Regulation  

Changes for financial advisers under SMCR

  • Identify the types of firms affected by SMCR
  • Describe the new financial services directory
  • Identify the importance of the new functions under SMCR
CPD
Approx.30min
Changes for financial advisers under SMCR

On July 4 2018, the FCA finally published its long awaited near-final rules on extending the senior managers regime to the UK financial services industry and published some interactive guides. The near final rules can be found in Policy Statement 18/14 (which needs to be read with PS18/15).

For those advisory firms or IFAs that are regulated (as opposed to being appointed representatives), most will be classified as core firms (only firms intermediating a significant amount of business as included in the Retail Mediation Activities Return will be enhanced firms).

Core firms are subject to a more proportionate application of the regime. The FCA has a firm checker tool so firms can check which category of rules they will fall within: https://www.fca.org.uk/decision-tree/firm-checker-tool

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Advisory firms or IFAs who are appointed representatives will fall outside the regime and remain within the current approved persons regime. However, the principal firm for which they are ARs will likely wish to exercise more oversight over their activities and have stricter requirements for onboarding AR entities or individuals among other items.

The FCA commented in PS18/14 (p15) that “principal firms remain fully responsible for their ARs and networks meeting our rules. Senior Managers at these firms must make sure that this happens”.

As a way of reducing the risks to the principal firm of an AR/network, senior managers in the principal firm may require ARs and their staff to be trained on the conduct rules and may wish to run the certification process on those staff in the AR entity providing financial advice to clients, notwithstanding that the rules do not technically require this.

Aside from this, there are a few significant changes that advisory firms will notice.

Proposed new Financial Services Directory

The first is with the proposed new public Directory. The FCA is currently consulting on a new directory to sit alongside the current Financial Services Register.

Key Points

  • Most adviser firms that are regulated will be subject to a proportionate part of the SMCR regime
  • The new directory of financial advisers could place an enormous administrative burden on firms
  • All qualified financial advisers in firms will need to be certified by the firm before they start giving advice

While the register contains a searchable list of authorised firms and the PRA/FCA approved individuals within those firms, it is proposed that the directory will list, among others, all staff within authorised firms who are not approved by the PRA/FCA but which are certified staff (this includes financial advisers who are certified), all non-executive directors and all appointed representatives.

There are proposed to be rules requiring firms to provide the information to go into the directory and ensure it is up to date.

This will potentially place an enormous administrative burden on firms who are also required to provide a lot more detail about the individuals that will appear in the directory than currently appears on the Register including what role they carry out within the firm – for example, financial adviser.

Allocating and describing senior managers’ responsibilities

Approved senior managers will need to complete (and file with the FCA) a new regulatory form called a Statement of Responsibilities.

Aside from the few regulatory responsibilities which are prescribed by the FCA (called ‘prescribed responsibilities’), approved senior managers will need to write down the universe of areas that they are accountable for within the advisory firm.