Regulation  

Advisers warned they are 'wildly underestimating' SMCR

Advisers warned they are 'wildly underestimating' SMCR

Most firms are underestimating the amount of work needed to prepare for the Senior Managers and Certification Regime, a paraplanning expert has said.

The SMCR is currently in place for the banking sector but is due to be rolled out to the wider financial services industry in December, replacing accountability rules for advisers under the Financial Conduct Authority's current Approved Persons Regime.

Under the new regime, senior individuals performing key roles will need FCA approval before starting work and they will receive a 'statement of responsibilities' that clearly says what they are responsible and accountable for.

The FCA hopes the regime will strengthen market integrity by making individuals more accountable.

But Cathi Harrison, director and founder of paraplanning support services provider Para-Sols, said most firms were underestimating how much work should have been done by now to prepare for the new regime and how much needed to happen before December 9.

She said firms should have been working to a plan for several months already.

Speaking at Intelliflo’s Change the Game conference on Tuesday (June 18), Ms Harrison said: "Firms should have a project plan in place. In fact, the plan should have been implemented since the start of March. There’s a lot to do."

Ms Harrison said firms needed to decide who is running the preparations and determine what training is needed throughout the firm.

To do this, she said, advisers first had to establish which regime the firm would be subject to and which senior managers would be affected by the prescribed responsibilities.

There are three categories under the SMCR: limited scope, for firms who already have exemptions under the Approved Persons Regime; core firms, who will have to comply with baseline requirements; and enhanced, which will apply to firms whose size, complexity and impact warrants more attention so will have extra requirements.

Ms Harrison said most advice firms would fit in the ‘core’ category.

These firms will be required to have at least one senior manager — authorised by the FCA — and will be required to assess annually whether individuals are fit for their role.

On top of this, the onus of checking the fitness and propriety of staff now falls on the firms themselves, rather than the FCA.

This means firms will need to gather regulatory references and carry out a fitness and propriety assessment when hiring any staff member, as well as checking criminal records and gain regulatory approval for senior managers.

Ms Harrison said this was a "huge change" for firms.

She went on to say that since the SMCR was put in place for banks, the number of investigations carried out by the FCA had tripled.

She said this showed the regulator was serious about pursuing bad practice in firms and that the SMCR was a key part of how it planned to carry this out.

Last week, the FCA stood by its decision to take no action against the Royal Bank of Scotland’s treatment of small businesses but it said it potentially could have done if the new senior management regime had been in place at the time.