Financial Conduct Authority  

SMCR one year on: What impact has the regime had on advice?

SMCR one year on: What impact has the regime had on advice?

When major new regulations are introduced, it is often hard to predict all of the consequences that will follow, even if the regulations have already been implemented elsewhere in the same industry.

The Senior Managers and Certification Regime has been in force for banks since 2016 and for insurance companies since 2018, but has only applied to solo-regulated companies since December 2019. A year on, what impact has it had, if any?

The key changes the SMCR introduced are a clarification of the accountability of senior managers for the conduct of the business and its employees; and the replacement of the old Approved Persons Regime with a new Certification Regime.

Companies, not the regulator, now bear responsibility for approving the competence and good conduct of certified persons. Companies must document decisions, actions and accountability to prove compliance with the SMCR, which can come to the fore in the event of a regulatory investigation.

They must be able to prove that senior managers have taken all “reasonable steps” to comply with SMCR requirements.

Key points

  • A year ago SMCR took effect for advisers
  • Many have responded positively to the rules
  • It has raised regulatory issues they may not have attended to before

My colleagues and I work directly with advisers, helping them and other financial sector companies to improve their governance and risk management.

From our perspective, advisers appear to have responded positively to the SMCR in general, although there are still some issues for individual companies to resolve and some broader risks that every business must try to avoid.

The unprecedented social and economic disruption caused by the coronavirus crisis in 2020 has certainly had an impact on what “reasonable steps” look like for senior managers.

In September, in recognition of the additional problems faced by solo-regulated companies during 2020, the Financial Conduct Authority asked the Treasury to create a statutory instrument that would delay the deadline for these companies to undertake the first SMCR assessment of certified persons. The Treasury agreed and the deadline was moved from December 9 2020 to March 31 2021.

But even as this extension was granted, the FCA also made it clear that companies should still be working towards completing these assessments and ensuring compliance with the SMCR, in part because the events of 2020 have made the need for effective regulation even more urgent.

Consumer risks

These are precarious economic times, when poor advice or mis-selling would have even more serious consequences for advisers’ customers.

Decisions taken in relation to pensions, investments and other financial assets have become even more critical, and advisers have a hugely important role to play to help individuals make informed, balanced decisions.

In difficult times more people may be tempted to invest in too-good-to-be-true schemes, outright scams, or regulated but high-risk products that may not be suitable for their needs.

If we see an increase in poor outcomes in the future, we can surely expect an increase in regulatory investigations – making it even more important that companies can prove compliance with the SMCR.

In conversations with our clients, we have seen first-hand how the introduction of the new regime has had a positive impact on some solo-regulated businesses. We are now more likely to be asked to help senior managers define and review the “reasonable steps” they should take to ensure compliance.