Let’s start from the top. What is SM&CR?
The United Kingdom’s Senior Managers and Certification Regime (SM&CR) is a set of regulations designed to improve accountability in the financial services industry, including financial firms like yours. The regime was introduced in 2016 and applies to all banks, building societies, credit unions and Prudential Regulation Authority (PRA)-regulated investment firms. The regime was later extended to cover all FCA-regulated firms in 2019.
What are the responsibilities of UK financial firms under SM&CR guidelines?
Under SM&CR, financial firms like yours are required to identify senior managers who are responsible for particular areas of the business. These senior managers are required to be approved by the Financial Conduct Authority (FCA) and the PRA, and they are held personally accountable for any regulatory breaches which occur in their area of responsibility.
In addition to senior managers, SM&CR requirements also mandates firms to certify that their staff are fit and proper to perform their roles. This means that firms must ensure that their employees have the necessary skills, knowledge and experience to carry out their jobs effectively and with integrity.
Financial firms in the United Kingdom have a significant responsibility to meet the accountability obligations of the SM&CR. They must ensure that they have identified all senior managers and that these individuals are aware of their responsibilities. They must also ensure that they have appropriate certification processes in place and that they regularly review the fitness and propriety of their staff.
How can UK financial firms meet SM&CR guidelines?
Financial firms may run into a few common challenges in meeting the accountability obligations of SM&CR. To ensure that their compliance programs can meet these challenges, compliance teams should consider doing the following:
- Developing a robust culture of compliance.
Firms must ensure their staff are aware of their regulatory obligations and that they are encouraged to speak up if they have concerns about regulatory breaches or other issues.
- Implementing appropriate training and development programs in place for their staff.
These programs should focus not only on technical skills but also on ethical and behavioral considerations. Firms should also consider implementing performance metrics which incentivize ethical behavior and compliance.
- Putting appropriate systems and controls in place to identify and manage risks.
Firms must ensure they have appropriate governance structures in place, including effective oversight by boards of directors and audit committees.
- Being prepared to respond appropriately to any breaches of SM&CR guidelines.
This may involve disciplinary action against staff members, changes to systems and controls or engagement with regulators to demonstrate that appropriate action has been taken.
UK financial firms have their work cut out for them in meeting the accountability obligations of SM&CR. However, by meeting these obligations, financial firms can help to improve accountability and build trust with their clients and within the financial services industry.
Need further guidance on how to comply with SM&CR guidelines? Download our SM&CR guide today!