Preparing for SMCR: Six Things You Need to Know Now

The FCA’s Senior Managers and Certification Regime (SMCR) comes into force for brokers on the 9 December 2019, replacing the existing Approved Persons Regime – and, given that there are risks associated with non-compliance, the time to get started is now.

With that in mind, the compliance specialists at Marsh ProBroker have put together the following six things you need to know now, as you prepare for SMCR:

  1. Does it affect you? The short answer is “Yes”. There are differing requirements for different types of FCA solo-regulated firms. As an intermediary you will typically fall within the definition of “Core” – unless you have a regulated income of £35 million or more per annum based on a three year rolling average. As a Core firm you will be subject to the baseline SMCR requirements.

  2. What is the Senior Managers Regime? It will replace the existing Approved Persons Regime, and will be based on senior management functions (SMFs) – each SMF comes with a prescribed responsibility. SMFs must be allocated to senior managers (and set out in a statement of responsibility). Senior Managers are defined as “the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity”. These individuals must be approved by the FCA before carrying out the relevant SMF(s). Every Senior Manager will have a Duty of Responsibility. This means that if a firm breaches one of the requirements, the Senior Manager responsible for that area could be held accountable if they didn’t take reasonable steps to prevent or stop the breach.

  3. Which employees other than Senior Managers does it apply to? The Certification Regime will apply to all employees who could cause significant harm to the firm, the market, or customers.

    Certification Functions apply where the firm has individuals performing relevant roles. This means it is possible there will be no one in the Certification Regime if a firm only has a handful of senior individuals (who will be Senior Managers) supported by administrative staff.

    The Certification Regime does not apply to sole traders with no employees. The Certification Regime only applies to employees of firms. This definition covers individuals seconded to the firm and contractors but doesn’t apply to Non-Executive Directors, for example.
  1. What are the Conduct Rules? The Conduct Rules set basic standards of good personal conduct, against which the FCA can hold people to account. These new rules apply to staff directly, and are aimed at shaping the culture, standards and policies of firms, and to promote positive behaviours that reduce harm. The rules are intended to improve standards of individual behaviour in financial services from the top down and the bottom up. By applying the Conduct Rules to a broad range of staff the FCA aims to improve individual accountability and awareness of conduct issues across firms.

    The Conduct Rules apply to Senior Managers, Certified Functions, Non-Executive Directors who are not Senior Managers and all other employees, except ancillary staff (i.e. people who don’t perform a role specific to financial services, for example cleaners, receptionists and caterers). A full list of ancillary staff can be found in the FCA guide for solo-regulated firms.

    Firms must notify the FCA when they take disciplinary action against a person for a Conduct Rules breach. Notification of disciplinary action is only required if that action was because of Conduct Rule breaches.
  1. What if certified staff leave the business? It’s important to keep detailed records because firms are required to provide a regulatory reference (a prescribed regulatory form) for Senior Managers and Certified Staff. This will confirm to the employee’s next employer whether there were any breaches of the Conduct Rules or fit and proper requirements that resulted in disciplinary action being taken by the firm.

  2. How will the transition to SMCR actually work? Firms won’t have to apply for re-approval for currently approved individuals where there is no significant change in the individual’s role before and after the commencement of the SMCR. Existing approved persons will be “grandfathered” across to the new regime.

There are two transitional provisions to help firms move to the new regime:

  • Firms will have to identify their Certified Staff by 9 December 2019 and will have until 9 December 2020 to complete the initial certification process.
  • Senior Managers and Certified Staff will need to have been identified, trained and abide by the Conduct Rules by 9 December 2019 but firms will have until 9 December 2020 to train their other staff on the Conduct Rules.

Marsh ProBroker members can call on expert, tailored support to help navigate this transition, as well as Advisers that set out the process in simple, easy to follow steps – for instance "SMCR: 10 THINGS YOU NEED TO DO".

Not a member? Drop us a line to find out more or request a call back.

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