Regulation  

Get ready for SMCR

  • Describe the importance of the SMCR regime
  • List how firms need to prepare themselves
  • Describe how they need to treat their staff
CPD
Approx.30min
Get ready for SMCR

The deadline for firms to implement one of the biggest reforms the industry has seen in decades is now just months away.

The Senior Managers and Certification Regime is one of the most culturally significant reforms to financial services regulation in modern times.

And while its implementation is for some firms proving complex, the aims of the new legislation are clear - as are the consequences of getting it wrong.

To recap, the SM&CR is a root and branch review of the standards of accountability for each relevant staff member within every Financial Conduct Authority regulated firm.

It took effect for banks, building societies, credit unions and dual-regulated (FCA and PRA regulated) investment businesses in March 2016 and rolls out to other firms on 9 December 2019, replacing the Approved Persons Regime.

According to the FCA it aims to “establish healthy cultures and effective governance in firms by encouraging greater individual accountability and establishing a new standard of personal conduct”.

That is straightforward enough.

But the scale of the new regime and the level of detail within it creates a risk of firms not being as on top of it as they should be.

One area of concern is the understanding of the tier thresholds that determine exactly which requirements firms have to follow.

The three tiers of SM&CR requirements - Core, Enhanced and Limited Scope - are based primarily on what types of regulated activity the firm undertakes, as well as criteria such as levels of asset under management and revenues (SYSC Annex 1 of the FCA handbook sets out in detail the definitions of the different types of SMCR firms).

Here’s a quick recap of the tiers.

 

Falling through the cracks

The responsibility lies with individual firms to determine which category applies to them (the FCA has a ‘firm checker’ tool designed to help firms identify which category they fall in, at www.fca.org.uk/decision-tree/firm-checker-tool).

This will be simpler for some firms than others. In particular, several firms that are currently limited scope - or at least believe they are - may well become core firms in time.

There was originally some concern that temporary spikes or falls in certain qualifying figures (such as assets under management) might temporarily push firms into a different tier, creating confusion as to how the SM&CR should be applied.

The FCA has addressed that by changing the qualifying criteria so that the relevant figures are calculated on a three-year rolling average basis.

For many firms, however, it will still make sense to look ahead and understand the likelihood of needing to transition from Limited Scope to Core status (or, for the biggest organisations, from Core to Enhanced).

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. Who does the enhanced scope part of the SMCR regime apply to?

  2. What do firms need to do to protect themselves from falling between two categories, and incur hefty penalties?

  3. A limited scope firm would be able to apply just some of the Core regime rules, and not be considered in breach of the rules, if it wnted to voluntarily move to the upper tier, true or false?

  4. Whose responsibility is it to make sure the firm is in the right category: Limited Scope, Core or Enhanced?

  5. What happens if adhering to the individual conduct rules is not already baked into a firm's culture?

  6. What do firms need to do with regard to their certified staff?

Nearly There…

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

You should now know…

  • Describe the importance of the SMCR regime
  • List how firms need to prepare themselves
  • Describe how they need to treat their staff

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