What are the potential challenges of SMCR?

This article is part of
Guide to preparing for SMCR

Ms Bradley adds: “[But] perhaps the biggest challenge will be in how the FCA supervises the regime, as it is all about taking ‘reasonable steps’, which can be quite subjective, so it will be interesting to see how this pans out over time.”

Identifying certified staff

Richard Nuttall, director of compliance policy at SimplyBiz Group, says the biggest challenge firms will have is to actually identify all certified persons.

Mr Nuttall says: “A certified person is not just the adviser or other person that carries out a regulated activity within the firm, it is extended to anyone whose decisions or actions could have ‘a detrimental or harmful’ effect on the business or its customers.

“Therefore, the guidance includes all individuals that manage or supervise the firm’s advisers up to the level of a senior manager.”

He continues: “Where some firms may identify a weakness in their procedures is the lack of ongoing evidencing, demonstrating competency of the non-advising managers/supervisors.”

While Martin Davis, chief executive of Kames Capital, warns the new concept of conduct rule breaches and how this fits in with current processes is a potential challenge.

He says: “Firms will be taking on more oversight of certified persons which will require sufficient resource for firms to deal with.”

Indeed, Mr Crabb points out that some individuals who are not regulated staff at the moment, but are directly involved with making investments on behalf of clients, might have to become certified staff reluctantly.

He explains: “The regulation has the potential to drag such individuals into a regulated function.

“This could lead to some emotional turmoil because they might come under greater regulatory scrutiny, while they were happy simply being support staff, but who are now being dragged into that.”

He acknowledges: “There may be one or two very tough conversations with people as part of this process of repositioning where people are.”

Senior managers’ responsibilities

There are also a few drawbacks for senior managers as, obviously, responsibility will fall on individuals rather than the collective board, notes Mr Crabb.

He explains: “One of the big challenges is the statement of responsibilities: the requirement for people to sign exactly what they are reliable and responsible for – and I think that really focuses the brain a little bit more.

“[But] some of the challenges will be where some people are made a senior manager when they don't necessarily feel they have the level of authority and shouldn't be senior managers.”