The extended Senior Managers and Certification Regime: are you prepared?

Summer 2017

Over the coming weeks, the Financial Conduct Agency will shed light on how it intends to roll out the Senior Managers and Certification Regime (SM&CR) to the rest of the financial services industry.

Which firms will this affect and what will it mean in practice?

The SM&CR was introduced in March 2016 with an aim to increase individual accountability and enhance the personal responsibility of senior managers within banks, building societies, credit unions and PRA-regulated investment banks and branches of foreign banks.

Attention is turning to the rest of the financial services industry

In Q4 2016, the UK government proposed extending the SM&CR to all sectors of the financial services industry - all Financial Services and Markets Act (FSMA) authorised firms. It replaces the current Approved Persons Regime.

The extended regime will cover an estimated 60,000 firms, including asset managers, stockbrokers, financial advisers, consumer credit, securities and futures firms and insurers.

What can you expect?

FCA consultation papers on the proposals are due in Q3 2017.
We expect that the extended regime will be based on broadly similar lines to the SM&CR that currently applies to banks building societies, credit unions, PRA-regulated investment banks and branches of foreign banks operating in the UK.

However, given the varying scale and complexity of firms in the scope of the extended regime, the FCA has indicated that it will aim to be proportionate in the application of the regime.

It is envisaged that the key features of the proposed extended SM&CR regime will be:

  • a new SM&CR for the most senior individuals within firms – firms will be required to submit robust documentation on the scope of these individuals’ responsibilities;
  • a statutory requirement for senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility;
  • a new certification regime that requires firms to certify as fit and proper any individual who performs a function that could cause significant harm to the firm or its customers, both on recruitment and on an annual basis; and
  • a power for the regulators to apply enforceable rules of conduct to any individual who can impact their respective statutory objectives.

Next steps

The FCA has indicated that the consultation paper will be issued in Q3 2017 and that firms will have to comply in 2018, although this has yet to be confirmed.

In the meantime, we are aware that firms that are in scope for the extended regime are starting to prepare for what it will mean for them, taking into account their business model, organisational structure, employment contracts and individuals’ responsibilities.

For more information, please get in touch with David Fenton, Shyam Moorjani, Wendy Cooper, Jon Pepper or your usual RSM contact.