The Senior Managers and Certification Regime was introduced for banking companies in 2016 and insurers in December 2018.
It applied to solo-regulated companies like investment managers, model portfolio providers, product distributors, platforms and IFAs from December 9 2019.
What is the need for this legislation?
The Financial Conduct Authority wanted to create individual accountability at a senior management level, which the previous rules were light on.
Put another way, if we go through another financial crisis, the FCA can now hold individuals more accountable than it could have in 2008-09.
The regulator has been quick to act on these new rules.
In a matter of weeks since SMCR started (for solo-regulated companies), letters were sent directly to the chief executives of companies across the industry.
Each letter highlights numerous concerns the FCA has and what these chief executives and their governance structures should be focused on.
We picked out a few interesting comments from each letter.
On January 20 2020, a letter was sent to the chief executive of asset management companies and tied back to the Asset Management Market Study remedies published in June 2017.
Following the Woodford saga and the gating of the M&G Property Portfolio, it was no surprise that the first point raised was around liquidity management.
Equally important was the focus on value for money and placing the onus on fund groups to evidence value.
In a really progressive step for the regulator, it is considering a ‘name and shame’ approach too: “We plan to publish certain key metrics, such as on long-term underperforming active funds.”
This will grab headlines and, along with all the other suggestions around value for money, place continued pressure on fund management fees.
The regulator is also challenging authorised corporate directors that often white-label funds using third-party fund managers.
The FCA has highlighted the commercial conflict of hiring cheap managers that perform poorly but are good for profits.
This conflict is a similar one highlighted in the platform letter discussed further on.
On January 21 2020, a letter was sent to the chief executive of advice companies.
In it, the FCA identified four key areas that it will focus on over the next 24 months: managing the consequences of Brexit, defined benefit pension transfers, being adequately insured, and the ever-present cost question: paying excessive fees or charges for products and services.
A consequence may be that the cost of PI cover will increase at a time when advice companies may face downward fee pressure.
It may also push advisers into becoming appointed representatives, and there was specific mention of appointed representatives and networks.
SMCR does not apply to appointed representatives because the new legislation does not give the FCA power to apply the SMCR rules to them.
The older appointed representative rules still apply.
In such cases, The FCA is placing a strong emphasis on the principal company that remains fully responsible for ensuring appointed representatives and networks comply with FCA rules.