programmes are developed and adherence monitored to avoid this. Robust policies and procedures must be established for the identification and reporting of any infractions, should these occur.

Don’t end up on the naughty list

The new Senior Manager Certification Regime will have an impact on numerous aspects of FCA regulated firms and may require an overhaul of several key areas within the business. Failure to abide by the regime could have serious consequences, with the FCA able to restrict business for non-compliant companies, so it’s important that firms have a smooth transition process in place and are aware of their ongoing obligations. Our dedicated Financial Services team is well-placed to assist with any queries on the new regulations, so don’t hesitate to get in touch for further information.