Why there is more to the Senior Managers and Certification Regime that you might think…
A large misconception of the SMCR is that the certification is a simple tick box exercise. This, however, is rarely the case and approaching compliance from that angle ultimately undermines its purpose. Culture changes and policies don’t become second nature overnight and this is why compliance is more than just a tick box exercise:
When the SMCR regulations first arrived on the scene in 2016 there was a huge requirement for education amongst the 900+ firms it affected. It was a vertical learning curve for regulators and financial services organisations alike. he purpose of the Senior Managers & Certification Regime was not only to improve the culture of this important sector of the UK economy, but also to ensure that individuals took responsibility for their actions.
A cornerstone of the regime is for all Senior Managers to ensure that they take reasonable steps to run an appropriate culture in their firms, and to make sure that all their key people are fit, proper and competent. The certification process for Certified Persons (CP) is a critical component. At least once a year, and every time a CP is hired, promoted or changes job they have to be assessed.
In December 2019 the next phase of SMCR was introduced for all remaining regulated organisations in financial services – the population of firms rose to over 45,000; every UK regulated organisation now has to adopt the new framework, with some differences depending on size and sector. The basics remain the same – demonstrate a strong positive culture, ensure that all the key people are fit, proper and competent on an annual basis and make sure that all staff follow the five core conduct rules.
The Financial Conduct Authority (FCA) is not just interested in how firms deal with the minority of people who fail to meet their standards, underpinned by the five conduct rules; they want to see that the overall culture is meeting the highest standards of behaviour. This takes time to implement. Training for staff is important at all three levels – senior managers, certified persons and all other staff who are bound by the conduct rules. Using real-life case studies to demonstrate key issues always works well.
Now, as we navigate the Covid crisis, the SMCR is even more important. With regulated people working increasingly from home, or on a more agile basis, keeping track of performance and maintaining the highest standards is difficult. Organisations will need to adapt their processes. Helpfully, the FCA has flexed the requirement from December 2020 to end of March 2021 for firms to be fully SMCR compliant.
There is no doubt that lessons learnt from the first phase of SMCR will be useful for new players in scope for the regime in 2020. Equally important is that this process is a lot more than just a tick box exercise, and with sensible application, compliance can be achieved.