SMCR Review: What’s next?

The first full review of the Senior Managers and Certification Regime (SMCR) since it was introduced back in 2016 has been kickstarted by the joint actions of the FCA, PRA, and the UK Treasury. The discussion paper published on 30th March by the Financial Conduct Authority and Prudential Regulation Authority requested opinions on the regime alongside the UK Treasury’s call for evidence, both of which had a deadline for comment of 1st June 2023.  

As part of the Edinburgh Reforms, these reviews will consider the performance, effectiveness, and scope of the SMCR. The questions raised will help to shape the future application of the Senior Managers and Certification Regime and the feedback will inform any necessary developments. The theme of the questions were across three main areas 1) the current position, 2) competitiveness of the UK market, and 3) the future. Financial services firms covered by the SMCR, as well as trade bodies, consumer organisations, and other regulation forms not currently subject to the SMCR, were all invited to comment as well as any other interested stakeholders. 

The financial services industry is on the whole supportive of the goals of the SMCR and the regulators primary statutory objectives which include a new focus on competitiveness and growth. The regime has been in place for over seven years and it’s vital that the SMCR actually achieves and supports “operational efficiency, proportionate regulation, trust and reputation, and effective competition”. 

The regulators are looking for feedback on a wide variety of topics within the regime looking at all levels of the process from the top down. The topics for discussion ask the following questions:

  • Has the overall approach of the SMCR made it easier to hold individuals accountable and improved conduct, safety, and soundness within a firm?
  • Is the SMCR currently applied proportionately to firms and individuals?
  • Do the requirements support firms when considering fitness and propriety in appointing appropriately qualified individuals to senior manager roles (and ensuring that they are not deterred)?
  • Are the Conduct Rules effective across all levels of a firm in promoting good conduct throughout? 
  • Is the process for criminal record checks to be obtained and made clear to the regulators as effective as it needs to be to support the aims of the SMCR?
  • Does the 12-Week Rule aid firms to manage changes sufficiently in senior management functions?
  • Are better-informed decisions about the fitness and propriety of relevant candidates being helped by the regulatory references available?
  • Is Individual Accountability promoted by the prospect of enforcement and how could this approach be improved?

The next few months will be an interesting time as the FCA, PRA, and HM Treasury collate and review all of the feedback received in this initial part of the consultation. It is likely that there will be further opportunities to comment on potential changes to the regime and its processes. 

We know from our clients that operation of the SMCR can be time-consuming and the responsibilities sit within different areas of a business depending on the size and complexity of operations. Despite the wide and all-encompassing amounts of data to hand, it is clear that tweaks are necessary for the regulators to truly hold senior individuals to account. The financial services industry has seen many changes since the SMCR came into being and our hope from this review would be that the existing working elements of the regime are streamlined to be as efficient as possible. An efficient regime would allow for better enforcement by the regulators and in turn a more credible deterrence.