The latest signpost on the financial industry’s road to greater transparency and accountability is the extension of the Senior Managers Regime (SMR) to incorporate all FCA-regulated firms, but what exactly do the new regulations entail?
Along with MiFID II and the PROD rules, the recent roll-out of the SMR is intended to form a key part of the regulator’s three-pronged attack on the perceived lack of accountability in the industry in the wake of the financial crisis.
As such, the SMR is another step towards the creation of a more comprehensive culture of accountability and part of the FCA’s long-term campaign to regain public trust.
The SMR’s main focus is on the individual accountability of the most senior managers within firms and ensuring they personally take what the regulator defines as ‘reasonable steps’ to prevent compliance breaches.
It is this eye on the most senior individuals that sets it apart from previous regulations.
Firms might be inclined to think that the SMR is simply a rebranded version of the Approved Persons regime that came before it. However, viewing the new regime as a like-for-like swap with its predecessor, which is a mistake the industry has made in the past, could prove costly.
Take MiFID II, for example. Since it came into effect in January 2018, MiFID II has proven to be much more extensive and demanding than its first incarnation.
Estimates suggest that an alarming number of firms are failing to keep pace with the reporting requirements of MiFID II, and this seems to be in no small part down to a lack of preparation and an underestimation of the new requirements as outlined in the regulations.
With an increasingly proactive regulator looking likely to step up enforcement measures, it is crucial that firms do not make the same mistake twice and find themselves unprepared for the changes coming in as the SMR is rolled out.
The recent policy document on the SMR is example-heavy, using the FCA and its senior employees to clearly outline 30 ‘prescribed responsibilities’, as well as a series of ‘overall responsibilities’ relating to a firm’s wider business functions and activities.
These ‘prescribed responsibilities’ need to be formally allocated to a pre-authorised individual performing a ‘Senior Management Function’ within the firm.
Where these responsibilities are concerned, the Regulator has not been ambiguous about just how high up they expect the individuals to sit within a company’s hierarchy.
The reporting of senior managers and their designated duties in the Management Responsibilities Map is also an explicit requirement under the new regulations, and senior managers will also be required to complete and supply the regulator with a Statement of Responsibilities to demonstrate that they are aware of what they are personally accountable for.
In addition, firms are also expected to certify that senior managers are suitable to do their jobs and undertake their responsibilities on at least an annual basis.