Extension of the Senior Managers and Certification Regime: What does it mean for the industry?

28 July, 2017Joe Cockerline

The release of the FCA’s consultation paper yesterday on the extension of the Senior Managers and Certification Regime shed some light on the planned scope of the scheme. Slated for implementation at some point in 2018, the FCA’s plans to extend the regime to all FSMA authorised firms in order to ensure consistency in the conduct and accountability of senior managers across the financial services sector.

Compressed startup-photosThe ultimate aim of this initiative is to, in the FCA’s own words, “reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.” Bringing this consistency across the sector and ensuring that senior figures are held to a common standard of accountability is certainly a logical move and ensuring that consumers are protected further from bad practice can only be a positive move.

Notably though, concerns have been raised over the implementation and application of these changes, particularly to smaller firms. The FCA would have been remiss to attempt to apply rules to huge multinational banks and small independent financial advice firms equally – their worlds are clearly vastly different. The regulator has recognised and made allowances for this, with their consultation document stating, “We also want the new regime to be proportionate and flexible enough to accommodate the different business models and governance structures of firms.” A welcome consideration for the wider industry.

We will have to wait a number of months to see the FCA’s technical consultation on the implementation of the extended SM&CR, but their current consultation on the scope of the changes provides an overview of the likely impact on the sector. Their proposal will see all employees in senior manager functions be approved by the regulator before they start their role, as well as clearly establishing the responsibility and duties of senior managers and proposing some new responsibilities to apply to some certified individuals.

The FCA proposes to apply extra requirements to a small number of firms, “whose size, complexity and potential impact warrant more attention,” whilst identifying firms who are currently subject to limited application of the Approved Person Regime as “Limited Scope” SM&CR firms.

The consultation also proposes a new set of conduct rules to apply not only to senior managers, but across the majority of staff in most organisations, aside from those in most ancillary roles. These new conduct rules compel staff to act with integrity, use due care in conducting their role and treat customers fairly (among others).

The full scope of the application of these changes is yet to be decided. However, any firm that may be affected is encouraged by the FCA to read the consultation document and respond ahead of the deadline on November 3rd 2017. These changes will undoubtedly have a significant impact on many firms and preparing for these changes is essential.

Join a half day briefing for FCA authorised firms on implementing the SMCR, register here