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

This is regardless of whether the advisory firm is enhanced or core. Describing the full scope of an area of accountability correctly can be challenging as the FCA has previously commented to the market that simply stating a job title (for example, CFO) or noting responsibility for a particular department (for example, the Finance Department) is not sufficient, so a full description will be needed to explain what is within, and excluded from, that area.

The difficulty is increased given that there is a 300 word limit on describing the responsibility so, on one view, there is limited space, and there is a desire by the FCA (most recently expressed in their current consultative guidance on SORs) not to have too much detail.

Management Responsibilities Map and difficulties with the ‘no gaps’ principle

For enhanced firms (but not core firms), there is a requirement to draft and maintain a management responsibilities map which is a single document/suite of documents that together provide the FCA’s supervisors with a standalone view of the entire organization, governance, senior manager responsibilities and systems and controls of a firm.

The challenge for firms will be in ensuring that it accurately reflects the firm and in keeping it up to date. In some banks, this was almost the full time job of one person. Alongside the map, the ‘no gaps’ principle applies for enhanced firms.

This is the principle that across all of the Statements of Responsibilities (and as recorded in the map), every area/activity/function of the firm must be the overall responsibility of one or more senior managers and there must not be any overlaps or gaps.

While complying with this principle sounds relatively straight forward, in practice it can be challenging. Advisory firms will need to map, end-to-end, all the processes in the value chain of the advice service and identify which parts of the process the different senior managers are accountable for and where the perimeter of their responsibility is delineated.

This relates to all areas of the business whether customer-facing or in dealing with product providers among other areas. On the customer-facing side, this encompasses (among other items):

  • financial promotions made about the service (through whatever medium is used including social media)
  • drafting and disclosing the adviser charging structure correctly
  • the KYC/AML process and onboarding a customer
  • the client agreement with the customer and terms and conditions governing the relationship and service
  • the attitude to risk and financial objectives documentation
  • obtaining sufficient information from the customer
  • selection of products that are advised on (if not independent)
  • drafting and issuing the suitability report
  • providing required product disclosure documentation
  • executing the advice (where instructed) or passing orders to an executing broker
  • overseeing customer service and customer reports
  • complaints
  • recordkeeping and
  • handling personal data

There are likely to be multiple senior managers with touchpoints on each of these areas.

For example, with complaints, there could be: different senior managers responsible for the conduct of the call centre staff receiving complaints by phone and those received by email or mail; a senior manager responsible for setting the complaints handling policy and procedures; a senior manager responsible for ensuring the right staff are trained on the procedures; a senior manager responsible for the back office processing of the complaint whether it be for the technology/software that is used to log the complaint, the suite of template letters used to respond to a complainant, to deciding on the outcome of a complaint; and a senior manager responsible for dealing with complaints referred to the Fos and/or the FCA.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What type of adviser firms are affected by SMCR?

  2. What is one of the main differences, according to Charlotte Henry, about the new financial services directory, compared to the Financial Services Register?

  3. Which of the following functions is not covered by the SMCR regime?

  4. All qualified financial advisers (among others) within advisory firms will need to be certified by the firm before they start giving advice, true or false?

  5. Senior managers will be more keenly focused on the governance arrangements over the suitability of the advice and the oversight that is exercised by the board and board committees under the regime, true or false?

  6. What does the FCA say about every area/activity/function of the firm?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Identify the types of firms affected by SMCR
  • Describe the new financial services directory
  • Identify the importance of the new functions under SMCR

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