Regulation  

What are the potential challenges of SMCR?

This article is part of
Guide to preparing for SMCR

What are the potential challenges of SMCR?

The Senior Managers and Certification Regime is likely to increase the overall operating costs of the advice industry.

This is because companies will need to pay for consultants and lawyers, technology solutions and third-party training providers to see to it that the certification process is done right, notes Dominic Crabb, chief compliance officer at London & Capital.

Additionally, while some of the regime is just good practice – what companies should be doing already – implementing and making sure companies can evidence ongoing compliance with the regime will nevertheless be a strain on resources and time.

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Mr Crabb explains: “Everyone is going to need to be signing documentation, so from the human resources perspective, it's a massive piece of work in terms of the audit trail.”

Unfortunately, the cost is likely to come out of clients’ pockets, he says.

“A lot of it is just adding another layer of responsibility and oversight, which unfortunately increases the level of cost, and the overall impact of that is the client is possibly going to end up paying a little bit more for a piece of regulation,” he adds.

But aside from an increase in administrative burdens, cost and demand on resources, what other challenges and potential pitfalls should advisers be aware of?

Impact on productivity

Claire Cornell Johnson, technical policy manager and SMCR lead at the Tax Incentivised Savings Association, says that when things do go wrong, companies will need reliable data and people in place full-time to oversee its accuracy.

“As a result, SMCR compliance can’t be achieved overnight: instead, firms will need to ensure the responsibilities prescribed to each employee are being fulfilled on an ongoing basis,” she says.

But Linda Gibson, director of regulatory change and compliance risk at Pershing, part of BNY Mellon, says the very fact that implementing the regime is not an overnight process could mean it turns into a distraction for companies from their day-to-day activities.

She suggests: “This could become a distraction from business-as-usual activities if employees are locked in a grind about the fear of taking risks – however material to the customer or their employer.”

While this would not have been the Financial Conduct Authority’s intention, she worries SMCR has the capacity to make everyone scared of making a decision.

She continues: “It will lead to delays in decision-making if, for instance, someone who previously had conviction in their expertise and authority to execute will soon want a longer, more comprehensive audit trail to justify that decision.”

However, according to Caroline Bradley, group risk and regulatory director of Tenet Group, for core firms, the transition should not be too onerous.

Ms Bradley continues: “While the annual re-certification requirement will be a big burden for larger firms, and the biggest challenge for enhanced firms will be in relation to the statement of responsibility and the responsibilities map, and systems to ensure they stay up-to-date."