Regulation  

Warning sounded over lack of SMCR teeth

Warning sounded over lack of SMCR teeth

Warning have been sounded that the senior managers and certification regime is showing a lack of "mettle" in the year since it was rolled out to the advice industry. 

Regulatory consultant Bovill said the number of roles under the scope of the regime, which came into force for all solo-regulated firms in December last year, should be broadened to increase its success.

It follows a Freedom of Information request by Bovill in September which found the Financial Conduct Authority had opened 34 investigations since the SMCR was first introduced to the banking industry in 2016. 

Of these, 11 were closed without action and a fine enforced on one occasion. 

Ben Blackett Ord, chief executive at Bovill, said: "The number of investigations and enforcement actions against senior managers is important because credible deterrence is central to the FCA’s enforcement work. 

"The fact that there has only been one successful enforcement action so far therefore brings the effectiveness of the regime into question."

Mr Blackett Ord said enforcement investigations could be "painfully slow", often taking between two to three years to conclude. 

He added: "Some of the 21 investigations that we know the regulator currently has open under SMCR  may well come to enforcement action next year, but the longer it takes the less effective it is in holding individuals to account." 

In light of the coronavirus pandemic, earlier this year the FCA delayed the deadline for solo-regulated firms to have completed their first "fitness and propriety" assessment of certified persons until March 31, 2021. 

But the FCA warned it would still take action against senior managers and certified persons for misconduct during the coronavirus pandemic despite the deadline extension. 

Challenges remain for firms 

Sean Lam, chief executive at Walker Crips, said: "While the hive of activity by solo-regulated firms to ensure they are all SMCR compliant by December last year has calmed down, some challenges still remain."

Mr Lam said businesses still faced the burden of an ongoing requirement to keep information up to date, maintain audit trails and documentary evidence and undergo regular reviews.

He said: "When SMCR is implemented poorly, it can become bureaucratic, and foster delays and an unwillingness to make decisions out of fear of being personally responsible if something goes wrong.

"However, when SMCR is implemented correctly and in the spirit that it was intended, it can have a positive impact on a firm’s culture, providing a clear sense of accountability and transparency, and allowing management and staff to perform their responsibilities with confidence."

Embracing technology 

But Mr Lam warned against companies managing their SMCR manually, such as using spreadsheets.

He said whilst it was not impossible it made the process "inefficient and risky" and could "descend into a tick-box exercise", which he said defeated the purpose of the regime.

Mr Lam added: "Firms may have avoided technology solutions due to cost, complexity and lengthy implementation timescales, but there is a gamut of solutions ranging from native to cloud, annual contracts to monthly subscriptions, and cost per system to cost per individual.