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).