Regulation 

What you need to know about complying

This article is part of
Guide to preparing for SMCR

What you need to know about complying

Regulated advice companies will soon be subject to the Senior Managers and Certification Regime, and this means all qualified financial advisers will need to be certified before they can give advice.

But as the deadline for SMCR draws near, it is important to remember that SMCR cannot be achieved overnight, says Linda Gibson, director of regulatory change and compliance risk at Pershing, part of BNY Mellon.

Instead, she says companies will need to ensure the responsibilities prescribed to each employee are being fulfilled on an ongoing basis, at least once a year.

Ms Gibson continues: “Firms’ senior managers and their human resource functions have a big role to play in reassuring core employees that they are in it together, through a mixture of training and integration.

“SMCR will dictate that it’s not only a record of the ultimate decision that is important, but it’s about the process by which you got there.”

Importantly, the regime is made up of three parts: the senior managers regime, the certification regime, and the conduct rules.

Additionally, the FCA introduced three company categories:

  • Core Regime: Standard set of requirements for FCA solo regulated firms, applying to most regulated advice companies.
  • Enhanced Regime: Additional requirements for a smaller number of solo regulated, large and more complex companies.
  • Limited Scope: Reduced set of requirements to certain firms which applies to firms with limited application of the Approved Persons Regime.

Senior managers regime

Under the senior managers regime, each senior manager will be allocated a statement of responsibilities, prescribed responsibilities, and duty of responsibilities.

The FCA’s policy guide says a senior manager must be responsible for each of the business functions and activities within his or her company and must be approved by the FCA.

So, all approved senior managers will need to complete, and file with the FCA, a statement of responsibilities form, to ensure all senior managers’ responsibilities are allocated and described appropriately, says Mark Greenwood, director of compliance services at SimplyBiz Group.

He explains: “The statement of responsibility is a single document held by each senior manager and sets out what that manager is responsible and accountable for, while a senior manager’s duty of responsibilities is to prevent or report breaches in the area that they are responsible for."

The statement will need to provide a full description to explain what is within and excluded from each area and role, suggests Dominic Crabb, chief compliance officer at London & Capital.

Therefore, the wording of the statement of responsibilities is important. It has to be concise – it is not expected to exceed 300 words – and clear yet descriptive enough, which he admits has so far been challenging.

He says: “It's not a very long statement and has to be specific, so that is difficult for us."

“I think the ongoing competence of senior managers is a difficult one to prove. I think things like board audits and corporate governance audits will become more prevalent,” he adds.

There are also 12 prescribed responsibilities expected to be allocated to executives in enhanced firms, except those to be allocated to a non-executive director who does not have management responsibilities, explains Caroline Bradley, risk and regulatory director at Tenet Group.