The Senior Managers and Certification Regime (SMCR) has been revealed as the biggest concern for CEOs within the investment management and financial adviser sector.
What is more, the 2019 CEO Sentiment Research Report, from trade association PIMFA, found that regulation overall was the biggest cause of anxiety among senior executives at 75%, increasing from 67% from the previous year.
Fears around SMCR were highest with 40% of respondents saying they had concerns, followed by the Markets in Financial Instruments Directive and issues with the Financial Ombudsman Service.
The Senior Managers Regime was introduced for banks and other dual regulated firms in 2016, going live for insurance companies in December 2018. On 9 December 2019, it will be rolled out to all 47,000 solo-regulated firms.
SMCR is about leading from the top and the PIMFA report states CEOs were working hard by “reviewing processes, procedures and the culture of responsibility across the organizations.” One key change is that checking the propriety of employees now falls on firms instead of the FCA and so smaller businesses in particular will need to set up new procedures to obtain regulatory references and ensure the individual meets fitness and propriety standards. In the case of senior managers, regulatory approval needs to be obtained and checks made to see if there are records of any criminal activity.
At the same time, there are also a raft of benefits in terms of improving governance and reducing operational risk in addition to improving outcomes for customers.
Beyond regulation, the report also highlights other CEO concerns, which unsurprisingly include Brexit and the prolonged market uncertainties as well as costly preparations for unknown eventualities. Some also expressed longer term fears that there could be trade wars and political complications.
Technology also scored highly as a corporate worry, with 47% of respondents saying they considered cyber and data security as ‘a considerable threat’, with many being aware of the implications of a breach and the potential damaging impact this could have on their reputations. It was noted there is emphasis on IT upgrading with the aim of streamlining processes and replacing legacy systems. The report also stated:
“Cyber attacks are still a significant concern, but as firms start to get to grips with the threat by implementing effective cyber security policies, this isn’t such a ‘keeps me awake at night’ issue as it has been in previous years.”
A further topic dominating boardrooms, according to the report, is staffing and recruitment with retention of good people cited as essential. The need to maintain a firm’s culture as staff numbers grow was also mentioned as being a vital component to deliver quality service.
Current political instability and an uncertain economic future certainly does not make it easy for firms and increasing regulatory burdens only add to the pressures. As SMCR becomes embedded, it is expected that those firms which have put in the months of preparation should reap the benefits.
But, there will no doubt be some conduct breaches, and for those, there is the unwelcome prospect of being in the glare of the regulatory spotlight.