The senior managers and certification regime (SMCR) covered more than 47,000 UK financial services organizations when it was first introduced in the banking sector in March 2016. The accountability framework, which was extended to all financial firms in December 2019, was designed to restore trust in financial services and promote a culture that works for the long-term interest of firms and their customers.
SMCR requires all FCA-regulated firms to:
- Identify individuals as either subject to the senior managers regime (top-level staff) or to the certification regime (others who could cause significant harm to the firm or its customers).
- Provide a statement of responsibility (SoR) for all senior managers.
- Ensure those in the certification-regime category are certified annually as fit and proper to carry out their certification function.
- Train the entire workforce on the FCA’s conduct rules.
Two years on, and while most organizations are getting comfortable with SMCR compliance, many found the journey harder than anticipated. Adding to the burden is the upcoming deadline for the first assessment of the fitness and propriety of certified persons. The FCA extended this deadline from 9 December 2020 until 31 March 2021, which has provided some breathing space, but firms continue to face four big challenges
Time and resource
SMCR affects a large proportion of the population, and compliance places a significant demand on time and resource. The SoR project is a particular challenge for enhanced firms. In these extremely large and complex firms, senior managers are expected to be directly involved in the SoR process to ensure accuracy. This generates significant administration for compliance teams when it comes to requesting approvals, signatures, and issuing reminders. And it is a huge amount of work in terms of maintaining an audit trail.
SMCR will unquestionably increase overall operating costs as companies need to pay for training providers, consultants, and lawyers, as well as technology solutions, to make sure certification is completed effectively and efficiently.
SMCR holds managers personally accountable for their actions – which could cause some to be apprehensive about making decisions or performing business-as-usual activities. This could drag down productivity if managers halt action in order to protect themselves with, say, a longer, more thorough audit trail to support an important judgement.
If the regime is not implemented well, there is a danger that managers may be uncertain about their personal responsibilities and liabilities. Some firms with poor implementation also have found it difficult to recruit into management roles.
How can you overcome these challenges?
Automation, automation, automation!
The key to successful compliance with SMCR is to automate as many processes as possible. Automation reduces administration time and keeps operations moving in the background while compliance and HR focus on other core activities.
“SMCR makes your organization consider how it manages itself and, while the board is responsible for the bank [or financial services firm], now specific managers have responsibilities and are accountable for what they have done.”
Partner in global dispute resolution, Reed Smith
Technology enables automation and ensures your management documentation is consolidated into a single point of truth. Instead of copying and pasting often inconsistent information from multiple spreadsheets, a centralized, automated solution makes it easy to compile up-to-date reports for the regulator. The initial investment in technology is quickly offset by the benefits of an efficient and effective compliance.
When SMCR is implemented well, the impact on company culture can be extremely positive. Individuals have a clear sense of accountability and are empowered to act accordingly. Many in the industry, in fact, believe SMCR is already having a beneficial impact on financial services.
Read more about other hot topics currently impacting FCA-regulated firms in our latest e-book, Building Operational Resilience in Financial Services.
For more on effective compliance management, download our e-book, Transforming Compliance from Check-the-Box to Champion.