For many firms, SMCR requirements continue to be a source of stress and strain. However, as FCA fines rack up, compliance teams can’t afford to leave any SMCR questions unanswered.
To help you navigate the challenges of SMCR, we sat down with COMPLY’s UK Director, Compliance Advisory, Jessica Freckleton, to get her keen insights on how firms are facing SMCR requirements and navigating potential compliance hurdles.
Looking for additional insights into the ins and outs of SMCR? Download our SMCR guide today.
Are there specific aspects of SMCR that you see firms struggle with the most?
The FCA places significant emphasis on written documentation evidencing where key responsibilities lie to ensure transparency and clarity within firms. In large part, this enables them to more effectively facilitate the enforcement actions against individual Senior Managers when breaches do occur.
I see numerous firms struggling to ensure that each Senior Manager has a clear Statement of Responsibilities (SoR) that not only outlines their role and responsibilities, but most importantly, from the outset, deciding who the responsibility lies with for each specific area within the firm. Sometimes senior managers struggle to clearly define each element of their role as they wear so many hats. Between delegation of certain aspects of their role and the often-inevitable role evolution, the SoR gets neglected.
A further challenge is to ensure consistency between the SoR and other documentation surrounding the role of the Senior Manager, such as job descriptions, employment contracts, or partnership agreements.
Do these challenges differ for firms of varying sizes, or are they typically consistent?
I think the larger firms sometimes struggle more due to the sheer volume of work that needs to be done to comply with SMCR. For example, the number of annual fitness and proprietary assessments, clear job descriptions, SoRs and regulatory references etc.
But equally in smaller firms, you have fewer individuals with more responsibilities and so this can create complexity in itself when it comes to defining the roles and whether Senior Managers share any responsibilities.
What advice do you have for firms trying to navigate SMCR challenges?
I often advise firms to get ahead of the deadlines and start working on the detailed documentation early on, giving any key stakeholders as much notice as possible.
For many of our clients, we work in partnership, taking on part of the burden of SMCR for them. This can include a review of SoRs to see if they reflect the reality of the roles, or assistance with the annual F&P assessments and what that process involves.
In 2023, the FCA published a review of SMCR “seeking input on potential ways to improve the Senior Managers and Certification Regime.” Do you think changes will be made to SMCR based on responses? What changes do you anticipate?
Earlier evaluations of the SMCR, although limited in nature, concluded that the SMCR was operating effectively against its aims and no changes resulted. I anticipate that this more comprehensive review will conclude similarly.
To date, the regime has been very positively received and the general consensus is that any changes are likely to be relatively minor in nature instead of an overwhelming rewrite of SMCR.
The regulators have been reviewing almost every aspect of the regime specifically focusing on effectiveness, scope, and proportionality of the following areas:
- Ensuring fitness and propriety requirements are broad enough to welcome applicants from other sectors;
- Making sure SMFs complement the wider work of the board and that these key roles aren’t in conflict;
- Assessing how enforcement practices support individual accountability;
- Considering the scope of the regime and how well it supports competition;
- Effectiveness of the SMF approval process and the 12-week rule;
- The role of the directory of certified and assessed persons, requirements to keep it up to date and if the right individuals are captured; and
- Considering how regulatory references support fitness and propriety requirements.
It is worth noting that one area of focus will likely be the approval of senior managers and the associated 12-week rule. This comes as a result of the SMCR extension to solo-regulated firms which put additional pressure on the FCA’s authorisation teams, resulting in a backlog of applications to approve senior managers. Firms looking to fill an SMF role can allocate the responsibilities to another SMF in the interim or appoint an unapproved individual for 12 weeks to cover unforeseen or temporary absence. As such, a prompt turnaround on approval is essential to make sure SMFs aren’t overstretched, and the regulatory timescales are upheld. The regulators have increased their authorisation capacity, but they are likely to continue to take steps to improve turnaround times.
What SMCR best practices can you offer our readers?
In short, SMCR requires financial services employees to meet a minimum standard of conduct, requiring a greater focus on breaches and the reporting of breaches both at an individual and a firm level.
I urge firms to familiarise themselves with the requirements and processes around disciplinary breaches and ensure all appropriate records are kept. Breaches of the SMCR can result in disciplinary action, including: a written warning, a reduction or claw-back of salary or bonus, and suspension or dismissal.
Firms must report disciplinary action taken against employees who breach the SMCR’s Conduct Rules. This is done annually using the REP008 form in RegData. Firms must also notify the FCA within seven business days of taking disciplinary action against Senior Managers. This is done using Form D on Connect, or Form C if the SMF is leaving the firm.
Firms should also report any appeals made by employees who have been disciplined for a Conduct Rule breach. The firm should provide an update on the appeal’s outcome in their next REP008 submission or using Form D.
Can you tell us a little about COMPLY’s expanded SMCR Solution?
COMPLY’s SMCR Solution is designed to help firms facilitate and manage the requirements of the SMCR, automating the often-manual processes required by the regime. Integrated directly within the COMPLY Platform, the SMCR solution enables comprehensive coverage of SMCR requirements. Mostly importantly, firms can centralise documentation, automate workflows, and visualise employee roles and responsibilities with ease.
Senior Manager Regime
- Create and maintain responsibilities
- Assign Senior Management Functions
- Build comprehensive user profiles
- Customise roles and lines of reporting with multi-level assignments and approvals
- Keep information accessible and secure with visibility customised by group, role, and scope
Certification Regime
- Conduct and document fitness and propriety assessments with custom forms
- Streamline F&P certification processes
- Track assessment status and completion
- Export status and questionnaire section progress
- Upon a certified employee’s completion and approval of the assessment, automatically generate a certificate that remains valid for 12 months from the date issued
- Maintain an audit trail of changes
Conduct Rules
- Visualise firm structure and reporting lines with Relationship Maps, customisable by certifying entity
- Document rules, changes, senior manager roles and responsibilities, and lines of reporting
- See and understand roles, responsibilities, certification status, and certifying entity with the Persons Directory
- Export certificates, Relationship Maps, audit trails, and profile data for regulatory reporting
Ready to see how COMPLY’s SMCR solution can help you streamline processes and gain efficiencies? Schedule time to speak with an expert today.