Dear FTAdviser editor.
Re your story: SMCR review could be welcome news for advisers (Sonia Rach), March 2023.
In view of the Call for Evidence on a Review of the SM&CR regime, the article by deputy news editor Sonia Rach makes interesting reading.
Two solicitors are quoted and their comments show exactly why matters of Financial Compliance should not be directed to the legal profession.
It is unclear how an adviser would earn a living during that time.Jill Lorimer of Kingsley Napley, very sensibly points out the way in which self-employed advisers are exposed, in terms of offering advisory services, as they are ‘wholly dependent on a firm’s decision to certify them’.
However, Lorimer emphasises the importance of getting a contract, which may be breached by the firm refusing to certify them. In this case, the self-employed IFA should seek legal advice.
The nub of the argument will still be matters of compliance, which are best dealt with by experts in the financial services industry.
As Michael Stacey, partner at Russell Cooke warns in Rach's piece, court costs may run into ‘tens of thousands of pounds’.
But Stacey does not see individuals greatly affected by a decision not to certify them, pointing out as examples the legal and medical professions. Unfortunately, the financial sector does not work like that.
Advisers need authorisation from the FCA before setting up or giving advice from a different firm.
The FCA can take a good six months to provide this authorisation and it is unclear how an adviser would earn a living during that time and financial pressures may cause a change in career.
Call for evidence
The government's Call for Evidence 3.8 on the SMCR refers to the delays at the FCA.
In addition, a new firm would need to get a letter of reference from the non-certifying firm, which would have to make allegations about the IFA to support its decision.
None of the points raised in the Call for Evidence refer to individual IFAs. Not unnaturally, there is an aim to improve in both domestic and international terms.
In the introduction, covering existing regulations it is stated: "Enforcement powers available to the regulators.
"As noted above, the SMCR is primarily a proactive regulatory regime designed to manage appointments, enhance accountability and prevent breaches of conduct."
None of the points raised in the Call for Evidence refer to individual IFAs.However, the FCA and PRA do hold powers to enforce against breaches of the SM&CR, which can be exercised against individuals and firms. This is also stated in the government's own call for evidence.
It states: "Both regulators are able to impose financial penalties on firms and individuals that breach the SMCR in certain circumstances."
Also:
"2.31 - Where a relevant individual is guilty of misconduct (ie, has breached the Conduct Rules, is knowingly concerned in a firm’s contravention and/or is a senior manager who has failed to take appropriate steps to avoid a contravention in their area of responsibility), the FCA and PRA’s enforcement options include: imposing a financial penalty, publishing a public statement of the person’s misconduct and/or imposing a suspension, condition or limitation on approval.
"The regulators may also impose a financial penalty where an individual knowingly performs an SMF without regulatory approval."
And:
"2.32 Where the FCA or PRA find a person to not be fit and proper, they may withdraw approval for the individual to exercise a SMF or prohibit them from performing functions."
Why then does the message from experts to FTAdviser seem to be that individuals caught out by SMCR would have to use a court of law, when the regulator can take action against firms in breach of SMCR?
Moreover, there has been at least one documented complaint to the regulator about a firm in relation to SMCR certification.
- An anonymous adviser
