With less than six months to go until the Senior Managers and Certification Regime comes into force, the clock is ticking for UK firms.
Those affected need to take steps now if they want to be ready for the new regime.
Non-compliance with the SMCR after December 9 2019 could incur significant regulatory penalties.
The SMCR came about after the financial crisis, when parliament recommended that the Financial Conduct Authority establish a new accountability regime that focuses on senior managers and individual responsibilities.
The implementation of SMCR will have significant impact on management, compliance, HR and technological processes for all FCA regulated firms.
Its aim, as outlined by the FCA, is to reduce harm to consumers and strengthen market integrity, as well as restore confidence in the industry by making individuals accountable for their conduct and competence.
To comply with the new regime, firms may need to take a number of steps, such as adjusting their governance arrangements, clarifying areas of responsibilities, identifying and eliminating gaps, and recording and evidencing their review processes.
SMCR is also meant to stimulate a deeper cultural change and improve conduct within firms.
When responsibilities are clearly defined and allocated, management and staff are able to fulfil their duties with confidence, without having to make assumptions.
And when responsibilities are transparent and visible to all staff, it can help inspire trust between colleagues, and encourage greater ownership of responsibility.
Culture drives behaviour. There is never a right time to do the wrong thing, there is never a wrong time to do the right thing.
The tasks at hand
In addition to the roles and responsibilities that apply to senior management, firms will also need to identify their certified persons; these are persons who could potentially cause harm to clients, employees or the firm itself.
Certified persons will not be directly authorised by the FCA, but firms will need to identify any roles that include investment advisers, wealth advisers, pension transfer advisers, proprietary traders or any person who supervises or manages a certified function, just to name a few.
To put it simply, firms will need to ensure that the right person is performing the right role, and is properly trained and qualified to perform that role.
And all this must be evidenced - it’s the age-old “show me” test.
Senior managers and certified persons will have to get educated on the new code of conduct rules that will apply to them specifically and will be required to undergo appropriate training before the commencement of SMCR.
They must also put together a 'statement of responsibility', setting out clearly and succinctly what that senior manager is responsible and accountable for.
There is also a duty to prevent and report breaches.