Firms will be obliged to create detailed responsibility maps of their management structure to ensure all responsibilities are apportioned with no gaps or overlaps. There are 17 Senior Manager Functions identified by the regulators and 30 Prescribed Responsibilities to be allocated among senior managers. Firms will have to prepare “Statements of Responsibilities” for senior managers which must be kept updated to reflect changes, with annual assessments to show ongoing competency for each position.
How ready are you for the Senior Managers Regime changes?
Regulation of financial services firms is becoming more personal. Last autumn, HM Treasury announced that the Senior Managers and Certification Regime (SM&CR), introduced for around 1,000 firms in the banking sector earlier this year, would be extended to include all firms regulated by the Financial Conduct Authority (FCA) by 2018. The change encompasses a diverse range of businesses ranging from investment firms and asset managers, to advisers, brokers and consumer credit firms.
Around 60,000 firms large and small have less than two years to put in place a more wide-ranging and robust regime centred on the individual accountability of senior managers. Designed to address failings in corporate culture that contributed to the 2008 financial crisis, the new regime aims to ensure named and identifiable individuals are responsible for a firm meeting all its regulatory obligations and are culpable for any failings. The wider objective is to change the corporate culture within firms to encourage competition across markets and improve consumer outcomes.
What is changing?
The new SM&CR regime has been described as "a bigger toolkit"*. It replaces the Approved Persons Regime (APR) which was criticised for failing to ensure firms properly defined the responsibilities of key staff or carried out adequate ongoing supervision of those whose actions could be damaging to the firm or customers. The new regulatory framework has three components:
- The Senior Managers Regime (SMR)
Ensures senior roles are fully defined and individuals who have accepted responsibility to carry out Senior Management Functions are approved by the regulator;
- The Certification Regime
Staff carrying out roles deemed “significant harm functions” must be certified fit and proper at least annually;
- Conduct Rules
Applying to senior managers, certified persons and other employees, these are rules specified by the regulator to promote integrity and best practice at all levels.
Compliance consultant Paul McDermott says the new regime certainly aims to address weak points by making firms and individuals prove their fitness and competence to operate in a way that benefits markets and consumers. But on a practical level, it brings a new depth and complexity to documenting compliance in many areas that previously enjoyed a relatively light touch.