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Compliance

Senior Managers & Certification Regime: A Brief Guide

Posted on 27 Jan 2021

group of red chess pawns and one black one

The Senior Managers and Certification Regime (SM&CR) came into effect for solo-regulated firms on the 9th December 2019, however, due to the ongoing COVID-19 pandemic the FCA extended the implementation period to 31 March 2021.

Key Summary

  • SM&CR is an FCA initiative which affects UK regulated firms;
  • SM&CR replaces the existing Approved Persons Regime ("APER"); and, 
  • The aim is greater accountability, to hold all financial sector employees to a higher standard of conduct and senior managers accountable for any misconduct that falls within their area(s) of responsibility.

Four Key Areas of SM&CR

1.      How to identify your SM&CR firm type;

2.      The Senior Managers Regime;

3.      The Certification Regime; and

4.      The Conduct Rules.

1. How to identify your SM&CR firm type

The applicable rules under the SM&CR varies depending upon whether your firm is classified as Limited Scope, Core or Enhanced.

The table below will assist you in identifying your firm type:

SMCR

2. The Senior Managers Regime

The Senior Managers Regime effectively replaces the existing Approved Persons Regime. It will require a firm’s senior managers to be allocated senior management functions (SMF) and to clearly allocate their roles and responsibilities through a document called a ‘Statement of Responsibilities’ (also known as a SOR).

As an SMF, an individual will need to ensure they take reasonable steps to prevent regulatory breaches for the areas which they are responsible for. 

3. The Certification Regime

The Certification Regime puts the onus on a Firm, rather than on the regulator, to identify staff who could cause significant harm to a Firm or its clients. It will also require the Firm to annually ‘certify’ that these staff continue to be fit and proper to perform their certified roles.

4. The Conduct Rules

The Conduct Rules are a set of new rules, which will apply to all ‘Conduct Staff’. Conduct Staff encompasses almost all employees within a Firm, including senior management, certified staff and any other employees whose role is specific to the financial services industry, for example, back-office staff. Conduct Staff are expected to comply with the Conduct Rules, which will be updated in the FCA Handbook for solo-regulated firms closer to the 9 December deadline (COCON 2.1).

Update: FCA's June 2019 Webinar

On the Monday 3rd June 2019, the FCA ran a webinar that shone light on many of the queries firms have surrounding the SM&CR. They outlined the key aims of the SM&CR, provided some advice on how firms should proceed and held an extensive Q&A submitted by viewers.

Key takeaways from the Webinar

  1. The FCA will contact your firm within the next two months with their recommendation of your SM&CR tier.
  2. You can 'opt-up' to a more regulated tier for firms looking to future-proof their SM&CR policy for long term growth.
  3. The FCA advises that implementing the regime successfully will require the regime to be viewed as "a journey, not a destination".
  4. The SM&CR is about encouraging Senior Managers to make sure there is a healthy culture within their company as this leads to much lower risk of misconduct.
  5. Firms that tweaked existing processes to implement the SM&CR were more likely to succeed than those who attempted to build new and specific processes.
  6. The SM&CR should be part of a firm's "DNA" going forward.
  7. The FCA also have a 'Firm checker' tool on their website to assist in identifying your firm's tier.

Other related articles: 

SM&CR and COVID: All you need to know

New GABRIEL return for solo-regulated firms

FCA changes its Form A (Approved Persons Application) questions ahead of SM&CR


How we can help?

Once you have determined which tier your firm falls in, we can help outline a list of action points that you need to complete in order to be SM&CR compliant, provide training to staff and assist with drafting your SORs and other compliance documentation. We have also incorporated relevant parts of the SM&CR in our Laven compliance software; Laven Tech.

Book a free SM&CR Consultation Here