With less than a year until the deadline for the Senior Managers and Certification Regime, it is vital advisers and companies begin preparations.
An essential first step is to understand the very essence of the regime and how it has played out in the banking sector.
The regime was first rolled out in the banking world to replace the Approved Persons Regime for banks, building societies, credit unions, and Financial Conduct Authority and Prudential Regulation Authority regulated investment companies, in March 2016.
It was further adopted by the insurance industry in December 2018, and from December 9 2019 the FCA is replacing APR with SMCR in almost all financial services firms, to "reduce harm to consumers and strengthen market integrity" as the FCA states.
Source:Duff & Phelps
Drive toward change
Martin Davis, chief executive of Kames Capital, points out the regime provides “a new way of dividing up firms into different buckets of individual accountability, but it is also about instilling a new culture of conduct for all employees”.
Similarly, Linda Gibson, director of regulatory change and compliance risk at BNY Mellon’s Pershing, says “the countdown is on and this time, it’s cultural”.
Ms Gibson continues: “Part of taking more accountability for individual decisions under SMCR is recording them in a way that assists a reliable investigation.
“When things do go wrong, firms will need reliable data and people in place full-time to oversee its accuracy.”
Indeed, the incentive for the new regime followed the financial crisis, when recommendations were made by parliament that the FCA develop a new accountability system more focused on senior managers and individual responsibility, notes Janice Laing, managing director of Compliance First, part of SimplyBiz Group.
Ms Laing adds: “It is worth noting that the FCA rules for smaller firms are designed to be proportionate. This means the same rules that apply to banks and larger institutions do not apply in the same way to the majority of adviser firms.”
However, some in the industry have questioned whether the regime is truly necessary, especially when advice companies are already time and resource-poor as it is.
Ms Laing says: “Anything that encourages more personal accountability for advice given and helps to tackle firms which may not operate in a way which ensures good outcomes for clients is a positive step.
“In addition, I believe it will help to bring about a culture where more attention is given to education and development on an ongoing basis.”
Nevertheless, it is difficult not to empathise with advisory firms that are struggling under a heavy regulatory burden, she adds.
“I know they may find it more difficult to see the positive side of yet more policy change.”
Lessons from banks
An analysis of the FCA's enforcement database by Clyde & Co in 2018 showed the value of fines handed down by the FCA decreased by 88 per cent that year, but the penalties on individuals trebled, with the average fine for an individual at around £186,000, up from £63,000 in 2017.